Written By: Bonnie Wilt-Hild, Op-Ed Writer
In the days of subprime lending, alternative credit products and expanded criteria loan programs, a processor need only to look at a product matrix to determine if the case was approvable under a certain program. A product matrix not to mention Automated Underwriting Systems did most of work not to mention the thinking for originators, processors and underwriters alike. If a case fit within the guidelines as set forth in the matrix or the AUS took the loan, it was a doable deal.
Documentation standards under these programs were also easy to achieve. Take the Stated income Stated asset program. Credit report and appraisal, possibly an Accountants letter and the deal was complete and ready for underwriting. Recent changes in the housing market however have resulted in the tightening of credit standards and programs such as SISA or No Ratio programs have become a way of the past. So we hail goodbye to the product matrix and say hello again to old school processing.
This subject has become more important to me recently than ever before. Three years ago we saw very few FHA loans so for the most part everything was checklist underwriting in the form of AUS findings or the product matrix. With the strong return of FHA lending however, processors now need to process the cases, determine income, evaluate credit and provide the necessary documentation needed to fill the holes that one finds in full documentation loans.
I have found recently that old habits die hard. Very recently I am underwriting cases that result in two pages of conditions. Ultimately when the conditions are received to clear the loan to close, something like 70 pages of documentation comes across the fax machine. I am sorry but this is a re-underwrite, not clearing conditions. As crazy as it sounds it usually takes me about ½ hour to clear conditions and in most cases I still don’t have everything I need. I call this processing by underwriting and I have to tell you its very frustrating for the underwriting staff.
Twenty years ago, in the absence of Automated Underwriting, Credit Scoring and AVM’s it was the mortgage professional’s job to assess overall risk. Cases were processed without the benefit of an Automated Underwriting System and for the large part were approved. Programs available to your average borrowers were programs that are for the most part, still available today. Standard Conventional products, FHA, VA loans provided mortgage funding for almost all borrowers.
The cases were originated, documented completely with income and asset information, credit and property appraisals were evaluated by underwriters and hopefully approved. This process 20 years ago was considered an art. The feeling was that no two cases were alike and each and everyone needed to processed and underwritten based on its own merit. In this thinking processors and originators engaged the borrower, discussing financial options that would best meet borrower’s needs. Extenuating circumstances were documented and borrowers who might have had financial difficulties in the past were given the same opportunities from an underwriting standpoint as any other borrower. What this allowed was more personal service to an applicant as well as allowing a mortgage processor as well as an underwriter the ability to truly process and underwrite a loan application.
Processors had the ability, without bias, to pick up a loan application, review a credit report and possibly find any and all compensating factors that may possibly get a loan approved. By collecting the necessary documentation to present to underwriting an approvable loan, they were allowed not only to be creative but demonstrate that they too actually believed that the case was an approvable loan. Underwriters were given the same privilege. In short, processors were allowed to process and underwriters were allowed to underwriter without the restrictions of credit scores, AUS systems and the product matrix. In processing the application, processors built a case for the borrower.
It is very rewarding to put something together, piece by piece and also very interesting. It is more even more rewarding to see the finished product when an individual understands that they are the Author of such a piece. As an underwriter I see different quality standards where processing the mortgage application is concerned. I can usually tell when a processor is old school or a very recent inductee into the mortgage business. Old school processors not only know the guidelines they take pride in the fact that the approval has no conditions. In fact I have had a couple of them teach me a thing or two. These are people who truly love the art involved in pulling together the case and presenting the most positive financial picture for the borrower. With this said, I challenge the processors out there to pull together their own work, truly processing the loan. You will feel a great sense of satisfaction once the case is finished and your underwriting staff will be grateful.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including 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".