Loan origination is a specialized version of new account opening for financial services organizations.
Typically these are: The appeal to customers of the loan offered directly in branches is the often long-standing relationship that a customer may have with the institution, the appearance of trustworthiness this type of institution has, and the perception that holding a larger portfolio of products with a single organization may lead to better terms.
In a branch, customers typically sit with a sales agent who will assist the customer in completing the application form, selecting appropriate product options (such as payment terms and rates), collecting required documentation (new account opening compliance requirements must be met at this stage), selecting add-on products (such as payment protection insurance), and eventually signing a completed application.
In either case, this phase of application is mostly concerned with the accurate capture of customer's details, and does not incorporate any of the background decisioning work required to assess the suitability of the customer and the risk of default, or the due diligence that must be performed to mitigate risk of fraud and money laundering activities.
A major complexity for the branch origination channel is making the process simple enough that sales agents can be easily trained to handle many different products, while ensuring that the many due diligence and disclosure requirements of the financial and banking regulators regionally are met.
Many back-office functions of loan origination continue from this point and are described in the Processing section below.
Recent changes in the market and industry have made stated-income and stated-asset loans a thing of the past and full income and asset documentation is now required from the majority of Fannie Mae and Freddie Mac backed mortgage securities.
Not only does one's credit score affect their qualification, the fact of the matter also lies in the question, "Can I (the borrower) afford this mortgage?"
Example: If the borrower owes $1,500 in credit card payments and has a gross monthly income of $3,000, his DTI ratio would be 50%.
But if the borrower owes $1,500 in payments and has a gross monthly income of $2,000, his DTI ratio would be 75%.
All other factors aside, the higher the DTI ratio, the less likely the borrower will be able to afford a monthly payment, hence the more risky it is for the lender.
Follow the internal links for more details: Many of the customer identification and due diligence requirements of loan origination are common to new account opening of other financial products.
For example: if the borrower's house appraises for $415,000 and they wish to refinance for the amount of $373,500 – the LTV ratio would be 90%.