What Is a Mortgage Lender's Due Diligence Checklist?
Mortgage lenders conduct due diligence checklists for all potential transactions. These checklists are proprietary documents that vary from lender to lender, but they help a lender mitigate risk, make sound loans and remain profitable.
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Significance
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Due diligence, in general, means conducting sound research on a particular activity to ensure its viability or legitimacy. In lending, due diligence checklists act as a backstop for problems and issues that may arise or fall through the cracks in a mortgage process. These checklists also allow lending institutions to keep tabs on managers and loan officers and compliance with regulatory laws.
Benefits
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For the consumers, a due diligence checklist ensures that the loan will not negatively impact the borrower's ability to repay it. For the lender, the checklist ensures the company's lending standards (risk management and delinquency reduction, for example) are upheld. For the public, the checklist maintains high consumer protection standards by reducing fraud, predatory lending and human error.
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Features
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Two features on a standard due diligence checklist include asset review and appraisal review. In consumer lending, some companies require a full review of a consumer's assets to make sure the loan is protected in case of delinquency or default. With appraisals, third-party consultants inspect appraisal reports to make sure a lender's appraisal is fair and accurate.
Larger Scope
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While most mortgage lenders use a due diligence checklist, these documents are far more important when considering larger sums of debt. For example, if a company seeks a large line of credit (at least $50 million), a lender must conduct a due diligence checklist that thoroughly inspects the financial health of the company seeking the loan.
Warning
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If a mortgage lender does not conduct some form of due diligence during a mortgage process, you may want to hire a real estate attorney to review all documents disclosed by the lender to ensure your rights are protected.
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