Thinking It Through

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

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

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

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

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

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

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

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

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

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

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