Mortgage Processor Blog :

The Condo Question

2010-04-30T13:45:00.000-04:00

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

Since the implementation of the new condo rules I have had several of my loan officers come to me with condo cases which they state have been turned down by other lenders because of information found in the condo questionnaires that the lenders are requiring to be completed on each case. I have to say that it has caused quite a bit of confusion for me because I was not aware that we needed a condo questionnaire on every condo case. I was under the impression that the condo development need simply to be listed on HUD’s condo list with a demonstrated expiration date that did not precede loan application.

At any rate, one loan officer in particular came to me over and over with multiple cases stating that other lenders had rejected the cases because of the questionnaire and asked what he needed to send to HUD or demonstrate in the file to overcome this. I kept conveying, over and over, that we didn’t need the questionnaire if the condo was on HUD’s approved list after which I received multiple office visits with a new question which was “are you sure?” Ok I have to say after having this conversation at least six times I started to doubt myself thinking perhaps I missed something, say 3 mortgagee letters which completely changed how we were supposed to go about the new condo rules so instead of looking for any missed mortgagee letters (I am actually far too lazy for that) I emailed HUD, the Philadelphia Homeownership Center to be precise and they shared information with me regarding how to complete underwriting on a condominium which I thought was lovely of them.

As HUD was so generous with this information I thought I too would share what I have been told and clear these questions up once and for all so as to eliminate all of the confusion and yes to keep a particular loan officer out of my office. First, as we are all aware Condo guidelines changed per ML 2009-19 which eliminated our ability to perform spot approvals on condo’s that were not located in a HUD approved condominium development. These rules were further defined in ML 2009-46a & ML 2009-46b. These mortgagee letters provide further clarification as to the approval process for condo’s that are not listed on HUD’s approved list and what we need to do if they are. Now if you need to have a development approved I strongly recommend pulling the mortgagee letters because there is a few things you are going to need to provide in order to make that happen but if you have a condo that is in a development that is already approved by HUD then all you need to do is print evidence of the approval from FHA connection, make sure it has not expired and sign the Lender Certification to Condominium Requirements provided in ML 2009-46b. That’s it and this I verified with HUD.

So for all of you and I won’t mention any loan officers name, who are trying to make this more difficult than it has to be, you may stop because it’s really not that complicated. As for the rest of you who appreciate nice and easy, I hope I have made your day. 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)

Housing Finance System Reform

2010-04-23T16:21:00.001-04:00

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

I came across an interesting press release today issued by the US Department of Housing and Urban Development. It was titled “Obama Administration Seeks Public Input on Reform of the Housing Finance System”. Within the press release it was requesting that the public suggest solutions by providing answers to a few questions put forth by the administration in order to improve America’s housing finance system.

For those of you that have read my blogs in the past, you know that this is one that I couldn’t leave alone as my opinion of why and how it broke has documented in previous blogs for at least the past 3 years. So finding this request far more constructive than my usual rants, I decided to share it with all of the mortgage professionals out there who have the knowledge and experience to help clean the mess up and request that all of you provide a reply to at least one of the questions appearing in the survey. The replies can be sent to Regulations.gov. I have listed below the questions as solicited in the press release.

Questions for Public Solicitation or Input:

1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?

-Commentary could address: policy for sustainable homeownership; rental policy; balancing rental and ownership; how to account for regional differences; and affordability goals.

2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?

- Commentary could address: level of government involvement and type of support provided; role of government agencies; role of private vs. public capital; role of any explicit government guarantees; role of direct subsidies and other fiscal support and mechanisms to convey such support; monitoring and management of risks including how to balance the retention and distribution of risk; incentives to encourage appropriate alignment of risk bearing in the private sector; mechanisms for dealing with episodes of market stress; and how to promote market discipline.

3. Should the government approach differ across different segments of the market, and if so, how?

- Commentary could address: differentiation of approach based on mortgage size or other characteristics; rationale for integration or separation of functions related to the single-family and multi-family market; whether there should be an emphasis on supporting the production of subsidized multifamily housing; differentiation in mechanism to convey subsidies, if any.

4. How should the current organization of the housing finance system be improved?

- Commentary could address: what aspects should be preserved, changed, eliminated or added; regulatory considerations; optimal general organizational design and market structure; capital market functions; sources of funding; mortgage origination, distribution and servicing; the role of the existing government-sponsored enterprises; and the challenges of transitioning from the current system to a desired future system.

5. How should the housing finance system support sound market practices?

- Commentary could address underwriting standards; how best to balance risk and access; and extent to which housing finance systems that reference certain standards and mortgage products contribute to this objective.

