Blog: Loan Processing

Our post on mortgage loan processing walks the workflow — the stages of a file from application to funding, in order. This post is about something different: what a new processor has to become good at, in what sequence, and what separates a processor whose files close on time from one whose files stall.

The distinction matters because knowing the workflow and being competent at ...

Debt-to-income is the most consequential arithmetic in consumer lending, and the arithmetic is trivial. What is not trivial is deciding what belongs in each half of the fraction — and that is where files get denied, approvals get overturned, and repurchase demands originate.

The Two Ratios

Front-end ratio (housing ratio) — the proposed total housing payment divided by qualifying monthly gross income.

Back-end ratio (total debt

Loan documentation is the part of lending nobody thinks about until it matters, and when it matters the institution is usually in a workout, a bankruptcy, or an examination. At that point the documents either support the bank's position or they do not, and nothing can be fixed retroactively.

The governing principle is simple to state and hard to enforce: the file must support the bank's rights against the borrower, against the collateral, and against competing creditors —

Mortgage processing is a sequencing problem. Almost nothing in the file is technically difficult; what causes delayed closings, tolerance violations, and repurchase demands is work performed in the wrong order or ordered too late.

This walks the file from application to funding, with the deadline attached to each stage.

Stage 1: Application

An application exists when six items are received: the borrower's name, income, and Social Security number; the property