Assessing Financial Behavior

Written By: Bonnie Wilt-Hild

Over the course of the most recent few years, underwriting guidelines have steered away from the more traditional assessment of financial risk to the product matrix. If the loan application met all the criteria as set forth in product matrix then the case was approvable for the most part. It seemed that allowing higher debt ratio’s if the loan to value was low enough off set the financial risk to the lender. Additionally, the ever-rapid appreciation in the market of the last years seemed to be diminishing the overall assessment of credit risk where the mortgage applicant was concerned.

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As underwriters, it appears that we were given the opportunity to close our eyes to our fiduciary responsibility to both the mortgage applicant as well as the lending institutions that employ us as long as the loan fit the product matrix or if the case was accepted by an Automated Underwriting System. Looking back, this was probably not the most prudent way to underwrite mortgage applications.

Considering the current market, it is safe to assume that the days of the product matrix is a thing of the past. As mortgage professionals we are seeing a return to the days of traditional lending practices even if enhanced with additional tools such as Automated Underwriting Systems as well as credit scores and AVM’s. But it is important that we remember that these items are just tools and that as underwriters it is important to assess overall credit risk of the applicant to not only protect the institutions that we are employed by, but to safeguard American homebuyers ensuring that the homes they are purchasing are affordable to them.

The current credit crunch, as it has recently been defined, makes this a more daunting task for mortgage professionals. However, several programs are still available for the average American home purchaser. FNMA and FHLMC still provide programs that assist first time homebuyers as well as low to moderate home purchasers programs for which to purchase or refinance affordable housing. FHA was designed to assist the low to moderate income borrower not to mention other underserved populations. These programs in themselves serve a great number of Americans who in the most recent years were placed in subprime programs that were less than affordable and contributed to the growing number of foreclosures as well as overall market instability. But underwriting these borrowers can be a little more complicated based on manual underwriting practices and the inability of an underwriter to look at a product matrix to determine if the loan is approvable.

This is what assessing overall financial behavior is about. For the most part, it is easy to approve a loan that has been accepted by an automated underwriting system. However, it isn’t very easy approving the one that hasn’t. But this in itself does not deem the borrower unworthy of a mortgage. It is important to assess overall financial risk of the case but just as important to assess the financial behavior of the borrower. In some cases, it may appear that a particular borrower is a less then fair credit risk however further research can demonstrate that a borrower has a very acceptable credit explanation and an overall solid financial reputation. Late payments on a borrowers credit report does not in itself demonstrate an unacceptable risk. Borrowers who have demonstrated an acceptable credit reputation but have incurred significant consumer debt while saving little or no money for future unacceptable expenditures can present a larger risk the borrower who lives modestly while saving a small portion of their income, even if they have made some late payments due to extenuating circumstances.

From an underwriting standpoint, it is important that we evaluate all aspects of the borrowers’ financial behavior. Reviewing a borrowers’ bank statements for regular monthly expenditures is a good way to determine what a borrower does with their money. For instance, a borrower who has refinanced, receiving cash out 3 times in the most recent 24 months presents a more significant financial risk than a borrower who has not but has made 1 late payment on their mortgage. The borrower with multiple refinances may be living off of the equity in their home vs. managing their finances in a manner that allows them to, for the most part, pay their debts timely, based on their regular monthly income.

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Feeling like a financial psychologist yet? Great, because you are. It might not be as cut and dry as it was in the past but it is more interesting. Contrary to what we as mortgage professionals are assuming about the current market, there still are a lot of worthy borrowers out there and as mortgage professionals we will continue to sound financing options for them. All we need to do is give it some thought.


About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University ( 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:

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.