Mortgage Processor Blog :

Mortgage Processing 101

2010-02-05T11:48:00.001-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

After another tedious week of over compensating for others I decided to share my thoughts on what exactly underwriting is looking for in a file in order to expeditiously clear it for closing. I know a lot of processors out there are thinking that we would just go a little greener, cut the documentation down to something that would fit into a normal file folder we might just be able to get it to the table within a couple of weeks and quite frankly if it was that simple we would but unfortunately the powers to be are looking for a little more than that.

The bottom line is this everyone, if you set your file up right in the beginning, it will pretty much process itself and instead of three pages of suspense items and 3 weeks in underwriting, the case will move from underwriting into closing with relative ease and this is how you do it.First, set the file up the right way as soon as you get it and make sure to ask the loan officer the right questions. Things like who the investor is, where cash for closing is coming from and who the title company is need to be determined when you begin processing.

Next, a complete review of the file should be completed to see what is missing, what you still need from the borrower or realtor needs to be addressed and a list compiled. You need to determine if you need additional paystubs, do you have the sufficient number of years where W-2 wage statements are concerned, are there 60 days worth of bank statements and do they demonstrate sufficient funds to close.

Address large deposits appearing on the bank statements, you will need a written explanation and complete paper trail. Read all the documentation in the file to determine that your year to date earnings are in line and that there are no unexplained deductions appearing on the paystubs. Calculate the income and make sure your ratio’s are in line, there is nothing worse than sending a file to underwriting that gets rejected because the income is not there, that kind of stuff needs to be addressed at a processing level.

Once the file has been completely reviewed, call the borrower and let them know what you need from them, ask them to email or fax it to you and then begin the other file work that is necessary to continue processing. Order your case number assignment, pull LDP, GSA work and order the appraisal. Make sure all of the information in your loan origination system is accurate. Pull assets from the bank statements, calculate the income and make sure your liabilities are correct. Run your ratio’s just in case there were any liabilities that the borrowers overlooked that could affect your ratio’s.

Finally, when you receive the appraisal and other documentation as requested from your borrower, review all of it once more just to determine that you do not need any additional information. If you have everything you need then get the case into underwriting. Before you submit your case, make sure all the information is correct. Review one at last time your AUS findings, make sure the numbers on your 1003 or LT make sense and that your final typed documents are error free.

If there is something unique about the file or you are missing a piece of important documentation, drop a note to the underwriter and let them know it will be forth coming and then get the case into underwriting. I guarantee you if you spend just a little time on the front end, getting the case into closing will be very easy and you will also achieve something personal which is industry respect. At last I will tell you that I come across processors every day, some of which I have a tremendous amount of respect for, others seem to just show up for the paycheck.

The processors that work hard, learn the business and constantly develop are the ones who move to the next level. Happy Processing.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Fear of Repercussion

2010-01-26T13:24:00.001-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Underwriting quality mortgages is not so difficult to do provided staff and underwriters alike have clear guideline where policy and procedure is concerned. The recent implementation of guidelines such as the more stringent underwriting practices currently being implemented by HUD will further assist underwriters in making sound lending decisions because quite frankly tough underwriting guidelines leave very little room for common sense. If it fits into the box approve it, if it doesn’t fit then reject it. I will agree however, it will shut out a lot of potential borrowers, say the somewhat marginal ones but you know who cares, like Commissioner Steven’s say, not everyone should own a home and if for some reason, a few individuals who really are deserving of the mortgage fall through the cracks, well better to be safe than sorry.

Now let’s take it up a notch, beyond tougher underwriting guidelines to lender responsibility and HUD’s more aggressive approach where terminating lender with excessive default rates. Now, I think the 200% is reasonable because quite frankly if a lender has a compare ratio greater than that then they really need to do some work where policy and underwriting practice is concerned. What concerns me however, is lender interpretation of how HUD’s efforts to more strictly enforce sound underwriting practices, this being lender termination, will affect how lenders will proceed with making sound underwriting decisions that are not driven by fear of termination.

I will tell you that I am employed by an institution that has for the most part stayed ahead of the game where implementation of sound underwriting practices is concerned. We had a 620 minimum credit score policy in place a year before the secondary market did, where pulling 4506’s 4 years ago and were using AVM’s as support for appraisal before declining markets where an issue. A step further, we will actually decline certain loans that receive approve ratings through Total Scorecard if the risk exceeds internal threshold and to this day require second signatures if a back end DTI exceeds 45% (by the way very few of those get approved). The end result is a loan portfolio that performs quite handsomely and post endorsement technical reviews that yield conforming results.

So you say, what possible fear of repercussion could we as a lender have? Honestly probably not as much as other lenders but the fear is still there. Needless to say at this point, HUD is taking down about 4 lenders a month, not saying they don’t deserve it but it is still pretty unsettling. Which brings me back to the point I was trying to make which is how this will really have an effect on over all institution underwriting practice and what will get approved. The bottom line is this, lenders may just feel more safe doing nothing but plain vanilla lending, you know the borrower who has 20% down 700 credit scores and could go either FNMA or FHA whichever they desire.

This will create a situation where lenders do not have to deal with scathing post endorsement technical reviews or potential termination because nothing remotely marginal will get approved which will again have an effect on how much mortgage business will get done in short there won’t be much of it but nothing will go into default either. I think it will harm certain segments of the population, lenders dealing with federal oversight will see a decline in their CRA ratings and quite frankly some loans that might have otherwise been a satisfactory credit risk will be declined but all in all, what loans are made should perform.

I will close this week by stating that yes we as an institution are already looking for more ways to ensure loan quality because we need to make it more stringent in order to ensure an acceptable compare ratio. Don’t rely on Total Scorecard and remember Due Diligence will trump that so just having an automated approval does not mean a loan should be approved. Perhaps second signatures on DTI’s greater than 43% or implementing reserve requirements say two months PITI in reserves after closing or maybe limiting the back end DTI to 36%, this worked for the conventional stuff for years and years. Wait maybe if we quire that the borrowers invest at least 3% from their own funds, no gifts allowed……..

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Widening the Gap for Underserved Communities

2010-01-22T12:23:00.001-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I am going to try to be as nice as possible this week with regard to how I feel about the new changes implemented by the Federal Housing Administration but I am not entirely sure if it will work out. For those of you who have read my blogs in the past I am sure you understand how dear the FHA mortgage insurance program is to me. I have been handling FHA insured mortgages for over 20 years and have had my DE for almost as long, I have always had a tremendous amount of respect for the agency as well as the core values that it embodies.

In the past I have always regarded my designation as a direct endorsement underwriter as somewhat of a responsibility to the American people. It was a way to help the low to moderate income populations to achieve the dream of homeownership not to mention a whole slew of other things like neighborhood stabilization and revitalization as well as community reinvestment. In short, having the ability to help create homeownership opportunities for the average American has been rewarding.

As the mortgage industry is well aware by now, the Federal Housing Administration has begun implementing more changes to the program, as they put it more industry standard stuff, which will further alter not only how we underwrite the program but quite frankly what segments of the population will benefit. The press release, that being HUD no. 10-016 as it appeared on HUD’s website outlined what we as industry professionals could expect and nicely summed up with Commissioner Stevens saying, “FHA will remain the largest source of home purchase financing for underserved communities.”

Seriously, I don’t think so. Some of the changes will not have much of an impact on underserved communities, those typically being low to moderate income borrowers as well as certain minority groups, however, other of the changes will have a huge impact and stand only to widen the gap between underserved communities and other populations who’s financing needs have been historically met through other financing venues such as conventional loan products. In other words moderate to upper income borrowers will continue to have their financing needs met but the individuals for whom the program was established will have their access to affordable financing options eliminated.

I read an article this morning which I found on MSN regarding the higher cost of FHA financing, this being FHA’s recent announcement that beginning with case numbers ordered on or after April 5, 2010, the UFMIP will be increased to 2.25% as stated in ML 2010-02. Within this article, Commissioner Stevens was also quoted as saying, “Not everybody should own a home”. I will agree that there are certain instances in which individuals are not prepared for the responsibility of homeownership but I strongly disagree with his statement that not everyone should own a home. As far as I was aware, FHA’s core values included promoting homeownership you know the whole sustainable affordable housing for populations who were considered underserved by other financing options.

Wow what a change in principal and quite frankly by reducing allowable seller contribution particularly in the low to moderate income community, it eminent that both those who should and those who shouldn’t own homes won’t.

By the way, this move will also go a long way to devastate neighborhood stabilization, particularly in lower income neighborhoods as individuals will no longer be able to come up with the necessary funds for closing and be forced to rent. Now it will benefit investors who can go into these neighborhoods and purchase these properties for pennies on the dollar and rent them to low to moderate income individuals but I do believe that neighborhoods with a larger concentration of owner occupied properties fair better in terms of long term stabilization than those with a high concentration of investment properties.

