Underwriter = Ultimate Procrastinator

By
Real Estate Agent with Better Homes & Gardens Premier VA 0225101026

 

Procrastinate: to defer action; delay: to wait until an opportunity is lost.  Well, that pretty much sums it up.

What does the underwriter do? They are responsible for determining if the risk of offering a mortgage loan to a particular  borrower under certain  parameters acceptable.  It is always up to the underwriter to make the final decision on whether to approve or decline a loan.  Seems like an important job, right?  So why do they not bother to look at a file until the day before closing to make the decision to approve or decline?

 

 

When a transaction is delayed or falls through moments before closing, it is not going to be the agents, sellers or buyers fault.  It most likely will be because the UNDERWRITER  has procrastinated and not reviewed the file until the last minute.  THAT is when they discover "conditions" that need to be met before closing creating a panicked situation for the Buyer to comply.

As a Realtor here in Northern Virginia, I do whatever I can to avoid these situations, but the sad truth is I have no control over the practices of the underwriter.  If the settlement of the purchase gets delayed or even if the loan is denied the day before closing (and possibly placing the buyer in default) it is no problem to the underwriter.  They just move on to the next file.  Do they not realize that had they reviewed the file weeks before closing all parties to the transaction could have had the time to help meet the underwriters conditions? Do they even care?

I am so frustrated with this process.  Why do they wait for the last minute?  Got me.  I understand they will need to verify information such as the buyer's credit again prior to releasing the loan documents for closing, but in my opinion, that is not the time to review the file for the FIRST time.

As a buyer, it is important to obtain a loan with a lender that has an "in house" underwriter.  This makes it possible for the lender to work closely with the underwriter to establish a game plan to correct any conditions.  If the underwriter is located in another location (most likely in another State!) then this opportunity is lost.

Need references for lenders in Northern Virginia with in-house underwriting?  I have a list I would be happy to share:)

 

Heather Embrey
  Your :) Real Estate Source
Realtor®,  Associate Broker - Licensed in Virginia
NVAR Leadership Institute - Class of 2011
McEnearney Associates
1320 Old Chain Bridge Road
McLean, VA 22101
Cell/Text: 571-236-2616
Fax: 703-839-8160

 

 

 


 

 

 

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Rainmaker
256,674
Lisa Delzompo 951-704-4559
PRW Lending, Inc - Temecula, CA
Experienced, Trusted, & On Your Mission: Home

This is a great topic: why does the loan fall through at the last minute.  Out here in CA, I would suggest that it is the client's loan officer who is the sticking point.  A solid loan officer takes all the client information, pulls credit, looks at supporting income documentation and figures out whether the client qualifies up front.  If the loan officer is new or misses something, hopefully the processor or underwriter catches a problem early.  In my experience, it takes several people to miss an issue for it to explode at the last minute, or else, during the process, something changed with the client - loss of job, opening of new debt (despite being told not to!), old collection popped up after the initial credit pull (credit is pulled a second time these days, right before closing), etc. 

 

As you might have guessed, I'm a loan officer.  We get the clients' info up front and do a full analysis before we give a pre-approval letter.  We know which of the lenders we use allow for which quirks, and we submit accordingly.  We run scenarios by underwriters all the time, ahead of time, and our lenders bend over backwards to get through our packages on time for COE, short sale deadline, etc.

 

Real estate agents definitely do need to know at least one loan officer who does full doc preapprovals and can get an underwriter call up front.  Good post!

Jan 31, 2012 02:05 AM #1
Ambassador
762,875
Doug Rogers
Bayou Properties - Alexandria, LA
Your Alexandria Louisiana Agent

My guess is that the underwriters are swamped with all the refi loans. But I agree those "last minute hiccups" are frustrating!

 

Jan 31, 2012 02:23 AM #2
Rainmaker
75,633
Heather Embrey
Better Homes & Gardens Premier - Falls Church, VA
Your :) Real Estate Source

Thank you Lisa!  It is good to get the view from a lender's perspective.  As a Realtor, is there anything we can do to avoid these situations?

Jan 31, 2012 03:31 AM #3
Rainmaker
332,920
Chris and Berna Sloan
Group 1 Real Estate - Tooele, UT
Tooele UT

A perfectly valid reason to stick with a local lender with in-house underwriting. We use several different ones here, and it's amazing how few of these last minute propblems crop up. It's to the point where I cringe when a client shows up with their own lender. We deal with each of these clients with it already in our mind that we'd better be ready with a back up plan...Thanks for the post!

