Underwriting is subjective

By
Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
https://activerain.com/droplet/5brV

 

Underwriting is Subjective

 

 

tightening the belt

     To many people the underwriting process is a mystery, however in the mortgage industry it really boils down to something very simple - risk assessment.  An underwriters job is to assess the probability of an applicant defaulting on the mortgage loan.  If the underwriter feels there is a low level of default, a loan will generally be approved provided it meets all program and documentation guidelines.  If the underwriter feels the loan is a high risk, it can be declined despite meeting program and documentation guidelines.

 

     This is important especially in today's climate.  The CFPB is on a witch hunt for lenders approving sub-par loans and sometimes lenders are punished unfairly due to a high rate of defaults that may not even be the lender's fault.  Litigation on top of litigation has tightened the standards of many lending institutions.  With that being the case, underwriters are going to be analyzing loan files even more prudently, and making sure that there is little doubt a loan will perform prior to issuing an approval.

 

     What many people don't understand is that underwriting goes beyond guidelines and beyond program parameters.  Underwriting has a subjective element.  If an application meets program guidelines and has satisfactory documentation, it can still be declined if an underwriter feels it is too great a risk.

 

     Files being declined in this manner are few and far between, but they do happen.  There are some applicants who barely squeeze within program guidelines, but really have nothing that would be considered strengths.  Spotty credit history, barely enough assets to cover required down payments and no history of savings, high debt-income ratios (this has become the biggest killer), and payment shock are some factors that, when combined, can kill a deal despite meeting program guidelines.

 

     As an applicant, the best thing you can do is prepare your loan application as if you were preparing a resumé.  Exhibit your strengths as a borrower, and offer explanations and compensating factors for your weaknesses.  Working with a good loan officer will help you have the best shot at getting approved for a mortgage loan and preparing for any questions or concerns an underwriter may have.  The more questions your loan officer has for you the better, because the more information that's given up front means less information will be requested later.  If all of an underwriters questions are answered before they can ask them, the chances of a seamless loan approval process are dramatically increased.

 

 

photo by Ken Teegarden

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Debbie Reynolds 01/30/2014 11:23 AM
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Rainmaker
1,558,046
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Personally, I don't find anything wrong with the tightening of the belt.  I was in the bubble years and saw loans passed on simply because the borrower had a pulse.  Risk assessment, I like the simplicity to be honest!

Jan 28, 2014 10:28 AM #3
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Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (800) 591-6121

John, thank you for bringing this subject u.  Underwriters are becoming more careful about what they will approve due to so much scrutinizing.

Jan 28, 2014 11:41 AM #4
Rainmaker
1,143,921
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

The feds can do what they want they will only spin it and point the finger as that is all they do, aside from shut down companies and or fine them.

Our nation needs doctors yet we sue them over any and everything and the cost of them doing business is so great they dont really do all that well for the amount of schooling and money spent. Just like small business and even large business today. The feds can do what they will but at some point you have to wonder "why am I doing this again"??? Its absolutely crazy what is going on nowadays.

Underwriting is simple can the borrower pay, do I believe they will pay, have they proven ability to pay? Then is my asset safe (as it can be these days) with some equity and move on to the next really this is what we need a 4000 page novel and YET another government watchdog to oversee!?!?!?!?!?!?!?!!? 

Jan 28, 2014 12:10 PM #5
Rainmaker
2,741,845
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher
Waiting for the verdict just seems like too long of a process for me. There are better ways. Love and light, Laura
Jan 28, 2014 12:49 PM #6
Rainer
103,057
Rosie Moore
Serving Sugar Land, Richmond, Rosenberg, Missouri City - Sugar Land, TX
Thanks for sharing. Buyers are pretty much at the mercy of the underwriter. The risk of a buyer defaulting is a big factor whether a loan application is rejected or accepted. I haven't experienced that before with my buyers and hopefully never.
Jan 28, 2014 01:25 PM #7
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Margaret - it is tough to wait out the underwriter response.  Even when I know a file is golden, I dread seeing a list of unnecessary conditions.  Sadly I think it'll only get tougher.