Ok so let’s move on to the root of the problem which based on everything I have read in the past couple days seems to be higher exposure to risk due to increased volume where total FHA originations are concerned and unscrupulous lending practices. I would like to remind everyone where FHA was in 2005. In 2005, FHA made several changes to the program including increasing maximum LTV’s to 95% on cash out refinance’s (very risky), doing away with non-allowable closing costs, revamping their valuation piece to allow a more liberal approach to repair items where a subject property was concerned as well as other things which in their opinion was more in line with “industry standard”.

Most of these changes were made so that property sellers would be more inclined to accept FHA purchase contracts, you know because the program itself provided a more affordable financing option for underserved communities then say sub prime, broker and lenders would be more inclined to utilized the program which in the past had be termed somewhat stringent where property appraisal and underwriting aspects were concerned, the whole documentation thing.

A further consideration was FHA’s implementation of FHA Total Scorecard which is an automated underwriting model which exists with Desktop Underwriter and Loan Prospector which allowed lenders to begin utilizing automated underwriting practices for the program and also allowed them to utilize documentation waivers as suggested by the AUS. In short, the AUS would allow for lenders to collect less documentation and ultimately excuse their responsibility where sound underwriting practices were concerned.

More often than not, documentation waivers would include eliminating the need for credit explanations, verification’s of rent, allowing leaner documentation where income was concerned and the like which lenders embraced. In short lenders could now underwrite files with significantly less documentation and were not on the hook for the underwriting decisions because “Total approved the loan”. By the way, FHA made the practices of utilizing total scorecard on all cases mandatory in 2008 under mortgagee letter 2008-23 and to this day, Total Scorecard is still approving 52% back end DTI’s on some cases (like that’s not risky).

It is just my opinion that if an underwriter or lender does not need to accept the responsibility for the underwriting decision they have made then they will approve every loan they can because these types of practices encourage them to do so. Take it step further, when guidelines by an agency are implemented such as a max LTV on a cash out refinance of 95% in a declining market lenders will absolutely take it and run with it so blame lenders for following guidelines. It has only been within the last 12 months that FHA has mandated that Due Diligence in underwriting must take precedence over AUS that underwriters are now responsible for the loan decisions that they make regardless of Total Scorecard findings which I think is an excellent idea but should have been standard practice all along.

In conclusion I would like to say that several factors contributed to the current position of FHA above and beyond the overall lack of responsibility in underwriting. FHA took a program that historically was designed for the low to moderate income borrower and modified it mirror that of FNMA and FHLMC (conventional loan programs) which eliminated several controls which had been in place to manage the type of business FHA historically insured. Combine this with the significant increase in loan limits (in some cases to 729,000+) and the lack of control that has plagued the industry since the 1990’s and FHA’s desire to imitate this it is no wonder the agency is in the position it is in now.

Unfortunately, some of the new policies they are implementing in order to regain control will harm the very population the program was designed for, the low to moderate income borrower. As they move forward with their industry standard changes, the program will begin to mirror a conventional program which the underserved communities cannot qualify for leaving little or no options for homeownership for those borrowers. In short we will have several options for moderate to upper income borrowers and no options for the individuals this program was designed for. If FHA wants would like to improve their position, they need to stop modifying the program in order to get a larger piece of the pie and re implement the policy and procedure that has been in place for the past 60 years and give the program back to the population it was designed for.

This county does not need more industry standard programs, that is what got us into this mess in the first place. What we need is a mortgage program that is not only viable but useful for the population that is not well served by the existing programs. If FHA would lower the statutory loan limits, demand manual underwriting for all cases, do away with documentation waivers and demand underwriter accountability, the program would not only useful but also profitable for the federal government. Additionally, it would provide an affordable financing option for low to moderate income borrower’s who are interested on obtaining sustainable affordable housing. Now isn’t that an interesting concept! Happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Underwriting Compliance

2010-01-15T11:35:00.001-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we all have begun to embrace a new underwriting mentality and by this I mean one that puts a greater emphasis on underwriter accountability as well as due diligence we must also contemplate the other piece of the puzzle which quite frankly has been ignored since the dawn of the mortgage broker and lender which is the piece called compliance.

As an underwriter who grew up before automated underwriting, credit scoring and loan origination systems, I remember a time when lenders were essentially banks and savings and loans. There were a few mortgage lenders out there, Countrywide for instance, but for the most part people went to a local bank or small S&L when they needed a mortgage. Further a lot of these institutions did not sell loans on the secondary market but placed them in their portfolio’s and serviced them.

Now, when you consider this as well as how the Old Court Savings & Loan mess evoked a many banks and savings & loans to pursue becoming federally insured institutions, you will understand how and why compliance became important from an underwriting standpoint. Once the federal government began to play a part in how financial institution did business, they also began to monitor how mortgages which fell under RESPA were disclosed.

As we embrace the new RESPA requirements as well as watch many lenders and brokers fall by the wayside as a result of the mortgage meltdown, we have not only seen a return to historical underwriting methods but also the need for underwriters to understand the compliance piece of underwriting. In the past I have worked for institutions who basically told me that I did not need to underwrite the compliance piece of a loan because quite frankly they were lenders and of course had no federal oversight were these issues were concerned but also because I really don’t think they cared.

More and more however, the larger investors in the secondary market are making a point to say “Hey, get it right or we won’t purchase the case”, and this has caused many of underwriter as well as lenders some serious stress because quite frankly they don’t have a clue. Seriously, just when we thought we had a handle on things from an underwriting and case documentation standpoint a new race begins, this being the race to fully understand the compliance piece of underwriting which not only applies to federally regulated institutions but also to mortgage brokers and lenders because our investors, most of which are federally regulated either by OTS of FDIC are now requiring that we do it right.

So, where do we start is the next question. I will seriously recommend that all underwriters understand completely that compliance address far more than RESPA and TILA. There are several other states and federal statutes that need to adhered to when underwriting a file for compliance so if you want to do it right find out what they are. Not only do you need to determine that the GFE and TIL is correct but you need to make sure that all state and federal applicable disclosures as well as FHA and VA applicable disclosures were provided to the borrower, completed accurately and provided in a timely fashion. I think beginning the research now and taking the appropriate training will go a long way to serve all underwriters in the future.

In closing I think that most of us as underwriters are going to find that we will not only be expected to complete the underwriting piece of a mortgage file prudently, but also be well versed in the compliance piece of the case as well particularly if we are pursuing employment with any federally regulated intuition. Research and training are the best suggestion I can make. As always happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Those Days Are Gone

2010-01-08T13:56:00.001-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I had a very interesting conversation with a loan officer this week. The conservation like most, started out nice enough when he was informed that the case he had submitted for underwriting was being rejected for several reasons and of course as the week progressed, well let’ just say the conversation wasn’t very nice by the end of the week.

The case as submitted was marginal at best, a purchase transaction demonstrating excessive ratio’s, no reserves, no prior experience with housing expense, 100% payment shock and this not considering other debts that were deferred. As with all cases it began in underwriting with a particular underwriter and as the deficiencies were noted and overall risk determined to be unacceptable, the initial underwriter referred it the ladder and the case was eventually rejected by three different underwriters.

The loan officer, as I said was not pleased and as one discussion led to another, he finally blurted out a slew of stupid comments like I don’t care if the loan performs as long as the borrower make 6 payments and I get my fee……, there are a lot of companies that would approve this no questions asked…. How disappointing! This is the very attitude that has not only cost us as tax payers millions if not billions of dollars but is also the reason that we as underwriters no longer have the flexibility to make common sense underwriting decisions that might have benefited a borrower such as the one described above, in the past.

So, I have decided that now was a great time to reiterate the that not only are the days of common sense underwriting a thing of the past but so are the days when mortgage lenders approve anything in the name of a fee. I am sure there will always be less then scrupulous lenders out there that will unconscionably place a borrower into a mortgage they can not afford regardless of the subsequent loss to both the borrower or investor but I would like to think that after the most recent two years that lenders as well as loan officers have started to understand that those days are long gone.

Borrowers need to be well qualified as they should have been in the past and lenders need to demonstrate the basis on which loans were approved. This has not only become important where government insurance programs are concerned but where investors are concerned as well. The big players out there in the secondary market are auditing files as well and issuing pre-purchase suspense conditions like they have never done in the past.

