FAQs About Bank Loan Processing
Loan Processing FAQs
What is loan processing?
Loan processing is the series of activities performed between receiving a loan application and closing or funding the loan. It generally includes collecting documentation, verifying information, ordering required reports, reviewing conditions, and preparing the loan for underwriting and closing.
What are the main steps in loan processing?
Typical steps include:
- Receiving and reviewing the application
- Verifying applicant information
- Collecting required documentation
- Obtaining credit reports and other required reports
- Reviewing income, assets, liabilities, and other financial information
- Coordinating underwriting conditions
- Completing required disclosures
- Obtaining necessary approvals
- Preparing closing documents
- Funding and booking the loan
What information is typically required from a borrower?
Requirements vary by loan type but may include identification, income documentation, tax returns, bank statements, employment information, asset information, existing debt, property information, and other documentation necessary to evaluate the application.
What is a complete loan application?
A complete application generally contains the information and documentation required under the applicable loan program and regulatory requirements for the lender to begin or complete its required evaluation. Requirements vary by product.
What is loan underwriting?
Underwriting is the evaluation of a loan request to determine the borrower's creditworthiness, repayment capacity, collateral, and overall risk in accordance with the bank's lending standards.
What is the role of a loan processor?
A loan processor coordinates the collection and verification of information needed to move a loan application through the bank's process. The processor may communicate with borrowers, lenders, underwriters, appraisers, title companies, and other parties.
What is document verification?
Document verification involves confirming that information provided by the borrower is accurate, complete, current, and consistent with other information obtained during the loan process.
Why is income verification important?
Income verification helps the bank evaluate repayment capacity and ensure that the information used in the credit decision is adequately supported.
What is a credit report?
A credit report contains information about a consumer's credit history, including accounts, payment history, credit inquiries, and other information maintained by a consumer reporting agency.
What is a credit inquiry?
A credit inquiry occurs when information from a consumer's credit report is accessed. The type and permissible purpose of an inquiry depend on applicable law and the circumstances of the credit application.
What is an appraisal?
An appraisal is an independent evaluation of the value of certain property, typically performed by a qualified appraiser. Appraisal requirements vary by loan type, property, transaction, and applicable regulations.
What is a title search?
A title search examines public records to identify ownership and potential liens, claims, or other matters affecting real property.
What are loan conditions?
Loan conditions are requirements that must be satisfied before a loan can be approved, closed, or funded. Conditions may involve documentation, verification, collateral, insurance, or other requirements.
What is a loan approval?
Loan approval is the bank's decision to extend credit subject to specified terms and conditions. Approval authority and requirements depend on the bank's policies, loan type, amount, and risk.
What is a conditional approval?
A conditional approval means the loan has been approved subject to the borrower satisfying specified conditions before closing or funding.
What is loan closing?
Closing is the process of executing the final loan documents and completing the steps necessary to establish the credit relationship. Depending on the loan type, closing may involve signing loan agreements, security instruments, disclosures, and other documents.
What is loan funding?
Funding is the release of loan proceeds after applicable approval, documentation, closing, and funding requirements have been satisfied.
What is loan booking?
Loan booking is the process of recording the newly originated loan in the bank's core or loan-accounting system and establishing the appropriate account, payment schedule, interest rate, and other loan terms.
What are loan disclosures?
Loan disclosures provide borrowers with required information about the terms, costs, fees, payment obligations, and other characteristics of the loan. Required disclosures depend on the type of credit and applicable laws and regulations.
What is an adverse action notice?
An adverse action notice communicates certain credit decisions that are unfavorable to an applicant or borrower when required by applicable law. It generally provides required information about the decision and, when applicable, the reasons for it.
What is fair lending in loan processing?
Fair lending requires banks to process and evaluate applications consistently and without unlawful discrimination. Employees should apply established procedures and credit criteria consistently to similarly situated applicants.
What is quality control in loan processing?
Quality control involves reviewing loan files and processes to identify errors, missing documentation, policy exceptions, compliance issues, or other deficiencies and to confirm that established requirements are being followed.
How should loan processors handle missing documentation?
Processors should identify missing or inconsistent information and request the required documentation through approved channels. They should document follow-up and avoid altering or accepting unsupported information.
What should a processor do if information provided by a borrower appears inconsistent?
The processor should follow established verification procedures and escalate material discrepancies to the appropriate lender, underwriter, compliance personnel, or supervisor. Employees should not ignore or conceal inconsistencies.
How should borrower information be protected?
Loan personnel should access borrower information only for legitimate business purposes and use approved systems and communication channels. Sensitive information should be protected in accordance with the bank's privacy and information-security policies.
What should happen if a borrower withdraws an application?
The bank should document the withdrawal and handle the application according to applicable regulatory requirements and internal procedures. Required records and disclosures should be maintained as appropriate.
What happens if a loan is denied?
The bank should follow applicable adverse-action, recordkeeping, and notification requirements. The borrower should receive any notices required by applicable law and bank procedures.
Why is accurate loan documentation important?
Accurate documentation supports sound credit decisions, regulatory compliance, consistent processing, proper loan servicing, audits and examinations, and effective risk management.
What should employees do if they discover an error in a loan file?
The error should be promptly reported and corrected according to established procedures. Employees should never conceal, backdate, alter, or destroy loan records to avoid detection of an error.
How should loan processors handle suspected fraud?
Potential fraud should be escalated immediately through the bank's established fraud, security, or compliance procedures. Employees should preserve relevant information and should not conduct unauthorized investigations.
What should employees do if they are unsure about a loan-processing requirement?
Employees should consult the applicable loan-processing procedures and contact Lending, Compliance, Legal, Operations, or a supervisor when appropriate. Established controls should not be bypassed to expedite a loan.
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