Sound Underwriting Policy

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)