6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?

- Commentary could address: level of consumer protections and limitation; supervising agencies; specific restrictions; and role of consumer education

7. Do housing finance systems in other countries offer insights that can help inform US reform choices?

I really hope that all of our readers participate in this survey as again all of you are the mortgage professionals that are on the front lines each day dealing with the current issues that plague this industry both now and in the past. Your input is not only valuable but necessary. Best of luck!

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: Does it Help or Hurt

2010-04-16T14:47:00.001-04:00

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

I am sure at this point everyone is aware of the new rules governing RESPA and have been practicing them since they became mandatory, that being January, 2010. I will admit it has been somewhat of an adjustment for everyone, from brokers to lenders because the consequences for improper or incorrect disclosure can be quite costly for lenders in particular. Adjustment aside, there is a more pressing issue when considering the rules and that being consequences to borrowers due to improper or incorrect disclosure which sometimes is simply the result of human error.

As you know, there are certain conditions which must be present in order for a good faith estimate to be revised, those being the changed circumstances that must be documented before re-disclosure may take place. In many instances, it is determined that the GFE is incorrect due simply to human error and in those cases, the lender not the broker must absorb any losses due to the errors at time of closing. In keeping with this, many of the secondary market investors have adopted a zero tolerance where GFE errors are concerned and regardless of the rules 30 day cure policy, will not purchase a loan when a GFE error is evident. Which brings me to my point which is do these new rules help or hurt a borrower and my vote is with the latter.

As we have moved through the past few months initiating policy and procedure to adapt to the new RESPA rules it appears that most lenders are implementing policies by which they can protect themselves from losses due to incorrect disclosure of the GFE.

As I stated above, secondary market investors will not purchase them and as a result most lenders will not lend on a case where there is a RESPA violation. In keeping with this I have seen many lenders adopt policies by which wholesale or third party originations are audited prior to acceptance by a lender for underwriting. If it has been determined that there is a GFE violation, the loan applications are returned to the broker labeled a declination because lenders are unwilling to absorb the costs associated with closing the loans. One really great example is a case that was submitted to our office this week. The broker in error neglected to disclose the UFMIP premium in block 3 of the GFE which would have resulted in a $9,000 loss to the lender if the case had been closed.

The application was an approvable loan however because there was no changed circumstance which warranted re-disclosure and the lender was unwilling to absorb a $9,000 loss to close the case, the borrower was rejected and unable to obtain financing not because they were unqualified but because of an error by the broker and I have to say people this is not the only case.

I will agree that it was time to make some changes to policy where RESPA was concerned due to the abuse that was prevalent in the mortgage industry over the past few years however I have to say that the new more stringent disclosure rules may be harming the borrowers more than helping them. If I were a borrower who had an option to accept re-disclosure of costs associated with loan closing due to an error or have my loan rejected and have to start the process over, I think I would accept the re-disclosure because quite frankly I would have to pay those fees with whatever lender I choose. If this option should be given to the borrower is another discussion however and as it is not rule, is also not an option. Going forward I would recommend that the mortgage broker be very careful when completing the GFE lest they end up with a reject loan where they started with a qualified borrower.

If it does happen however I am not sure what to tell you to do to cure it so I recommend it be disclosed properly the first time. 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)

No Time for Weak Underwriting

2010-04-09T15:13:00.001-04:00

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

I received a phone call yesterday from a friend that owns a small mortgage company on the east coast. We chatted a bit about a case he had sitting on his desk and then he asked me a question that I have been asked more than once in the most recent months and that is “Are you finding it impossible to get any business sold?” and continue with, “because I can’t get a single loan through underwriting.” He also continued to discuss the fact that he thinks a lot of underwriters he is working with seem afraid to approve anything and honestly I agree with that statement to a large degree.

It seems to me that the most recent past has returned to a large degree to the underwriting principals that we underwriters embraced throughout the 80’s and more particularly prior to the principals allowed during the heyday of automated underwriting. When old school methods prevailed, underwriters consistently embraced underwriting practices that demanded we assessed overall case file risk because quite frankly, there were no credit scores nor was there web based automated underwriting systems because there was no web. Documentation waivers didn’t exist nor did checklist underwriting. As the mortgage industry embraced AUS methods, documentation waivers and a documentation checklist as a means to underwrite mortgage files, underwriters stopped assessing risk and left this job to the AUS as they did the determination as to what documentation needed to be provided by the borrower in order to complete underwriting. The end result was underwriters who stopped using their acquired underwriting skills and ability t
So assess risk in favor of a computer model that would do it for them and eliminate any responsibility where the underwriting decision was concerned. Further complicating things was the designation of new underwriters who learned the business of underwriting using computer models to assess risk and determine documentation standards. These underwriters have no idea how to assess risk or document files under due diligence because it was not a required skill for the past 15 years.

