Loan Processing Step-By-Step Procedures

We will outline all the major steps needed to be completed by a loan processor in order to ensure a successful loan package. While there are variations to these steps depending on your employer, local and state laws, and others, the following guide will still serve as a good checklist in any loan processing environment.

1. The Loan File

The loan file is where it all begins. Depending on whether or not you are the loan processor of a larger company or both the loan officer and loan processor of a smaller office, the work of the loan processor starts here with this file (well folder). The loan file will contain--you guessed it--the loan application. In addition, it will include comments made by anyone who has had their input in the loan application process as well as any notes about the potential borrower that was made during the loan interview process. Read through the application, comments, notes, and overall loan request. You should make sure that you understand the loan in its entirety before moving forward. If you have any questions about the loan you need to clarify these issues with the Loan Officer before moving forward.

After you have reviewed the information and have a clear picture of the loan and why the applicant is requesting it, you'll enter this information into your company's loan processing computer system. There are many programs out there that your employer will use; many of them are a combination of home-grown software packages. However, the reason this information needs to be fully entered into the computer system is because fulfilling all the requirements of a successful loan is tedious and deadline specific. The loan processing software you use will keep you on track for the next steps that need to be completed as well as their related deadlines. Once this information has been fully entered into the computer system, you can now proceed to the next step.

2. The Credit Report

In many cases, the credit report may already be provided for you. The loan officer may have already run this report from the beginning before going any further with the loan application process. The loan applicant has consented to have their credit report pulled for purposes of evaluating their loan worthiness. If the credit report is not already attached to the loan file, then you'll need to double check the application to make sure that they have consented to the credit report check and then pull their credit report. Most of the credit reports you pull will be stored electronically in your loan processing software, but if not, print at least 2 copies to attach to the loan file.

3. Title Records and Information

If you are processing a loan request for an automobile, boat, house, and so on, you will need to verify the title information (VOT: Verification of Title). This will not be necessary for all loans which you might handle. Title verification helps to determine if there is a lien on the object that the borrower is requesting a loan on.

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4. Verify Income Sources

Probably the most important step is to verify all the income, assets, and employment information of the borrower. You need to verify the employment of the borrower (VOE). You need to verify the income of the borrower (VOI). You also need to verify the assets listed by the borrower (VOA) and any other income information required or produced by the borrower.

Every lender differs in the way you go about verifying a loan applicant's income, so be sure to follow the procedures for your specific lender. If your lender requires verification of employment in writing, you'll need to request that letter from the loan applicant's employer. For some lenders, paystubs and W2 forms are sufficient. And yet for others, simple verbal verification of employment by phone is fine. You need to record each verification that you have made into the loan processing software which you are using.

5. Appraisals, Insurances, and Inspections

If you have verified all the income and employment sources for the loan applicant (or you are far along in the process and you are only waiting for replies from the necessary parties), you are now ready to continue with any necessary appraisals, proof of insurance, or inspections. These items will vary greatly depending on the state and local laws that govern the loan which the applicant is requesting, as well as the type of loan itself. For example, if you are handling a mortgage loan, you'll need to have the property appraised, inspected, get proof that there is no termite presence (in some states), and other procedures.

6. Loan File Review

If there are any mistakes, errors, or oversights, this is where they need to be caught. At this point, the loan process is complete; you have obtained the credit reports for the loan applicant. You have verified all income, deposits, and employment. You have appraised and inspected the property, the vehicle, or other asset, if needed. Now you need to check and re-check all of this documentation. If any of the information seems vague, you either need to clarify the information or write in an explanation as to why this information isn't provided in greater detail. This is also where you'll be able to find any red flags in the file. Be sure to highlight or note any red flags that you see before you send it off to the underwriters.

7. Certify and Deliver the File

Now that you have reviewed all the information in the loan file and are satisfied with the documentation you have provided and verified, you will now finalize the loan package and deliver it to the lender, underwriter, and manager.

In summary, your file should include the loan application, this is the typed and signed application with all information provided by the loan applicant, the credit report, all verifications of employment, income, assets (W2s, paystubs, tax returns, and bank statements, for instance), any valuation reports (inspections, appraisals, proof of insurance), any title reports (particularly noting any liens), and any public legal disclosures that must be signed by the loan applicant. The final product should be sent registered mail to the appropriate parties (most likely the lender or the underwriter).