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Language of Lending

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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  1. Language of Lending RESNA/ATTAP Presentation February 24, 2009

  2. Phases in the Loan Process • Application • Underwriting • Closing • Post-Closing-Collections • Lender/ Servicer Agreements

  3. Application • Borrower, Co-Borrower, Co-signer, Co-Maker, Hypothecator • Credit Application • Notice of Adverse Action

  4. 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

  5. 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

  6. 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

  7. 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)

  8. 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

  9. 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.

  10. 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)

  11. 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)

  12. 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.

  13. 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.

  14. 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.)

  15. Other questions? • What other terms have you heard? • Any further questions?

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