The Determining Factor

Written By: Bonnie Wildt, Op-Ed Writer

From a mortgage approval standpoint I still find that most mortgage professionals are  still stuck in the wonderful world of AUS. As in bygone days, they believe that if a case receives an automated underwriting approval then the case will be approved, no questions asked, no additional documentation required. Well, I am here to tell you, that’s just not the case.   
Things in the wonderful world of underwriting have changed significantly since the great demise of the mortgage industry in 2007 and the years that followed. We now have a bit more flexibility with respect to common sense underwriting and in many cases can even complete  manual underwriting. However the one thing that has not changed is the underwriter’s responsibility to assess the overall case file to determine the big three, those being

a) the ability to repay the mortgage debt

b) the willingness to repay the debt and

c) collateral assessment

 Now I know what you are thinking, that being isn’t that the responsibility of the Automated Underwriting System and my response is and always will be no. The AUS can assess numeric  values only including the credit score, value of the assets and subsequent reserves but it cannot determine if the borrower has had 12 jobs in the past 3 months or if they are a temporary  employee. It doesn’t detect large deposits or undisclosed debts, that is the function of the underwriter and quite frankly can be the difference between loan approval or loan denial. 

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It seems like recently I have had several cases that have received AUS approvals and at  the end of the day, I just couldn’t approve them. Employment stability and DTI issues being the primary reason. In many of the cases undisclosed debt such as payments to the IRS for unpaid  taxes and unstable or sporadic employment coupled with excessive ratio’s were the determining factors for loan declination and in almost all of these cases the primary argument from the originators for loan approval was the fact that there was an AUS approval or the
borrower really great credit score. Before I move on I just want to say neither of the reasons are  acceptable reasons for loan approval because a credit score is a moving target at best and can be easily manipulated. For this reason along it is not an indicator as to how the case will  perform long term. I am sorry if the borrower has a history of delinquent credit obligations, regardless of the current credit score, it is highly likely this pattern of behavior will continue and  as far as the AUS, like I said, it is a snapshot in time of a borrowers current financial situation not a historical reference to the borrowers overall financial behavior.
Now with that said, I want to share with you how to avoid a loan declination after you  have spent four weeks telling your borrower not to worry and there is no problem with the loan, not to mention spending their money on appraisals, credit reports and in the case of a  203k, the consultant’s fee. It won’t take much time to do these few things and ultimately avoid the embarrassment of calling your business partners and your borrower to tell them it’s a no go  2 days prior to loan closing. 

First, as the originator, make sure you collect all of the required documentation from  the borrower so you have the opportunity to review before you tell them it’s no problem. Receiving borrower’s tax returns late into processing and finding they have $18,000 in  unreimbursed employee expenses could kill your deal so you might want to check that stuff out before you give the appraiser the go ahead. When you get the borrowers bank statements,  read them, undisclosed debts such as student loans not reporting on the credit report because  they have recently been consolidated as well as IRS payments that do not report can result in excessive ratio’s. In short collect everything you can and review it before you turn the file into processing or if possible, issue a pre-approval letter. 
Next, when the case gets into processing it is critical that the processor review all of these documents again to insure nothing has been missed. I can’t tell you how often I get paystubs demonstrating child support garnishments or other garnishments which have not  been addressed and result in ratio’s greater than 50%.  Review the IRS tax transcripts, there are many times I find unreimbursed employee expenses or excessive taxes owed and when  questioned, determine that there are payments to the IRS or that the unreimbursed employee
expenses result in a cut to income of $900.00. Let’s not forget the borrower who owns a  schedule C business that they didn’t disclose which is writing off a loss of $10,000 each year, again this could kill the deal. Review it all, credit report, income documents and asset  documents, anything could be there that could affect loan approval. 
Finally, don’t assume that because you have an AUS approval that the loan will be approved. If you borrower has a week credit history, multiple bankruptcies or a previous foreclosure combined with other risk factors such as unstable employment or declining income,  let them know that loan approval could be an issue. Perhaps wait to order the appraisal until you have had underwriting review the file so that you don’t waste their money. If you have a  case that you believe is marginal, get it to your underwriter as quickly as possible to determine any possible serious issues so that you are not calling everyone two days before closing. At this  point people have packed and moving trucks are sitting in front of their housing, forget how it affects the sellers of the property and your relationship with your business partners. Doing this  enough times will most likely result in no relationships with business partners.  
In closing I will say it only takes a few minutes to make sure you have doable deal so take the time necessary to do it and be thorough so the case doesn’t fall apart at the end. Trust me when I say not only will you appreciate it, but so will everyone involved in the transaction. 

Have a great week. 

About The Author

Bonnie Wilt-Hild - As an op-ed writer, Bonnie holds 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".


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.