Written By: Bonnie Wilt-Hild
Very recently I had a conversation with a fellow underwriter who, while she was underwriting a case which was rated an Approve/Eligible, found several items of concern within the loan documentation as submitted by the borrower. These items where located in standard documents submitted to establish income and assets sufficient to close.
Her concern was that although the case was rated an Approve/Eligible, the documents which caused concerned could not be assessed by the AUS in determining overall case acceptability from an underwriting standpoint. Her next question was when is it acceptable to downgrade a case to refer and possibly proceed by rejecting an application which has been otherwise approved by Total.
The answer to this question is really pretty simple. Whenever you, the underwriter personally feels that the overall case file exceeds the risk threshold of a case that would otherwise be acceptable than downgrade the case to refer, proceed with manual underwriting and if necessary, reject the loan.
It is important to remember that the AUS, more particularly Total Scorecard is designed to assess overall risk using the data that we as underwriters provide. Using complex mathematical equations, it reviews LTV, ratio information, proposed monthly housing expense and so on to determine if the case is an acceptable risk for HUD purposes. It in no way will complete an analysis’s the collateral nor does it specifically review the documentation provided by the borrower to determine if circumstances that may be present in this documentation may impede the borrowers ability to repay the mortgage debt in a timely manner. Only the underwriter can do this and determine through due diligence if these circumstances exist.
In looking at the case file that was discussed with my underwriter friend, she had determined by reviewing the borrowers bank statements that the borrower demonstrated consistent overdrafts in her checking account more particularly her checking account balance was going down to zero about 2 to 3 days after each pay period. Additionally she could see wire’s coming into the borrowers account from several individuals not present on the loan application as if the borrower was borrowing money from friends and relatives each and every month.
When considering this and the fact that the purchase would result in an $800.00 increase in the borrowers housing expense, that the borrower had no savings pattern and was receiving a gift for closing, the underwriter was concerned about the borrowers overall financial behavior and her ability to repay the debt. In addition it was noted that although the borrowers credit score was acceptable (due to a rapid rescore) the borrowers overall credit was not. Multiple outstanding collections were still appearing on the borrowers credit report as was prior late payments and although through rapid rescore the borrowers credit score was sufficient to receive an Approve/Eligible, review of the borrowers overall demonstrated an overall disregard for timely repayment of debts. These items were the two main items that caused concern where the case file was concerned but not the only issues. The end result was the down grade of the case to refer and ultimate loan rejection.
As you can see there is more than one factor that goes into overall case underwriting and more often than not, these factors can not be assessed by AUS alone. Only due diligence in underwriting can determine what factors create an increase risk where the case is concerned. With this in mind it is important to understand that as underwriters you can and should downgrade AUS results when necessary in order to weed out potential default cases. 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.