Submisson Tips for FHA Manual Underwriting

Written By: Stacey Sprain, Op-Ed Writer

It’s frustrating out there in the industry right now because there is so much sloppy FHA processing being submitted. Sloppy file processing leads to denials, suspenses and loads of conditions that eat up underwriting time and worsen turn times for all of us. Most importantly, it’s frustrating for the borrowers and realtors who have deadlines to meet!

I like to think of every one of my file submissions as a “work of art” and in doing such, I won’t submit anything that I’m not proud to stamp my name on and display in a gallery. In the end, I know it’s my reputation that’s at stake when I’m submitting each loan to underwriting so I take the quality of each file very personally and seriously. I refuse to allow loan officers to pressure me into submitting incomplete, sloppy files. I want every “T” crossed, every “I” dotted, and every angle addressed, explained and documented. Every processor should do the same.

Here are some valuable tips and points of advice on how to submit quality files for manual underwriting:

1) It all starts with a COMPLETE loan application. No excuses! Underwriters cannot be expected to make informed choices and decisions on “naplications.” The #1 reason for file issues such as suspenses, resubmissions and denials is due to the loan officer never taking a complete and accurate application on day one! YOU as a processor have a responsibility to edit the data so if you find data missing, gather the information and fill it in! If you don’t know the information or how to find it, ask the loan officer or follow up with the borrowers yourself if you can.

2) Submit a cleaned up credit report! Have your credit provider update outdated tradelines to reflect current account balances and statuses, have the VORs added right to the credit report, have non-traditional credit sources verified and added to the credit report. If you submit a messy credit report, the underwriter will have a difficult time establishing the current credit profile for the borrowers in question and cannot make an informed decision on the loan. That will lead to suspenses, conditions and denials.

3) Submit letters of explanation for ALL derogatory credit, read the letters, make sure they hold water, make sure they make sense and if justified, request supporting documentation to prove the explanations! I can’t tell you how often I see an LOX in a file that only addresses a portion of issues, offers and explanation for a timeline that has nothing to do with the dates reflected for derogatory credit or that offers an explanation that needs to be supported with additional documentation. Underwriters can’t always take a person’s “word for it” when there is a substantial history of derogatory credit, especially when there are recent derogatories reported. Be prepared to back up the explanations!

4) Request “budget letters” from borrowers whose proposed housing expense is increasing substantially versus their current housing expense. These are especially important for borrowers who have little or no reserves. The borrowers are asking for a substantial loan and the responsibility of a mortgage so it’s not too much to address how they intend to handle a large increase to their monthly budget. Not to mention, it’s important that YOU believe the borrowers are seriously capable of handling such a payment. If it’s not proven to you, why would you expect an underwriter to buy it?

5) Verify dates of employment for “job hoppers.” Simply calling for verbal VOEs for current and prior employers when you find a number of W2s or paystubs from different employers in the file is extremely helpful in establishing a complete 2 year history with no significant gaps. If needed, request a letter of explanation for frequent job changes, type up a “history” to lay it out nicely for underwriting, make notes in margins on copies of W2s, and most importantly, don’t forget to update that data to the 1003!

6) Request current and prior VORS for current renters. You need to verify a satisfactory 12 month rental history for borrowers who have been renting. A VOR or cancelled checks will suffice in most cases. And don’t forget to edit the documentation when it’s received! There is nothing more embarrassing than missing a clear late payment on a VOR and having an underwriter point it out!

7) Request sources of non-traditional credit for borrowers who may have no fico scores, no credit history whatsoever and/or for those who have insignificant current credit or those who can benefit from the reinforcement/compensating factors of non-traditional credit verifications. Acceptable sources of non-traditional credit include utility providers, cell phone providers, cable/internet providers, daycare providers, insurance companies, storage facilities, …

8) Submit a complete file. If you are simply submitting the credit documentation for an opinion as to approvability, be sure to submit every single piece of information the underwriter will need to make an informed judgement on approval! If you are submitting a complete file, well, submit a COMPLETE file!

9) ALWAYS use a cover letter! Underwriters LOVE cover letters for manual underwriting files. They greatly appreciate an outline of the file which addresses the challenges and concerns while pointing out the compensating factors to make the loan approvable. Lay out the reasons why the loan should be approved!

About The Author

Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently 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. 


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.