In Front of the Eight Ball

Written By: Bonnie Wildt, Op-Ed Writer

I have said it before and I will say it again and that is, do not believe everything you hear or read for that matter. In this particular instance I am referring to AUS Findings. I have had countless conversations with processors and loan officer who want to know why I am asking for documentation that the AUS findings have clearly stated wasn’t needed or worse, they can’t believe I am turning a loan down that has an Approve/Eligible. So here it is again and pay particular attention to the details because just because you have an Approve/Eligible or Accept doesn’t necessarily mean you have a done deal.

First, let me state that it is my opinion that DU or LP will approve just about anything if you tweek it enough.  This is why God invented underwriters in the first place, so that someone was making sure that the information that was being put into the AUS system was a) valid and b) verified in the loan file.  I can’t tell you how many times I have had a borrower who has no employment history to speak of short of the most recent 3 months, no history of earnings of any kind excepting the $2000.00 they made the year before and for some crazy reason everyone wants to give them credit for anticipated commission earnings for $50,000 which their employer guaranteed. Well I will be the first to tell you that anticipated earnings are not acceptable and honestly, you need a two year history of commission earnings to use it.

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Next, just because you have a 620 credit score and an AUS approval doesn’t mean there are no questions asked. Quite frankly if the borrower has a sporadic employment history, excessive ratio’s, borderline credit with a history of short sales and bankruptcies and I look at the bank statements and there are 6 overdrafts in the most recent 60 days and they have no history of paying any kind of housing expense and are getting a gift for closing, your underwriter is most likely going to say noooo. Now I know you are thinking no biggie, I will reduce the interest rate, get the housing to income ratio down below 45% and that will do it, you know the underwriter has to approve it now. Guess what, the answer is still noooo.

Seriously, before you jump out of the gate and tell the borrower you are good to go with your Automated loan approval, look at the case and make sure you have covered all of your bases. Don’t just throw it into underwriting assuming that because you have an AUS approval it’s getting done. If you have a marginal case which includes some or all of the risk factors indicated above, document the file to demonstrate what happened in the past and what the borrower has done to overcome the issues. In short document some compensating factors. Additionally income not used to qualify is always nice, alternative credit if you need it, an explanation for previous derogatory credit or short sales or maybe some reserves in the form of retirement funds and the conditions under which they can be withdrawn. 

Lastly, have your borrower write a letter explaining what happened with respect to previous credit issues and how they have rectified the situation. If the borrower is increasing their housing expense and have no history of paying a rental payment or accumulating savings, have them put together a budget to demonstrate that they have made some plans and can demonstrate how they are going to afford this increase in living expenses. Trust me, it is far easier to have an underwriter overturn an Loan Suspense then revive a declined loan so don’t submit something that he or she will want to turn down after the first look.

In closing, I will say that if you take a little time to look at what you have and address the items that might cause issues once the case is in underwriting, you have a far better shot at getting an approval on a marginal case then you do if you just let your underwriters imagination run wild with respect to what is going on with the borrower. Trust me, he or she will always contemplate financial mismanagement first. Remember clean files, beget clean approvals.

Have a great week.

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".

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.