As published in Scotsman Guide's Residential Edition, July 2012.
The underwriting process is an integral part of every loan that’s completed in the mortgage industry — from jumbo loans to Federal Housing Administration loans, purchase loans to refinances. To learn more about this vital facet of the industry, we spoke with Reed Piano, managing director of the National Association of Mortgage Underwriters (NAMU).
What are some of NAMU’s concerns for the next few years?
From an underwriting perspective, we just don’t want to go backward and loosen up the guidelines and allow for subprime loans, which could take us backward. I think that, ultimately, having tighter standards is a good thing, but I think it needs to be balanced out. Right now, [the standards are] overregulated and need to be eased up a little bit. So, a concern is that those regulations don’t get eased and the real estate mortgage market remains stalled. It needs to be eased up a little bit, but not to a point where it’s like it was before the crash.
What can mortgage brokers and originators do to help their deals get approved?
From an originator’s standpoint, the trick is to package the deal correctly upfront. The idea is to obtain everything that’s needed from a borrower, so you’re finding out upfront if the deal is going to be good. That includes obtaining their credit [reports], having W-2s, getting an appraisal and making sure all the pieces of the puzzle are put together. A trend right now, if you want to call it a trend, is manual underwriting. A lot of banks and lenders have shifted from automated underwriting — which in some ways is what got us into this problem, underwriters were relying too heavily on automated underwriting. Now, there’s more of an emphasis on manual underwriting, which is basically having the skills to pick apart a file by hand. But I would say, in terms of the broker or loan officer, the main thing to expedite a closing and increase closing ratios at the end of the month is if they put together a good package upfront. Then there’s less chance that it’ll be rejected and fewer stipulations that come back from the underwriter.
What are some of the most common snags that originators run into during underwriting?
I would say occupancy and debt-to-income ratios. Misrepresentation of occupancy happens all the time, and not disclosing debts that the underwriter finds throughout the review processes alone can cause ratios to exceed guidelines. I think the GFE [good-faith estimate] and accurate disclosure of common mortgage fees and charges continue to challenge origination staffs. Because, obviously, there’s a balance there — the originator wants to not scare off the borrower, but at the same time, they have to enlighten the borrower upfront. The bottom line is: Be accurate upfront with the borrower. You might scare them off, but at the same time, you’re going to close the loan if it is a good borrower and if the borrower agrees to the fees.
Raymond Fleischmann is an associate editor at Scotsman Guide. Reach him at (800) 297-6061 or