All of this equates to one thing and that is that we as underwriters, regardless of how often we need to wear our boxing gloves, need to make sound underwriting decisions to insure that the institutions that employ us are still around in the future. It is unfortunate that there are people employed in this industry who, after all that has transpired in the most recent 2 years, still could care less about the quality of business they produce or the future of the institutions that employ them. Solid underwriting practices (and of course the boxing gloves) are the only way to demonstrate that those days are gone. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Processing In a Full Documentation World

2010-01-04T12:28:00.001-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As FHA is pretty much the only game in town, most processors are beginning to realize that utilizing AUS findings for the purpose of documentation guidance is no longer helpful. Over the past several months FHA has made it very clear that Due Diligence in underwriting trumps documentation waivers on every level and it is for this reason that underwriters are asking for more and more documentation prior to making final underwriting decisions.

The past nine years have taught us a lot from an underwriting perspective but most importantly that we can not determine if a loan will perform long term based on a borrowers credit score and just because an AUS system tells you that it’s ok to approve a loan doesn’t mean that you should. It is for this reason that we have now embraced the old new method of documenting and underwriting loan files.

With this in mind, I thought now was a good time to discuss what underwriters are looking for from a documentation standpoint and hopefully this will get your loan through underwriting with very few if any conditions. Needless to say, if you have a clean approval you can get the case to closing much faster which always makes for happy borrowers, happy business partners and of course, a happy origination staff.

There are several things that processors now need to consider in addition to application documentation that can really impede getting a closed in a timely fashion and the first piece is now the compliance piece. Under the new RESPA rules processors now need to review the compliance piece of the file and make sure that all necessary disclosures and well documentation regarding changed circumstances and the like have been included in the underwriting package because as everyone grows into the new laws, underwriting is going to particularly careful with the piece.

Next of course is file documentation. From a processing standpoint I would go with standard file documentation as if you were documenting a file for a manual underwrite. One month worth of paystubs, 2 years W-2’s, bank statements covering the most recent two months, credit explanation, inquiry explanations and of course verification of rent regardless of what your findings tell you. Also, remember to document any other circumstances such as large deposits, multiple small deposits, deductions on paystubs, low year to date earnings and even collect the EMD regardless of if the borrower needs to it to close or not. If you provide all of this documentation to the underwriter there should be very little else needed unless the case is a really strange case and at that point you might wait for additional direction from underwriting anyway.

The key to processing a clean file is to continue to ask why. Also, can the borrower demonstrate that with the appropriate documentation. If this is done, a processor should be able to get the file to the table without having to revisit it several times. This will not only move your files through the pipeline but also allow a processor to handle a greater volume of loan applications. With that I will wish you all happy processing as well as happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Compliance Considerations

2009-12-28T13:50:00.002-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

With the New Year fast approaching, it is time for everyone who has not given serious consideration to the new Respa rules to do so. In just a couple of weeks we will all need to be sure that our loan origination systems have been updated with the appropriate changes and documents and that our staff has been trained, particularly underwriting and processing because it is these two groups that need to make sure things are done correctly.

The major changes have everything to do with the good faith estimate and how things will now be disclosed, such as not itemization of lender fees, these will now be lumped in loan origination, how to treat yield spread if underwriting the broker business and of course what constitutes a bona fide changed circumstance and how to appropriately document them in the file. Documentation in terms of changed circumstances is also important because we must now meet the 3 year record retention rule so make sure that the appropriate controls have been put into place as far as practices and procedures are concerned to cover this stuff.

Policy and procedure also seem to be a major part of the RESPA procedures because we are now obligated as lenders to mange several facets of how, when and why re-disclosure may occur, not to mention document why it is acceptable. We also need to make sure we disclosure correctly because without that changed circumstance we will now be unable modify mistakes. In short, don’t make mistakes. The highlights where the new rule is concerned are as follows:

1) Use of the new GFE and HUD I settlement statement
2) How lender fees are disclosed
3) Zero tolerance and 10% tolerance fees as well as fees that are subject to change
4) Provider of Service lists
5) Changed Circumstances

These are the items that lenders now need to be most aware of because if disclosed incorrectly, lenders will now have to absorb the charges. If you work for an institution that has not provided training at this point, I strongly recommend that you take it upon yourself to complete training, I sat through it three times before I completely got it. OTS has some great information on their website for those of you who are looking for additional information and of course there is inform on Hud’s website as well. OTS has put together an entire information booklet which should help and make sure you read it all because there is a lot of information that no one is really thinking about that is really relevant to the new rules so don’t just get caught up in how and what to disclose when there are other considerations such as how many providers of services you need to disclose on the provider of service list, fixed fee schedules from these group or individuals and so on.

I will close by saying that growing into the new rules will be interesting at best but not impossible and I think once everyone gets comfortable with it, it will become as natural as the current rules. Happy Underwriting and safe New Year.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Sound Underwriting Policy

2009-12-18T14:45:00.002-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

After much deliberation regarding current FHA underwriting policy and the push to make guidelines more industry standard, I have decided that the program would be much more effective and serve the populations for which was designed by not making embracing industry standard but implementing new policy which would allow for further due diligence from and underwriting standpoint.

The current policy is actually more than sufficient If the industry as a whole would embrace less the Automated Underwriting practices and more the manual underwriting standards. I think the past few years have proven that automated underwriting and credit scoring alone are simply not sufficient to determine a borrowers willingness or capacity to repay. Documentation waivers alone allow for to many holes in the overall case file and the lack of information it provides for eliminates an underwriter’s ability to truly assess risk.

With this in mind I thought why not bring back the safety of manual underwriting methods which would require underwriter’s to not only document loans but also to accept responsibility for their underwriting decisions. Additionally, new policy could be implemented to further assess borrower eligibility which would make for an overall sound lending policy.

There are several areas in which the new policy could be implemented, capacity for instance would be a great place to start. I think requiring implementing policy geared to further analyzing a borrower’s residual income would go a long way should a case in where the borrowers HTI and DTI exceed ratio guidelines. This would allow an underwriter to assess if the borrower’s residual income was sufficient to cover certain real life expenses that might impede their ability to pay the proposed monthly mortgage payment on time.

I also like VA’s maintenance and utility guideline in which we calculate the proposed monthly maintenance and utility charge based on the square footage of the property. I suggest that we use something a little higher the 0.14 cents, say 0.28 cents but the principal of adding this to the borrowers proposed monthly housing expense before calculating the borrowers HTI ratio is a good one.

There are also other safeguards that could be implemented to develop a more sound lending policy which would also allow for some flexibility where certain under served populations are concerned as well as provide lenders and HUD the protection they need in regard to mortgage default and would make much more sense then eliminating the ability for a majority of individuals to achieve home ownership so lets hope we give this proposition a thought before any more radical changes are made. Happy Holiday and a safe Happy New Year.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Looking Ahead

2009-12-11T13:40:00.003-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As the wheels continue to turn in the mortgage industry so does documentation expectations where mortgage underwriting is concerned. Hopefully, we have all embraced due diligence in underwriting at this point because it of course pertains directly to how we as underwriters document certain circumstances surrounding credit quality of our borrowers which plays an important role in overall loan quality and ultimately extended performance of the asset and quite frankly I am not the only one that sees it this way.

Yesterday, we received some documentation guideline changes from a select few of our larger investors who seem to have begun implementing what would have previously been described as due diligence, into documentation standards in general underwriting. Some of these changes go as far to even eliminate what would have been considered normal documentation waivers found in AUS finding and now require the documentation as a standard.

For instance, one of my investor is now requiring explanations for inquiries less than 90 days on all government loans regarding of documentation waivers indicating otherwise which I agree with and have been asking for regardless of AUS waivers. Another change is requiring explanation from the borrower as including in qualifying undisclosed debt appearing on the borrowers credit report regardless of if it is a 30 day account. Again this makes sense because if the borrower has a demonstrated history of using this account and paying it in full on a monthly basis then it should be considered a reoccurring monthly obligation.

Finally, and this is the most impressive, I have an investor who will now make mandatory verifying the borrowers current monthly housing/rental history. Again, why AUS would turn this aspect of mortgage underwriting into something so insignificant that a documentation waiver could be extended is beyond me. In my opinion the borrower’s current housing expense history is one of the most significant indicators as to how the borrower will repay the proposed monthly housing expense.

There were other changes which where long overdue and from an underwriting standpoint will be much welcome as not only do they make perfect sense to analyze from an underwriting standpoint but they will also allow us underwriters to take off our boxing gloves when asking for additional documentation and just simply underwrite files prudently.

With this I will say that the New Year seems to looking up and underwriting standards seem to have found there way back from the obscure world of mortgage insanity which we have been operating in for the past 7 years bringing with them a feeling of good cheer among underwriters. Happy, Happy Holidays!

