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Language of Lending. RESNA/ATTAP Presentation February 24, 2009. Phases in the Loan Process. Application Underwriting Closing Post-Closing-Collections Lender/ Servicer Agreements. Application. Borrower, Co-Borrower, Co-signer, Co-Maker, Hypothecator Credit Application

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language of lending

Language of Lending

RESNA/ATTAP Presentation

February 24, 2009

phases in the loan process
Phases in the Loan Process
  • Application
  • Underwriting
  • Closing
  • Post-Closing-Collections
  • Lender/ Servicer Agreements
  • Borrower, Co-Borrower, Co-signer, Co-Maker, Hypothecator
  • Credit Application
  • Notice of Adverse Action
underwriting types of loans
Underwriting/Types of Loans…
  • Loan Type
    • Open End, Closed End
    • Guaranteed (SBA), Insured (Title I)
    • Secured/Collateral (Real Estate, Chattel)
    • Unsecured/No Collateral/Personal Loan
    • Variable (ARM) or Fixed Rate
  • Payment Options
    • Interest Only
    • Principal and Interest
underwriting ratios
Underwriting Ratios…
  • Debt to Income Ratio (DTI) =Monthly Debt/Monthly Income ($2,000/$4,000=50%) (40-45% normal range for approval)
    • Debts ($2,000)
      • Housing Expense (Either PITI-Principal, interest, taxes & insurance or Rent payment)
      • Other Payments (car loan, home equity, credit cards, etc.)
    • Income ($4,000)
      • verifiable sources from paystubs or tax returns
underwriting ratios1
Underwriting Ratios…
  • Loan to Value Ratio (LTV) =Loan Amount /Value of collateral ($8,000/$10,000=80% LTV)
    • Value of collateral may be determine by NADA/Blue book value or purchase and sales agreement for new items
    • Value for real estate is usually a tax assessment or real estate appraisal
underwriting terms
Underwriting Terms
  • Assets (savings, CD, house, car
  • Liabilities (debts you owe for loans, credit cards and collections)
  • Public Records & Collections (items in collection such as medical, utilities, telephone or records of bankruptcy, foreclosure, lawsuits, IRS/tax liens, etc.)
  • Charge-offs –money owed that the lender has “charged-off” their books due to late payments. (stays on credit report for at least 7 years)
underwriting terms1
Underwriting Terms…
  • Credit Report (A record of your payment history with banks, credit unions, finance companies and other financial institutions, updated monthly)
  • Credit Bureaus (TransUnion, Experian, Equifax, First Advantage CredCo)
  • What’s in your credit report:
    • Tradelines, public records, identifying information, credit inquiries
your credit score
Your Credit Score…
  • FICO Scores (350-850*) are calculated from data in your credit report based on 5 areas.
  • % reflects how important each of the categories is in determining your FICO score.
closing terms
Closing terms…
  • Loan Closing-when borrowers sign the Note and security agreements and other documents covering terms of the loan.
  • TIL/Reg Z Disclosures-A standard Truth In lending Form with 4 “boxes” that allow borrowers to compare costs of credit (APR, Finance Charge, Loan Amount, Total Cost)
loan terms
Loan Terms…
  • Principal (The amount you are borrowing)
  • Finance charges (Costs to get this loan such as interest, recording and filing fees, points, underwriting and credit investigation fees)
  • Term (how many months your loan payments will last for…i.e. 36 months)
post closing collections
Post Closing-Collections
  • Loan Modification, restructured loan, deferment-describes options to change the original rate, term or payment for a loan in order to allow the borrower to become or stay current on a loan.
  • Senior/subordinate debt, 1st or 2nd position on a loan (the order in which a money will be applied to loans when the collateral is sold.)
  • Write-off, charge-off, lender no longer considers the loan an asset and expenses the loan amount as a loss.
  • Loan Loss Reserve- a fund set aside at the bank/credit union to cover anticipated loan charge-offs based on historical losses for this type of loan.
collections bankruptcy
  • Chapter 7 (individual) and 9 (partnership or business) – Sometimes known as “liquidation bankruptcy”, the focus is on the sale of non-exempt property and the distribution of the proceeds to creditors;
  • Chapter 11 (individual) and 13 (partnership or corporation) – Reorganization bankruptcy- debtor usually proposes a plan of reorganization to pay creditors over time. Business or individuals can also seek relief. Allows a debtor to keep property and pay debts over time, usually three to five years.
lender servicer terms
Lender/Servicer Terms…
  • Servicer-the financial institution/lender who underwrites, closes, handles payments and collects on your loans.
  • Rescue payments made by AFP or Telework lenders for borrower. May be added to the loan or granted to borrower based on the program
  • Interest buy downs-money paid to the lender to subsidize interest/lower the rate to the borrower (i.e. loan rate is 8% and buy down is 6%, borrower’s rate is 2%. 6% is paid to the lender up front to reduce the loan rate.)
other questions
Other questions?
  • What other terms have you heard?
  • Any further questions?