Once upon a time, in the land that banks forgot. . . . . .getting approved for a mortgage loan was quite a different and more human process.
- Your loan application was completed by hand and every box was filled out
- Your employment was documented with a written Verification of Employment - no pay stubs and W-2's. . . uh! uh!
- Your bank accounts were documented with a written Verification of Deposit. . . no bank statements. . .uh! uh!
- Your credit report took 3 weeks and then you had to write a letter of explanation for every little ding no matter how minor - there was no FICO score! . . .uh! uh!
- The appraisal took 3 weeks - (they had to wait for the roll of film to be developed!)
- Faxes were not allowed and e-mail did not exist . . .uh! uh!
BUT the Underwriter was an Underwriter! The job of the Underwriter was to evaluate risk. The Underwriter looked at every single piece of paper in the file. There was no computer model to approve/caution/decline the loan. Once the file was complete, the Underwriter would present the loan to "LOAN COMMITTEE" with a recommendation for approval or decline. "LOAN COMMITTEE" was typically a group of Vice Presidents within the bank and they made the ultimate decision on whether the loan was approved or not. At my bank, they met twice a week - Tuesday and Thursday.
Once upon a time, I was one of those Underwriters. I got a loan to underwrite one day that, on the surface, looked like a very bad risk. The credit report was AWFUL! Late payments everywhere - and lots of them. By today's standards, the FICO score would have probably been around 400. But after a review of every single piece of paper in the file I knew this borrower was NOT a bad risk. Her old credit history was good but the last few years was ugly. As I read her letter of explanation and reviewed the proof she provided I got a very good look at the character of this lady.
She had married a man who turned out to be a real turkey. He ran up credit all over town, spent a good deal of money that SHE had saved, got them in thousands of dollars of debt and then left town. Arizona is a community property state - his debt was her debt. This lady could have taken the easy way out and filed bankruptcy - and, at that time, would have been free and clear in two years and easily approvable by any lender. But instead, she worked two full time jobs for three years in order to pay every single debt. No one lost a dime on this lady! Her credit report was trash but she honored every one of her obligations.
When I took the loan to "LOAN COMMITTEE" they flat out rejected the loan. I took that loan back to "LOAN COMMITTEE" twice a week for 6 weeks. Finally, one of the Vice Presidents said "How many times are you going to bring this loan back here?". My answer - "Until you approve it". I won! "LOAN COMMITTEE" finally approved her loan with the stipulation that I, personally, monitor her payment history for one year. No problem. I knew my lady was good and I had evaluated the risk.
Ten months later, I had to take her back to "LOAN COMMITTEE" because she needed a small second mortgage to put a new roof on her home. So, I started out with "We can do this the easy way or we can do this the hard way - your call". Her payment history was perfect - every payment made 7 - 10 days early. The loan was approved in less than 5 minutes.
My lady never did let me down. Would she be approved today? Never. Are Underwriters allowed to evaluate risk today? No - a computer model tells us who is a good risk. Even the underwriters that know how to evaluate risk are required to make the loan fit the box. Unfortunately for us, mostly they are now Validators and the art of true, human underwriting has gone to. . . .the land that banks forgot.