Debbie - you are right, but every situation is different.  For example, if an underwriter approves a file, and then by happenstance there's a default completely out of anyone's control....it still sticks to the UW as a defaulted loan, regardless of their competency.  Sometimes, I understand their hesitation, especially on questionable files.  It's easier for an underwriter to stick their neck out if they've never been burnt by doing so.

Carla-  I agree, but I'd like to see a happy medium.  There's not nearly enough common sense involved in the process (especially for self-employed borrowers).  I agree we need to prevent another mess, but there's got to be a middle ground.

Ralph - thank you for commenting, I'm afraid this will continue as fines are levied & lenders are sued for things that aren't necessarily even their fault.

David - I completely agree & share in that frustration.  Things are out of control & between large fines, G fee increases, PMI increases on FHA loans, and mega-settlements with large banks, it seems the Feds have found a new piggy bank in the form of the housing industry.

Laura - it's tough, we do our best to know the verdict before we even submit a file, but it's not an exact science all the time.  Thanks for the comment.

Rosie - Thank you for reading.  It's rare that subjectivity causes a file to be declined, but it does happen rarely, and with the changes going on in the industry, I wouldn't be surprised to see it happen with more frequency.

 

Jan 28, 2014 02:18 PM #8
Rainmaker
4,432,093
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

I do not blame the underwriters for following guidelines because if something goes wrong they may be sued. They have to do their job. The best thing consumers can do is give them everything they request in a timely manner.

Jan 28, 2014 07:37 PM #9
Rainmaker
1,369,877
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

John, the underwriter always seems to want one more piece of paper and often the same one twice. I believe they are overly cautious.

Jan 28, 2014 10:15 PM #10
Rainmaker
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Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

The buck stops at the underwriter...Yes to speaking that sources language fluently too

Jan 28, 2014 10:36 PM #11
Rainmaker
323,165
Fred Cope
Reliant Realty in Nashville, TN - Nashville, TN
Looking For Homes With A Smile

John, I agree that an underwriter has a feel for a loan.  A former HUD Director once told me that my underwriter had a nose for a loan, I agreed.  My concern is that there is an emotional acccusation leveled unfairly against underwriters, that they were not justified in declining a loan.

I would compare an underwriter to a physician: the feeling comes from much study, lots of experience, and serious analysis of the file.

The afore mentioned underwriter often told me, "My job is to approve loans--not to reject them.". There are loans apps that have no grounds for approval.  Most loans that are declined had no legitimate hope of approval, or were poorly packaged.  I have seen underwriters agonize over files.    

You and your processor are to be commended when the underwriter opens a file and finds answers before questions arise.  Thank God that there are underwriters faithful to their task.  They make loan origination a great job.  

 

Jan 29, 2014 01:27 AM #12
Rainmaker
561,561
Eric Kodner
Madeline Island Realty - La Pointe, WI
CRS, Madeline Island Realty, LaPointe, WI 54850 -

I have seen some underwriters ask absolutely ridiculous questions. To say that underwriting is subjective is an understatement.

Jan 29, 2014 02:16 AM #13
Rainmaker
283,169
Kathryn Gorham
Green Key Realty - Emerald Isle, NC
Emerald Isle NC Crystal Coast

Some underwriters do seem to want one piece of paper after another and another.  It gets tedious to buyers sometimes.  Thanks for sharing.

Jan 29, 2014 03:30 AM #14
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Gita - thanks for the comment and you're right- I dont expect an underwriter to put their career on the line just to get a shaky loan approved.

Michael - you're right, sometimes this is simple miscommunication between processing & underwriting (it can even be as simple as a document being mislabeled when it's saved in the loan file, therefore the underwriter doesn't know it's there).  Other times, it's a disorganized underwriter.  It's a surprise to many people to find out how much really goes into running a very efficient operation.

Richie - communication with underwriting is paramount to getting loans done, and done efficiently.  Thanks for the comment.

Fred - I too have had underwriters become emotional over declining loan files - they really are just trying to find a balance between approving loans, and avoiding costly defaults for their company, it's a fine line sometimes.

