Oil and Water

Written By: Bonnie Wilt-Hild

Oil and water, two things that we all know do not mix well do to incompatible molecular structures, have become the poster child for underwriting with AUS. That’s correct, Oil (AUS) and water (manual underwriting). “How so”, you ask and the answer is a very simple one. We are still required to utilize automated underwriting on all cases that we underwrite however the findings don’t mean a thing where documentation waivers or loan approval is concerned.

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If we all think back to the era of the introduction of AUS in the mortgage industry, most of us would relate that loan originators wanted to utilize AUS on cases that they were pretty sure would not get approved during the course of normal underwriting and quite frankly there were more underwriters then not that would have still rejected them regardless of the AUS findings or Approve/Eligible. Fast forward to 2005 and not a single loan that was run through AUS was actually underwritten and quite frankly a lot of lenders began to utilize credit examiners to simply validate the AUS findings. In other words, cases were not actually underwritten, the documentation checklist and data input was simply validated for accuracy. Jump ahead to 2010 and we are now part of the newest science experience which is the industry’s insistence that oil and water do mix if water over compensates or just sort of let’s oil float on top. This sort of describes the underwriting practices and policies which are facing every underwriter today, and it’s like navigating a mine field for those underwriters who didn’t earn their stripes before the invention of AUS.
While the newest principals which incorporate the practice of due diligence in underwriting embraces old school mentalities underwriting seem to be the most prevalent where agency and secondary market requirements are concerned we as underwriters are still being forced to incorporate the use of AUS as a risk assessment tool which quite frankly means nothing anymore from an underwriting standpoint. It does cause lots of arguments between originators and underwriters but beyond that I see no useful purpose. The investors in the secondary market still require it but the will consistently re underwrite cases prior to purchase and if they determine that certain circumstances should have been addressed during the normal course of underwriting and were not, they will simply return the file and say its unsalable. Under these situations many underwriters are trying to fall back on documentation waivers such no warranty of credit is required but the investors as well as HUD are saying, due diligence should have been completed and in that additional documentation should have been required. Take it a step further, I have investors that are auditing files that closed 4 or 5 years ago and are trying to use the same principals for repurchase. So with that said it is safe to assume that documentation waivers, regardless of how often offered, are a thing of the past.

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So why are we still utilizing AUS is the next big question and the answer to that is I have no idea. The findings serve no purpose but to assess risk and I am pretty concerned about their ability to do that. I am still receiving AUS approvals on loans with profiles that include 624 credit scores, 23 charged off accounts and back end DTI’s of 53% which of course I consistently reject. Oil and water. AUS, which we must utilize says go for it but if we do its not prudent from an underwriting standpoint. I never utilize documentation waivers because I don’t want to give our investors or HUD any reason to return the case for material deficiency and request a buy back or indemnification because it has been determined based on the overall case file the documentation waivers provided were not plausible. You are beginning to see the mine field. I have a lot of sympathy for new underwriters who think they are doing the right thing by using the preverbal AUS bible just to find out from their investors that during the normal course of loan review, they should not have and the case has been determined unsalable do to material deficiencies that were not required by AUS. Underwriters I strongly recommend full manual underwrites on all cases and with any luck, water will continue to graciously allow the oil to float on top. Happy Underwriting!

About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) 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: contact@mortgageprocessor.org.

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.