Underwriting the Mortgage Loan Application

An underwriter’s responsibilities will increase under the new regulations due mostly to the changes in implementing RESPA disclosure documents (Good Faith Estimate & Truth-in-Lending). The new guidelines which takes effect on January 1, 2010 will certainly increase an underwriter’s workload, but more importantly, the flexibility in decision-making may be greatly reduced. The following paragraphs provide a glimpse of those responsibilities.

When application for a mortgage loan reaches the underwriting stage, two things are true. First, the various documents, disclosures and verifications have been provided in a manner that is acceptable to the processor; and second, the processing stage is effectively over. That is not to say that the file may not be sent back to processing, but for the most part the fate of that loan now rests with the ultimate decision maker.

It is at this stage where all parties to the transaction start to hold a collective breath. It is said that if a processor’s job is highly specialized, then an underwriter’s task is intensively so. Included with these responsibilities are the interpertation of terms, guidelines, regulations, predatory laws, and investor requirements which are repeated in casual conversations among industry professionals to underscore specific areas which may be affected as change in the industry takes effect.

An underwriter must approach these terms differently because it is the underwriter’s job and responsibility to be quite certain that each loan s/he is entrusted with is underwritten in accordance with each program guideline, and that each regulation governing mortgage lending is adhered to. In addition, an underwriter must insure that the loan is not in violation of certain predatory laws of the State in which the property is located.

Oh yes, the loan still has to be approved if it is deemed to have met all approval criteria by that same underwriter. Here is the thing which may be surprising to many outside the industry; Most of the loans do ultimately get the approval nod (or sign-off) due to an underwriter’s ability to recognize potential “red flags” during the course of working on a particular file, and require that they be removed, corrected or reasonably explained with “acceptable documentation”, where necessary.

I am fortunate to have worked with some very studious, committed and intelligent FHA underwriters who managed to balance compliance with regulations and guidelines with the pressures and demands of borrowers, their attorneys, and loan officers – I was sometimes included in that last category – and they still managed to approve loans and maintain an excellent underwriter’s rating at the same time.

HUD’s position, traditionally, was that an underwriter who wished to underwrite FHA-insured loans, must be directly answerable to HUD by undergoing HUD-endorsed training and a certification process – in addition to any and all previous education – and receiving that agency’s stamp of approval.

So when a FHA loan is approved, and the commitment letter is issued after going through the process outlined above, be rest assured that the borrower’s qualification for that loan has been well documented, and the closing is within reach.

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Thank you for your support. We will continue working to provide the most relevant and useful information about the FHA-insured program and related topics.

For more about the FHA mortgage program, please visit the HUD website; and to find out if you qualify for FHA-insured financing, visit a HUD-approved lender at http://www.unitednorthern.com.


Humorous or Ironic?

If the government can’t run business, how come business always run to the government for a bailout when it runs into trouble? FHA-insured mortgages… Government-run for over 75 years. Lest we forget?

Processing of the Mortgage Loan Application

The term processing could apply to just about any multi-step undertaking, but when the subject is mortgage lending, processing of the loan application is as specialized a function as some of the most document-intensive businesses you can imagine. The individual entrusted with processing of a mortgagte loan application, namely a processor, must be uniquely qualified and therefore is compelled to obtain the education and training necessary to be as efficient and thorough as the position demands.

In a mortgage loan application, the end of an originator’s job marks the beginning of a processor’s job, at which juncture it is effectively the processing stage, which places the responsibility of loan preparation for underwriting on the processor. Just as the loan officer must be able to identify and address potential problems at the origination stage, a processor is expected to verify income and assets with acceptable documentation, as well as ascertain the borrower’s credit is satisfactory enough to merit submission to underwriting.

It is at this stage where many a loan is held up for reasons unforeseen by the borrower, originator or processor due to the simple fact that several different elements are added to the equation; especially in the case of a FHA mortgage.

Specific issues could be the appraisal report (which may or may not reflect a value sufficient enough to support the loan), verification of employment (VOE), verification of deposit (VOD), proof of down payment, all required disclosures (including RESPA disclosures, and State-specific predatory lending documents), and a number of other requirements which must be dealt with before the loan application package can be submitted to an underwriter for approval consideration.