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

FHA Gets Tough

2009-12-04T15:09:00.002-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I recently read an article in the Washington Post which described changes to the FHA mortgage insurance program which are currently being considered. Among these changes was implementing minimum credit score requirements beyond 500 which is the current minimum (and with that you must only limit your borrower to a 90% LTV) as well a possibly increasing the minimum required investment. Other changes are also being discussed which if implemented will result in an FHA mortgage insurance program that is more industry standard.

The primary reason for the changes is of course the high rate of defaults occurring where the program is concerned and with that in mind I do agree that a slight overhaul would help but I don’t think overhauling the program until it is the mirror image of FNMA and FHLMC is the answer, after all those programs already exist, we don’t want another one just like it. Additionally, to do this would eliminate the principal under which the FHA mortgage insurance program was developed and has operated under for the past 75 years, which was to provide financing options for qualified individuals deemed underserved segments of the population who were not otherwise served sufficiently by the mortgage programs available in the private sector.

In short, if we create an FHA mortgage insurance program that is the mirror image of the current available program which have been designed for well qualified moderate to upper income individuals, we will eliminate financing options for well qualified low to moderate income borrowers where purchasing affordable housing is concerned with affordable housing being the key word in this statement.

FHA began a different sort of overhaul in 2005 when the agency decided to main stream the program and make it more industry standard in order to be more competitive with main stream loan programs like Fannie and Freddie. During this time they revamped the appraisal protocol indicating appraisal requirements that were more in line with Fannie Mae standards as well as doing away with the MCAW, simplifying down payment calculations, increasing the LTV on cash out refinance transactions to 95%, introducing the streamline 203k as well as doing away with the principal of non allowable closing costs.

In short we had an industry standard program without the controls of an industry standard program because FHA had always allowed a more flexible common sense approach to underwriting, which of course also made it more vulnerable to program abuse. Not that that it made much difference during this time because the industry standard programs had pretty much done away with underwriting altogether opting for automated underwriting methods which required little or no underwriting responsibility where loan decisions were concerned. In other words just do what the software tells you to do and no you don’t need that documentation. In short the mortgage industry had gone insane and FHA revamped their program to follow suit so it only makes sense that they are begging to feel the same pains albeit somewhat delayed that the rest of the industry has been experiencing since 2007 which brings me back to the aforementioned FHA overhaul.

When FHA redesigned their mortgage program between 2005 and 2008, one of the things they did not think about was what effective an industry standard program would have on a program that was developed for and underserved segment of the population in order to promote homeownership and community revitalization. Underwriting guidelines established for this program were designed around the individual who was purchasing affordable housing which would equate today to purchase prices between say 75,000 and 200,000. Seriously, 729,000 is NOT affordable however, these gross increases in statutory loan limits place the program into main stream competition without considering the hazards of operating with underwriting guidelines designed for much smaller purchase prices and ultimately decreased risk.

Think about it, a loss at foreclosure when considering 25% REO stigma on a property worth and financed at $125,000 is about $31250.00 in comparison to a loss under the same circumstances with a loan amount of $729000.00 which would be approximately $182250.00 and that baring any decline in value which is not out of the realm of possibility when considering properties in high cost areas.

A property valued at $150000.00 is more likely to hold its value in a declining market than a property valued at $850000.00 because it is affordable. Additionally, we now have main stream borrowers utilizing the program in order to purchase property of significantly high values because they would not otherwise qualify for mortgage program that were designed for these types of purchases with underwriting guidelines appropriate to support the increased risk of such loans. The possibility for disaster is just endless and I could go on forever but I won’t

In closing I would like to say that yes I support an overhaul of the program but think it should be one that embraces the principals that the program were founded on 75 years ago which was to provide affordable housing options to low to moderate income borrower as well as other underserved segments of the population in order to promote homeownership opportunities and neighborhood revitalization and community development. What it should not do is become a mirror image of the programs that already exist for the well served segments of the population.

This would leave the individuals for which the program was developed with no options where obtaining homeownership is concerned and give well served individuals greater options than they already have. FHA should be the housing finance program that it was designed to be which was a federal housing program and not an image of private sector financing. Think about it, it was industry standard that got us into the mortgage mess not public sector financing so why continue to emulate it. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Why Using Base Income is Best

2009-11-25T16:07:00.000-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I have recently had a new revelation and though this would be a nice time to share, you know with this being the holiday season and all. Very recently I have done some research on the predominant reason for mortgage default and as we can well guess, it seems that curtailment in income seems to be the reason in the majority of cases. There are still those cases that claim excessive obligations as well but if you really think about it, that too will play into the curtailment in income as an individual is more likely to incur debt as a means to finance one’s budget should their income be curtailed.

As I have reviewed some of the cases that have gone into default with the primary reason being a curtailment in income, it appears that a lot of those borrowers were qualified using substantial overtime, bonus or commission income which in my opinion leaves them far more vulnerable to unforeseen economic downturns. Further it seems that most individuals who earn significant bonus or commission income work predominantly in the sales or consumer services industries which always suffer should there be a slowing of the economy.

Generally, if people have less money they cut the things from their budget that are not necessities like dinning out, purchasing more life insurance, vacations and the like. This also has a huge impact on manufacturing. Think about it, if people stop buying new vehicles then the individuals employed in automotive manufacturing may have overtime cut or perhaps be laid off. The individuals involved in producing clothing won’t work as much overtime if people are purchasing less.

When we qualify most borrowers we never really think about what might occur where the economy is concerned down the road. We usually just determine if the borrower has a two year history of these types of earnings and verify employer conformation of continuance and move on. I have not begun to think that this might not be the most prudent approach to underwriting a borrower with significant earnings above and beyond their base salary. I think there should be some cut off where considering this income is concerned so as to anticipate future down turns where the economy or just perhaps the borrowers inability to work as many hours do to some unforeseen circumstance.

This is not to say however, that some borrowers depending on their line of work could not depend on regular overtime such as medical professionals and the like but I still think from an underwriting standpoint we need to draw the line somewhere, say at 25% of their gross monthly income and consider anything above that a compensating factor. I think in doing this we will see far less defaults due to curtailment in income while granting mortgages that will ultimately perform for the long hull without being so vulnerable to fluctuations in the economy and other unforeseen circumstances.

So this was my revelation for the week. I think it is certainly something we should all give a little more thought to from and underwriting standpoint. With that I will wish everyone, as always, Happy Underwriting!

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

HAMP

2009-11-20T11:14:00.002-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I thought this week I would share some information on the HAMP program as administered by HUD and for those of you who are not sure what it is, its HUD’s loan modification program. I would think that this information will be more relevant to services that being banks or even mortgage lenders that have been forced to repurchase a case because it has gone into default and are now in a position where they must consider the modification due to borrowers request.

I recently found myself in that position due to a case that we were under obligation to repurchase. It was a first payment default and of course our investor very politely requested that we buy the case back. Our loan servicing department tried several different workout programs for the borrower but was unfortunately unable to design something that would allow the borrower to get the case current. The borrower then found out about the HAMP program and requested modification of the case due to their inability to make timely payments on the loan, this due to do unforeseen financial circumstances.

I want to first mention that some of the functions performed in order to meet criteria for a HAMP modification will really need to be completed by the underwriting department and HUD has provided pretty specific guidance as to what they expect from lenders in order consummate the modification on behalf of the borrower. The mortgagee letters that facilitate the guidelines are ML 2009-35, ML 2009-23, ML 2000-05 and finally ML 2008-21 with the latter two 35 and 23 providing the most comprehensive guidance.

There are basic program guidelines addressed in these letters which walk the loan servicer through the process of getting the modification completed for the borrower and are comprised of certain mortgage credit requirements including debt to income ratio’s which should be as close to 31% for HTI (no less than however) and no greater than 55% for total DTI. Lenders must also demonstrate that the borrower has made at least 4 regularly scheduled payments through out the course of the life of the mortgage in order to be eligible as well as demonstrate that the reason for the default was due to an unforeseen financial circumstance which impeded the borrowers ability to make the monthly mortgage payment as regularly scheduled. In other words, if it appears that the borrower intentionally defaulted on the debt in order to obtain a modification then the case will be ineligible.

There are also other considerations such as the trial period under which the borrower must make at least 3 payments under the proposed terms of the modification within the month due in order to consummate the modification. Without successful completion of these criteria the borrower will no longer be eligible under the FHA-HAMP program. If you are an underwriter in a small shop that thinks at some point you may be faced with completing some of these functions on behalf of your loss mitigation department I suggest you read up on the guidelines so you at least have a handle on what piece you may be expected to complete. Once you review the guidelines you can contact HUD’s national Servicing Center if you have additional questions at 888-297-8685. As always happy underwriting!

