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Published Sep 8, 2023
7 C'S OF MORTGAGE MANUFACTURING
In the mortgage industry, we commonly learn about the 4 C's of mortgage underwriting: Credit, Capacity, Collateral, and Capital. However, I believe that there are three additional C's that are essential: Common Sense, Communication, and Collaboration.
1. Credit:
Credit refers to assessing a borrower's repayment ability based on their past credit history. Lenders evaluate factors such as payment history, debt-to-available-debt ratio, and types of debt to assign a credit score, which indicates the likelihood of responsible debt management. A higher credit score translates to better rates and terms for borrowers.
2. Capacity:
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In addition to credit, lenders analyze a borrower's capacity to repay the mortgage by comparing their income to their debt. This assessment is often done using a debt-to-income ratio, which considers all monthly payment obligations. Each application is unique and requires careful evaluation.
3. Collateral:
Collateral involves securing the loan with an asset, typically the property itself. Through a comprehensive appraisal process, factors like comparable sales, location, size, condition, and rental income potential are considered to determine the property's value. Collateral provides security for the loan in case of default.
4. Capital/Cash:
Capital focuses on a borrower's financial situation after closing. It considers two aspects: cash in reserves and cash in the deal. Reserves indicate the availability of funds to handle unforeseen financial disruptions, while cash in the deal reflects the borrower's investment in the transaction. These factors influence the loan's strength and the borrower's risk level.
5. Common Sense:
Common sense lending goes beyond conventional criteria and takes individual circ*mstances into account. It involves understanding the borrower's situation, not just their credit score or income history. Common sense lending emphasizes practical judgment to make informed decisions tailored to each unique scenario.
6. Communication:
Effective communication is vital in the mortgage industry. Timely and transparent exchange of information, whether positive or negative, is key to success. For instance, promptly notifying stakeholders of a low appraisal value allows for swift decision-making and keeps the loan process moving forward to meet closing deadlines.
7. Collaboration:
Collaboration fosters teamwork and a common purpose. It involves working together to achieve shared business goals. In the mortgage industry, collaboration enables knowledge sharing and problem-solving among colleagues, even when direct managers may not be available. Collaboration enhances efficiency and ensures that expertise is leveraged for optimal outcomes.
Note:
By recognizing and incorporating these additional C's into the mortgage industry, we can enhance decision-making, improve customer experience, and strive for excellence in our practices.
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