Underwriting to the Findings

Written By: Frankie Lacy, Op-Ed Writer

Fannie Mae, Freddie Mac, and USDA Rural Housing have all made extensive strides in 2014 to update and strengthen their automated underwriting engines. Much of this was in response to the finalized Ability to Repay and Qualified Mortgage rules from the CFPB (Consumer Financial Protection Bureau). The engines have been enhanced to identify more risk scenarios and assist underwriters with more detailed messaging within the conditions. In light of these improvements, some lenders have once again become more reliant on AUS findings and are applying fewer overlays.

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When we underwrite to a findings report, we rely heavily on the report to dictate the documentation we will request and the ratios we will use in issuing an approval. The findings report conditions will vary based on the risk profile of the loan. In addition, the credit profile, income, asset, and collateral type will dictate the conditions. This is often beneficial to the customer because the system can identify an acceptable overall risk profile where manual underwriting might return a decline decision.

For example, if DU (Desktop Underwriter) can identify that there is a total debt ratio of 50%, but some of this includes debts that are installment loans with less than ten remaining payments, DU will automatically exclude these debts. However, the Underwriting Analysis portion of the findings will reflect the total debt ratio including accounts with less than ten payments. As a result, the underwriter can insure the engine has read the risk and returned a valid approval. Loan scenarios with higher LTV’s or lower FICO scores may return an approve findings with reserves of six to twelve months.

Still, underwriters must proceed with caution in two areas: data integrity and loan factors that are outside the engine’s ability to identify. Data integrity in essential to the validity of the findings report messages. Any data entry errors in the type of income, asset, or collateral could return messaging that is insufficient to meet the agency’s requirements. Erroneous amounts input into the engine may have a negative impact on qualifying ratios or reserve requirements.

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Underwriters must also carefully examine all file documentation to insure it meets agency guidelines. One example that I recently encountered involved a borrower who purchased a home in April that was executed as a primary residence. He was now attempting to purchase a new home as a primary residence before the old home was sold. Research showed the home purchased in April was never occupied, had been rehabbed, and was now listed for sale at almost double the original purchase price. This exhibited the borrower’s intent to flip homes for profit and led to a denial.

About The Author

Frankie Lacy - As an op-ed writer, Ms. Frankie Lacy is a 15+ year mortgage industry veteran with extensive conventional mortgage underwriting experience. Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration.



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