FHA News : Moving “Back to the Future”

Written By: Stacey Sprain

For those of you like myself who are industry veterans, perhaps you remember the “good ol’ days” back when we had to hand-type all of our loan application forms, verifications, settlement documents, truth-in-lending, good faith estimates, … And do you remember those old fashioned perforated HUD and VA forms that we had to hand-type and separate? It sure seems like a lifetime ago doesn’t it?

I’ve been hanging out for so many years in this business that I even remember what it was like before automated underwriting came along and spoiled everybody! I remember how EVERYTHING used to require full documentation for underwriting submission. Those were the days when all files and all loan types required 30 full days of paystubs, two years W2s, two years tax returns for self-employed borrowers, three months bank statements, … there were no documentation waivers, no limited documentation options, and no such thing as stated or no documentation-type loan programs. All files had to be sorted, acco-clipped, copied and overnighted. We spent a great deal of time “pushing paper” whereas so much of that has since gone by the wayside. (And let me tell you- I will forever feel a personal sense of guilt for killing so many helpless forests due to all the paper I have seen in all my mortgage years!)

I recall the very first test stages of automated underwriting. I was fortunate to have worked for a lender who was allowed to test Desktop Underwriter and Loan Prospector in the early stages. I remember how shocking it was that we could really get away with submitting only one paystub and on occasion a W2 or a full VOE instead of gathering numerous paystubs and added documentation. It took quite awhile to get used to those major changes but holy cow did it make loan processing move a lot speedier once those AUS systems were rolled out! We no longer had to wait for so many borrowers to dig up their documentation and closings started happening a lot more timely. Rush files suddenly didn’t seem like far-fetched fairy tales! We could really close loans in just a matter of days if all of our factors fell into place!

But looking at the industry today, I have to wonder if the automated underwriting systems have helped us or hurt us. And even more importantly, have those same AUS systems helped or hurt the major population of mortgage consumers out there? It would certainly seem to me that somebody somewhere along the way was a bit off in their research regarding the majority of factors that contribute to an increased potential for loan default. I am still blown away even today when I see borrowers with average fico scores in the low 600 or high 500 range receiving approve/eligible or accept findings with DTI ratios close to or above 50%. How on earth can we justify these things in today’s market? How can we go to bed at night knowing that even though a computer tells us the loan is approvable, our gut tells us there’s a pretty darn good chance the borrowers will default on their loan in the near future?

Nowadays, nothing with automated underwriting can be taken as a guarantee. I am seeing many lenders hammering the automated underwriting systems by creating their own more stringent guidelines and in my opinion, that’s a good thing. I realize that comment probably “stirs things up” with a lot of originators who would like to disagree but the bottom line is this- we need to go back to the old days. We need to get ourselves back to requesting and reviewing full loan documentation for each and every borrower. We need to be validating and verifying every single source of income being used to qualify, we need to verify that the reserves the borrower says they have really do exist, we need to analyze the debt-to-income ratios to make sure that the overall credit risk to each borrower is warranted for approval, we need to make sure that the borrower is financially stable and can handle the responsibility of homeownership. We need to get back to requiring first-time homebuyer education for all of our first time homebuyers. We ALL need to take advantage of the industry tools and resources that have always been out there and available.

Unfortunately, Desktop Underwriter and Loan Prospector created a fictitious sense of security for the entire industry and we are now paying the price for those assumptions. It’s time we take a step forward by taking a step back to the future.


About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.

 


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.