Written By: Bonnie Wilt-Hild
It seems to me that each day I find another reason to practice prudent underwriting principals. I mean old school stuff that reaches beyond the world of automated underwriting. As we all know, we have the ability to reduce documentation requirements when we have the Approve/Eligible or the Accept and in some cases it makes sense but I find more and more that I keep reaching back to documentation requirements of the past. I always seem to discover something further about the case when I do that, sometimes good, sometimes bad but always something useful.
Useful it the key word here and I will tell you why. For those of you out there who have been underwriting the FHA stuff a while this will be old news but for all of the new FHA DE underwriters, this is valuable information that you might want to consider each time you underwrite a case be it an Approve/Eligible or refer.
Recently, I received notification from HUD that a particular case that I had underwritten had been deemed deficient during a post endorsement technical review. Some insight, a post endorsement technical review is something that all FHA DE underwriters are subject to. In short, FHA will audit about ten percent of all cases underwritten annually by any institution and if you are the only underwriter, that means they will all be yours.
During this audit, they will determine what, if anything, you missed. These deficient items can be as minor as a date on the initial 92900a or as major as an undisclosed debt or the auditor’s opinion that you did not calculate income correctly. If the deficiency is severe enough, the case will be determined as unacceptable in its defect and your institution could be subject to loan indemnification to further protect the department from losses that may result from loan default. Now indemnification is always bad because it costs your employer money. In short, FHA may require a lump sum payment of say $8000.00 to indemnify the case. Trust me this is NOT a conversation you want to have with your manager.
I was recently subject to such an audit and the particular underwriter that audited the case had deemed the case unacceptable because she felt that I had not sufficiently sourced several large deposits appearing on the borrowers bank statements. Lucky for me that I did not just think that the borrower did not need any funds to close so I would not further document this. As it turned out I had conditioned for certain documentation as to how the borrower was paid, letters from employers, so on and so forth and ultimately when I responded to the findings, which you have 30 days to do, I had sufficient additional documentation in the file to further support that the multiple large deposits where in fact payroll deposits based on the way the borrower was paid. I responded to the audit, included the supporting documentation and the case was cleared from unacceptable to conforming status. In short, I was good to go. If I would not have collected that additional information, I may have had an indemnification on my hands.
So I will now always suggest that from an underwriting standpoint you cover yourself so that if you need to respond to such inquiry you are prepared. My particular instance was on a case that received an approve/eligible and was in fact a refinance where the borrower needed no money for closing, so all instances are subject to such scrutiny. Due diligence is the phase of the week. As always happy underwriting.
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: firstname.lastname@example.org.