Module 2: Loan Setup & Order Outs
Flood Certification & Flood Hazard Notice
A flood certificate is a document that lenders require to determine whether a property is in a flood zone. This is important because flood insurance is not covered by most homeowners' insurance policies, and even a few inches of floodwater can cause catastrophic damage to a home.
The flood certificate is issued by a licensed surveyor or engineer who uses FEMA flood maps to determine the property's flood risk. The certificate will indicate whether the property is located in a high-risk flood zone, a moderate-risk flood zone, or a low-risk flood zone. If the property is located in a high-risk or moderate-risk flood zone, the lender will require the borrower to purchase flood insurance. Flood insurance is available through the National Flood Insurance Program (NFIP).
The Jr. Processor orders the flood certificate during the Loan Setup milestone. If the property is in a flood zone and requires flood insurance, the Jr. Processor will inform the branch. The LO/LOA/Processor will need to notify the borrower that the property is in a flood zone and requires flood insurance.
A Flood Hazard Notice (FHN) is a document that is required by federal law to be given to borrowers who are taking out a loan to purchase or refinance a property located in a special flood hazard area (SFHA). The FHN is intended to inform borrowers about the risks of flooding and their responsibilities to purchase flood insurance.
The FHN must be provided to borrowers at least 10 days before the closing of the loan. The FHN must be signed by the borrower to acknowledge that they have received the notice.
DataVerify Report
DataVerify is a software company that provides workflow automation, data verification, fraud prevention, and compliance assistance solutions to the mortgage industry. Their flagship product, the DRIVE® platform, compares information across multiple data sources to alert lenders when variances or risk may occur in a loan file.
In addition to the DRIVE® platform, DataVerify also offers a variety of other services, including:
Data verification: DataVerify verifies the accuracy and completeness of loan application information, including borrower identity, employment history, and property value.
Fraud prevention: DataVerify uses a variety of tools to identify and prevent fraud in the mortgage lending process. These tools include predictive analytics, identity verification, and transaction monitoring.
Compliance assistance: DataVerify helps lenders comply with a variety of mortgage lending regulations, including the Consumer Financial Protection Bureau's (CFPB) Know Your Customer (KYC) rule.
In PMG, we use DataVerify’s Data Integrity Risk Evaluation report. It analyzes borrower and participant identity, borrower-supplied 1003 application information, employment and income, property valuation and market risk, collateral, and changes in the borrower’s assets and liabilities throughout the origination process.
This report is requested during the Loan Setup milestone and is divided into the following sections:
DRIVE Score
Conditions
Submitted Loan Information
Borrower Profile Report
Employer Profile Report
Real Estate Owned Report
MERS Report
Loan Participant Analysis
Watchlist Match Report
OFAC Report
Property Verify Report
Appraiser Profile
The DRIVE score is a proprietary risk score developed by DataVerify that is used to assess the risk of a mortgage loan. The score is based on a variety of factors, including the borrower's credit history, debt-to-income ratio, and property value.
The DRIVE score is a number between 1 and 100, with 1 being the lowest risk and 100 being the highest risk. A higher DRIVE score indicates a higher risk of default on the loan.
The conditions in a Data Verify report are used to identify potential risks or inconsistencies in a mortgage loan application. The conditions are assigned a severity level, which indicates the level of risk or inconsistency.
The conditions in a Data Verify report are classified as:
High: These conditions indicate a high level of risk or inconsistency. They may require additional documentation or verification.
Medium: These conditions indicate a medium level of risk or inconsistency. They may not require additional documentation or verification, but they should be reviewed carefully.
Low: These conditions indicate a low level of risk or inconsistency. They may not require any action.
Title Request & Follow-up
A title insurance company is a company that provides insurance to protect buyers and lenders from title defects. When a buyer purchases title insurance, the title insurance company will search the public records to make sure that the seller has the legal right to sell the property.
Title defects are problems with the title to a property that could prevent the buyer from taking full ownership of the property. Title defects can arise for a variety of reasons, such as unpaid taxes, liens, or easements. If a title defect is discovered after the sale of a property, the buyer or lender could be forced to give up the property or pay a significant amount of money to resolve the defect.
A title insurance company can act as an escrow company or settlement agent. In fact, many title insurance companies do offer these services.
An escrow company is a neutral third party that holds money and documents on behalf of two or more parties involved in a real estate transaction. The Escrow Company is responsible for making sure that the money and documents are handled properly, and that the transaction is completed according to the terms of the contract.
A settlement agent is a person or entity that is responsible for coordinating the closing of a real estate transaction. The settlement agent typically handles the following tasks:
Collecting and distributing funds
Preparing and signing closing documents
Recording the deed
The title order is very important for processing a mortgage as the Jr. Processor requests specific documents from the escrow/title/settlement agent. As part of the title order process, the Jr. Processor identifies the transaction type, as purchase and refinance transactions have different document needs.
