Behind the Scenes of the Mortgage Company

Behind the Scenes of the Mortgage Company

It is a very good idea to have some understanding of the inner workings or a mortgage company before you shop for a mortgage loan so you know what questions you may need to ask and why.

What are the Minimum Requirements of Mortgage Loans?

Remember that the lender/investor will set minimum requirements on the funds used for mortgage loans. The mortgage company must use these requirements.

Fannie Mae, Freddie Mac and Ginnie Mae are sources of mortgage money and are, therefore, lenders. If the mortgage company is using these sources, then their requirements apply to the company's loans. The FHA and VA insure loans, but they also set requirements on loans they insure. A mortgage company must comply if using these programs. PMI companies have requirements that must be met for them to insure a loan to the lender.

The mortgage loan company is a go-between and must meet requirements in all directions of loan sources. Federal and state laws have a certain mortgage requirements too. One such provision in the Truth in Lending Act of 1969 requires the lender to disclose to the borrower the annual percentage rate (APR), which tends to be confusing.

The percentage rate is computed by adding certain charges that the borrower has to pay back as a yield to the investor and is shown in the form of an increased interest rate. Under regulation Z on refinancing and second mortgage loans, there is a three-day waiting period after the loan closing before the money can be disbursed. This is called the borrower's ìright of recisionî. The borrower can change his mind and decide not to go through with the deal, but mortgage companies have no such right. Mortgage companies are obligated to comply with the loan agreement.

The intent of the act is to show all hidden charges and to bring to light the true annual percentage rate of the mortgage loan. In other words the borrower is given a three-day grace period. Unfortunately, there may be an occasion when the home buyer feels that things have been misrepresented to him. This waiting period gives the home buyer an alternative in such matters.

What is Buying a Commitment?

A mortgage company stays in business by buying ìforward commitmentsî on money to use for mortgage loans. These commitments are bought for a particular length of time. There are a number of sources for this money. Depending upon the commitment, the mortgage company follows the prerequisites of the lending source with respect to rising and falling of interest rates. The mortgage company may be required to deliver the loans to fill the commitment at the stated yield, even if the current market rate is below that yield. Another option is a commitment that may adjust to the current market rate.

What is Originating the Loan?

Taking the mortgage loan application from the borrower, processing all papers and documents for the purpose of obtaining a loan, the closing of the loan are called ìoriginating the loan.î

The mortgage loan company charges a fee for this ìoriginating,î but this fee generally covers only the cost involved. The origination fee is not a big money making aspect of the mortgage loan business. The FHA and VA set the maximum amount that can be charged for the origination fee. If the mortgage loan money comes from a state or county bond, the maximum origination fee will probably be preset.