Step One of the Loan Process
The application form is a summary of all key components required by a lender to determine if an applicant qualifies for the loan request, has the ability to repay the loan, and whether collateral sufficient to support the debt/loan will be provided by the borrower. The loan application is to be completed with the assistance of a representative of the mortgage broker. The application is to be completed accurately and entirely to facilitate processing, underwriting, funding and closing the requested loan.
Historically, application forms varied from lender to lender. Now, a “standard” form for residential mortgage loan applications is commonly used in the mortgage lending and brokerage industries. The form is a collaborative effort between fannie mae and freddie mac. Each agency has assigned a different number to the same form; the FNMA Form is 1003 and the FHLMC Form is 65. The application form most often referred is the FNMA 1003. Today, even FHA and VA use this form.
An initial interview with the prospective borrower is necessary, whether occurring telephonically, electronically, or in person (face-to-face). The interview provides loan officer’s with the opportunity to make certain the applicants understand the terms of the loan requested, among other important issues within the loan process. The requirements of the lender to whom the loan application is or will be submitted will often control how the initial interview is to occur. Interviews with the prospective consumer/borrower are necessary to complete accurately the loan application package.
The proposed loan request is normally set forth in writing on the 1003. It identifies the amount and proposed terms of the requested loan, the purpose of the loan, and how and when the loan is to be repaid. Each loan request is to be evaluated in a fair, impartial, and non-discriminatory manner.
The Federal Equal Credit Opportunity Act (ECOA) prohibits discrimination based on age, sex, race, marital status, color, religion, national origin, receipt of public assistance, or that the applicants (consumers/borrowers) have, in good faith, exercised any right under the Consumer Credit Protection Act. In addition under the Fair Housing Act, discrimination is prohibited based on the existence of a handicap or on familial status, e.g., the age and presence of children, except when the housing qualifies under HUD standards as senior housing. Each person’s character and capacity must be considered fairly and equitably based on income adequacy; satisfactory net worth, financial standing and management; job stability; on an acceptable credit rating, and on other pertinent factors that are not unlawfully discriminatory. Credit guidelines are to be applied to each potential consumer/borrower in an equal manner, including the income of each spouse.
Some companies may wish to collect money in advance from a loan applicant to cover the cost of services to be performed in arranging or originating the mortgage loan. Money collected “up front” is an advance fee. Advance fees are defined in and subject to the regulation of the Real Estate Commissioner.
Unless the advanced fee is for a credit or appraisal report and is in the exact amount required by the service providers, an mortgage broker may only collect an advance fee pursuant to a written agreement previously reviewed and authorized by the Department of Real Estate (DRE).
Any real estate broker or MLB who contracts for or collects advance fees from a principal must deposit the funds into a properly constructed trust account. Advance fees are not the broker’s/MLB’s funds. Amounts may be withdrawn for the benefit of the broker/MLB only when actually expended for the benefit of the principal or five days after verified accounts have been mailed to the principal for whom the fees are being held. If advance fees are not handled in accordance with the Real Estate Law, it will be presumed that the broker/MLB has violated Penal Code Sections 506 and 506a (i.e., embezzlement and conversion). Penalties, fines and jail or prison terms may result.
As previously mentioned, the DRE permits by policy MLBs/MLOs to collect fees in advance for appraisal and credit reports as long as the broker collects as near as possible the exact amount(s) necessary and deposits these funds into a properly constructed trust account. Refunds of any excess to the principal are required as soon as the excess is identified. Though credit and appraisal report fees are not treated as advance fees for the purposes of prior approval of the DRE (as defined above), these funds are trust funds. On October 11, 2009, Governor Schwarzenegger signed Senate Bill 94 (Calderon), and the legislation took effect immediately upon his signature. California law prohibits any person, including real estate licensees and attorneys, from demanding or collecting an advance fee from a consumer for loan modification or mortgage loan forbearance services affecting 1-4 unit residential dwellings.