I am a Mortgage Profession who owns his own Augusta Mortgage here in Houston, Texas and I am blown away at how my industry continues to surprise me on just how stupid things have progressively gotten.
Prior to Automated underwriting the main goal of an underwriter was to determine the risk of nonpayment from a loan applicant. The would review the client's income and debt to ensure they could afford the new home. Review the credit report to see how they have treated other creditors in the past and finally check to see if the borrower was gainfully employed and that his employment was stable. If everything was good they would approve the loan and we would have a very happy client. Then came automated underwriting.
Automated Underwriting is great because it allowed the loan officer to gather the borrowers information, push a button and a few minutes later you got your answer. You could immediately give feedback to the client and real estate professionals and everyone was happy.
Well this step removed the brain from the underwriter and they no longer skillfully looked at the borrowers financial situation. It wasn't important if the client paid all his bills on time, they now just looked for the credit score. Yet, they would approve loans with debt to income ratio's exceeding 60% even though the client could not afford it. All because the automated underwriting decision said they could. Underwriting at this point became more about meeting the requirements of the Automated Underwriting and less about the client's ability to repay the loan.
Then we had the subprime crisis in 2006 which was followed by the mortgage meltdown in 2007. This caused lenders to start creating thier own rules to go along with the ones of the Automated Underwriting Decision Engine used. Now it doesn't stop there, the mortgage insurance companies had to put their 2 cents in and create their rules. So the Automated Underwriting Decisions now mean absolutely nothing. So guess how confused loan officers are today.
Foreclosures are at an all time high and Fannie Mae is on a rampage trying to get Mortgage Companies to buy loans back at a record pace. Underwriters are now scared out of their minds. I call it "Scared Stupid". Here is an example; I have a client were the underwriter removed the dividend income because she couldn't verify that it would continue for 3 years. When she told me this I wanted to scream into the phone and say, "What about the million dollars in stock". I didn't do that because it is unprofessional. I simple stated that all she needed to do is divide the clients annual income into the Million dollars and that would more than prove 3 years of continued income. In this case it was 8.19yrs. Yes, the client could draw down his entire annual salary for 8 years and still have money in the bank. She is still scared to make the decision, so we are having a meeting with her manager tomorrow.
If you are a Real Estate Professional having a extremely knowledgeable Mortgage Professional is hugely important in today's market. If you have a great one give them a pat on the back. If you don't have a good one, get one you success may depend on it.
I want to end this by saying, Underwriter's aren't evil because I have been one and I realize the pressure they are under. The mortgage industry is just in a slump and like always things will settle down and normalize. Lastly, I love being in the mortgage industry, but every once in a while you just have to vent. Thanks for listening.