Some of the documents requested during title order are:
Agent and Company License
Preliminary Title Report
Tax Cert
Earnest Money Deposit (EMD) Receipt
EMD Check or Wire Details
Wire Instructions
Combined Settlement Statement
Errors & Omissions (E&O)
Closing Protection Letter (CPL)
In some states such as TX or GA, a survey may also be required as part of the title order.
Escrow/Title Vetting
The vetting process is the extensive review every company that we work with must go through to ensure that they are properly licensed (if applicable), have proper procedures in place, and do not pose a significant/high risk to our customers or our company. The vetting process is for the (Escrow, Title, Settlement) company that will be used during your loan closing transaction. Not for pre-qualification loans.
The vetting process can be initiated by the Jr. Processor or the Processor during the Loan Setup milestone.
The entire process takes approximately 5–10 business days depending on how quickly the company complies with our due diligence requirements.
The vetting process goes through the following:
Requestor submits a Vetting Request via the Café.
Vendor Desk receives submission and sends the Vendor our vetting requirements.
Company submits due diligence or registers with Secure Insight.
Vendor Desk reviews the Vendor’s submission or S.I. registration.
Vendor Desk adds the Vendor’s name to the Approved Vendor List and adds the vetted location to the Encompass Business Contacts.
Requestor is notified by the Vendor Approval Desk that the Vendor’s location has been approved.
Secure Insight is a system that helps lenders protect themselves from wire fraud and closing fraud. It does this by providing lenders with a variety of tools to help them vet settlement agents and monitor transactions.
Appraisal Order
In mortgage lending, an appraisal is an independent assessment of the value of a property. It is typically required by lenders as part of the mortgage underwriting process. The appraisal helps the lender to determine the amount of money that they are willing to lend on the property.
The appraisal is conducted by a licensed appraiser who will inspect the property and compare it to similar properties that have recently sold in the area. The appraiser will also consider factors such as the condition of the property, the location, and the current market conditions.
The appraisal report will include the appraiser's opinion of the fair market value of the property. The fair market value is the price that a willing buyer would pay to a willing seller in an arm's-length transaction.
If the appraisal comes in lower than the purchase price, the borrower may need to make a larger down payment or get a higher interest rate on the loan. In some cases, the borrower may be able to negotiate with the seller to lower the purchase price.
The Jr. Processor completes the appraisal order during the Loan Setup milestone. To complete the order, the Jr. Processor needs to enter property information, product type, FHA Case Number (for FHA loans), client group, desired appraisal management company (AMC), and appraisal due date. Before completing the appraisal order, the Jr. Processor must have already received the purchase contract (in purchase transactions) and filled out the file contracts.
After the appraisal management company receives the appraisal order, they will go through the following steps:
Assign an appraiser: The AMC will assign an appraiser to the property. The appraiser will be chosen from the AMC's pool of appraisers, who are typically state-licensed or state-qualified.
Schedule the appraisal: The AMC will schedule the appraisal with the appraiser. The appraiser will inspect the property and gather data on the property's value.
Prepare the appraisal report: The appraiser will prepare the appraisal report. The appraisal report will include the appraiser's opinion of the fair market value of the property.
Submit the appraisal report to the lender: The appraiser will submit the appraisal report to the lender.
Verification of Employment (VOE) Request
A verification of employment (VOE) is a document that verifies a borrower's employment and income. It is typically requested by Jr. Processors as part of the Loan Setup milestone. The VOE helps the lender to determine the borrower's ability to repay the loan.
The VOE is typically obtained by the lender from the borrower's employer. The employer will provide information about the borrower's employment history, income, and job title. The lender will also ask the employer to confirm that the borrower is still employed and that their income has not changed significantly.
During the Loan Setup milestone, the Jr. Processor contacts the employer and requests a fax or email to send the verification of employment form. The Jr. Processor then proceeds to send the verification of employment through the appropriate channels and follows up on the request until the verification of employment form is received back from the employer.
The original request for the verification of employment must include the borrower’s authorization form. In the authorization form, the borrower certifies that they have applied for a loan and that they authorize the lender to verify any information contained in the loan application and in other documents required in connection with the loan.
When the lender receives the completed verification of employment, they must record the manner in which the verification was received, be it fax, email, or a third-party website or verification service provider.
The lender also conducts an independent search for the business (or reverse search or 411) to validate the employer's information.
On occasion, employers use third-party verifiers to complete verifications of employment and income and take some of the workload from Human Resources, Payroll, or other administrative personnel.
The most used third-party verifier is The Work Number by Equifax. Other third-party verifiers include Thomas & Company, CCC Verify, Verify Fast, Vault Verify, True work, and uConfirm.
Besides verifying the borrowers’ employment during the Loan Setup milestone, Jr. Processors also re-verify the borrowers’ employment prior to close of escrow to ensure that the borrowers are still employed.
SSA89 Request for Social Security Verification
Form SSA-89 is a Social Security Administration (SSA) form that is used to verify a borrower's Social Security number (SSN). It is typically requested by mortgage lenders as part of the mortgage underwriting process.