Eric - I have too, but over the years I've come to understand underwriters sometimes have "DUH!" moments just like I do on occasion.  That's why having an open line of communication directly to the underwriter is so important...it's a shame not every lender offers that line of communication.

Kathryn - thanks for the comment.  I've learned (through error) that it's better to warn borrowers up front about the potential tedious nature of the underwriting process.  If you give borrowers a heads up, it often can become something to laugh about along the way. I've used the line "the underwriter couldn't think of anything else so they're asking you to send the same thing again...", I'm grateful to the clients that take it with a grain of salt

Jan 29, 2014 04:19 AM #15
Rainer
25,312
Brandon Vukelich
BV Real Estate - Auburn, WA
Exceptional Service. Stellar Results.

I couldn't agree more!  I have always wanted to personally meet an underwriter or two and pick their brains.  As mentioned in other comments to the post, I too have seen some "interesting" requests or questions posed to my buyers by UW.

Jan 29, 2014 05:10 AM #16
Rainmaker
1,220,056
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Excellent post, John.  Especially like this line, "The more questions your loan officer has for you, the better".  It means the client and Lender will be better prepared to submit the loan successfully ... a huge plus.  If the questions portion of your Pre-Qualification is short or missing ... you're in trouble as a client ...

Congrats on a well-deserved Feature!  Now .. when did you say you're moving to Chicagoland?????

Gene

 

Jan 29, 2014 05:42 AM #17
Rainmaker
323,165
Fred Cope
Reliant Realty in Nashville, TN - Nashville, TN
Looking For Homes With A Smile

John, you are getting a good number of comment, and your responses have been good.  I was an MLO for twety-five years, and have heard many criticisms against underwriters (even rendered a few).  It is easier to criticize someone with no face, and when we have run out of patience.  We need to understand that the underwriter reviews scores of files from dozens of processors in any one day. When documents are missing, filed out of order, or incomplete she is like a mouse in a maze: deadend--deadend--deadend.  She has to set that file aside, contact processor, wait on response, then re-review the file, attempt to make sense of it all, and render a decision (all while under the pressure of "we are set to close at 2pm.").

Now, nobody else is to blame: well it did take the loan officer an extra day to get file turned in, and the processor was out one day with a sick child, and the realty agent waited to the last minute to get the septic system letter, and the borrower had to wait until payday to have enough money in their bank account--but that underwriter sure is taking a long time!!!  We shipped that file yesterday afternoon.

Critism is plentiful, praise rare, words of appreciation seldom heard.  I figure if the Lord lets me sit next to underwriters in heaven, I will learn patience, determination, and forgiveness. I may not make that cut, but I am proud to say "I know and have hugged underwriters--I consider it an honor to have worked with many.  God bless them."

Jan 29, 2014 06:28 AM #18
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Brandon - most underwriters are great, it's few and far between when it's the actual underwriter causing problems (though that does happen), but they sure do ask for some crazy stuff from time to time.

Gene - thank you!  I will be on my way to Chicagoland as soon as the average temp is 75 year round! : )

Fred - thank you for the comment, and I agree - UW can be a thankless job, the only time they tend to hear from anyone is when they're being rushed & pressured to get a file done.  It is truly a science to try to streamline the process, and it's best to work WITH the UW team in figuring things out.  Communication is so important.

Jan 29, 2014 06:35 AM #19
Rainmaker
1,220,056
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

John:  I'll work on that!  I can use a great lender like you ...

Gene

Jan 30, 2014 12:49 AM #20
Rainer
308,819
Jimmy Faulkner
Florida. Homes Realty & Mortgage - Wantagh, NY
The Best Of St. Augustine

Great information that I needed to hear. Getting buyers to put their best foot forward is very important for every buyer.

Jan 30, 2014 06:42 AM #21
Rainmaker
11,037
Brian Burrows - (801)920-9343
Equity Real Estate - Solid - Magna, UT
Let me help you buy or sell your home

Thanks for the info John. I know it has been a few years since you posted this but it sounds like not a lot has changed between then and now.

Sep 03, 2018 09:57 AM #22
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