So here were are in a time where the worth of AUS as well as credit scores have been diminished during the current mortgage meltdown and we have underwriters who are really struggling trying to figure out exactly what investors, the agencies as well as FHA and VA are looking for in terms of acceptable risk assessment and documentation standards. We keep discussing due diligence in underwriting but documentation alone is not sufficient to demonstrate that this particular principal has been applied during underwriting. It does not matter if an underwriter dismissed all of their documentation waivers in favor for manual underwriting methods if the overall case file as approved is still an unsatisfactory risk regardless of AUS recommendations. It is this liability that is haunting underwriters today and contributing to the overall fear factor where approving loans are concerned. In short, we are taking a beating!

There is no real clear cut answer as to how to make sure that we have a salable loan these days short of saying comply to all guidelines, manually document all files, limit documentation waivers utilized and finally, before you approve the loan ask yourself this simple question; “If it were my money I was lending, would I lend it to this person?” If you can answer yes then I would say your risk is minimal and loan approval is warranted, if however you are concerned, tread carefully. Assess every aspect of risk associated with the file and make sure you demonstrate consistently strong underwriting techniques. Document your file to demonstrate your conclusion where your overall assessment of risk is concerned and make comments as necessary. Finally, if you believe in the case don’t be afraid to approve it, just make sure you have sufficient information to prove your point and at last trust your underwriting instincts, they will usually serve you well. 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)

An Occurring Revolution

2010-04-02T15:33:00.000-04:00

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

Strong word revolution and I am seeing it everywhere. The dawning of something new and powerful that has profound effects on certain aspects of our daily lives. Revolution has been with man since the dawn of time and has had both positive and negative effects on perceived acceptable behavior none of which we as individuals unanimously agree upon but often times accept as the norm. Sometimes, it is as simple as a trend that eventually finds itself incorporated into everyday life and other times it is a clear revolt which results in significant changes in the way we perceive things. Think about it, girls now wear pants which wasn’t too trendy in the 30’s but is now an often unthought-of way of life and how about civil rights, that was pretty powerful stuff unlike the pants but both were revolutionary in some way.

Now, the revolution that I am talking about is not quite as impressive as changes brought about by Dr. Martin Luther King, but in my opinion impressive never the less. I am seeing them everywhere and some are decidedly awesome while others well leave a bit to be desired. Take the concept of healthy lifestyle, this I find outstanding since I have decided that I wanted to outlive my husband and spend the insurance money on a boat. (Don’t think I’m mean, I have discussed it with him and we have both decided that I will ceremoniously maintain his ashes in a lovely container around the stern area and even name the vessel after him).

Now, the Hollywood trend of carrying your children around until halfway to legal maturity I think silly, seriously why not at least use a stroller or as crazy as this sounds, let them walk, my kids did ok with it. Ok, back to the revolution at hand and by that I mean the one occurring in the mortgage industry, that being the rebirth of the mortgage professional. No kidding, it’s really happening and I see it more and more every day.

Six months ago, I was still struggling with loan officers who were still embracing the lending mentality of 6 years ago. You know, the one that resulted in the collapse of the mortgage industry, declining markets nationwide and caused most mortgage professionals to resemble used car salesmen. I used to refer to them as application takers because none of them actually new a thing about mortgage lending except that they got paid when the loan closed and all they had to do to earn the check was fill in the blanks on the 1003.

Not only did they have no concept of how to qualify a borrower, they also had no conscience from a fiduciary standpoint where the borrowers were concerned. I think a lot of underwriters found themselves in a constant position of saying NO, you can’t charge that, or no, the borrower does not qualify because they have no job! Sounds crazy but it’s was the unfortunate reality of the times.

Things are slowly beginning to change however, and I find that I am no longer shouting at loan officers, calling them used salesman and complaining because files that in no way work are being originated and making their way to underwriting. Take it a step further but my loan officers are now pursuing purchase business, meeting with their business partners, spending time in realtors offices’ and actually calling or coming into my office with applications and credit reports asking that I take a look at them before they tell their agents that they can get the done.

In other words, they are qualifying their borrowers, hallelujah! I am having crazy flash backs to the banking days of old, you know the ones before fax machines and the internet, when we underwrote files by examining the borrowers documentation as opposed to AUS findings, when loan officers where mortgage bankers and people actually dressed appropriately as opposed to wearing shorts and flip flops to a mortgage application and completed the mortgage application with while wearing a pair of sun glasses.

