Why Your Cases Are Getting Rejected

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

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

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

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

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

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

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

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

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

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