Written By: Bonnie Wilt-Hild
As underwriters, we have recently been subjected to a mirage of acceptable underwriting standards since what has been termed as the collapse of the mortgage industry. While three years ago AUS systems were considered the finest tools available to assess mortgage risk, we are now returning to underwriting responsibility. I will agree that AUS systems are still being utilized by underwriting, even to the extent that FHA Total Scorecard is now mandatory for use, however investors, HUD and most regulatory agencies are now requiring higher levels of review using traditional underwriting practices and standards to assess overall case risk beyond that of the AUS findings.
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Due diligence is the new catch phrase for aspects of underwriting, particularly where HUD is concerned. The term is uttered in almost every conversation regarding underwriting a particular case. To the extent that underwriting guidelines are exactly that, underwriting guidelines, it seems that due diligence on all cases has become just as important in assessing overall risk as credit scores once were. It has also become the underwriter’s responsibility. Approving a mortgage application because of automated underwriting approval is no longer sufficient, due diligence in underwriting must be completed.
As AUS systems may provide a snapshot of a borrowers financial heath at a particular period in time, overall due diligence where underwriting is concerned addresses no only potential risk that can not be determined within the mathematical equation that is automated underwriting, but supports a basic voluntary investigation of the financial information provided by a potential loan applicant to determine if inadequate disclosure of material information that could adversely effect the loan decision has occurred.
Due diligence underwriting of all material documentation provided can and will determine possible income and collateral deficiencies as well as uncover attempts at fraud or other types of misrepresentation were application documentation is concerned.
In a recent conversation with an underwriter at the Philadelphia HOC during which we were discussing a case that involved a non occupant co borrower, the HUD underwriter agreed with me that even though the case appeared to meet underwriting guidelines where non occupant co-borrowers are concerned, further information found during a normal course of underwriting due diligence provided information that that resulted in an adverse credit decision for this particular case.
In short, the case met guidelines as set forth in the 4155 but was an unacceptable credit risk due to circumstances that existed beyond customary guidelines.
This perspective is new to most underwriters today who have grown up in the world of AUS approvals. In recent years most underwriters were simply expected to validate the finding in the file, determine that the data as provided to the AUS was accurate and matrix points in terms of LTV and minimum credit scores were met.
Five years ago most underwriters would not have rejected a loan with an AUS approval even if they felt the ratio’s were excessive and five years ago the underwriter would have not been held accountable should that loan go into default. We live in a different world today.
Today, if underlying factors existed that may have contributed to the mortgage default not addressed by the underwriter, the underwriter is how held accountable regardless of the AUS decision. Due diligence and how thoroughly it was completed is what now determines if the risk factors where the case is concerned were appropriately addressed by the underwriter.
So with this in mind, diligently underwrite each and every case and document the file accordingly. As always, Happy Underwriting.
Need Mortgage Underwriter Training? CLICK HERE:http://www.UnderwriterTraining.com
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