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Assessing Risk More Important Than Ever

2009-11-16T09:38:00.001-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I recently reviewed the Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Funds which indicated that the fund is currently experiencing some stress due to the increased rate of defaults which have resulted in claims being paid from the insurance funds. The information provided an explanation for the increase in defaults particularly where the 2005-2008 books of business are concerned which are the books that appear to be the most distressed and as we all could easily surmise, the economy and more importantly joblessness appears to be the culprit.

My personal experience where the subject matter is concerned also concludes the same. Over the past year of all the files I have audited that experienced early default the most common reasons were loss of income, curtailment in income or excessive obligations which is why it is more important than ever to assess overall case file risk as well as the borrower’s financial behavior. Needless to say a conservative approach towards underwriting regardless of the case type is going to go a long way in reducing the amount of future defaults and then there is always due diligence which if applied should also reduce the overall number of defaults that we as lenders contribute to due to poor underwriting practices.

The recent changes in FHA underwriting policy are not sufficient to deter future defaults in themselves, we as underwriters need to realize that it all rolls down hill. Depending on the size of your institution and overall liquidity of your institution, a few early defaults could result in buy backs from your investors that could put your firm out of business and as I am sure we will agree, now is not the best time to be looking for a job.

So, the question is what to do? There are several safe guards that can be put into place that will help your underwriters insure a quality portfolio of loans that will perform in the long run. Determining the predominant reasons for defaults in your area and developing credit underwriting overlays of your own which might be specific to your company regardless of its size is a great place to start. Perhaps develop some common practices that your underwriters will exercise in all situations and refer to them as best practices where your organization is concerned. Little things like second signatures for back end DTI’s greater than 45% may help reduce a magnitude of risk if your institution is approving cases with significant DTI’s on a regular basis.

I will agree in some cases it makes sense but in others is just an accident waiting to happen. Perhaps develop a policy which will allow your underwriters to assess residual income in cases with excessive HTI and DTI ratios’. Gap letters when the borrower’s gap in employment is greater than 30 days is a great policy regardless of AUS documentation waivers is always good. Making sure that your borrower has a steady stream of reliable income is critical for loan performance so have your underwriters do particular due diligence in this area if for no other reason then the current economy.

In summary, I will say that there are lot of things underwriters individually and lenders can do institutionally to create sound lending solutions that will not only benefit their book of business but also help us as lenders to meet our fiduciary responsibility to our borrowers which is to not only help them attain homeownership but to assist them is securing affordable housing that they can successfully maintain. As always happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Why Your Cases Are Getting Rejected

2009-11-06T15:27:00.000-05:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As any loan originator or processor knows, it is extremely disappointing when a case gets rejected at an underwriting level. It is not only bad business to inform borrowers and real estate agents 2 days prior to a scheduled closing that the case is rejected but when you consider the amount of work that goes into getting the case processed, the money spent for appraisals and credit reports, well it's just disappointing.

After 22 years in the mortgage business (yes I processed prior to the internet, fax machines and credit scoring), I have not only seen my fair share of rejects but also actively participated in several of them. Granted there are a lot of cases that you just can’t get done because they do not meet credit score requirements or program parameters but there are several cases that are marginal and if documented appropriately could possibly be approved. This is typically where unnecessary rejects come into play.

First I would like to share with you that with most underwriters, first impressions are lasting ones so if your underwriter hates your case from the minute he or she opens the file then chances are there isn’t going to be much you can do to change their minds. If on the other hand you get them on the fence by this I mean they don’t love it but they don’t hate, you just might be able to get the suspense turned into an approval. The most important thing to remember is the aforementioned first point regarding first impressions and document you file accordingly, particularly if your case is marginal.

Don’t assume that your underwriter will just ask for whatever he or she wants for a greater comfort level because they won’t, they will just reject the file. Use forward thinking and ask the borrower for as much documentation as is needed to demonstrate that they are credit worthy and the delinquent credit was truly a matter of extenuating circumstance or the higher than normal ratio’s is something that the borrower can truly afford. You not only want to provide borrower explanation and supporting documentation but provide a processor cover letter pointing out to the underwriter all of the compensating factors where the case is concerned.

It is also important from a processing standpoint to be overly optimistic about the compensating factors because your underwriter won’t and you are hoping to achieve a balance. If there is delinquent credit appearing within the most recent 24 months, explain in your cover letter that the situation that cause the slow or delinquent credit was caused by an extenuating circumstance for which the borrower has provided an explanation as well as supporting documentation and point out things like “Excellent long term rental history” and/or “minimal increase in housing as a result of the purchase” to offset the risk associated with the derogatory credit.

There are also other things to bring to point that may put your case in a more positive light. Things such as long term experience with regard to homeownership, conservative attitude towards acquiring consumer debt (goes a long way when you have excessive ratio’s), excellent savings pattern or the fact that the borrowers average bank balance supports the increase in housing expense. Trust me, if the underwriter is inundated with this information before he or she gets into the case itself, you will have a better shot at getting approved then if you just let them try to figure out why the borrower does not pay their debts on time.

Remember the more documentation and explanation where strange circumstances are concerned the better your shot at getting the case approved. It will take some extra effort and forward thinking but if you can get that deserving borrower into a home that they enjoy and deserve then its time well spent. Happy processing!

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Investigative Underwriting

2009-10-30T12:31:00.002-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Underwriting – Noun; the business of an underwriter. Investigative underwriting is on the other hand a verb and should be the practice of an underwriter or least a thorough one. Its a new term not yet found in Webster’s but with any hope will be soon. Unlike it’s sister word underwriting, investigative underwriting describes an action to be performed by an underwriter in order to carry out the function of determining both credit worthiness of a borrower entering into a financial transaction as well as the overall creditability of the financial and collateral data provided by the borrower as well as third parties involved in the transaction to determine long term performance of the asset being underwritten. Nice huh!

Now, what does it means for us as underwriters. It means that due diligence in itself is no longer enough to provide us with answers sufficient to answer the most important question: Will this loan perform long term and is the data provided consistent and accurate to demonstrate this? Due diligence in underwriting is extremely important don’t get me wrong but will only lead you to the conclusions as to if the borrower has demonstrated capacity to repay debt as well as willingness to repay and it the property collateral is sufficient to support the loan amount applied for.

We of course accomplish this by reviewing all data provided in terms of pay stubs and W-2’s to determine adequacy and consistency of income, bank statements to determine not only if the borrower has sufficient funds to close but if the borrowers spending vs savings habits support the proposed increase in housing. The comparable sales data as reflected in the property appraisal report will help us to determine if the fair market value as indicated by the appraiser is accurate and supported which will in turn help us to determine if our collateral position is sufficient should the case go into default.

But what about all of the other questions we should be asking, the ones which will help us to determine an underlying circumstances that may lead to an early default on the borrowers part that are not clearly evident in a cursory review of paystubs, bank statements and W-2’s. These are some of the questions asked during an investigative underwriting review of a case file.

Credit Report:

1. Does the credit report exclude evidence of any undisclosed deed-in-lieu with verbiage such as “P&L Loss or “settled accounts:.
2. Is there a pattern of increasing balances on mortgage loans suggesting a dependence on cash proceeds to subsidize income?
3. Are there conflicting address references on the credit report, depository statements, and/or employment documentation?

Employment:

1. Are telephone calls to the borrower’s place of employment answered on a cell phone?
2. Do current earnings evidence a declining trend?

Savings:

1. Do withdrawals for rent on the depository statement match the figure on the rental verification and application?
2. Does the borrower have enough verified savings or stable cash-flow to meet his or her monthly obligation without liquidating retirement accounts and security holdings?
3. Does any depository account have a supporting average balance but a recent opening date?

Collateral:

1. Do the dated comparables have higher sales prices than the recent comparables?
2. Do the distant comparables have higher sales prices than the closer comparables?
3. Do extended days on the market show impaired marketability in the area?

As you can see, the above questions would help an underwriter further investigate the data provided to determine the overall creditability of the information provided and how it relates to the corresponding underwriting decision. Sometimes it will require additional documentation from the borrower other times the documentation needed will be provided within the standard documentation collected with each loan application. At any rate, it is something that we as underwriters can not afford not to review. So, that is the new catch phrase of the week, investigative underwriting. Lets look forward to it becoming industry standard. As always happy underwriting!

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Be Nice To Your Underwriters

2009-10-23T16:00:00.002-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Often I have support staff, loan officers and sometimes processors ask if there is anything they can get me. Lunch is a good example particularly at the end of the month when no one can seem to get out of the office. I think it’s very nice that they like to feed me especially because I love to eat but more importantly I think it’s great that support staff are seeking a way to make our life as underwriters a little easier in this market where almost every case seems to fall into the lets make a deal category or more plainly just really hard to work out.

