Residential Magazine

Dispel the Optical Illusion of Underwriting

Technology should speed up the risk-analysis process

By Francis Betancourt-Molina

Technology has changed virtually every aspect of the mortgage industry — for clients and professionals alike. Today, borrowers often turn to online resources to browse homes in their market, calculate how much they can afford and apply for preapproval from mortgage lenders.

Similarly, financial-technology companies and algorithms have replaced many of the tasks that were once manually completed by loan originators, processors and underwriters. Processes that once took a week now take an hour. And milestones that once required in-person meetings can now be completed from a smartphone.

With this newfound speed comes the promise of improved efficiency for mortgage originators and underwriters. The time gained from these new advances, however, is often cancelled out by the wave of regulatory requirements that emerged after the Great Recession.

Mortgage companies are left struggling to balance the pressure to increase production with the need for thorough quality-control processes. The best hope is to get back to basics, so that technology works in harmony with sound analysis, rather than in place of it.

More than numbers

Numbers only tell part of a story. As mortgage professionals, our financial institutions count on us to consider the big picture of a borrower’s financial situation. That’s why underwriters should understand how to analyze data using technology, rather than simply collect it.

Take, for example, income-analysis software. These programs take the tedious calculations out of qualifying income by analyzing tax returns. Rather than running spreadsheet formulas, mortgage professionals simply scan a return. These programs don’t always indicate one-off circumstances that could affect the final result. A quality underwriter will identify anomalies related to capital gains or the sale of investment properties, for example, and adjust qualifying income accordingly.

Technology won’t teach you how to assess critical details, such as the relationship between a borrower’s current and prospective address to determine occupancy misrepresentation. A well-trained underwriter will know to ask why a borrower is buying a new “primary” residence within a block or two of their current address — a common red flag in mortgage fraud. This type of detail can go undetected by a fintech program, especially if all the other details pass muster.

Even credit reports are imperfect, especially if they are not obtained from a reputable credit vendor. Red flags, such as undisclosed debts or major derogatory marks for prior bankruptcies or foreclosures, can bypass an untrained under-writer. With a little public-record digging and fraud-tool software, however, the full scope of an applicant’s financial history can come to light.

With the prevalence of design programs like Photoshop, underwriters must learn to identify visual signs of fraud. Bank statements, pay stubs and other income-verifying documents can be altered to add (or remove) extra digits. Now that most processors have forgone stamped, original documents in lieu of faster, scannable options, underwriters must remain vigilant to even the slightest signs of tampering.

To maintain a sound underwriting environment, technical proficiency and critical analysis must be held in equal regard. That’s where quality control comes in.

Strengthen skills

An astute mortgage professional once said, “Underwriting is an art, not a science.” How true those words are. Quality underwriting can be attained when the efficiencies gained from technology are coupled with strong knowledge in mortgage-credit analysis and underwriting guidelines.

Having a strong training program and effective quality control are the best ways to foster strong analytical skills and prevent an overreliance on technology in the workplace. In addition to understanding how each mortgage product works, mortgage professionals should be trained to defend (or challenge) their findings with confidence. Here are three ways your team can strengthen its underwriting skills:

Establish a review process. Having a robust quality-control review process helps lenders monitor the quality in their origination and underwriting process in pre- and post-closing. Lenders that implement quality reviews during the underwriting phase are able to identify any potential issues early in the process where underwriting management pulls a percentage of each underwriter’s active loans to assess the level of conditioning being applied to their portfolio. This process helps identify underwriters who are being overly cautious (and therefore, creating unnecessary steps). Conversely, it also spots potentially risky loans prior to final review — saving everybody time in the long run.

Encourage open dialogue about risk. This component is especially helpful for originators and underwriters who are either new to their position or the company. An inexperienced underwriter may not know the nuances of industries with variable income, such as nursing, entertainers and actors or self-employed contractors. As a result, they may be inclined to deny an application that would otherwise be approved. A seasoned manager can identify opportunities to train underwriters about evaluating risks and rewards from a new perspective.

Emphasize service. Smaller players have to find ways to compete against larger companies in today’s competitive mortgage marketplace. Even with the prevalence of technology, the industry is comprised of real people who are trying their best, day in and day out. Customer-service skills should be evaluated alongside technical and analytical acumen.

With a concerted focus on quality, underwriters can be in a better position to tackle regulatory review, the most time-intensive part of the underwriting process.

Threat to quality

The final threat to a quality underwriting environment is an unrealistic production quota. Regulatory changes in recent years have added a new layer to underwriting that didn’t exist a decade ago. Now, in addition to the three C’s (credit, collateral and capacity to repay), underwriters must ensure regulatory requirements have been satisfied before closing the book on a loan.

The amount of time needed to complete a thorough review will vary based on the loan type (purchase or refinance), property type (primary residence, secondary residence or investment) and loan type (conventional, jumbo or government). Jumbo loans typically take the longest to analyze, as borrowers may have several income streams. Government loans come in second, due to the volume of documents that need to be reviewed.

With the efficiencies gained from technology, many mortgage companies expect underwriters to handle four new loans a day. These quotas may not always factor in the necessary time for regulatory review.

Fully documented jumbo loans can take twice as much time as conventional loans. Two hours is typical for a jumbo loan. That puts conventional loans at one hour. Government loans fall in between, at about an hour and a half. These estimates may differ slightly based on the company’s technology and support network. And, of course, there are other loans with conditions waiting for final approval.

It is possible to find the balance between human intuitiveness, technology, quality and production requirements. To do this, there needs to be a shared commitment to providing employees the necessary skills, tools and technology, along with effective quality-control programs — all while still providing mortgage professionals with outstanding service tailored to their needs and experiences.


  • Francis Betancourt-Molina

    Francis A. Betancourt-Molina is senior vice president of national mortgage-credit policy for Florida Capital Bank Mortgage. Betancourt-Molina has more than 22 years of experience guiding the development, maintenance and communication of the bank’s mortgage-credit policies across retail, wholesale and correspondent lending channels. Additionally, she monitors credit-policy changes, tracks results to ensure acceptable credit-risk exposure, and mentors her peers in areas of regulatory and compliance requirements. 

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