Now, I realize that most of the underwriters are becoming extremely excited right now because quite frankly we thought a change in tide where underwriting practices were concerned would never come let alone a change in industry mentality and here we are making history, revolutionary history and it is defiantly a positive change. So, as we move forward do your part by helping those individuals who want to make the positive change from application taker into mortgage banker even if your part is to yell at them until they go home a put a suit on and hit the streets in the hopes of generating new business. If they need you to prequalify their borrower until they get the hang of it, do it, it will only help them be more successful with their business partners and hopefully embrace a more sound way of doing business which in the end will make your days far more pleasant. 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)

Tax Transcripts

2010-03-26T13:32:00.002-04:00

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

As I am sure everyone is aware, just about every lender out there is utilizing 3rd party tax transcripts for all mortgage transactions. When we began to utilize the service there were generally limited to self employed borrowers, however, over the past year or two most lenders have determined that they were a very useful tool when trying to detect income fraud. I personally have found them to be a useful tool in many other ways as well.

Needless to say, confirming a borrower’s income and determining that prior year income documentation such as W-2 wage statements is valid would be a primary reason for utilizing this information but there is also a wealth of information that can be determined by the transcripts as well. Very recently I have seen several tax transcripts that are indicating that the borrower is claiming self employment income in addition to their W-2 income and in many cases they are writing off losses. One particular case comes to mind wherein the borrower was actually partner to a sizable corporation, which was of course writing off pretty substantial losses. When questioned the borrower implied that his interest in the business had been sold and when asked for the documentation, was unable to provide it. He then went on to say that he was unaware (haha) that he still owned an interest in the corporation. As you can imagine the borrower’s ratios were quite excessive carrying the loss from the business that he didn’t know he owned and the case ended up rejected.

Another great discover on tax transcripts is things like alimony. It actually is tax deductable and if a borrower is paying it, you can be sure they will claim it. Additionally, it's nice to know what a borrower's tax liability is from previous years. If a borrower has no real savings pattern or assets, which can be verified, and the tax transcripts are indicating that there is significant tax liability from previous tax years, I will generally condition for evidence that the outstanding tax liability has been paid in full and if not request documentation pertaining to the actual monthly tax liability if a payment plan has been set up with the IRS. Needless to say, if the payment to the IRS is somewhat sizable, it’s very possible that it may impede your borrower’s ability to repay your debt short of defaulting on the payment plan with the IRS, which could result in federal tax liens and/or wage garnishment which again will impede their ability to make the monthly payment on the proposed mortgage.

There are several other pieces of valuable information that the transcripts provide which include informing as to if SS income is taxable or not, this goes along way if your borrower needs this income grossed up in order to qualify. The transcripts will also indicate if a Schedule E has been filed indicating if or not the borrower owns other properties which they failed to disclose. You could also determine if the borrower has taken any IRA distributions within the most recent two tax years which could indicate financial mismanagement on the borrowers part of obligations beyond that which the borrower can manage on their regular monthly salary.

So as you can see, never waive the tax transcripts and if possible obtain them on all case files. Like I said a wealth of information which really could affect your ultimate loan decision can be found and verified using this information. 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)

VA Underwriting Checklist

2010-03-19T12:39:00.002-04:00

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

Very recently I had a few students in my VA underwriting class that requested that I provide them with an underwriting cheat sheet of sorts, which they could use when beginning to underwrite VA guaranteed mortgage transactions. I know it’s been a few weeks since the request but better late than never. Below please find a list of the items that an underwriter would want to address when underwriting a VA loan application.

1. _____VA Loan Analysis (IRRRL Worksheet if Streamline refinance)
a. ___VA case number
b. ___Maintenance & Utility Calculation (.14 cents Sq Ft)
c. ___Dependent care expenses
d. ___Residual income guideline and calculations

2. Automated Underwriting finds (Validated)

3. Lender Certification

4. Certificate of Eligibility & DD214

5. Initial & Final typed 1003 & 1802a
a. ___Have the number of dependents been disclosed on the 1003
b. ___Is the VAFF correct

6. _____3 Merged credit report indicating a satisfactory credit history.

