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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   May 2017

Trust Builds Bridges in Underwriting

Work to ensure the lender views you as a valued partner

The mortgage underwriting process includes a variety of steps, such as verification of the borrower’s financial representations, obtaining an appraisal from an experienced appraiser and, of course, legal steps, which include the title search, insurance verification and a detailed survey of the property.

Before a commercial mortgage broker approaches a lender with a new loan, that broker must be prepared to make the lender’s underwriting process as easy and efficient as possible. In addition, the broker must be very cautious about the representations made to the lender regarding the prospective loan. Don’t promise what you can’t deliver to underwriting in a timely manner.

Failure on the part of a broker to ensure that the borrower is delivering to a lender the typical underwriting requirements — such as construction loan schedules, a partner’s equity verifications, and credit and background verification forms — will suggest to the lender there may be an issue with the loan request, and that can cause an underwriter to eventually reject the loan.

Value verification

A borrower’s representations regarding the assets to be collateralized, and other key property and financial information, become a critical part of the underwriting process as the deal progresses to final approval and closing. From the first day, a lender bases its interest in the loan on the representations of the borrower. The primary interest of the underwriter is to verify a borrower’s representations, which sparked the initial lender interest. 

Lenders want to be sure a property’s purchase price is comparable to the values of similar properties in similar markets. The lender will get an independent appraisal of the property prior to closing the loan, and the results of the appraisal could affect the rate and terms of the mortgage.

A licensed appraiser will provide an estimated property value that serves as collateral for the mortgage through a physical inspection and purchase-price analysis for comparable properties recently sold in the area. This part of underwriting is a critical component to the lender’s decisionmaking process because it will establish a third-party verification of the property’s value. Occasionally, a prospective lender will review an appraisal presented by a borrower, but brokers should understand most lenders will always require an independent appraisal performed by an experienced, licensed appraiser.

Third-party assistants

Many lenders, as part of their underwriting process, will engage third-party professionals to perform background research on the borrower. This aspect of underwriting includes the typical research on the borrower’s financials, such as verifying credit scores and assets. It also will often involve more detailed research into the borrower’s history, including a criminal background check, as well as an examination of driving records and litigation history. 

Underwriting teams will often expend considerable effort to ensure there is a high degree of confidence in the borrower’s ability to perform as promised and repay the loan under the agreed-upon terms. In addition, brokers should understand their client’s loan is one of many the lender is in the process of underwriting, and the borrower can take steps to help the lender speed up the underwriting process. 

Before a commercial mortgage broker approaches a lender with a new loan, that broker must be prepared to make the lender’s underwriting process as easy and efficient as possible.

For example, the borrower could expedite the underwriting process by retaining a respected third party to prepare a Phase I environmental site assessment on the property. Such a move will not only ease the underwriting burden for the lender, but it also will underscore the borrower’s professionalism and understanding of the process. That can go a long way in establishing a partnership with the lender that is built on mutual respect and trust. 

Three items every underwriter needs to confirm are the title history, title insurance and flood-zone status. Given underwriters verify all these via third-party submissions, you can again streamline the process by having the borrower’s attorneys provide all three items, again easing the burden on the lender’s underwriting department and clearly demonstrating your understanding of the process, along with the borrower’s willingness to assist.

Partnership building

A loan file typically makes it to an underwriter’s desk after passing a preliminary review. Lenders prescreen applications to determine whether they meet basic criteria. Sufficient preliminary information about the mortgage request has already been reviewed and internally discussed before it ever progresses to underwriting. 

Often, the lender and borrower sign a formal agreement that outlines the terms and conditions of the loan. At that point, all that remains prior to actually closing the loan is the completion of the underwriting process and verification of the borrower’s representations.

Although a loan application with complications that falls short of the lender’s criteria may be sent to an underwriter for consideration, lenders usually only spend time and resources on files with compelling circumstances that warrant eventual approval. The underwriter, however, may uncover new information or misinformation that disqualifies the applicant.

When you think about underwriting, realize that you and the borrower are partners with the lender, with the simple goal of closing the loan. Communicate openly and with sincerity. Convince your lender and the underwriting team to believe in you and the borrower, and you will experience positive results. No one ever likes surprises.  

•  •  •

Once a loan has progressed to underwriting, the lender, in many ways, is looking to close the deal because it represents a potentially profitable relationship. To cement the deal, make sure the lender and the underwriting team see you and the borrower as partners. That happens with open, honest communication, which paves the road to a closed loan.


 


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