So, I decided this week I would share a few things that would make most underwriters delirious when you consider the underwriter happy scale and will also make getting your cases out of underwriting and into closing less of a hassle.

On a personal note, I will share that food does really make me happy but that alone is not enough to push my glee button, I need processed files for that. Yep, files that have been processed from start to finish where I am actually able to render an underwriting decision even if I have to condition for a couple of things. It is very disheartening to pick up a file and begin underwriting it just to find out that you don’t have AUS findings, there isn’t evidence of sufficient funds to close, there is no appraisal and worse yet there are several items in the file that point to things like undocumented child support obligations, delinquent credit and collections that have not been addressed, excessive ratio’s that have not been supported with compensating factors and more.

From an underwriting standpoint, when we pick up cases in this condition we are not underwriting, we are processing and to generate a loan suspense with four pages of conditions simply means that we have to underwrite again once the conditions are received. Complicate things further and have a processor or loan officer provide the conditions two at a time and you will spend the entire day picking up and putting down the same file. This really impedes the underwriter’s ability to underwrite 5 to 7 loans a day which quite frankly is a comfortable level for most underwriters if the case has been adequately processed.

I do realize that processors are often times pushed by loan officers to get cases into underwriting but someone needs to explain to them that they are doing more harm than good when they insist that incomplete files go to underwriting. First off, when a case is suspended for multiple items the loan officer now puts themselves into a position where they may need to go back to the borrower several times for more documentation which just makes the borrower mad. Secondly, when the case is submitted and a real estate agent is made aware of this, they are expecting an approval. This typically provokes a real estate agent to schedule settlement. So now settlement is scheduled on a suspended loan that has 20 outstanding conditions, some of which may result in loan rejection and you have a borrower and real estate agent thinking the have a done deal.

Needless to say, when settlement gets pushed back once, twice or even three times, now you have business partners and clients who will relate their mortgage experience as a fiasco instead of an experience that was professional and pleasant. Remember everyone, underwriters can only get a case approved if they have the documentation necessary to approve loan.

So back to how to make us happy, really process the cases before you submit them to underwriting and loan officers, lay off the processors and let them do their jobs before the cases get slammed into underwriting just to be suspended. A fully processed case takes ½ hour to underwrite and maybe 15 minutes to clear conditions on, that means loan into closing in 45 minutes. A suspended loan has to be underwritten at least twice, sometimes three times depending on the number of suspense conditions and can take days if not weeks to get into closing. That is not only frustrating for production staff but also for the borrowers and other business partners and really makes your underwriters feel like jumping out of windows.

So that’s it, the way to your underwriters heart, this with say an occasional crab cake or perhaps cheesecake should do. As always, happy underwriting!

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

The Unspoken Rule

2009-10-16T12:19:00.001-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

We are all aware of the written underwriting guidelines that determine how we ultimately qualify our borrowers. In every case, we are required as underwriters to determine willingness as well as capacity to repay as well as determine if the collateral as presented supports the loan amount being applied for. Through the underwriting process we collect documentation from our borrowers in order to determine that the borrower’s credit reputation is acceptable, that their monthly income as presented is acceptable to manage the debt being applied for and of course the fair market value of the subject collateral supports the loan amount.

From an underwriting standpoint we look at credit scores, DTI and HTI ratio’s as well as appraised value. If due diligence is performed we will also analyze the borrowers savings pattern, their use of consumer credit and hopefully, their residual income. That’s correct, the unspoken rule of residual income. I do realize that our DTI and HTI ratio’s are based on the borrower’s gross monthly income however, it is extremely important to analyze the borrowers residual income in each case to determine capacity to repay. There are several pieces to the mortgage puzzle that believe it or not, we as underwriter are not privy to but certainly need to think about when are underwriting a case particularly is the borrower is demonstrating somewhat excessive ratio’s.

Take for instance a case where the borrowers ratio’s as represented are 37/48. On the surface these ratio’s do not seem too terrible however, in some cases when you consider the overall financial picture of the borrower, could be pretty excessive. Let’s consider a borrower whose annual income is $55,000.00 who wants to purchase a property where the PITI will result in a monthly payment of $1695.84 monthly.

Additionally the borrower’s monthly debt is $505.00 which includes a new car payment of $394.00. When determining the borrower’s gross monthly income at $4583.34 it is also noted that their federal, state and fica deductions are $1461.00 monthly reducing the borrowers bring home after taxes to $3122.34. In addition, the borrowers is married with 2 dependents and carries health insurance through his employer which costs him $132.00 bi weekly for a total of $286.00 monthly reducing his monthly residual to $2836.34. Now this is pretty conservative in terms of deductions and does not take into consideration any monthly 401k contributions or maybe dental or life insurance.

Just with these basic deduction are final scenario is this: $2836.34 – 1695.84 (housing) = $1140.50 remaining residual income. Further subtract the borrowers debts of $505.00 and the remaining residual will be $635.00. This is the amount of money this borrower will leave over each month to pay car insurance, utility bills, food and clothing expense as well as make any needed repairs to the subject property. Lets also think about gas prices and the borrowers commute to work, is it 5 miles or 30 miles because this does make a difference in how much money the borrower will need to fill his gas tank and when you consider a monthly of residual of $635.00 every penny is going to count

I do realize from an underwriting standpoint the likely hood of rejecting a case do to insufficient residual income is pretty slim however, it is a real consideration from an underwriting standpoint and needs to be given some weight when making the final decision. In short, the unspoken rule. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

New Legislation

2009-10-09T12:24:00.002-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I Just recently read an article regarding new legislation that was introduced in Congress on Monday which would increase the minimum required down payment on an FHA insured mortgage from 3.5% to 5% and I thought this would be a good time not only to discuss the issue but also indicate why I am firmly against the increase.

According to Rep. Scott Garrett of New Jersey, FHA’s current policy allows a minimum down payment of 2.50% and allows a borrower to roll closing costs into the new loan which as we are all aware is completely inaccurate. Actually, this interpretation of FHA’s policy is completely inaccurate even from a historic standpoint.

FHA previously used the varying LTV method and required the borrower to pay a certain portion of their closing costs out of pocket in order to meet a minimum required investment totaling at least 3% but as of January 1, 2009 and mortgagee letter 2008-23 this method was also retired and the use of the flat down payment of 3.5% was introduced and mandatory for use. With this information you can see that the good Representative Garrett is mislead in his information where FHA down payment requirements are concerned.

Further, for Congress to approve this bill will further stagnate the housing market which finally appears to be recovering not to mention make homeownership for the low to moderate income borrower unattainable. The FHA mortgage insurance program was designed over 60 years ago to serve exactly that segment of the population as the federal housing administration felt that the rest of the population, that being the moderate to upper income segment of the population were already adequately served by existing mortgage programs those being conventional program types such as FNMA and FHLMC. To redesign the FHA mortgage insurance program to mirror that of other conventional programs would make the program useless to those individuals for which is was designed for.

Further, as Rep. Garrett discussed the overall risk factor where minimum investment is concerned and the recent foreclosure rate, he neglected to mention that most of those foreclosures and other significant defaults were the result of sub prime mortgage lending practices and other significantly risky products like stated income and stated asset loan programs. As a full documentation mortgage insurance program the overall risk from an underwriting perspective is diminished greatly in comparison to that of a no documentation loan.

Further, it would be irresponsible not to take into consideration the acceptable underwriting practices of the most recent 9 years where mortgage industry as a whole was concerned. Loan approval hinged less on an underwriters opinion as to if or not a loan would perform and more on an AUS’s suggestion as to if a loan should be approved via automated methods and if the credit score was sufficient to meet program guidelines. Never in the history of FHA has the federal housing administration cooperated with such lack underwriting principals and has always required due diligence in underwriting even on manually underwritten cases.

With that I will say that it is my professional opinion that increasing the minimum required investment where FHA insured mortgages are concerned is a poor idea and will harm a greater segment of the population then it will help those who truly are credit worthy applicants. Increasing the minimum down payment will do less good then requiring underwriters to underwrite cases beyond credit scores and AUS methods. As always happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

New Rules Unspoken

2009-10-01T13:54:00.002-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Seems like just yesterday all anyone was concerned about was what the AUS had to say. General rule of thumb was if the case was approved by AUS then closes the loan. New underwriters learned not so much how to underwrite but how to validate findings and if your documentation checklist didn’t ask for it then you didn’t need it. No thought was required. More interesting still, the secondary market was on board with this thought process and I can actually remember having reps from both our investors and the agencies tell us to NOT further document files than was required by AUS because we could potentially void documentation waivers. That’s correct, DO NOT do due diligence. Things are changing quickly.

