Written By: Jane Harford
Recently, in our office there has been an ongoing difference of interpretations based on “guidelines” and how to implement them. It is a strong lesson in how each of us when underwriting must be able to use our own vast book of experiences, dig into our bag of tricks and come out with the answers that will be able to justify an answer on each loan that has been submitted to us as FHA DE Underwriters……some FHA loans are very easy to approve and the justifications are the same practical reasons that we use on most of our HUD LT’s. You know-good stable employment, reserves and the money is coming from their own savings or excellent credit/no lates and high regard for credit (high credit scores)….those are normal, clear and satisfactory listed compensating factors.
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What is much more difficult thing, when you are handed an FHA loan that is a manual review or needs to be downgraded to a manual review. Here is where the experience, ability to pick apart and put a file back together again to make a “marginal” loan approvable and saleable separates the true underwriters from the auditors…….this is where the true and best FHA DE underwriters work their hardest to ensure that what they are approving (if they do approve the loan) will be insured, sold and will not return as an early payment default, a foreclosure or a HUD PD that you will do the loan on again within 12-24 months.
I will just give you a brief background on a few of the more difficult HUD loans that I did go ahead and approve….these were done a few years back when the credit guidelines were easier and the investor overlays were not as tough. The first loan that I did approve was while working for a smaller regional lender. The borrower had 1-2 accounts that appeared on his credit report were only recently obtained….under 6 months of history that appeared on the credit report. The borrower also did not have an established housing history.
The borrower also had worked in the mechanical trades and had large dollar amounts of deductible work expenses for tools and other materials. When deducting these figures, the borrower’s qualifying income was reduced a great deal. When the file first came to me, I used the “normal” reasons to decline the loan based on my understanding of the guidelines. The Borrower’s non traditional credit history was stellar, but not 24 months old. It was a cell phone, auto insurance, tool payments and one other thing.
Also, the funds for closing were coming from his tax refund for that year-no established savings pattern…..when ticking off all of the facts, there was no reason to approve this file. In sitting down with my supervisors, we sat down and went through the reasons that we could/should make the loan. The loan officer was willing to work closely with the borrower to ensure that the mortgage payments were going to be made on a timely basis. As far as I know, the loan never went into any kind of default and the borrower became a successful home owner that was happy to be paying a mortgage versus rent.
That was then-obviously many things have changed drastically in our lending world since then…..that kind of loan would not be made now. The pendulum has swung back to the ultra conservative side and won’t move from there for quite a while. However, I do feel that those cases that do merit a second or closer review still do deserve our efforts to be reviewed closely and carefully to see if there is any way to be able to take the raw facts and work with them to turn the file into an approvable loan that is insurable, saleable and will not become an EPD or loss to HUD and the lenders.
Part of the back and forth in the office these past few weeks has to do with when and how to downgrade AUS approvals to manual review based on various items that appear on the credit report. It really boils down to how the file was initially taken, the level of detail shown by the loan officer and processor in working with the borrower to get all things documented, updated and packaged into a sensible box that would merit a loan approval without question. I think it can be best understood in this manner-if there is an item that is disputed on a credit report, is it best to leave it alone or is it best to deal with the borrower to document that it is paid/dealt with and provide the updated facts/information and corrected credit supplement to show that the issue is really no longer an issue? In doing research to try and better understand this set of circumstances, it was discovered that each HUD HOC often has its own interpretation of how the grey areas are to be handled.
So, what is important in the Atlanta HOC may not be looked at in the same way as in the Santa Ana HOC…which makes the ability to get clear answers on a national basis impossible. What it boils down to is getting the best answers on a regional basis for each HUD HOC in which the company does business. It does become more difficult if the company operates on a national basis.
Bottom line-each file still needs to be reviewed on its own merits, looking at the good, bad and ugly of the actual borrowers, their past and what their future may look like. One thing I have always loved about this business is that each file you work on is the story of someone new-even though the methods for each loan are the same, each borrower or family is new and different. That is the one bottom line reason that underwriting properly still takes time and each loan has to be reviewed on its own merits….Thus, automated underwriting helps to make a decision, but it does not make the actual decision-that is still left to a human being. I hope that this stays on as a human based decision for a long time to come.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
As always, happy fraud free underwriting to you all!
About The Author
Jane Harford - As an NAMP® staff writer, Jane brings 30+ years of mortgage business experience in FHA, VA, LAPP and is also an FHA DE Underwriter. If you would like to become a writer for NAMP® , please email us at: firstname.lastname@example.org.