New Rules Unspoken

Written By: Bonnie Wilt-Hild, Op-Ed

Seems like just yesterday all anyone was concerned about was what the AUS had to say. General rule of thumb was if the case was approved by AUS then closes the loan. New underwriters learned not so much how to underwrite but how to validate findings and if your documentation checklist didn’t ask for it then you didn’t need it. No thought was required. More interesting still, the secondary market was on board with this thought process and I can actually remember having reps from both our investors and the agencies tell us to NOT further document files than was required by AUS because we could potentially void documentation waivers. That’s correct, DO NOT do due diligence. Things are changing quickly.

For those of you who have read more than one of my blogs, you know by now that I am not an advocate of credit scoring and have really never seen much of a point to Automated Underwriting. Old school underwriting always seemed to be the safest approach and seems to be coming back into vogue. I have had several conversations over the past few months with both underwriters at HUD and our investors and both are chirping the same things; due diligence and any supporting documentation required to indicate that it has been performed.

Actually it seems the more documentation the better. Forget post endorsement technical reviews and the fact the HUD is letting nothing slide from a documentation and due diligence standpoint, but it now appears that investors in the secondary market are doing the same.

Very recently I got a pre purchase suspense which required that I explain why I did not provide any documentation pertaining to the borrowers’ low year date earnings. In the suspense it was indicated that the base pay that I used to qualify was not supported by the overall year to date earnings provided on behalf of the borrower. Just for the record, this loan was an Approve/Eligible, credit score over 700, great employment history, ratio’s 27/34 and reserves after closing. A year ago this would have closed with a bank statement, W-2, paystub, Verbal VOE, credit report and appraisal and now I am being conditioned prior to purchase for further explanation and supporting documentation.

Fortunately I have a tendency to fully document everything and for the most part disallow any documentation waivers (just for this reason) so I had a full verification of employment in the file which indicated that the borrower received an increase in salary of a $1.05 an hour which when factored in, supported the lower year to date earnings. In other words he was earning a lower wage until July 2009. The investor accepted it and funded the loan but I can’t help to think what I would have done if I didn’t fully document the file in the first place.

So it seems full documentation is the new unspoken rule. Everyone from the secondary market to HUD and VA will tell you that documentation waivers are still acceptable however, they seemed to get trumped by due diligence at every turn. Quite frankly I like, it simply makes more sense. I think as time passes we will see less of an emphasis on Automated Underwriting Methods and more of an emphasis on just plain old underwriting which is good news for those of us underwriters that really enjoy 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".


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