Anatomy Of A Deal

October 11th, 2011

Each deal has an anatomy. Anatomy is the bodily structure of an organism. These loan transactions can almost be considered an organism, they certainly take on a life of their own and they have multiple humans assisting and sticking their hands into the transaction along the way. Since there are so many moving parts I think it’s important to dissect this anatomy, understand how it all works, and understand how to make it work efficiently.

First, its important to realize all the players involved in each transaction, and the below list is not even 100% complete:

  • buyers
  • sellers
  • listing agent
  • selling agent
  • title & escrow company
  • appraiser
  • loan officer
  • loan processor
  • underwriter
  • loan closer

Take all these people and add them into a complex financial transaction where the rules change frequently, the interpretation of the rules seems to vary, legislative changes are becoming more frequent; and you can see that it is important to know the anatomy of these transactions, to ensure a smooth workflow and process.

Let’s assume a 35 day timeline for settlement from the date of a contract being ratified to the settlement date. Below is an example of a problematic but all too frequent occurrence of how these transactions sometimes go:

1st day of the month: Sales contract is ratified, everyone is happy & excited and closing is set for 35 days.

4th of the month: Buyer applies for their loan, was too busy to do so the last few days.

5th of the month: Lender sends disclosures to buyer. The lender cannot order the appraisal until the disclosures are signed and returned, this is a federal rule. Lender asks buyer to send in all of their supporting documents and return the disclosures same day or next day to expedite the ordering of the appraisal, since the appraisal is the most laborious and time intensive process.

9th of the month: Buyer returns disclosures in the evening, was too busy to do so within a day or so.

10th of the month: Appraisal is ordered as a rush. Again, the appraisal cannot be ordered before the loan disclosures are signed by the consumer according to federal rules.

11th of the month: Appraiser calls listing agent to get into the property to do their inspection right away, as in the same day or next day. Listing agent can’t accommodate, they are busy planning a wedding for their daughter and it will have to wait until next week, 5 days later.

13th day of the month: Buyer sends in his supporting documents 8 days after the initial request but the bank statements are missing a few pages and are incomplete, the W2’s are cut off at the edges and some data is missing, and the pay stubs are from 3 months ago although we asked for them to be current within the last 30 days. We ask for corrected and updated documents.

16th day of the month: Appraiser gets into the property and shoots photos and takes square footage measurements.

18th day of the month: Buyer sends in corrected support docs 5 days after the corrected documents were requested.

18th day of the month: Appraiser picks his comparable home sales to use in the appraisal, drives around town to shoot photos of these comps this afternoon.

21st of the month: Appraiser writes up final appraisal report and turns it in to the lender’s Appraisal Management Company.

23rd of the month: Appraisal Management Company has to review the appraiser’s work and finds a few corrections needed from the appraiser.

25th of the month: Appraisal Management Company receives corrected appraisal report and turns it into the lender.

27th of the month: Lender puts the file in the queue to be reviewed by the loan processor and submitted to the Underwriting Department for final approval.

30th of the month: Lender submits the loan to the Underwriting Department for final approval.

2nd of the following month: Lender gets final approval from the underwriter. There are a few conditions, the underwriter needs to see some updated bank statements, because the ones originally provided are out of date (they have to be within 30 days old at the time of underwriting) since the process has taken so long. The lender warns the loan approval conditions are needed immediately to avoid missing the contractual 35 day settlement requirement.

4th of the following month: Buyer sends in updated bank statements 2 days after they were requested, but the updated statements shows a large deposit of $12,500. After being asked where the large deposit is from, the buyer says their father decided to give them $12,500 for new furniture at the last minute. Now the lender needs to get a gift letter from the father because all large deposits have to be documented to ensure the buyer did not borrow any money for the down payment which is not allowed.

4th of the following month: The father is on a business trip, but will send in the gift letter and a bank statement to show the money flowing out of his account in a few days. He can’t move any faster.

4th of the following month: Lender tells all parties we won’t be able to close on the 35th day. All parties yell at the lender for being incompetent, now everyone has to move around their calendar, reschedule movers, and generally are feeling upset at not meeting the contractual requirements.

5th of the following month: This was supposed to be settlement day on day 35 of the transaction. Everyone still yelling at the lender and faulting the lender for what are their own delays.

6th of the following month: The father sends in all docs to the lender. He moved as fast as he could he says.

6th of the following month: The lender puts these last conditions in the queue to go to the underwriter for review and approval.

7th of the following month: Underwriter signs off on all loan conditions and issues the “clear to close”, which means the file can be moved to the lender’s Closing Department where they can prepare the closing documents.

7th of the following month: The file is moved to the Closing Department and put into the queue for preparation of the closing documents.

8th of the following month: Closing documents prepared and sent to the title company where they prep them for closing.

9th of the following month: All parties come in to sign the closing documents and close the loan, everyone comments on how inept the lender was for delaying settlement.

Does anyone see anything wrong with this picture?

Below is the correct way the loan process should go:

1st day of the month: Contract is ratified, everyone happy & excited, closing set for 35 days.

1st day of the month: Buyer applies for their loan, loan application only takes 15 minutes online, so they drop everything and get it done to avoid delays down the line.

2nd of the month: Lender sends the loan disclosures to buyer. Lender asks buyer to return the disclosures same day or next day.

3rd of the month: Buyer returns the signed disclosures.

4th of the month: Appraisal is ordered.

5th of the month: Appraiser calls listing agent to get into the property to do their inspection right away, as in the same day or next day. Listing agent accommodates and understands how important it is to keep the transaction moving forward quickly.

5th day of the month: Buyer sends in his supporting documents but the bank statements are missing a few pages and are incomplete, the W2’s are cut off at the edges and some data is missing, and the pay stubs are from 3 months ago although we asked for them to be current. We ask for updated documents.

6th day of the month: Appraiser gets into the property and shoots photos and takes square footage measurements.

6th day of the month: Buyer sends in corrected supporting documents.

8th day of the month: Appraiser picks his comparable home sales to use in the appraisal and shoots photos of these comps this afternoon.

10th of the month: Appraiser writes up the final appraisal report and turns it in to the lender’s Appraisal Management Company.

12th of the month: Appraisal Management Company has to review the appraiser’s work, finds a few corrections needed from the appraiser.

13th of the month: Appraisal Management Company receives corrected report and turns it into the lender.

15th of the month: Lender puts the file in the queue to be submitted to the Underwriting Department for final approval.

17th of the month: Lender submits the loan to the Underwriting Department for final approval.

20th of the month: Lender gets final approval from the underwriter. There are a few conditions, mostly minor.

21st of the month: Buyer sends in all conditions and is happy things seem to be on track to make a 35 day closing.

22nd of the month: The lender puts these last conditions in the queue to go to the underwriter.

24th of the month: Underwriter signs off on all loan conditions.

25th of the month: The file is moved to the Settlement Department where the closing docs can be prepared.

27th of the month: Closing docs prepared and sent to the title company where they prep them for closing.

28th of the month: Title company has all docs prepped and the lender sends a copy of the final Closing Disclosure (formerly called the HUD1/Settlement Statement) to all parties, a week prior to closing, for review.

5th of the following month: All parties come in to sign the closing documents and close the loan, everyone comments on how the lender was organized, and pushed everyone to stay on track, and was thankful they were able to review the final numbers early prior to walking into settlement.

Which way would you like your transaction to go?

The best way to start this process is to get prequalified today so that you and I can talk about how to make your loan application go as smoothly as possible.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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