Module 5: Understanding The Mortgage Process

Question 1

Who are the 3 parties involved in the mortgage application process?

Answer 1

The borrower, lender and broker

Question 2

What are the 5 steps in the mortgage application process?

Answer 2

1. Meet with the client
2. Evaluate the security and the borrower
3. Determine the correct mortgage lender and submit package
4. Obtain the commitment
5. Liaison During the closing process

Question 3

Brokers should keep a separate loan file with accurate records for each deal they’re working on. Records kept must be sure to include all of the following information:

Answer 3

-The date and nature of the transaction or application
-A description of the property affected by the mortgage that is sufficient to identify the property
-The name of all parties involved in the transaction

Question 4

When discussing a mortgage loan with a client, what are the three forms that are required to be disclosed?

Answer 4

Form 1 - Mortgage Brokerage Disclosure
Form 2 - Mortgage Brokerage Recommendation and Assessment
Form 3 - Mortgage Disclosure Statement

Question 5

What are the two key things a mortgage lender wants to know about a borrower and the property of interest?

Answer 5

-How strong is the security being offered by the property
-How reliable is the borrower - will the mortgage lender be repaid

Question 6

When evaluating the borrower some things to think about and or look at include the following:

Answer 6

-Credit Report Review
-Outstanding Debt
-Employment & Income
-Gross Debt Service (GDS) Ratio
-Total Debt Service (TDS) Ratio

Question 7

What are some things to consider when determining the correct mortgage lender for your client?

Answer 7

-Know each lenders four P’s: People, products, processes and policies
-Understand their timeframes and documentation requirements
-Ensure mortgage is suitable for borrower based on their lifestyle
-Ensure borrower fully understands application

Question 8

When does the mortgage broker get paid?

Answer 8

Broker will not get paid until:
-the mortgage lender has provided written confirmation to fund the borrower
-commitment has been accepteted by the borrower in writing; and a opy of the signed commitment has been given to the borrower

Question 9

Is an associate mortgage broker paid directly by the lender?

Answer 9

No, the lender pays the brokerage, who then pays you your commission.

Question 10

What are some of your roles in ‘Liaison During the Closing Process’?

Answer 10

-Prepare your clients for the lawyer meeting: Advise them of the requirement for home insurance and a void cheque.
-Explain the closing process: Money will not be advanced in one day. Describe who will be doing that: the appraiser, lender, lawyer.
-Advise the Lender: You will also need to advise the lender that the borrower has accepted the lenders commitments, ensure that the signed acceptance letter is then returned to the mortgage lender prior to the expiry date of teh committment letter and provide the borrower with a copy o the disclosure document where applicable.

Question 11

What are the unique characteristics of a private mortgage?

Answer 11

The unique nature of private mortgages relates to the lender. Instead of accessing funds from established banks or mortgage companies, private mortgages are funded by investors who choose to invest their money in the mortgage market and earn a return.

Question 12

What are some things typically associated with private mortgages?

Answer 12

-Shorter term loans (6 months - 3 years)
-Higher interest rates
-Typically require interest only payments
-Mortgage lender fees (0.5-3% of the loan amount)
-Mortgage brokerage fees (0.5-3% of the loan amount)
-Lawyer, appraisal and other setup costs (approx $500-$2,500)

Question 13

What is one of the key components of the initial private investor approval process?

Answer 13

Identity Verification.

Question 14

Typically the associate mortgage broker is to act in the best interest of the borrower, however the brokerage must act in the best interest of the private investor if the mortgage brokerage:

Answer 14

-Solicits the private investor to make an investment in a mortgage
-Negotiates or arranges an investment in a mortgage by the private investor; or
-Provides advice to the private investor with respect to the appropriateness of making a particular investment in a mortgage

Question 15

Is dual representation of both the borrower and the lender permitted?

Answer 15

No it is not. If the broker is acting on behalf of the private investor, they must ensure the borrower is setup with another broker.

Question 16

What are the key items that must be remembered when making disclosures to private investors?

Answer 16

-Disclosures must be made in writing (if the investor consents electronic documents are permitted)
-Disclosures must be complete
-Disclosures must make sense
-Disclosures must be on time
-Disclosures must be acknowledged: Mortgage brokerages must obtain the private investors written acknowledgement that the required disclosures were made.

Question 17

In Nova Scotia how long must files be kept after a transaction is complete?

Answer 17

At least two years