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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2012

Look at Loans with an Underwriter’s Eye

Thorough submissions are required to close more loans

The mortgage industry has changed a lot in the past few years. As many people left the business, they bemoaned how difficult it was to close loans in today’s lending environment. But is it really difficult to close loans, or is it simply that it was too much work for those who just wanted easy money? If so, it will only benefit the industry to be rid of those who think that documenting a borrower’s financial responsibility, willingness to repay debts and capacity to make payments is too much to expect.

For the mortgage brokers and originators who continue to work today, submitting a quality loan package is key to successfully closing loans. But what does such a package consist of? Looking at a loan from the perspective of an underwriter may help brokers understand what a quality submission is — and it may help them close more loans, as well.

For underwriters, there is one simple difference between a loan that goes straight to closing and one that feels like it drags on forever: a complete, quality loan package. Every file has the same underwriting criteria, but how you document that file can make or break the process. These eight tips may help your loans go straight to closing.

  1. Confirm your transaction. Talk to your borrowers. Find out what their needs are and what they are trying to accomplish. Review the loan with them in detail. Don’t wait until the loan documents are out to discover that a borrower didn’t want to bring cash to closing. This will result in a re-underwrite to restructure the loan. Make sure that you and the borrowers have explored all of the options for their situation.
  2. Take a complete application. Each area of an application has a purpose and tells a small part of the entire story about these borrowers. Make sure you get a complete picture of the borrowers’ financial position upfront. Avoid surprises like undisclosed self-employment or unreimbursed employee expenses. Don’t complete forms for borrowers or have them sign blank documents. Know what each disclosure is, what it says and why it’s needed. For example, too often originators will either complete the inquiry letter for a borrower or have the borrower sign blank forms, only to discover late in the process that the borrower recently bought a new investment property or a new car and no longer qualifies for the loan.
  3. Review your documentation and check dates. Always get the most recent information from borrowers. Review tax returns for additional expenses. Go over paystubs. Are there garnishments? Support payments? Check bank statements for activity. Are there overdrafts? Unemployment compensation deposits on the bank statements? Look for odd deposits and withdrawals that could be red flags and review any inconsistencies in detail with the borrower.
  4. Know your wild cards. Automated underwriting (AU) engines do not address or evaluate all information or situations. Know what items the automated engine evaluates and scores and what items the underwriter will review. Underwriters are still responsible for reviewing employment history and evaluating the stability of employment, as well as the likelihood of continuation. Just because the automated system only wants the most recent paystubs doesn’t mean the borrower only needs to have been employed for 30 days. Documentation waivers are different than qualification requirements. Every AU system puts out a guidebook on what the system evaluates and what is still the responsibility of underwriters to verify. Read these guidebooks and get to know the systems and how they work.
  5. Submit the full package upfront. Don’t send in the absolute minimum. This usually results in you having to return to the borrower for additional items. The more times you have to go back to the borrower, the longer the process will take. Get it right the first time rather than having to go around in circles with borrowers, processors and underwriters.
  6. Tell the underwriter what you know. Submit a cover letter with the file explaining how you came to your conclusions. Explain your reasoning and your position on the file. Explain how you calculated income and tell them the source of cash to close. A quick cover letter can save you and your borrowers a lot of time.
  7. Meet the conditions. The underwriter has a reason for asking for additional documentation and usually will be happy to address it with you. Conditions of loan approval often are the result of current secondary market focus. You can be sure that a condition required by the underwriter is present because the information or documentation is required currently. Underwriters would rather not have to condition a loan application, necessitating multiple reviews of a single file. Just understand that there is a reason for the condition and a purpose for getting it.
  8. Communicate. This is the most important part of the process. There’s usually a solution to whatever hurdle you have, and the underwriter can help you resolve it. They cannot help you if you don’t know the situation or try to dance around it. Every underwriter wants to approve loans and close them. They’re there to help you and guide you. Don’t be afraid to communicate with them.

Underwriters review files every day, and the same mistakes are made repeatedly. Getting a loan done quickly and with as few problems as possible comes down to quality submissions. By taking responsibility for your part in the process and following these eight steps, you may find that you close more loans, more quickly.


 


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