If everything falls into place in a timely manner – appraised value is adequate, VOE is returned by employer, VOD is returned by depository, and all disclosures are in order – then a processor can prepare the loan for underwriting. However, that’s a very big “if” because invariably it is necessary to wait for a verification to be completed correctly and returned, or there could be an issue with the appraisal which delays the process.

It is reasonable to opine here that one of the first lesson a processor learns is to submit to underwriting a fully processed loan application package; otherwise the package may be returned to processing as incomplete; so when a borrower wonders why the “process” takes so long to complete, the answer can be found in possessing a clear understanding of the steps required at each stage of the mortgage application process, especially stage two.

Processors are often accused of delaying or preventing a loan closing, but such accusations are unfounded because in many cases, a loan processor has absolutely no control over the actions of other parties involved, especially third-party participants, borrower’s financial institutions and employers, among others.

Mortgage related sites of interest:

To find out if you qualify for 203k financing, visit a HUD-approved lender at http://www.unitednorthern.com.

Humorous or Ironic?

If the government can’t run business, why is it that big business always run to the government for a bailout when it runs into trouble?
FHA-insured mortgages… Government-run for over 75 years. Lest we forget?

The Mortgage Loan Origination

The new RESPA regulation which was signed into law by President George Bush on July 30, 2008 as part of the Housing and Economic Recovery Act (HERA), and will take effect on January 1, 2010 is expected to have a profound effect on how business is done in the mortgage industry; from loan origination to loan closing.

A central part of HERA is the Secure and Fair Enforcement (S.A.F.E) Mortgage Licensing Act which, according to HUD’s website, is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards of licensing and registration of state-licensed mortgage loan originators. SAFE also mandates the creation of a Nationwide Mortgage Licensing System and Registry (NMLSR), and encourages all states to provide for a licensing and regulatory regime for all residential mortgage loan originators.

As it stands today, the origination stage of a mortgage application is the first of the four stages necessary to complete a mortgage loan. This process will remain unchanged for the most part, but how each stage is implemented and the qualifications of the individual responsible for implementation is at the heart of the new regulation. Following is a description of the origination stage of a mortgage loan, and the mortgage loan officer’s duties.

The mortgage approval process consists of several stages, including origination, processing, underwriting – which includes issuance of the commitment letter – and closing. The entire process could be in the range of thirty to ninety days, depending on the mortgage type, borrower’s information and property information.

In order for this process to work efficiently, the origination stage must be handled professionally and correctly by a well trained loan officer; and if s/he has a few years experience in the industry, that is even more comforting to the borrower who has placed trust and confidence in that person to get the loan approved and closed.

Mortgage loan officers are responsible for making sure that the application is completed correctly and all required origination documents and qualification criteria are met, so the more confident a borrower feels toward the representative of a lender, the less likely there will be unnecessary delays in the process.

A borrower’s credit report is among the more important documents in the mortgage origination package. Loan officers must be able to determine whether or not the borrower’s credit status, income qualification ratios, and assets (in the case of a purchase) meet the lender’s program guidelines in order to better serve that borrower.

In many cases, if a borrower’s income or assets is at issue, some actions may be taken to address these concerns without additional help from a third party specialist, but in the case of the credit report, professional credit agencies may have to be consulted. Credit agency professionals are able to determine the presence of errors in a consumer credit report, contact credit the bureau(s), and request corrections to, and/or removal of them.

Although free credit reports are made available to consumers by the three major repositories – Experian, Equifax and Trans Union – many consumers have relied on the services of professional credit agencies to interact with credit bureaus on their behalf in correcting/removing credit report errors.

A mortgage loan officer should recognize any potential discrepancies in the report before submitting a loan for processing. Informing a borrower of potential problems and suggesting possible solutions at the origination stage will save valuable time, as well as money, that would otherwise be spent by that borrower.

Under the new regulations, a loan officer’s duties will be the same but s/he will be performing those duties with an acquired twenty hours of education, a passing grade of a national exam, as well as a state exam in many states and NMLS registration status. It is expected that these new regulations will increase the quality of mortgage loans on the national level.