Written By: Bonnie Wilt-Hild, Op-Ed Writer
It is pretty common in my office to hear me say to one of my underwriters, “That is why you should always look for a way to turn it down first, it saves time and you won’t be force to have ridiculous conversations over conditions”, and needless to say I’m generally joking when I throw it out there. These days though, I have to wonder if the joke has been overheard by several of the investors in the secondary market because that very statement seems to be the new business model when reviewing files for purchase or re-purchase, should the case be reviewed during audit.
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I have had several cases recently where certain investors have requested repurchase of cases based on conditions that appear to be more fantasy deficiencies then actual deficiencies or deviation from standard underwriting criteria. The new game seems to be “Make It up as We Go” in which the standard playing rules is, there are no rules, at least not from an investor standpoint. I have had income recalculated based on pretenses that I have never seen or heard of, that change with ever response I send. All of the pretenses for this recalculation are deemed prudent even if not consistent and are typically followed by some insane justification as to why it makes sense, but as you can well imagine most insane ideals make sense to insane people, just not the rest of the world.
So you want an example which is no problem. How about an investor who requires that you average self employment income over a two year period because prudent underwriting requires it, and honestly that part of it makes sense, but then tells you as far as the expenses go you have to use just those expenses from 2009 and divide by 12 because they were the greatest amount. I always thought that you averaged expenses over a 24 month period as well but I also thought that if you were an investor in the secondary market your business goal was to purchase loans, not staff an entire lock department which you pay, set interest rate below that of all of your competitors and take locks just to have the loans repurchased by your correspondent lenders once they are submitted for purchase. Again, call me crazy but not only does this seem redundant to me, but also quite costly. Why not just set your overlays accordingly, tell the correspondent lenders you do business with that you will only purchase conventional products with median credit scores of 800 with LTV’s less than 50% with borrowers who have an employment history of 10 years or better and can demonstrate $200,000 in reserves. This way, they would only need a staff of 2 for both the lock desk and funding department because volume would extremely limited, but they would save money if not make money do to reducing salaries and they wouldn’t waste the time of their correspondent lenders. This makes sense.
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In closing I want to say that I am an advocate of prudent underwriting practices and sustainable homeownership but I do think at a certain point, underwriting just goes over the top. If you have a full VOE, 1 month worth of paystubs, W-2’s for the most recent two tax years and IRS tax transcripts for the most recent two years for a borrower who has been employed in his current position with the federal government for 15 years, you just don’t need his tax returns for the most recent two years. That’s just overkill. Nor do you need to require a complete physical with his doctor’s certification that he will live for at least the next three years. And when you calculate his income, just divide the annually by 12 months and don’t start subtracting expenses for tax preparation fees, shoes and clothing and investment into his baseball card collection unless he claims it on his tax returns as unreimbursed employee expenses. Really people, common sense underwriting involves exactly that, common sense and I realize that there is a fine line between reality and fantasy but please let’s try to keep hold of ourselves when we are at the office, save the fantasy for football, it’s not that far off. Have a great week.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie 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".