Jan 31, 2012 05:31 AM #4
Rainmaker
1,466,990
Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

I had a disagreement with my manager about this a month or so ago.  She stuck up for underwriters and blamed it on the appraisers.  She said the appraisers do not have a time frame they have to provide underwriters the full appraisal.  She wanted me to cut the mortgage company slack because they required the buyer to get a mold test of the property a few days before the drop dead date that we had to close on a short sale.  Buyer had to pay for a rush mold test and we had to find someone who could do it immediately. 

Jan 31, 2012 05:45 AM #5
Rainmaker
639,799
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Thanks for the nice post today,  I enjoyed the read.

 

Patricia Aulson/ Seacoast NH & ME REALTOR

Jan 31, 2012 05:52 AM #6
Rainer
34,376
Jaime Herrera
LION - El Paso, TX

Competition is the name of the game. My only advice is: go to whomever gets you the results you need. NEVER put yourself at the mercy of some lazy underwriter. That, of course, applies to any person you deal with. If you like the lender you typically deal with, then have a serious conversation with the person in charge, rather than the underwriter. If your Broker won't allow that, FIND ANOTHER BROKER.

Jan 31, 2012 06:16 AM #7
Rainer
105,055
Karen Krupovage
Affinity Real Estate, LLC Alamogordo, New Mexico - Alamogordo, NM
Owner & Qualifying Broker, Affinity Real Estate, L

I agree that the in-house underwriters are the way to go! We get so tired of people saying "its at underwriting" - its like the invisible hole that no one seems to know about until the day before closing.  

Jan 31, 2012 06:46 AM #8
Rainer
273,275
Coral Gundlach
Century 21 Redwood Realty, Arlington Virginia - Arlington, VA

Great post Heather.  The best listing and buyer's agents are truly at the mercy of these lousy underwriters and the ones that review files at the last minute and make up conditions they should have already asked for are the least communicative.  Congrats on the featured post!

Jan 31, 2012 06:47 AM #9
Rainer
284,218
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Heather -- another comment from a loan officer here; we find that our underwriters typically take 2 days after the appraisal is in, to review the file, and then look for any conditions to be corrected within another 2 days.  If the conditions are not immediately dealt with, then there can be last minute hiccups.  Of course, sometimes the timeline in the P&S is so tight there is no wiggle room.

Jan 31, 2012 07:11 AM #10
Rainmaker
1,549,306
Carla Muss-Jacobs, Principal Broker (503) 810-7192
BuyersAgentPortland.com | Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time - Portland, OR
Buyer Focused ~ Buyer Results

I try . . . try . . . to get the buyer's through underwriting with their loan approval.  Some lenders will get underwriter's blessing with the pre-approval.  Rare but sometimes I ask for this and it's done.  But I agree with your equation!  ;-)

Jan 31, 2012 07:16 AM #11
Rainmaker
75,633
Heather Embrey
Better Homes & Gardens Premier - Falls Church, VA
Your :) Real Estate Source

Thank you all for your contribution to this subject!   (BTW, sorry!  I just realized I spelled procrastinator wrong in the headline.  argh!)

Jan 31, 2012 09:24 AM #12
Ambassador
1,396,871
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

Nope we have no control. I have an appraiser in the office. She finished an appraisal and sent it over last week. They requested a few changes and she did this and resubmitted. She got it back again after review and the lender wanted her to change "Bob & Mary Lender" to "Bob and Mary Lender". This review/change took 2 days to get thru the system. How stupid is that? 

Jan 31, 2012 11:22 AM #13
Rainer
77,960
Mike Morrison
Will & Will Real Estate Brokers, The Woodlands, Texas - Houston, TX

Heather,

I'm going to lay it down. You can pick it up or not. It's not the underwriter. They are just a cog in the machine.

You hit on only one key point that faces us, RISK. It's the Risk Management Folks that are calling the shots. Follow me, why in this enviorment would you loan someone who may or may not pay back the loan for 4% or less for 30 yr. period? That's the question, the ability to satisfy the debt. The US Economy is modeled on consumption but, with a current caveat of NO RISK

So,with that said, if you could borrow from the central bank at 0.0% and purchase a Risk Free Instrument at 2.5-3.0% or loan X amount to a person @ under 4% for 30 yrs, who may default at some point in that 30 yr period which would you do? What you are concerned about is a dirty little secret called Debt Yield. Right now, Lenders want a Debt Yield of 10% +/-. If it ain't there, no loan. It's that simple. Risk Free v. Risk. 

