The mortgage process as we know it today was born of the Great Depression and World War II. It is an amalgam of industry, legislative and regulatory forces that have come together to create a process we can barely recognize as mortgage underwriting and processing anymore. These days, no two transactions are alike – not even those for which the same property type and features apply! Additionally, each state has its own set of laws that govern residential lending – all of which impact how mortgages originate and work their way through to closing. If you're new to the world of real estate finance, this article will serve as a crash course on modern-day mortgage processing. Read this small crash course of mortgage processing by Invensis
We'll start with and warranties (or reps & warranties), which are legal promises that a given piece of property has specific characteristics – such as size, location and number of rooms. The lender will provide the buyer and seller with a set of reps & warranties for the property, based on an inspection performed by a reputable third party inspector. On closed transactions, they're one of the first things to go through post-closing – even though they can be extremely expensive!
Once we've established what's inside the binder (or purchase contract as they're called in some parts of the country), it's time to move into loan application processing. If you're familiar with mortgage underwriting from years past, you'll recognize most everything here: employment verification, asset/liability balancing, debt-to-income ratio calculations, paying down your credit cards and P&I payment comparisons from competing lenders. What may be new to you is the automated valuation model (AVM) run on a borrower's home during the appraisal process. And while I'm not going to get into what goes on with an AVM since it's been hashed out in far more detail elsewhere, I do want to talk briefly about some of its recent modifications.
First, an AVM is not the same as a property valuation. A proper valuation of a home or other property is performed by someone who has been well educated in the art and science of appraising real estate. An AVM, on the other hand, can be performed by anyone with credit report access to Fannie Mae's/Freddie Mac's website. The difference between them is akin to what you'd get if you asked your next-door neighbor for their opinion about the value of your house – they may have some good insights but would they know enough to give you a rock-solid number? Probably not.
You can see where this is going, right? The current housing crisis that we're in is really just one big modification of our personal finance realities! In fact, if there were a mortgage modification for every homeowner who was facing foreclosure right now, we'd have way fewer distressed properties looking for buyers, which would, in turn, put less downward pressure on home prices, which would, in turn, make homes more valuable to potential buyers.
Obviously, if you're having trouble making your mortgage payments someone in the industry is going to tell you they can lower your monthly payment or get you some form of temporary relief (the good news) but only temporarily (the bad news). The basic idea behind most types of mortgage modifications is that lenders are essentially reworking the terms of your loan based upon whatever their new standards are for lending money. That's where the "TILA-RESPA Pre-Disclosure" document comes into play. This booklet tells you all about what will happen with your current lender and how things might go with any potential new one.
Invensis offers Mortgage Process Services. Invensis gives you the expertise needed to ensure maximum tax savings and incentives that can be legally possible. Invensis' tax preparation services are fast, affordable and highly secure. Our specialized accounting team helps maximize efficiency and profits while minimizing operational costs. Visit their website or contact them for more information.
