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The Mortgage Process Leading to Closing
In this thread, we will discuss and cover the mortgage process leading to closing. Now since the borrower has an executed real estate purchase contract as well as the addendums, the mortgage processor is assigned to the file. The mortgage processors job is to structure the borrower’s file with all the required document to submit to a mortgage loan underwriter. The goal of the mortgage processor is to label the files, make sure that all files are complete, make sure the appropriate letter of explanations are attached to employment gaps, prior bankruptcy, prior housing event, prior late payments and/or derogatory credit tradelines, declining income, multiple jobs, prior collection and charge-off accounts, credit inquiries, credit disputes, periods of irregular income, and any irregular information. The goal of the loan officer and mortgage processor is to submit the file to underwriting and have the underwriter issue a conditional loan approval with as little conditions as possible. The difference between a mediocre processor and a great processor is the great processor will NOT submit a mortgage loan file that is incomplete, has missing pages, and the mortgage underwriter will kick it back or suspend the file. A mediocre mortgage processor submits a file half assed where it is not uncommon for the underwriter to return back the conditional loan approval with dozens of conditions. There are times when mortgage underwriters will stop underwriting the file and just kick back the file to the mortgage processor and state the account is in suspense. One of the biggest reasons for delays in a clear to close and closing is because of the incompetence of the mortgage processor. The mortgage processor plays a super important role in the mortgage process.
Mortgage Process Leading to Closing for Borrowers
gustancho.com
Mortgage Process Leading to Closing for Borrowers
The mortgage process leading to closing is important for borrowers to avoid delays and stress during the home purchase and mortgage process
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1 Reply
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Thanks, Danny for your input. Folks, just want to let all of you know that the mortgage process section of MLO TRAINING e-Learning Bootcamp consists of many different parts. After the module has been finished, I will try to somehow restructure it in an organized step-by-step fashion. This section consists of the general overview mortgage process. There are many sub-sections that need to get covered, which we will. Examples include, what loan program to advise borrowers, government-backed loans, conventional loans, non-QM loans, LLPAs (loan-level pricing adjustments), manual underwriting vs automated underwriting systems, third-party contract processing vs in-house processing, types of wholesale account executives, what happens if you disagree with the mortgage underwriter, and common issues during the mortgage process.
The next part of this discussion on the mortgage process relies on your knowledge of the key gatekeeping role played by the mortgage processor.
Summary of What You Described to Make Sure We are on the Same Page
- The borrower has a signed purchase contract and supporting paperwork.
- The file is assigned to a processor.
- The processor has a mission to optimize the file and submit it to the underwriter in the best possible position.
- To organize the file, the processor must ensure it has no missing pages and all required signatures, dates, and attachments.
- Any possible employment red flags, bankruptcies, other foreclosures, late payments, collection accounts, credit inquiries or disputes, and other possible employment red flags have to be explained in the file.
- The file must be submitted to the underwriter, with the best possible outcome being that the borrower has met all conditions and there are no outstanding conditions.
- Poor processing results in numerous conditions and an extended time to receive the Clear to Close, which can be very frustrating for closing.
The strongest competitive advantage in the mortgage industry is a processor who can quickly and flawlessly submit a file to the underwriter. A processor who does not excel at processing creates unnecessary friction in getting the deal done and damages relationships with real estate agents, the borrower, and even the underwriter.
Questions for You to Help Structure this Discussion:
What else do you want to discuss in detail in this area?
- File Submission: What does a perfect submission file look like?
- Writing a Letter of Explanation: What is the process for submitting a Letter of Explanation that is written for an underwriter and is likely to be accepted for highly unusual situations?
- Red Flag Ranking – Learn which issues are of major concern to underwriters and how to deal with them in advance.
- Processor–Underwriter Dynamics – Learn how to gain the level of trust with underwriters that allows them to work with your files.
- Timeline Expectations – Understand the processing and underwriting timeframes.
- Technology/Tools – Learn to work efficiently with modern LOS systems (Encompass, Calyx, Blend, etc.) and how systems can be leveraged by processors.
- Next Phase – Learn what happens after the processor submits to underwriting (conditional approval review, etc. conditional approval, etc.).
I ALSO like to present a scenario, a pain point, or an example file, we can also work through this.
Let’s make this a great reference to level up processing.
This section examines real-life examples that illustrate the difference between active and careless processing methods. It also includes a detailed FAQ for processors, loan officers, and borrowers.
Case Scenarios: Processor Performance in Practice
Scenario 1: Employment Gap (Most Common)
- Eighteen months ago, the borrower faced a four-month employment gap after a layoff and company restructuring.
Mediocre Processor:
- Sends only basic pay stubs and W-2s, making the underwriter find the employment gap.
- The underwriter then requests a Letter of Explanation (LOE) and proof of unemployment benefits or a job search, delaying the file for 3 to 5 days.
Great Processor:
- Actively asks the borrower for a detailed LOE that explains the employment gap, layoff, job search, training, and recent promotion, demonstrating job security.
