Unsolicited Advice for a Loan Officer’s Evolution – Learn to Underwrite

Since mid 2007, the mortgage originator as we know it has ceased to be.  The requirements for technical knowledge, industry awareness and precision have skyrocketed to the extent that a modern day loan originator is more of an “Under-iginator.” He/she must be 50% loan officer, 15% customer service/sales rep, 5% appraisal reviewer and 30% underwriter to have any business talking to a customer about a mortgage.  As well, the role of a processor has too changed.  Some repetition-based duties have been replaced with technological automation.  While those responsibilities have gone to the wayside, the secondary mortgage market has forced the job of a processor into that of a junior underwriter.  More is now required of all.

Having clear sets of responsibilities and divisions of labor for and between loan officers and processors is one of a two part need in making sure that file follow goes as it should (or more especially, as it can).  Because of the new demands of the modern mortgage marketplace, a loan officer and processor need to understand underwriting and the underwriter’s job in order to originate and process loans.  When an underwriter, processor and loan originator all have a modicum of understanding of one another’s job, empathy is achieved and that empathy improves the “hand off” of the files in the loan cycle.  While the collective skill level of loan officers in today’s market is higher than that of 2007, more is asked of us.  The approach outlined below is good for all of us and consequently, good for the customer.

I have done all kinds of training.  Most of it is a joke.  The best underwriting training that I’ve participated in for underwriting was sponsored by Freddie Mac (outside of certification classes).  Because most loan officers are a Third Party Originator (TPO) or Seller Servicer with Freddie Mac, they can get this training for free.  HOWEVER!!!, when you schedule your class, should you not be able to make it for whatever reason, you have to formally cancel or you’ll be subject to a 50 dollar fee so make sure you attend.  Freddie Mac’s training can be found at http://www.freddiemac.com/learn/uw/.  Registration for their classes can be done here (you’ll have to set up a student ID).  When registering, be prepared to provide your Freddie Mac TPO/Seller Servicer number.  At a minimum, loan officers and processors should take the following classes:

• Documenting Acceptable Sources of Funds
• Underwriting Income and Employment
• Getting Started with Loan Prospector® – Part 1
• Getting Started with Loan Prospector® – Part 2
• Collateral Assessment Review

In lieu of doing this training, you could become a certified mortgage underwriter (CMU) from the National Association of Mortgage Underwriters (http://www.mortgage-underwriters.org/certified-mortgage-underwriter-cmu).  Some might see this as overkill but not only does it help with building a knowledge base, it also helps when dealing with underwriters.  By this designation, they will know you to be trained and credible.  Lastly, your HUD Homeownership Center will sponsor some web based underwriting training that can be worthwhile.

The other benefit of doing this is that you’ll be equipped to use what I think is the best method of origination available.  It follows this process:

1. Take accurate 1003, structure loan, price loan and run findings.
2. Look for what might kill the deal and make sure that there are no guideline violations by using the following methods:
   1. Consult co-workers
   2. Consult FNMA and/or FHLMC sellers guides (link below) – if conventional
   3. Consult HUD FHA Credit Analysis Handbook (link below) – if FHA
   4. Consult VA Credit Analysis Handbook (link below) – if VA
   5. Consult PMI guidelines (if applicable)
   6. Consult investor guideline overlays via their online selling guides
   7. IF AND ONLY IF ALL OF THESE METHODS FAIL contact the underwriter but if these methods failed don’t expect him/her to necessarily know either.
3. After you’ve followed this logical process of due diligence, make sure to notate the loan file in your LOS’s conversation log with the guideline passages, conversations, links of interest and other documentation so that other staff won’t need to do the same work twice.  Always remember that there isn’t a lot of trust in lending these days so don’t expect someone to take your word for it.  Proof is the key.
4. Collect docs and disclosures
5. Reconcile income and assets on the 1003 with documents provided by the borrower.
6. Re-run findings
7. Submit loan
8. Forget about the loan and let the processor do the rest unless absolutely needed

Each time this process is done, it gets easier to do.  It is THE MOST PRECISE way of originating and processing loans and precision makes the process go faster which ultimately serves us and the customer best.  Below, please find invaluable pre-underwriting resources and methods by which you can stay on the cutting edge of lending changes. 

Useful Underwriting Links

• Fannie Mae’s Seller’s Guide
  • https://www.efanniemae.com/is/brokcorresp/index.jsp?cred=bandc
• Freddie Mac’s Seller’s Guide
  • http://www.freddiemac.com/sell/guide/
• Fannie Mae’s Support Number
  • (877) 722-6757 (they are not very helpful)
• Freddie Mac’s Support Number
  • (800) 373-3343 (have your TPO/Seller Servicer number ready)
• HUD FHA Credit Analysis Handbook
  • http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4155.1/index.cfm
• VA Credit Analysis Handbook
  • http://www.warms.vba.va.gov/pam26_7.html
• USDA Guidelines
  • http://www.rurdev.usda.gov/regs/hblist.html  

As a mortgage professional, you must not be content to wait to hear about upcoming changes from investors; you know that you need to follow Fannie Mae, Freddie Mac and FHA.  The changes have been fast and furious over the last three years.  Browsing web pages and trade journals can be a time consuming nuisance.  They are helpful for clarification should you already have the information in your hands but I recommend the following e-mail subscriptions and RSS feeds to stay on top of things:

Fannie Mae: Fannie offers you a choice of alert types and updates to subscribe to at https://www.efanniemae.com/lc/newsletters/index.jsp.

Freddie Mac: Freddie has similar offerings at http://www.loanprospector.com/news/subscribe.html, and http://www.freddiemac.com/learn/subscribe/.

FHA: The best free resource for FHA updates would be subscribing to this RSS feedhttp://www.hud.gov/offices/adm/hudclips/whatsnew/hudclipsrss.xml (internet explorer) and the best paid subscription, in my opinion, would be Chip Cummings’ ABC’s of FHA found here http://www.fha-lending.com/.

Most have thought that this approach is overkill and that nobody will go to the trouble of making these investments of time and energy into academic pursuits.  What I have seen is that those who do make this investment end up out producing those that don’t.  Also, these loan officers have better lock pull through, underwriting pull through and better relationships with other parties in the loan cycle.  Most of all, the loan officers that take these steps seem to inspire more confidence in their clients and Realtors.  To me, that alone makes the investment worth it.