What's the solution? Higher Interest Rates to make Risk attractive to lenders. I remember the days of 16% rates. It's coming back but, not until 2014 according to the fed.

So, Real Estate Market= Supply/Demand & Risk/Reward. Been that way since there was a real estate market. This is a hard pill to swallow but, this is free market economics. (I use the term free very loosely)

 

Jan 31, 2012 12:59 PM #14
Ambassador
1,999,137
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Heather - Having an inhouse underwriter can be a great tool for getting a deal done.

Jan 31, 2012 02:33 PM #15
Rainer
243,305
Doug Bullwinkel
Academy Mortgage Group - Roseville, CA
NMLS #281609

Working with a proactive loan originator is a good start in avoiding this kind of problem.  In my company, I take the loan application and gather the documentation up front, then review everything to make sure the loan is within guidelines.  I then run the loan through the Desktop Underwriting Software (DU) and get the automated approval.  The underwriter's function is to review the documentation and make sure everything matches what was input into the system software.  Secondly, the appraisal is reviewed to make sure it meets the minimum standards.  Credit and continuing income are reviewed to determine that buyers have a reasonable expectation of being able to repay the loan.  Missing items and explanations are conditioned for and the loan final approval is issued, usually within 10 days from the initial loan application.  Loan denials should never come as a surprise at the 11th hour.  While no loan is perfect, problems need to be communicated immediately when discovered so appropriate action can be taken to avoid this situation. 

Jan 31, 2012 05:42 PM #16
Rainmaker
427,540
Rob Spinosa
Supreme Lending, Marin County, CA - Mill Valley, CA
Executive Loan Advisor, Marin Mortgage Pro

You make some excellent points.  I will totally back you up on the benefit of having an in-house underwriter.  We enjoy that here at RPM, and in our case, the individual is excellent.  Second, a large responsibility falls on the loan originator and his/her processor.  When they package a complete and concise file that can be reviewed without inconvenience, and underwrite can literally take just a few minutes.  My job as a mortgage loan originator is to put together files that get on and off the underwriter's desk in record time.

Finally, it is the responsibility of all of us to educate the homebuyers that when they research options for a home loan, they consider not only the rate and costs, but also the ability of an individual and organization to get the loan done. 

Feb 01, 2012 12:37 AM #17
Rainmaker
256,674
Lisa Delzompo 951-704-4559
PRW Lending, Inc - Temecula, CA
Experienced, Trusted, & On Your Mission: Home

Hi again Heather: you asked, as a realtor, is there anything you can do to avoid these situations?  The answer is, it depends on what problem crops up:

1. A problem that the client has with the scenario from the get-go: something on the tax returns (deductions to income or failure to claim the rent from an income property as income, etc.), problem with debt to income ratio, reserves, problem on the credit report, funky deposits of cash into or out of bank account... all of these should be caught by a full analysis of the client's documents up front.  The only way to do that is use a loan officer who gets the client's permission to pull credit, as well as gathers those items (paystubs, W2s, tax returns, bank statements) up front from the client, works up the entire file and sees, yes, this client qualifies.

2. A problem that pops up for the client in between the full package workup and COE: collection hits the credit report, client chooses to work fewer hours than their pattern in the past (example: a client was a substitute teacher who "passed" on starting back to her full time substitute teacher position for a full 6 weeks, tanking her monthly income), client buys a car or other big ticket item... 

We give our clients the "10 Commandments" - a funny but true list of things to do and not do when applying for a real estate loan - basically, keep paying your debts timely and don't buy anything on credit.  It helps for the real estate agent and loan officer to remind the client.

Of course, job losses, etc., that are out of the client's control are still going to happen.

If anyone wants a copy of the 10 Commandments, please just email me.

Feb 01, 2012 02:05 AM #18
Rainer
127,573
John Fauth
Coldwell Banker King Thompson - Grove City, OH
Turning your dreams into an address!

I had this problem with an underwriter and LO. After the first few weeks of nothing I realized I had to call every other day to get them up and running. Twice they asked for documents I had sent them and had email confirmation that they had recieved them (them actually acknowledging they recieved it) Needless to say it got down to less than a week away from closing wich was the monday after Thanksgiving. It closed but only because I had to keep birdogging the LO to birdog the underwriter (who would not talk to me).

Feb 01, 2012 08:22 AM #19
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Heather Embrey

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