7. _____Child care letter if required

8. _____Explanatory statement as required, supporting documentation

9. _____Payoff statement if refinance

10. _____1 month worth of paystubs & 2 most recent tax years W-2 wage statements

11. _____Verbal or full verification of employment

12. _____Evidence of Earnest money deposit

13. _____60 days of asset account statements indicating sufficient funds for closing

14. _____Explanatory statements as required

15. _____Gift documentation if required

16. _____Contract of Sale
a. ___VA Financing Addendum to the contract
b. ___VA Amendatory Language

17. _____Notice of Value

18. _____Appraisal

19. _____Termite Inspection, Well & Septic Inspections

20. _____Final inspection as required

21. _____Disclosures including all VA required disclosures
a. ___VA interest rate disclosure
b. ___Federal Collection Policy
c. ___VA Assumption Notice
d. ___Verification of VA Benefits
e. ___VA form 26-1880
f. ___Counseling Checklist for Military Homebuyers
g. ___Old vs New disclosure (IRRRL)

22. _____VA Case number assignment & Appraiser Assignment

23. _____Clear CAIVRS

Remember everyone, there will be certain situations that will require additional documentation or information based on the case file and you will need to obtain this in addition to the above information. 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)

FHA Mortgage Credit Examiner

2010-03-12T15:33:00.003-05:00

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

Very recently there has been a lot of interest as well as questions as to what a certified FHA mortgage credit examiner would do in the world of mortgage lending so I thought I would clarify a few things for those individuals who have yet to find a concrete answer to their question.

As well all know in order to manually underwrite an FHA insured mortgage as well as an appraisal on behalf of FHA, one must have a Direct Endorsement Underwriting designation most commonly referred to as a CHUMS ID number. Without that designation an underwriter cannot sign the 92900LT, firm commitment or conditional commitment indicating that they completed the property valuation or completed a manual underwrite for the credit review of a loan application that received a refer or caution by Total Scorecard. However, if you have a case that received an Accept or Approve/Eligible when run through Total Scorecard then an FHA Credit Examiner could review the mortgage credit piece of the file without actually having a Direct Endorsement designation.

When underwriting of an FHA insured mortgage application is completed through Total Scorecard and has received an Accept of Approve designation, the case has essentially been deemed a satisfactory risk for HUD purposes and the approval documents required in a FHA case for insurance do not need to be signed by a DE. A credit examiner may complete the mortgage credit analysis review of the case and sign the 92900LT as the credit examiner using ZFHA in place of a CHUMS ID and indicate themselves as the credit examiner on the 92900a pages 3 & 4 as the credit examiner as well. The appraisal, however, still must be underwritten by a DE underwriter as Total Scorecard cannot underwrite the appraisal but everything else in the file, where review is concerned, can be handled by the credit examiner in the case of AUS approvals.

Now, I know a lot of you are thinking that you are perfectly qualified to validate the findings and should pursue this career path so I am here to tell you to put the brakes on and make sure you know what you are doing before you jump into reviewing the mortgage credit analysis piece of these loans. First it is important to remember that just because you have an AUS approval thru Total Scorecard does not mean you have an approval loan. Due diligence always trumps AUS so it is really important to understand underwriting principals where FHA is concerned that you know when it is more appropriate to downgrade your approval to a refer and turn it over to a DE for manual underwriting. Further, circumstances arising in the file may require additional documentation based on due diligence so you want to make sure that you have a handle on when documentation waivers are no longer acceptable otherwise you may end up with a materially deficient file that requires indemnification.

If you are an individual, perhaps senior processor or junior underwriter interested in pursuing this type of career path in the very near future or perhaps you are an underwriter who is looking to move into the FHA game but lack the experience, I strongly recommend training before you pick up your first case as a FHA Credit Examiner. It is important to have a complete picture of the mortgage credit analysis game where FHA is concerned as well as have a solid grasp of the government underwriting mentality which is somewhat different than that of conventional. I hope this helps for those of you interested in this career path and as always, happy underwriting.

Go to FHAcampus.org to check scheduled dates for the FHA Mortgage Credit Examiner webinar.

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)

Oil and Water

2010-03-05T14:35:00.001-05:00

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

Oil and water, two things that we all know do not mix well due to incompatible molecular structures, have become the poster child for underwriting with AUS. That’s correct, Oil (AUS) and water (manual underwriting). “How so”, you ask and the answer is a very simple one. We are still required to utilize automated underwriting on all cases that we underwrite. However, the findings don’t mean a thing where documentation waivers or loan approval is concerned.

If we all think back to the era of the introduction of AUS in the mortgage industry, most of us would relate that loan originators wanted to utilize AUS on cases that they were pretty sure would not get approved during the course of normal underwriting and quite frankly there were more underwriters than not that would have still rejected them regardless of the AUS findings or Approve/Eligible. Fast forward to 2005 and not a single loan that was run through AUS was actually underwritten and quite frankly a lot of lenders began to utilize credit examiners to simply validate the AUS findings.

