Language of lending
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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

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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


Application

Application

  • 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

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?


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