For those of you who have read more than one of my blogs, you know by now that I am not an advocate of credit scoring and have really never seen much of a point to Automated Underwriting. Old school underwriting always seemed to be the safest approach and seems to be coming back into vogue. I have had several conversations over the past few months with both underwriters at HUD and our investors and both are chirping the same things; due diligence and any supporting documentation required to indicate that it has been performed.

Actually it seems the more documentation the better. Forget post endorsement technical reviews and the fact the HUD is letting nothing slide from a documentation and due diligence standpoint, but it now appears that investors in the secondary market are doing the same.

Very recently I got a pre purchase suspense which required that I explain why I did not provide any documentation pertaining to the borrowers’ low year date earnings. In the suspense it was indicated that the base pay that I used to qualify was not supported by the overall year to date earnings provided on behalf of the borrower. Just for the record, this loan was an Approve/Eligible, credit score over 700, great employment history, ratio’s 27/34 and reserves after closing. A year ago this would have closed with a bank statement, W-2, paystub, Verbal VOE, credit report and appraisal and now I am being conditioned prior to purchase for further explanation and supporting documentation.

Fortunately I have a tendency to fully document everything and for the most part disallow any documentation waivers (just for this reason) so I had a full verification of employment in the file which indicated that the borrower received an increase in salary of a $1.05 an hour which when factored in, supported the lower year to date earnings. In other words he was earning a lower wage until July 2009. The investor accepted it and funded the loan but I can’t help to think what I would have done if I didn’t fully document the file in the first place.

So it seems full documentation is the new unspoken rule. Everyone from the secondary market to HUD and VA will tell you that documentation waivers are still acceptable however, they seemed to get trumped by due diligence at every turn. Quite frankly I like, it simply makes more sense. I think as time passes we will see less of an emphasis on Automated Underwriting Methods and more of an emphasis on just plain old underwriting which is good news for those of us underwriters that really enjoy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Mortgage Letter Update

2009-09-27T17:23:00.003-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Lots of new changes for the end of the year as well as the beginning of the new year in store for use where the FHA mortgage insurance program is concerned. Yes, I am referring to the changes to appraisal requirements per mortgagee letter 2009-30 and changes to how we will process and ultimately underwrite FHA streamline refinance transactions which have been set forth in mortgagee letter 2009-32 and are effective November 18, 2009.

As far as the new appraisal requirements are concerned, things are pretty cut and dry. Simply put beginning with case numbers ordered on or after January 1, 2010, the validity period for all appraisals completed in conjunction with FHA insured mortgage types will now be 120 days and covers appraisals completed for existing properties as well as proposed and under construction. Additionally, FHA issued mortgagee letter 2009-29 which addresses appraisal portability and under what circumstances a second appraisal may be ordered by a lender. Per this mortgagee letter, lenders who have received a particular case via case transfer from another lender may order a second appraisal when the following conditions exist:

1. The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.

2. The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.

3. Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.

Further requirements apply under these circumstances and issues regarding retention of the first appraisal and proper procedures for ordering the second appraisal are further addressed in the mortgage letter provided by HUD for lender clarification.

Mortgagee letter 2009-32 addresses changes in processing and underwriting procedures for streamline refinance transactions and the changes are pretty significant. There have been changes to the allowable maximum mortgage particularly where streamlines without appraisals are concerned, the letter defines tangible net benefit to the borrower which now must be considered as well as increases documentation requirements where employment and asset verification are concerned. Additionally, FHA will now require a 6 month minimum mortgage history to be reported on the credit report and has limited the total number of late payments on a mortgage in the preceding 12 months to 1X30. Pretty important stuff in this mortgagee letter as it really changes the streamline program in its entirety.

With the above mentioned I strongly recommend that underwriters review these changes and have staff on board before they take effective. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Thinking It Through

2009-09-18T11:44:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As many of you know, the mortgage lending industry is still plagued with what I like to call Post Mortgage Industry Implosion syndrome where underwriting practices and standards are concerned. By this I mean there are multiple underwriters out there, underwriting government loans to Alt A and even sub-prime lending documentation standards.

Paper thin files with minimal documentation which rely solely on the use of automated underwriting methods without consideration to due diligence where underwriting is concerned, are consistently being closed by mortgage lenders when quite frankly, these standards are no longer acceptable to HUD. Honestly these standards are rarely acceptable by investor and secondary market standards.

This syndrome also allows for what most underwriters believe is an exemption where underwriting decisions are concerned, in short AUS approved it so I am not responsible for the underwriting decision and this could not be further from the truth. I would like to reiterate what I have been saying for a couple of years now which is the AUS is simply a tool for use by underwriters to assist them in making a mortgage underwriting decision and was not intended to replace the underwriter.

So to that extent I think its time that underwriters really start thinking about the cases they are underwriting rather than allow the AUS to dictate what documentation is not needed. Yes that is correct, stop living in the world of documentation waivers and rely on common sense to determine if the case is an acceptable risk from an underwriting standpoint.

Common sense underwriting practices are seriously lacking in the mortgage industry today. Mortgage professionals as a whole still really like to sling “the AUS didn’t ask for it so you don’t need it”, phrase out there. Very recently I had a FHA Direct Endorsement Underwriter who is employed by one of my correspondent lenders make the same statement. I could not believe it. I was thinking to myself, you barely have sufficient funds to close, you are increasing the borrowers housing expense by $700.00, the borrower’s checking account is consistently overdrawn and you are ok with all of this? She just kept saying AUS didn’t ask for it, you don’t need it.

This is a classic case of an underwriter who really thinks that if there is an AUS approval she is not responsible for the underwriting decision and that is so untrue. Further, what about your responsibility as an underwriter to protect the institution that employs you. I think it’s bad enough to neglect your responsibility as an underwriter because you feel like regardless of the underwriting decision made you won’t carry the burden of responsibility for that decision, but the lack of loyalty to your employer where taking unnecessary risks from an underwriting standpoint should set off some alarm bells.

With this I am suggesting that all underwriters embrace underwriting practices that not only protect you as an underwriter but also HUD, VA as well as your employers. When you are underwriting a file, think it through to determine if the borrower is an overall satisfactory credit risk regardless of AUS. Determine if you need more documentation to support your underwriting decision and if so ask for it.

Take the responsibility of making the underwriting decision seriously knowing that you are ultimately responsible once that loan is approved. If the credit is questionable, ask for an explanation, if there are large deposits source them, if there is a significant increase in the borrowers housing expense as a result of the transaction, make sure it’s reasonable to assume that the borrower will be able to afford it. All of this is what makes sound underwriting decisions sound. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Validating Total Scorecard Findings

2009-09-11T15:36:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Very recently I had a conversation with a HUD underwriter who expressed serious concern over what appears to be most Direct Endorsement Underwriters inability to accurately validate their AUS findings. By this I mean, they have Automated Underwriting Approval however, when they read their documentation requirements they do not seem to understand under what circumstances documentation waivers are no longer acceptable or better still, when guidelines as set forth in the 4155 supersede documentation requirements as set forth in the automated underwriting findings.

It is first really important to point out that a Total Scorecard Accept does not necessarily mean that the loan is an approvable loan. Due to diligence in underwriting must always be performed regardless of AUS decision. There are certain instances where the underwriter will find that the case needs to be down graded to a refer and manually underwritten which will always invoke guidelines as set forth in the 4155. It is for this reason everyone I find the best way to approach the underwriting of any case is to manually underwrite them all and then if the findings are completely validated, determine what documentation waivers are acceptable and proceed accordingly.

In cases where the AUS finding are completely validated, documentation waivers as indicated within the Total Scorecard findings will be acceptable to HUD however, it is important to recognize what instances would result in either the down grade to a refer or when as an underwriter you need to refer back to the 4155 and substantiate your underwriting documentation accordingly. A very nice example would be your income documentation. Total Scorecard, if a case is accepted, usually indicates that income should be supported by “the most recent year to date pay stubs documenting one full month of earnings and one of the following” and continues with what your options are.

Additionally it will continue with something like verify employment history for the previous two years and IF only base pay is used to qualify certain items will be needed. In a lot of these cases, underwriters will proceed in averaging income, sometimes using only year to date earnings which is a big NO NO, which will allow the borrower overtime income which would require additionally documentation such employer conformation of continuance and also void documentation waivers. Under circumstances where income was averaged and base pay plus additional income was considered, the underwriter would have to refer back to the handbook and document accordingly. Further any income average requires a two year average per HUD guidelines, year to date is never sufficient.