The SSA-89 form is a two-page form that asks for the borrower's name, SSN, date of birth, and other personal information. The form also asks for the borrower's employer's name, address, and phone number.
The lender will use the information on the SSA-89 form to verify the borrower's SSN with the SSA. The SSA will then provide the lender with a letter confirming the borrower's SSN.
SSN Verification
There are a few reasons why lenders require social security verification. First, they want to make sure that the borrower is who they say they are and that they are not using someone else's SSN. Second, they want to protect themselves from fraud. Third, they are required by law to verify the borrower's SSN before approving a mortgage loan.
There are a few different ways to verify a borrower's SSN. One way is to have the borrower complete Form SSA-89, which is a Social Security Administration form that requests information about the borrower's name, SSN, date of birth, and other personal information. The lender can then send the form to the SSA, which will verify the borrower's SSN and send the lender a letter confirming the borrower's SSN.
Another way to verify a borrower's SSN is to have the borrower provide the lender with a copy of their Social Security card. The lender can then verify the borrower's SSN by matching the information on the card with the information on file with the SSA.
4506-C Request for Tax Transcripts
Form 4506-C, also known as the Request for Transcript of Tax Return, is a form used by lenders to request a copy of a borrower's tax return from the Internal Revenue Service (IRS). The 4506-C form is typically requested as part of the mortgage underwriting process. Lenders use the tax return information to verify the borrower's income, debts, and assets.
The 4506-C form is a two-page form that requests the following information:
Borrower's name and taxpayer identification number (TIN).
Tax years that need to be reviewed.
Employer identification number (EIN) for the borrower's employer.
Address to send the tax transcripts.
Signature of the borrower.
It is important to note that it can take several weeks for the IRS to process the 4506-C form and mail the tax transcripts to the lender.
Tax Transcripts
A tax transcript is a copy of the borrower's tax return that is sent directly from the IRS to the lender. Tax transcripts are typically requested as part of the mortgage underwriting process.
The IRS provides four types of tax transcripts:
Account transcript: This transcript shows the borrower's tax account information, including their taxpayer identification number (TIN), Social Security number (SSN), filing status, and dates of filing.
Return transcript: This transcript shows the borrower's tax return information, including their income, deductions, credits, and tax liability.
Wage and income transcript: This transcript shows the borrower's wages, income, and withholdings from all of their employers.
Employer's quarterly statement (Form 941): This transcript shows the borrower's employer's quarterly tax payments.
Lenders use tax transcripts to verify the borrower's income, debts, and assets. Tax transcripts can also help lenders to identify any potential red flags, such as a history of late payments or tax liens.
Tax transcripts can be requested online, by mail, or by phone from the IRS.
Tax transcripts are required in USDA loans, DPA loans, in loans with self-employed borrowers with Schedule C income utilizing Fannie Mae Day One Certainty, and to validate self-employment income from tax returns.
Credit Supplements
A credit supplement is a process that allows a lender to obtain a third-party revision of any item on a borrower's credit report. This is a normal process in consumer lending, as it allows lenders to get a real-time status update on an existing account. This is especially important in mortgage lending, as a lot can happen in the 45 to60 days between loan application and loan closing.
Many lenders also pull another full credit report just days before loan closing. This is done as a way to verify the borrower's creditworthiness and to ensure that there have been no significant changes to their credit report since the initial application. If there are any significant differences, the borrower will be required to explain them.
Mortgage Payoffs
A mortgage payoff statement is a document that provides information about the remaining balance on a mortgage loan and the amount of interest that has been paid. The statement also includes the date when the loan will be paid off if you make your next payment on time.
Some of the information you can find in a mortgage payoff statement includes:
Loan number: This is the unique identifier for the mortgage loan.
Current outstanding balance: This is the amount of money still owed on the mortgage loan.
Interest paid to date: This is the total amount of interest that has been paid on the mortgage loan since it was taken out.
Remaining term: This is the length of time remaining on the mortgage loan.
Payoff date: This is the date on which the mortgage loan will be paid off if the next payment is made on time.
Prepayment penalty: If a mortgage is paid off early, the payor may be subject to a prepayment penalty. This is a fee charged by the lender to recoup some of the interest they would have earned if the loan had been repaid over the full term.
The mortgage payoff statement will usually include a “current as of” date. The statement will reflect the borrower’s outstanding balance and interest due as of that date.
Mortgage payoff statements are very important in the mortgage underwriting process if the borrower has any mortgages that need to be paid off before or at closing.
Condo Desk
The Condo desk assists with the items required for Condominium loans.
An email to thecondodesk@outlook.com must be sent with the order form including all the details of the loan.
Items required vary depending on type of loan (FHA or Conventional for example)
The Condo desk will send you a list of what's required.
You will need to order the Condo/HOa docs. In most cases, the HOA will not directly send you the documents. You'll probably need to order the docs from a Management Company or 3rd Party Vendor like Home Wise, First Service Residential or Get Docs Now.
If loan terms change (e.g. LTV, occupancy), we must re-affirm Condo approval.