Underwriting Compliance

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)