In other words, cases were not actually underwritten, the documentation checklist and data input was simply validated for accuracy. Jump ahead to 2010 and we are now part of the newest science experience which is the industry’s insistence that oil and water do mix if water over compensates or just sort of let’s oil float on top. This sort of describes the underwriting practices and policies which are facing every underwriter today, and it’s like navigating a mine field for those underwriters who didn’t earn their stripes before the invention of AUS.

While the newest principals which incorporate the practice of due diligence in underwriting embraces old school mentalities underwriting seem to be the most prevalent where agency and secondary market requirements are concerned. We as underwriters are still being forced to incorporate the use of AUS as a risk assessment tool which quite frankly means nothing anymore from an underwriting standpoint. It does cause lots of arguments between originators and underwriters but beyond that I see no useful purpose.

The investors in the secondary market still require it but they will consistently re underwrite cases prior to purchase and if they determine that certain circumstances should have been addressed during the normal course of underwriting and were not, they will simply return the file and say it's unsalable. Under these situations many underwriters are trying to fall back on documentation waivers such no warranty of credit is required but the investors as well as HUD are saying, due diligence should have been completed and in that additional documentation should have been required. Take it a step further, I have investors that are auditing files that closed 4 or 5 years ago and are trying to use the same principals for repurchase. So with that said it is safe to assume that documentation waivers, regardless of how often offered, are a thing of the past.

So, why are we still utilizing AUS is the next big question and the answer to that is I have no idea. The findings serve no purpose but to assess risk and I am pretty concerned about their ability to do that. I am still receiving AUS approvals on loans with profiles that include 624 credit scores, 23 charged off accounts and back end DTI’s of 53% which of course I consistently reject. AUS which we must utilize says, go for it but if we do its not prudent from an underwriting standpoint.

I never utilize documentation waivers because I don’t want to give our investors or HUD any reason to return the case for material deficiency and request a buy back or indemnification because it has been determined based on the overall case file the documentation waivers provided were not plausible. You are beginning to see the mine field. I have a lot of sympathy for new underwriters who think they are doing the right thing by using the preverbal AUS bible just to find out from their investors that during the normal course of loan review, they should not have and the case has been determined unsalable due to material deficiencies that were not required by AUS. Underwriters I strongly recommend full manual underwrites on all cases and with any luck, water will continue to graciously allow the oil to float on top. 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)

Getting Files Submitted

2010-02-26T12:59:00.002-05:00

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

As an underwriter for a regional bank, I work with both retail staff as well as our wholesale business partners. Underwriting both types is always interesting not just because of the type of business you come to expect from each company or retail staff but also because of the manner in which the cases are presented to underwriting. In short, I can always tell if a particular company gives their processors enough time to completely work a case or if the processors are under a lot of pressure to get cases into underwriting immediately.

How do I know this you ask, very simple, the processors that are allowed an appropriate amount of time to actually process the loan usually provide a complete case that has been examined for ratio’s, credit and things of the like and generally receive a loan approval with minimal conditions. Processors that are rushed typically end up with a suspense, 30 conditions and often times after all of that work, end up with a case that isn’t approvable. Time wasted on a case that is not approvable is time taken from a case that is.

Now, I do realize that this blog is not going to change anything for the processors that are rushed and for the most part feel overwhelmed and frustrated under their current working conditions. But hopefully, it will give you some strategies that might help you process faster. More and faster, something that every processor hears regularly, is actually achievable if you know how to set up a file. I am sure you are thinking that you have been setting up files forever and are not quite sure what that has to do with getting into underwriting faster and more complete and the answer to that is everything.

I like to say that if a file is set up the right way it will ultimately process itself. So far this concept has held true at least for me and the processors that I have trained in the past. I will tell you that I do still occasionally process, close and post close (has everything to do with a short attention span) and I still use this theory when I process. When you try it your first thought will be is that it takes longer to set a file up but you will also notice that you can get it submitted and closed a lot faster. Ok, so how you ask. It is really important to do a complete review of the file when it hits your desk and answer all of the questions that seem to slow us down during submission.

