Contract Processing 101: The Complete Beginner's Guide | The Mortgage ProcessorsJul 12, 2021
This blog post will give you an idea on how how to process mortgage loans. We'll start with a general overview of the mortgage industry and then we'll dive into contract processing, including what is needed for each stage of the process.
What is a Mortgage Loan?
A mortgage loan enables an individual to purchase property, and they have two main options: getting a traditional bank-provided or financing their own house with private lenders such as family members who are willing to offer money for them. Mortgages can be used by both first-time buyers and those looking at refinancing on existing properties too. There are multiple parties involved, such as the borrower(s), loan officer, underwriter, and last, but not least, a contract processor.
What is a Contract Processor?
A contract processor is a behind-the-scenes individual who helps guide loan applications to the closing table. After borrowers complete an application, processors take over and provide the necessary guidance for getting all of the paperwork in order so that it can be approved by underwriters. These are the key responsibilities of contract processors:
Review the Borrowers' Financial Documents
A loan officer typically processes loan applications, the contract processor reviews all the finer details during the process. They double-check these items to ensure they are correct and there are no necessary gaps from missing documents.
Request Items from Borrowers' Credit Reports
If there are outdated addresses or late payments and collections on credit reports, the contract processor will request letters of explanation for clarification from the borrower. If the credit report shows public records like unpaid child support or past bankruptcies, the processor also requests court documents if they aren’t easily available through public record databases.
Request Written Verification of Application Information
Sometimes, an underwriter needs written or electronic verification of employment or bank accounts. In this case, a contract processor may request forms from the borrowers' employer or bank to retrieve this information. Loans backed by the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) or U.S. Department of Agriculture (USDA) can require special documentation that can be requested by the processors, as well.
Order Title Work and Appraisals
The mortgage processor works with a title or escrow to get information about the property being bought and to make sure that there are no other ownership claims on it. If a home appraisal needs to be done, they will collect a fee from the borrower for this and make sure it is done in a timely manner.
Work with the Underwriter to Clear Conditions
After a borrower gets conditional approval for a loan, the contract processor collects any outstanding documents they need to make sure your loan is ready. They also do changes to make sure your loan package is complete, which might mean requesting information from the homeowners' insurance company or fixing a typo here or there.
Keep Everything Running on Schedule
A good contract processor pays close attention to contract deadlines in the home purchase agreement. A mortgage rate lock expiration date is also tracked so that the borrower can close on time and avoid costly extension fees.
Help Prepare Borrowers' Loan Files for Closing.
Once the underwriter has cleared all of the loan conditions, they will give the green light to close. The mortgage processor helps the borrower get ready for closing by partnering with an escrow or closing agent about when and where the borrower will sign papers and how much money is needed at the closing table.
Taking out a mortgage is one of the most important steps in homeownership. A contract processor makes sure people are able to find the right home for their budget and in the quickest time possible. If you think contract processing sounds like something you would like to be, contact The Mortgage Processors about how you can play this important role.
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