- Supporting documents, such as the severance letter, unemployment stubs, and new job offer, are submitted and clearly labeled in the Loan Origination System, such as LOE Employment Gap Result.
- The file usually moves through with few or no conditions because underwriters see that all concerns have already been addressed.
- Bank Deposit (Asset Sourcing Issue)
A $15,000 family gift is deposited into the borrower’s account for the down payment, flagged as a large deposit.
Mediocre Processor:
- Sends only the bank statement without showing where the money came from.
- The underwriter then asks for a gift letter and the donor’s bank statement, delaying Clear to Close by one to two weeks.
Great Processor:
- Gets a gift letter explaining the donor’s relationship and amount, confirming no repayment is needed.
- Collects the donor’s bank statement showing the withdrawal, the borrower’s deposit slip, and a short explanation letter.
- All documents are neatly organized in a subfolder named “Assets_Gift Funds_[Date].”
- Meeting these requirements regularly builds trust with the underwriter.
Result:
- The file earns a clean approval or faces only minor requirements.
Scenario 3: Previous Bankruptcy and Credit Derogatory.
Three years ago, the borrower filed for Chapter 7 bankruptcy. Some old derogatory accounts remain, along with recent credit inquiries from rate shopping. ping rates.
Mediocre:
- Sends only the basic credit report and application.
- The underwriter comes back with eight to ten requests, asking for bankruptcy details, fixes for bad accounts, and explanations for credit checks.
- The file is put on hold.
Great:
- Gets bankruptcy discharge papers and an LOE explaining the reason for bankruptcy, like medical problems, and describes steps taken to recover, supported by proof of on-time payments and no new bad marks.
- Provides proof of payment or settlement for bad accounts, or an LOE if payment is disputed or the account is small.
- Submits an LOE for all recent credit checks related to rate shopping in the last 30 to 45 days.
- Every document is clearly organized, leading to conditional approval with only one to three requests.
The borrower recently switched to a higher-paying commission-based job, though income has dipped slightly compared to last year.Mediocre:
- Sends only the latest pay stubs.
- The underwriter is concerned about income stability and requests additional documents, such as tax returns and year-to-date profit-and-loss statements, further delaying the process.
Great:
- Shows stable income by averaging the last two years or using the lower amount.
- Provides an LOE for the job change and a letter from the employer confirming income stability and future outlook.
- The underwriter sees that all two-year income documents are included.
Result:
- The file is stronger, with fewer income-related conditions.
Scenario 5: Missing Pages / Incomplete Docs
The file contains partial bank statements, a missing W-2 page, and an unsigned contract addendum.
Mediocre:
- Sends the file without fixing missing or incomplete documents.
- The underwriter quickly puts the file on hold because it is incomplete.
Great:
- Reviews every document for completeness, clarity, and signatures before sending.
- Uses a checklist and often does a pre-underwrite check, asking again for any missing items.
- Result: The file breezes through the initial review.
Key Takeaway Across Scenarios:
- Top processors stay ahead by predicting underwriter questions and following the Automated Underwriting System and guidelines.
- Their files tell a clear, complete story from the beginning.
Common FAQs on Mortgage Processing
How long does processing usually take?
- Processing takes 5-15 business days for simple files and 2-4 weeks for complex ones, like those with self-employment or credit problems.
- Highly effective processors shorten this time by gathering needed documents early.
- Speed this up by asking for documents up front.
Who Writes the Letter of Explanation (LOE)?
- The borrower must write, sign, and submit the LOE because it is a sworn statement.
- The processor helps by providing guidance or templates and ensures the LOE is clear, brief, factual, and highlights positive changes or improvements.
What Makes a Strong LOE?
- A strong LOE is short (half to one page), dated, signed, mentions the loan and specific issue, explains the main reason, and ends with the current positive situation and promises it won’t happen again.
- Supporting proof should be attached. The borrower should take responsibility without making excuses.
Can Processors Submit Files with Known Problems?
- Yes, but highly effective processors write down all known problems and include full explanations when submitting. Incomplete submissions cause delays or returns and hurt trust with underwriting teams.
What Conditions Do You See the Most from an Underwriter?
- Paystubs/bank statements.
- Current paystubs and bank statements, letters explaining gaps, bad accounts, and large deposits, employment verification, tax transcripts with gaps, and missing pages.
Loan Officers Impact the Processor’s Work?
- Loan officers should fully prepare borrowers, quickly respond to document requests, and act as a link between the sales team and processors.
Using a Standard Intake Checklist is Recommended.
What Ways Do You Think the Processors Need to be Supported?
- Processors benefit from using a Loan Origination System (LOS) like Encompass or Blend to stay organized, keeping documents labeled and sorted, and using checklists based on Fannie Mae, Freddie Mac, FHA, or VA rules.
When Does a Processor Finishes Their Job?
- The processor’s job usually ends at Clear to Close (CTC), but they may help with finishing final requirements and the closing process.
Mortgage Process Timeline From Application To Closing
gustancho.com
Mortgage Process Timeline From Application To Closing
In general, most mortgage process timeline from application to closing is normally 30 days as long as the lender has efficient operations staff.
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