Make sure you know the case type, who the investor is, determine if it’s locked and at what rate and who the title company or escrow attorney is. Next would be the review. When completing this piece to determine what you are missing you want to address the following:

Review the application and ask 1) Is the application completed and has all information as required been filled out by the borrowers 2) Is it signed and dated and has it been disclosed properly 3) Has the declarations and government monitoring information been completed 4) Where is the cash for closing coming from and is the asset information completed. 5) Who is the borrower’s landlord if a verification of rent is needed. 6) Does the application demonstrate a two year employment history for all borrower’s. 7) If the case is FHA or VA, do you have the addendum to the application and is it complete and signed by the borrower and loan originator. Next you want to review the disclosures to determine that you first have them all and secondly if the borrower needs to be provided a revised disclosure for any reason. You also want to recalculate the loan amount and make sure it is accurate that way you don’t need to deal with re-disclosure and any subsequent 3 day delay should something be incorrect.

Once you have completed the application and disclosure review, you next want to review the supporting documentation provided to you by the borrower to determine that all of the information as present in the application has been verified. Make sure that you have 1 month of the borrowers most recent paystubs supporting the income as disclosed on the 1003. You will also want the W-2 wage statements for the most recent two years. Review this stuff to make sure that the borrower’s year –to- date earnings make sense and that there are no deductions appearing that require an explanation. You should also recalculate the income just to make sure you come up with the same numbers that the borrower was qualified with.

Next look at the borrowers bank statements or asset account statements, make sure you have at least two months covering a 60 day period. Review the account activity to see if there are any large deposits that need to be sourced or if there are any withdraws or deductions that appear to be additional liabilities which are not reporting on the borrower’s credit report and make sure you have sufficient funds to close. If gift funds will be used, determine if you have a gift letter, evidence of the transfer of the gift and donors ability to give the gift.

Finally, review the borrower’s credit report. If there are any accounts that are demonstrating late payments in the most recent 24 months you will want to request an explanation for these as well as for any inquiries appearing within the most recent 90 days. If accounts do not have a sufficient number of months reporting or have not been updated within the most recent 4 months, realize that you are going to need a credit supplement for these accounts as well as for any accounts that are not showing a minimum monthly payment. Review the public records and collection information to determine if anything needs to be paid off or if you need to ask the applicant for evidence that it is paid in full. Also review the contract of sale if your case is a purchase and make sure you have all required addenda, remember the fewer the conditions the better.

Once you have completed your review and have a handle on what you are missing proceed with setting up the case in your LOS. Update the LOS with all of the information as demonstrated by the supporting documentation in the file and continue to update as new information is requested and received to make submission less time consuming. Next complete your 10 day letter to your borrower or call them, let them know all of the items you need from them in order to complete processing and ask that they email or fax it to you as soon as possible. Order your appraisal, case number assignment, LDP/GSA information as well as submit the loan to AUS.

As information is received from the borrower and you update your LOS remember to resubmit to AUS at that time to avoid last minute crisis. Also order your VOE’s and VOR at this time as well as any other information you will need from third party sources to complete processing. Once done, create an index card suggesting a date when you should have all that has been requested, I would say within 48-72 hours and place the card with the appropriate date card in your tickler file that way you don’t have files sitting around not being worked on. If you don’t receive the information in the time period you allotted, call the borrower or third party providers and ask where it is.

Once everything requested has been received, review it, update your LOS and complete your processing file. Print your submission documents and check them for accuracy. If all is in order send the case to underwriting and hopefully you will receive a loan approval with very little if any conditions. Order the items you need the day you receive the approval so that you are not overwhelmed at the end of the month trying to clear several loans at one time. Get them back to underwriting and relax while the case is being cleared to close.

I am sure for most of you this is pretty elementary stuff but for others I hope it is helpful. Believe it or not there was a day that a processor was really expected to close 40-50 loans a month without breaking a sweat. I can remember closing 70 with a little overtime. I guess the key is organization and of course requesting everything you need the day you set up the case. Once done you can generally move on to the next case and the case after that while the processed cases work themselves. Good luck and here is to looking forward to underwriting cases that I don’t have to condition for 30 items. 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)

Why Documentation Waivers Are a Bad Idea

2010-02-19T10:56:00.005-05:00

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

Yes, they still exist, they being documentation waivers and yes we still may utilize them from an underwriting standpoint. However, the bigger question would be should we? As most of you are aware, the secondary market has begun to steer further and further away from what is acceptable to utilize regardless of what your automated underwriting finding are stating with some even developing their own set of overlays where documentation requirements are concerned. Several of my investors now require inquiry explanations as well as rental verifications regardless of documentation waivers and of course due diligence in underwriting from an FHA standpoint pretty much would deem that all of this documentation is necessary as well.

