Commercial Magazine

Don’t Fear the Underwriter

Smart and flexible underwriting can save your deal

By Anthony Turdo

When a commercial mortgage goes to the underwriter, everyone crosses their fingers and says a little prayer. The underwriter is often thought of as the slayer of loans. To many borrowers and mortgage brokers, the underwriter is the person who carries around an “approved” stamp in one hand and a “declined” stamp in the other. Guess which stamp requires the ink to be refilled more often?

Commercial mortgage brokers and underwriters often irritate each other. Some brokers wage a frustrating battle of submitting loan after loan, only to be repeatedly declined by the underwriter. Meanwhile, an underwriter’s frustration also builds with every loan that does not come close to meeting the lender’s criteria. How can you break this cycle?

Some mortgage brokers try to play the numbers game, spreading their loan scenarios far and wide among lenders — regardless of quality — to see what sticks. The idea is, if you pass around applications among many lenders, there is a chance the loan gets approved by someone and the broker will earn a commission. This seldom, if ever, works. Brokers soon learn that every bad loan they submit will seriously diminish the number of lenders and underwriters willing to take them seriously. Instead of circulating these poor loan proposals, you should strive to be a sorter of loans. 

Successful mortgage brokers learn from their underwriters. The difference between a sorter and spreader is that the sorter knows what makes for a good loan with a particular lender. They will only submit scenarios that have a reasonable chance of getting approved. Some of the sorter’s loans will naturally be rejected by the lender, but these loans will be of sensible quality, so as not to frustrate the underwriter and damage the relationship.

To become a good loan sorter, the broker needs to get to know several lenders and study their criteria, but there is a word of caution here, too. The broker should not try to take the place of an underwriter. Mortgage brokers need not strive to be a second underwriter and submit only perfect loan scenarios. Most successful brokers will have their share of declined loans as they are naturally working on many deals that won’t exactly match the lender’s criteria. The broker should aim, however, to have a rough idea of what the lender is looking for. They should filter out the bad loans with no chance of approval and submit proposals with at least an average chance of being funded. 

The underwriter also has a responsibility to help the broker become a loan sorter for them, letting them know why a scenario doesn’t meet the standard of what the lender considers a “good loan.” An experienced underwriter also will find solutions to problems. Inexperienced underwriters merely decline the loan without much comment. 

Saving the day

Experienced underwriters solve problems all the time. Take, for example, a mortgage broker who pitched a loan scenario to a private lender for a hotel located in a small tourist town. The property was purchased with a recorded agreement for warranty deed that had some unconventional verbiage in the document. This baffled many people involved in the process — including the title-insurance underwriter who believed the loan could only be insured with an exception on the title policy. Some underwriters would have declined the loan on this basis. In this case, however, the title underwriter was willing to accept additional information. The problem was corrected and the loan closed without a title exception. 

In another case, a mortgage broker submitted a loan scenario on a property with multiple tax liens and city code violations, a possible IRS lien and a borrower with a number of ongoing rehabilitation projects. The borrower also was going through a divorce, did not speak any English and wanted a cash-out refinance. Some underwriters would reject this loan as overly complicated. In this case, however, the underwriter separately resolved each issue with the parties and the loan ultimately closed. 

In a third example, a nonprofit organization needed a loan but ran into a problem because it had changed its management structure. It was unclear who had the authority to bind the organization to the debt. By examining the company’s founding documents and bylaws, the underwriter determined that the issue could be fixed by a majority vote of board members. Invitations were sent to all members to attend a special meeting, where a vote was taken to elect new leadership. Not only did this solve the lending issue, it also helped the nonprofit keep its charter.

On yet another loan, a borrower who owned an older motel needed higher leverage than what the lender could offer. Although the income was enough to service the debt, the property’s type, age, conditions and other factors did not allow the borrower to get conventional financing. The underwriter spoke with a nonprofit that was known to help local businesses and was able to secure a second-position loan that fulfilled the borrower’s needs. There are many more examples in which mortgage brokers, lenders and underwriters can work together to solve complicated problems. 

Many lenders will preapprove your loan in a few minutes, only to notify you later that the loan has to be modified, the terms cannot be met or, worse, the request is declined.

Choosing lenders 

Another factor to consider is the underwriting method and the size of the lender you are dealing with. Are you working with a fast food-style lender or a gourmet-style lender? All mortgage lenders want to make their loan programs as cookie-cutter as possible This saves time and makes for loans that can be more easily securitized and sold to third-party investors. This cookie-cutter mentality, however, often means that many loans that otherwise could have been funded are discarded because they don’t fit the mold. The lender makes no time to analyze the possible mitigating factors. Many lenders will preapprove your loan in a few minutes, only to notify you later that the loan has to be modified, the terms cannot be met or, worse, the request is declined. It is relatively easy today to find a lender that will give you a term sheet. The better option is to deal with a lender that spends a little more time upfront to underwrite the loan. 

We all know that term sheets are used to get the borrower to commit, and also to show how fast the broker or lender can get things done. That is why most lenders will give you a term sheet in only a few minutes. You need to make sure, however, that your client remains disciplined and spends no money before the preliminary underwriting is completed. The term sheet means little until the underwriter looks at the data and makes a decision. Remember that the lender may tell you what you want to hear just to hook your borrower. You never want to let your client spend money before the loan has been sent to the underwriter, who ultimately determines the fate of the funding request. 

On the other hand, by getting to know the underwriting of several lenders, you can provide a number of options for your clients when they face adversity. Countless loans are discarded by lenders for technicalities that could be remedied. Borrowers sometimes get so frustrated with their current lender that they prefer to start the entire loan process over again with a new lender. Some get so burned out by their lenders that they need a break for a few months before they can reengage in the loan process. 

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In short, it pays to know that your loan is being underwritten by an experienced person. It will save you time and headaches, and you will obtain a better overall lending experience.


  • Anthony Turdo

    Anthony Turdo is chief underwriter for American Life Financial Corp., where he has worked since 2005. He also serves as a member of the company’s investment committee. Turdo has a bachelor’s degree in accountancy from Arizona State University and a master’s degree in international business from EVEX. He was previously involved in international finance, commodity trading and logistics. Reach Turdo at or (480) 835-5001.

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