Written By: Bonnie Wilt-Hild, Op-Ed Writer
Very recently I had a conversation with a HUD underwriter who expressed serious concern over what appears to be most Direct Endorsement Underwriters inability to accurately validate their AUS findings. By this I mean, they have Automated Underwriting Approval however, when they read their documentation requirements they do not seem to understand under what circumstances documentation waivers are no longer acceptable or better still, when guidelines as set forth in the 4155 supersede documentation requirements as set forth in the automated underwriting findings.
It is first really important to point out that a Total Scorecard Accept does not necessarily mean that the loan is an approvable loan. Due to diligence in underwriting must always be performed regardless of AUS decision. There are certain instances where the underwriter will find that the case needs to be down graded to a refer and manually underwritten which will always invoke guidelines as set forth in the 4155. It is for this reason everyone I find the best way to approach the underwriting of any case is to manually underwrite them all and then if the findings are completely validated, determine what documentation waivers are acceptable and proceed accordingly.
In cases where the AUS finding are completely validated, documentation waivers as indicated within the Total Scorecard findings will be acceptable to HUD however, it is important to recognize what instances would result in either the down grade to a refer or when as an underwriter you need to refer back to the 4155 and substantiate your underwriting documentation accordingly. A very nice example would be your income documentation. Total Scorecard, if a case is accepted, usually indicates that income should be supported by “the most recent year to date pay stubs documenting one full month of earnings and one of the following” and continues with what your options are.
Additionally it will continue with something like verify employment history for the previous two years and IF only base pay is used to qualify certain items will be needed. In a lot of these cases, underwriters will proceed in averaging income, sometimes using only year to date earnings which is a big NO NO, which will allow the borrower overtime income which would require additionally documentation such employer conformation of continuance and also void documentation waivers. Under circumstances where income was averaged and base pay plus additional income was considered, the underwriter would have to refer back to the handbook and document accordingly. Further any income average requires a two year average per HUD guidelines, year to date is never sufficient.
Omitting debts is another item that causes problems. Often underwriters will allow the omission of small collections and not further document per their AUS findings the reason for the omission. In order for the debt to be truly omitted it should be paid in full, otherwise it needs to be considered in underwriting. If you allow the omission then you must document the resolution and why it was omitted which would normally be because it was satisfied.
It is things like this that void your documentation waivers and will ultimately get you into serious trouble from a post endorsement technical review standpoint. As discussed under review by HUD, these cases would be determined to have deviated from guidelines or determined to be materially deficient which would result in a letter to the lender and possible indemnification. It is important to accurately validate your findings, not just assume that the Approve/Eligible trumps underwriting. As always, happy underwriting.
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".