Now I realize that, a lot of underwriters still want to embrace the concept of documentation waivers. Because it makes a file less cumbersome but I have to tell you that, I think utilizing any documentation waiver is a bad idea and I have several reasons to support the notion. First, investor overlays and post closing audits. Most of the investors now operating in the secondary market have applied documentation overlays within their purchase guidelines that leave us little or no room to utilize documentation waivers. Take it a step further, everyone is now falling back on due diligence principals so without full documentation, lenders and underwriters are at a loss from a post closing or pre funding audit standpoint should your investor determine that something in the file was not adequately documented.

Gone are the days when an underwriter can say, we didn’t need it per AUS, no one will accept that anymore. Take it a step further, several investors are now auditing files that have long since gone into default, perhaps underwritten in 2006 & 2007 utilizing documentation waivers and are trying to get lenders to repurchase them due to a lack of due diligence in underwriting at the time. Again, trying to fall back on documentation waivers being industry standard at the time has become a bitter argument under these circumstances.

Next, I will bring to argument FHA post endorsement technical reviews as well as Insurance Applications tendency to refer loans for manual underwrite during the post closing/insuring stages of the case. Forget that FHA will always stress due diligence and that this principal will always trump a documentation waiver but when a case is referred for manual underwrite by insurance application and a lender cannot tweek insurance application back to a total scorecard accept well now you really do have a material deficient file that will ultimately result in indemnification. I have seen a couple of cases recently that required a 24 hour wait period after an insuring application refer to tweek to a total accept and have to wonder about FHA connection flags in those cases. In other words are they now destined for post endorsement technical reviews.

Finally, due diligence really does require full documentation. The current climate in the mortgage industry leaves very little room for error and it really is all about underwriter responsibility. Investors are regularly requiring repurchase, FHA has already conveyed its desire to terminate lenders with compare ratio’s greater than 200% and industry standard simply does not support it any longer. Full documentation is the only safe approach to underwriting that will eliminate the possibility of repurchase due to material deficiencies as well as poor report cards where post endorsement technical reviews are concerned. Additionally, it allows us, the underwriters, to make truly informed underwriting decisions. 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)

Older Loans Haunting

2010-02-12T16:45:00.001-05:00

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

In a new twist to the never ending saga of new things to watch for in the mortgage industry is investor audits of older loans that have now gone into default. That’s right to forget reps and warranties, it seems that every investor is now auditing any older loans that have since gone into default and to some degree inventing reasons why the loan should be repurchased by the original lender. Most of the reasons are directly related to what is essentially being deemed as unsound underwriting practices during original underwriting which in their interpretation voids any automated underwriting finds and ultimately places the burden of repurchase on the originating lenders. Additionally, the mortgage insurers are doing the same so sometimes you will get a letter from both regarding the discovery and why the case is not of investment quality.

Now, the good news is most of these investors are sending letters to the lenders indicating what they have discovered during the audit which makes the case deficient and the lender is given the ability to respond to the audit and provide any supporting documentation to demonstrate that no deficiency exists within the file and if this can be adequately demonstrated then most of the investors are accepting this documentation and moving on. I have responded to two of these already for loans that were closed 3 or more years ago and fortunately for me, I had the documentation that they were suggesting was not included in the loan file but for those lenders out that who had really embraced documentation waivers in the past, this could cause quite a problem.

Now I know a lot of you are thinking that if AUS didn’t ask for it then we didn’t need to get it but that doesn’t account for the due diligence in underwriting thing that has been widely embraced over the past year and quite frankly some of the material deficiencies being suggest really do border on what could be deemed as subject when it comes to sound underwriting practices. For instance, I had a case that was audited that was closed in 2007 under the FHLMC 97% program and if everyone remembers correctly they actually had underwriting guidelines that would allow a self employed borrower to state 50% of self employment income. That’s correct no need to verify.

Well, fortunately I am not a fan of Automated Underwriting let alone documentation waivers. So, I never allowed the use of this income unless it could be documented and it paid off because one of those loans did in fact go into default and we received a letter indicating that we used income to qualify the borrower which was not verified and as a result the borrowers ratio’s were actually something like 69% which exceeded guidelines. As I told you above, I verify everything and was actually able to respond with “Oh yes it was!” and provide the documentation and of course they politely said thank you and went away. In other instances it appears that they are simply reaching for straws with things like a HUD I documenting the sale of a current residence is missing, you know just something to make you jump through a few hoops but never the less annoying.

So, here again I will strongly suggest that before those old loans come as a haunting, you document, document, document and again leave nothing undocumented. HUD is looking hard at the stuff, the investors are looking prior to purchase and of course if the loan goes into default later on down the road, they are looking again to see if there is anything that they might just be able to identify which would justify repurchase of the case by the originating lender which is never a good position to be in. As always all, 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)

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)