Written By: Bonnie Wilt-Hild, Op-Ed Writer
We have seen a lot of changes in the past two several years where mortgage underwriting is concerned and it now seems as if things have come full circle. Several years ago we watched as Automated Underwriting Methods replaced more traditional risk assessment methods and documentation requirements lessened just to return to a more traditional risk assessment methods including increased documentation and merging AUS methods with manual methods. Due diligence in underwriting has become as important today as it was 10 years ago and underwriters no longer have the luxury of simply validating their findings, we really need to underwrite the loans.
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Along with these changes comes an increase in the number of loans being selected by FHA for Post Endorsement Technical Review (PETR). Quite frankly they seem to be over selecting which is fine with me, this will weed out the bad apples. Since there are quite a few new FHA Direct Endorsement underwriters out there I thought I would share with you the principals and practices behind the PETR’s. I would like to start by saying every DE underwriter is subject to them (yes even me) and when you get that letter in the mail indicating that one was completed, panic will usually set in immediately. I have to tell even after 20 years of underwriting and PETR letters, I still panic.
A Post Endorsement Technical Review is a loan audit which is completed by a HUD underwriter 2 or 3 months after the loan has closed. In short, they re-underwrite the loan including recalculating income, assets to close and so on. If they find no deficiencies where underwriting is concerned they will usually give the underwriter a satisfactory rating (underwriting report cards) and the PETR is complete. Underwriters are not notified of the review if the rating is satisfactory but can check them in FHA connection if they would like. Valuation reviews are also subject to PETR and the underwriter’s performance is also rated where appraisal review is concerned.
Things get a little more interesting however when the underwriters performance is rated unsatisfactory for either credit or valuation underwriting. In these cases a letter is sent to the Lender employing the underwriter indicating what deficiencies were found and these deficiencies can range from miscalculation of income to expired documentation, failure to document large deposits or credit explanation. It becomes far worse if income was recalculated and the loan is re run through Total Scorecard and as a result receives a Refer.
In these cases you are bound to have several material deficiencies as most Total accepts are documented more lightly the true manual underwrites. If an underwriter receives such a letter from HUD it will indicate all of the underwriting deficiencies as noted by the HUD underwriter. The lenders underwriter will then have 30 days to respond to the request providing the missing documentation or providing an explanation (a really strong one) as to why the underwriter did not address the information. The responses and supporting documentation must be returned to HUD within 30 days. If the HUD underwriter deems it sufficient they will clear the case and indicate the rating as acceptable. If they don’t agree, they will send another letter indicating that the information provide is unacceptable and in some cases will request that the lender indemnify the loan.
A lender can continue to refute the PETR if such an indemnification is required but make sure you have a leg to stand on if you do, it never helps to looks foolish. Sometimes a phone call to the HOC and a conversation with the underwriter helps so if you can’t get your point across in writing perhaps pick the phone up and call. My best advice where the PETR’s are concerned is to document your files well enough, regardless of AUS findings so that you don’t have to answer one, in short shoot for a satisfactory rating every time. It might upset a loan officer or two but better that then the underwriting manager or maybe a VP that will need to sign the indemnification agreement. As always, happy underwriting.
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About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including 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".
