Written By: Bonnie Wilt-Hild
Residential mortgage underwriting is defined as the overall credit and valuation analysis of a particular borrower or borrowers with regard to overall financial health as well as the evaluation of collateral that might be used to secure the mortgage and as underwriters we relate this particular evaluation to calculation of housing to income and debt to income ratio’s, the evaluation of a borrower’s credit history as well as the review of a property appraisal. In addition to these steps we do endless compliance evaluation with regard to review of disclosures and further due diligence with respect to things like CAIVRS, LDP and GSA where federally insured mortgages are concerned. Sometimes however the relevance of these steps can be overlooked.
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Very recently I was teaching an underwriting class to a really great group of students and as normal, I placed emphasis on the things that I thought were extremely important pieces of the mortgage credit analysis process as well as the valuation review. I typically go into great detail when discussing income, gross versus net and the importance of assessing residual income for borrowers who’s ratio’s exceed suggested guidelines, assets and reviewing the borrowers bank statements to determine a borrowers financial behavior, i.e. do they save a portion of their income or are their spending patterns indicative of someone who may have to incur debt in the long term in order to finance their monthly budget and of course credit worthiness and an in-depth review of the borrower’s credit history, past and present. One thing however I never spent much time on, where the little nuisances which I regard as more program specific due diligence items.
The Federal Housing Administration and its subsequent program offerings are indicative of these types of due diligence items as is the Department of Veterans Affairs. Things like reviewing the case number assignments, LDP and GSA prints, clear CAIVRS and validation of the borrowers social security numbers within FHA connection are all program requirements that I think most underwriters regard as necessary to meet program requirements and not so much as useful tools that need to be analyzed on a deeper level. If the borrower or sellers are listed on the GSA or LDP list than it’s a dead deal, nothing to think about and if a borrower can’t resolve a defaulted CAIVRS, well again the transaction is dead. Sounds simple enough in theory but when an underwriter participating in my training last week asked me if we should check a.k.a’s under LDP and GSA, I had to stop and think for a minute. Really it was something I had never considered but is really quite valid and quite honestly I had no idea why I had not thought about it before. Think about tax transcripts for a minute, how many of you determine if there was a balance due from the prior tax years and ask for evidence that it has been satisfied. It’s actually extremely relevant, there could be an IRS tax debt with a significantly monthly payment which may impede the borrower’s ability to make timely monthly payments.
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These are just a couple of the items that I think are things that as underwriters we consider as more tasks that must be performed versus relevant and valid exercises in determining credit worthiness and program compliance and something that we need to take more seriously, at least I know I will. Due diligence may sometimes seem mundane when it comes to the overall scope of underwriting but it still representative of the credit character of the borrower, therefore necessary. Completing each function with a degree of deeper thought can only benefit overall loan quality so check those a.k.a’s. Have a great week all.
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.
