Question

For this assignment, you will create a BPMN diagram to depict the business process to get...

For this assignment, you will create a BPMN diagram to depict the business process to get a home mortgage based on the following narrative. You can use either DrawIO or BizAgi to create the process drawing.

For this process, you can assume that the loan is a refinance not a home purchase. There are some small differences in the process to refinance an existing mortgage than to get a new mortgage.

In the following narrative, I'm explaining all of the steps to refinance a mortgage. And these steps are accurate. I just refinanced a house to take advantage of these very low interest rates. I may put facts into the narrative that you do not depict in your process diagram.

Narrative

The process begins with the customer completing a preliminary loan application with the lender. The loan application contains all the typical items including monthly / annual income from all sources. The borrower also lists all recurring expenses including credit card debt (balances) and monthly payment amounts.

The loan is not handled by just one person. There is a loan officer, who is licensed and manages the process. There is a loan processor who takes care of collecting all of the required documentation and verifying that it's legitimate. The loan officer and loan processor will refer to another role - the underwriter. This mysterious entity is really the bank. It's back end part of the process where bank decides to fund the loan or not, and whether additional documentation is needed before the loan will be funded.

The lender then pulls the borrower's credit report from the three credit reporting agencies. The lender always chooses the middle credit score.

Based on the borrowers credit score, income / debt ratios, the lender either gives preliminary approval or rejects the application. And based on the credit score, the lender will give the borrower the option to lock the interest rate. If the borrower's credit score is greater than 780, the borrower will get the prime interest rate. If the borrower's credit score is between 740 and 779, the borrower will get the sub prime interest rate. Interest rates fluctuate from one day to the next. So you don't need to worry about the exact interest rate in the process depiction.

The lender then produces a good faith estimate of the closing costs. These costs include the title search, lenders title insurance, processing fees, accrued interest on the original loan, appraisal, etc.

At this point, the buyer can decide to proceed or not. If the borrower decides not to proceed, the process ends. If the buyer does intend to proceed, then the lender collects a $500.00 good-faith deposit, which is refunded when the loan closes.

The lender orders a preliminary electronic appraisal from Clear Capital. If the loan to value ratio is less than 80 percent, the lender notifies the borrower that the loan amount must be reduced to meet the 80 percent loan to value ratio. Or the buyer can agree to pay private mortgage insurance if the loan to value ratio is greater than 80% and less than 95% If the loan to value ratio is greater than 70 and less than 80 percent, a physical appraisal is ordered. A physical appraisal is also ordered if the loan to value ratio is greater than 80 percent. If the loan to value ratio is less than 70 percent, the a physical appraisal is not required.

Once the agreement is finalized, several things happen. The lender orders a title search from their preferred title company, they order a physical property appraisal. If there is an existing mortgage, the lender orders payoff amount from the old lender.

The borrower must provide all of the documentation to substantiate the information provided on the loan application. This documentation is scanned by the borrower and uploaded to the bank's Application Web site.

  • Pay stubs for two months.
  • Documentation that loan payments are current for all property owned. (last two months).
  • Tax returns for 2 years.
  • Documentation that property taxes are current.
  • Documentation that the buyer has home owner's insurance sufficient to pay off the loan.
  • Statements for 2 months for all bank and investment accounts.

The borrower must also sign several disclosures. These disclosures allow the lender to get the buyers taxes from the IRS. The buyer must also sign and agree to the terms and conditions of the loan.

Then we wait, and process documentation (title search, appraisal, etc.) as it comes in.

The title search determines whether the buyer has clear title to the property. If the buyer does not, have title the process ends and the loan is not funded.

The appraisal determines the value of the property in question. If the property's value is less than indicated on the electronic appraisal, the loan to value ratio changes. The lender will require the buyer to pay private mortgage insurance. 1/2 of 1 % of the loan per year. And the interest rate may change. If the physical appraisal is lower than the electronic appraisal, they buyer may cancel the loan and get their good faith deposit back.

If the borrower does not provide all of the documentation required, the lender will not fund the loan.

Just before the loan closes, the lender will verify the borrowers credit again including the balances. If the loan balances increase significantly, then the lender will evaluate the loan and may reject it. Rule of thumb - don't buy anything expansive until the loan closes.

Just before the loan closes, the lender will create a final settlement statement, called a HUD1. It's like a hybrid balance sheet and income statement for the home loan. It shows the payoff on the old loan (if there is one), and all of the expenses, and the amount of the new loan.

The loan package is then sent to a notary for physical signing. The notary collects the buyer's ID and records it in their notary ledger. The buyer signs all of the documents with the notary. The notary then returns all of the signed documents to the lender.

The lender then funds the loan. That is, they pay off the old loan if there is one. If cash is due back to the buyer, it's transmitted to the buyer's bank account or a check is written depending on the buyers preference.

The deed is recorded with the county where the property is located.

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