Tuesday, July 01, 2008

query: what do mortgage underwriters look at

The job of a mortgage underwriter is to assess risk, monitor compliance with standards, and make a lending decision. The mortgage underwriter is the guardian of the regulatory compliance gate and also the keeper of the saleability standards. So, with compliance lenses on their eyes and saleability standards sitting in their heads, they will look at the following items:

COLLATERAL: The mortgage underwriter will carefully review the appraisal. Setting aside, saleability rules, the purpose of reviewing the appraisal is to see if the property - in the worst case scenario of a foreclosure - has sufficient value to recoup the lender's security interest.

CREDIT: The credit report provides two important components of a mortgage credit decision. The borrower's debt service is verified, giving the underwriter real numbers for debt to income ratio calculations, and the repayment history of obligations sets up a credit decision based upon a willingness to repay. Let me repeat that phrase, WILLINGNESS TO REPAY. I don't care if a borrower has the ability to repay if they demonstrate a lack of willingness to repay.

INCOME: Verification of income provides the mortgage underwriter with real figures for debt to income calculations plus the likelihood of the continuance of the income. Capability to repay combined with the stability of the income stream are key.

DEPOSITS: Ability to save demonstrates a responsible attitude and capability to live within one's means. Verification of the source of cash to close - if a borrower has hard earned savings at risk, they are less likely to allow a foreclosure. Are there cash reserves to fall back on in time of need? Deposit review is all about stability.

So, presuming the documentation is compliant and meets saleability standards, the underwriter will decide if the borrower is ABLE to repay, WILLING to repay, and if the worst case scenario happens, foreclosure, whether or not the lender buffered from a loss of market value.


Anonymous said...

Im a firsttime home buyer.underwriting has had my file since the end of july,first of aug..I have answered or cleard every condition thyve asked for including paying off all of my credit cards.thy hv sent my file bck so many times for conditions until ive lost track.our biggest problem wass my husband signed for a vehicle for his son,that lives in another city 2hrs frm us..we orig gave them 11mnths of proof of pmt from him,but they wantd 12 so we gave them 12..then thy had to talk to the finace co to vrfy other nfo,we allowed that..well that underwriter ndctd tht she wld gv the "clear to close" bt didnt finish,smehow,and anthr undrwrtr gt the file and said no thy needed to c documents shwng the car ws n bth names..well thy already knw the car was n only my husbands nm bcz of the way it shws up on my husbands credit report...well after going back n forth w thm for wks thy said thy cnt xclud that car & said we had to resubmtt it n the system(for the 3rdtime!!!)we did that shwing only 10mns lft on "my car*,my stpsons car & no other debt,now thyre syng they need proof of work history whch they have & had from the beginning..well needless to say the seller has put the house back on the market,i gv my landlord a 60dy notice 45days ago & MY LOAN XPRS 9-23& as of friday my mortgage broker said "well MAYBE monday undrwrtng will look @ my file again..WHAT IN THE WORLD IS GOING ON?!!!!WHY IS THE LENDER TRYING TO SABATOGE THE LOAN???

Diane Cipa said...

I always try to figure out what the motive might be for a lender acting like this.

Mortgage brokers don't control rates and you may not really have a rate lock in. You may be dealing with a ruse to buy time to get out of the so-called lock.

The broker may be shopping your loan around to different companies and that could account for the ever changing scenario.

If I were you I'd cut loose from the mortgage broker. File a complaint with the state department of banking and as quickly as possible apply directly to a bank or large mortgage company.

Anonymous said...

First of all Thanks for responding so fast...The mortgage broker is actually a friend,someone ive known for awhile..The lender she's using is Flagstar...I know its not the broker its the underwriters thats going back and forth with conditions...When I decided to purchase a home the first lender I tried was Bank of America..I couldnt believe how unprofessional they were..after dealing with them for mnths,I received an email from the mortgage person(sent to me @10pm)saying they couldnt approve my loan callher if i have questions..I was shocked,I felt like trash....I did call her & it wasnt that they couldnt approve me,it was the amount that I couldnt be apprvd for but needless to say I decided to use someone else..Im just @ my witts end.I hate to start AGAIN with a new lender but...
Frustrated in Florida

Diane Cipa said...

You're welcome. Good timing. ;)

Perhaps there is a mortgage lender reading who wants to chime in but I find it curious that you were asked to payoff your charge cards prior to closing. If it were just a matter of your debt to income ratio being out of whack they could condition for a credit card payoff. That sounds like a credit scoring game. Payoff wait and then rescore.

That said, you may have also been caught up in the unfortunate circumstance of a staff change due to sickness, vacation or supervisory review. If the next underwriter had more experience, they have the option of changing the conditions any time up until and if they issue a commitment letter free of conditions.

While that drama unfolded the documentation in your file became stale dated. Once verifications are stale dated the lender can't close without updating.

So, if you are at the point where all they need to do is update to clear stale dating, you may almost be home free.

I know it's frustrating, but mortgage underwriting and reality do not always look the same and there are sometimes circumstances that cause one file to spiral into a series of problems and problem solving that seem like it's all just a big joke.

If your guts are telling you these people are not just using delay tactics, then I would assume thy are really trying to help and you need to be patient while they work it out.

These folks don't make money unless they close your transaction so unless they were trying to get out of a bad lock, they are trying really hard to have a payday so hang in there.

Good luck and thanks for reading!