Omitting debts is another item that causes problems. Often underwriters will allow the omission of small collections and not further document per their AUS findings the reason for the omission. In order for the debt to be truly omitted it should be paid in full, otherwise it needs to be considered in underwriting. If you allow the omission then you must document the resolution and why it was omitted which would normally be because it was satisfied.

It is things like this that void your documentation waivers and will ultimately get you into serious trouble from a post endorsement technical review standpoint. As discussed under review by HUD, these cases would be determined to have deviated from guidelines or determined to be materially deficient which would result in a letter to the lender and possible indemnification. It is important to accurately validate your findings, not just assume that the Approve/Eligible trumps underwriting. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

The New RESPA Rule

2009-09-04T10:56:00.003-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we are all aware, there will be some upcoming changes to RESPA in addition to the most recent disclosure changes were Regulation Z is concerned. Give the current confusion on what to expect and were we need to be by January 2010, I thought I would provide some information which might help ease the way.

I thought I would begin with Regulation Z since these changes were implemented on July 30, 2009 and should be a normal course of business for everyone at this point. The changes not only include waiting periods to settlement from the date of initial disclosure which by the way is seven days but also require an additional waiting period of 3 days to closing should the terms and conditions of the loan change for the worse.

Keep in mind everyone, that should any terms and conditions of the loan as requested change i.e. the changing of a loan amount, interest rate or even the charging of additional fees, the lender is required to provide to the borrower revised disclosures which will indicate the appropriate changes and it these changes will result in an increase in the borrowers APR, than the borrower must be redisclosed. In addition, if there are two borrowers on the loan application, than both borrowers must be provided a TIL at time of application specific to the transaction which they are applying for. These are just some of the changes which all lenders and brokers should now have implanted.

The upcoming RESPA changes will take effect on January 16, 2010 and will require a reformatted GFE as well which hopefully your LOS provider will have to you within in time to be compliant. These changes will include provisions for Average Charges, Servicing Transfer Disclosure Statement, Other Technical Charges, the new GFE, the New HUD I settlement statements for all transaction in which the new GFE is used, Tolerance Information as well as the Elimination of FHA Cap on Origination Fees and the additional responsibility that goes along with that. The new rule is pretty lengthy so, if you don’t have a compliance department I strongly recommend some training as the changes are sweeping and as always, the secondary market has very little tolerance any more for these types of errors.

If you would like to take a peek at the TILA changes that became effective July 30, 2009 you can log onto the Federal Reserves web site at http://edocket.access.gop.gov/2009/pdf/E9-11567 and hopefully find any additional guidance you need. For the new RESPA changes, HUD’s website is a good place to start as they oversee the act. If this is not enough to lend guidance than by all means consider training because this is not area you want to be weak in.

Mortgage University is offering a new RESPA & TILA Training Webinar on September 14th which will cover all the changes. To Register Online: Click Here

As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Going Manual

2009-08-28T16:41:00.001-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Over the past couple of months, I have a few conversations with underwriters who have conveyed to me that they have been getting their buts kicked during post endorsement technical reviews. This is actually not to surprising given how HUD has stepped up review procedures where lenders are concerned and quite frankly they are not letting lenders slide on things the way they used to.

A couple of years ago when the catch phrase of due diligence in underwriting was coined, HUD made it very clear to lenders that regardless of AUS findings, it was still the underwriters job to complete a full review of the mortgage case to determine not only if the information provided to Total Scorecard was valid but to also determine if there were any instances arising in the file which could not be assessed by Total which in my opinion is pretty much everything in the file in terms of documentation.

When we run a case through any Automated Underwriting System we only really provide it numeric characters which represent certain file information such as the borrowers’ monthly income, asset values, appraised value, credit scores and so on. What automated underwriting is never provided is a copy of the borrowers’ paystubs or information regarding deductions or year to date earnings, copies of the borrowers bank statements indicating total transactions and average balance information or if there have been any large deposits or overdrafts.

When automated underwriting systems consider the borrowers credit score, it’s not reading the credit report, considering overall credit history since the date of the first opened account, possible address variances appearing on the credit report or if new accounts are present which could have resulted in the borrower obtaining unsecured debt for the minimum required investment. In short, the AUS can use basic statistical data to assess overall case file risk but it can’t underwrite the file, only the underwriter can do that which pretty much puts us on the hook for everything where due diligence is concerned and provides HUD with all of the leverage they need when suggesting that any case is materially deficient after the completion of a post endorsement technical review.

Think about it, your case has a Total Scorecard Accept and proceed to document the case according to the documentation checklist provided by Total Scorecard. However, the case, once submitting for insuring, is picked up for post endorsement technical review and the underwriter at HUD who is reviewing the case determines that the borrowers credit report had sufficient late payments appearing to require the underwriter to request a written explanation for the delinquent payments appearing on the credit report and possibly downgrade the case to a refer and manually underwrite and document it.

All of this was required of the underwriter based on their responsibility to practice due diligence in underwriting. I know you are thinking, but I had an AUS approval and I am here to tell you that due diligence trumps AUS approval and in the scenario I just mentioned, the underwriter on that particular case could face an unsatisfactory rating for not providing sufficient supporting documentation where delinquent credit obligations are concerned and in truth, depending on the extent of the delinquencies, we really should ask what is going on.

If is for this reason, that I as underwriter began manually documenting every file I underwriter regardless of AUS documentation suggestion because it is the only real way to complete full due diligence in underwriting not to mention keep you bottom out of a sling should the case get selected for post endorsement technical review. I have had a few brokers complain about obtaining the additional documentation but once I explain why I need it, they have been pretty good about getting it for me and knock on wood; I have gotten no unsatisfactory ratings where PETR is concerned at this point. I prefer the better safe than sorry principal and no indemnifications. As always happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

203k Best Practices

2009-08-21T10:13:00.002-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Since the 203k program has become wildly popular again, I thought I would provide some best practices that in my opinion help get the cases closed as quickly as possible. Very recently, I have seen mortgage professionals really struggling to get these case types to the table in 30 days or less and in some instances have people telling me its taken as long as two or three months to get them closed which is way to long.

In most of these situations the delay is born during origination and processing because the borrower is not informed as to their responsibility where the rehabilitation piece of the mortgage is concerned. When this happens the case usually gets stalled in underwriting because the documentation required to complete the underwriting piece of the rehabilitation has not been provided and the underwriter can not complete underwriting or even calculating the loan amount. This often creates major problems is the case is a purchase transactions and the contract is about to expire.

In order to avoid the delays in underwriting and ultimately chasing down a lot of documentation a day or two before closing the best way to proceed with the 203k, more particularly the streamline K’s is to get all of the information you need to determine the rehabilitation at the start. When meeting with the borrower make their responsibilities clear. The first thing the borrower needs to do is obtain a home inspection. This will address all the deficiencies where the property is concerned and enable the borrower’s contractor to complete the necessary specification of repairs correctly the first time.

If the borrower’s contractor does not know the repairs necessary to bring the property up to HUD minimum property standards when they are completing the work write up, than chances are they will need to revise it once the underwriter gets their hands on the home inspection and compares it to the work write. Safety issues are usually addressed in the home inspection as are things like electrical and plumbing issues and if the contractor is a general contractor who is simply talking to the borrower regarding the cosmetic improvements desired, they are not going to know to include these items nor is anyone going to be aware that electrical or plumbing certifications are going to be required.

Once, the home inspection is received by the lender, make sure you let the borrower know they need to forward a copy to their contractor so that when the specification of repairs are completed the contractor can address all of the issues indicate in the home inspection and at the same time, the lender can make the borrower and contractor aware that certain certifications such as an HVAC certification or electrical certification is required. If the contractor helps the borrower get these certifications they can often time have them in sufficient time to include any necessary repairs in the work write up. Inform the borrower and the contractor that they should use a standard specification of repair form and be specific as the quantity and quality of materials being used so underwriting is able to adequately determine that the price quoted is fair for the project.

Finally, when the work write up is complete, forward this information along with the home inspection to the appraiser. So, they can accurately determine the after improved value of the property. To try to complete this value with out this information would be no more than a guess for the appraiser. Also, be sure to inform the appraiser that they need to provide the value as well. The loan amount can not be calculated without this information.

If the cases are handled in this manner, then there should be no delays in underwriting because the underwriter can underwrite the rehabilitation piece without any questions. They should also be able to determine that all required repairs are included in the work write up by comparing it to the home inspection so, their should be no serious questions or delays at time of underwriting. Folks, I have been using this method since 1990 and I have to tell you, I have closed streamline 203k’s in 14 days from the date of origination. As always happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)