The process of making a loan has five distinct steps called the loan cycle. The loan cycle is comprised of the steps taken to make and maintain a loan. The loan cycle begins when a prospective borrower inquires about a residential mortgage loan, and it ends when the Borrower pays off the loan.
The application process has several purposes:
- Obtaining the basic information from the Applicant/borrower that the lender needs to underwrite the loan according to its standards and to reach a decision on whether to grant the loan
- Assisting the applicant in selecting the appropriate loan programs
- Informing the applicant of the details of the mortgage loan program, including a full disclosure of all costs and expenses
- Pre-qualify applicant for ability to repay a loan
- Explain how the Contract works and how to fill in the appropriate information.
- Loan Processing
Loan processing includes the collection and verification of detailed information on the borrower and on the transaction itself. The Lender is primarily interested in two things: the subject property, and the financial situation (which includes one’s credit history.) The process gathers the information to help determine borrower’s ability and desire to repay the loan.
- Gather, organize and verify all the information
- Entering Information into computer from Loan Application
- Disclosure Forms sent to Borrower
- Verifications–Employment history, Credit history
- Review Verification Responses
- Ratio Analysis
- Appraisal is performed and reviewed for accuracy and completeness. A professional appraiser will estimate the market value of the collateral. This information is required because the lender will loan you not more than a given percentage of the value of the asset.
- Suitability of loan terms for which borrower has applied is reviewed
- Customer Communication via phone calls etc.
III . Loan disbursement
If the loan is approved, the final stage in creating the loan is the funding
IV. Loan Servicing
Loan Servicing includes all activities that occur from the time a loan is disbursed until the time it is repaid. Servicing activities help ensure that the loan is repaid in a timely manner and that the lenders’ legal claim to repayment of the funds is maintained.
- See that loans are paid as agreed
- Identifying and following up promptly on any delinquent payments by sending reminder notices, making telephone calls, or visiting the home of the delinquent borrower
- If efforts fail, foreclosure is the legal action that bars a defaulted borrower’s right to reclaim the mortgaged property. This action is taken to satisfy the outstanding balance on the mortgage; usually results in property being sold at public or private sale.
- Paying taxes and insurance: Servicer wants to make sure that these taxes are paid because government tax claims can take precedence over the lender’s claim on a property