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?

Improve Mortgage Application Readiness

Okay, so what do I mean by mortgage application readiness; and how does one improve his/her mortgage application readiness? The best answer to this question can be found in the information required by a mortgage lender. Having a thorough knowledge of exactly what that information is, how it is provided, when it is provided, and how many times it may be requested in the form of updates will be discussed here.

How a mortgage borrower approaches the mortgage application process could mean the difference between heart palpitations and focused calmness throughout the process; So let’s attempt to address mortgage application readiness here.

We must begin where the process begins; at the origination stage. Most loan officers will prepare a borrower for the initial application signing by requesting that certain information be made available at that time so that the borrower will have made copies of required documents; but in addition to preparing the income and asset documents and having them ready, I’m suggesting that borrowers request of their originator, specific information relating to what documents are subject to expiration and therefore will need updating, so that if some documents are later requested, they will have them ready to be submitted immediately upon request.

Here are a couple of actions mortgage borrowers can take to ready themselves for the mortgage loan application; even if the loan officer doesn’t have all the answers to their questions. Whatever income and asset documents you receive at regular intervals (weekly, bi-weekly or monthly), be assured that they become outdated as soon as new ones are received; especially income docs, so unless you are self-employed, each new document should be copied and made ready to submit upon request.

Secondly, a mortgage borrower should always be prepared to submit evidence of his/her identity in the form of photo identification and social security (SS) card copies. I’ve found that on frequent occasions, social security cards are unavailable due to misplacement or the general feeling that they’re not needed based on the feeling that SS numbers ought to be enough; but bear in mind that a copy of the card will be required, especially in the case of a FHA-insured mortgage; so requesting a new card, if yours was misplaced, is another step toward mortgage application preparedness.

While it may seem a bit trivial for the lender to insist on a copy of your SS card, no borrower would want a small item to delay the more eventful occurrence of loan approval or loan closing.

Credit Report advice is not an area I readily delve into because there is no shortage of credit counseling agencies and credit advisers available for a borrower to consult with, but I will venture this opinion: Copies of consumer credit reports can be obtained from each of the credit bureaus; and potential borrowers should request a copy of their report from each one – Equifax, Experian and Trans Union – so that they have full knowledge of their credit ratings and/or creditworthiness.

However, bear in mind that report(s) received from the bureaus will not be accepted by your lender, so do not be surprised when asked by that lender for permission to run a report, as well as the fee required to conduct a credit investigation independent of those provided by the three repositories. The consumer copy should be used strictly for mortgage application preparedness.

Origination requirements that should be clearly understood are the upfront costs which a borrower will incur for the payment of appraisal, credit report, and application fees, where necessary. The appraisal company and credit report agency are independent, third party participants hired by a lender to provide these services; and neither report can be excluded from the mortgage process, especially the appraisal which must be conducted by a licensed and/or certified professional specific to the state in which your property is located.

In addition, the appraiser must also be approved by HUD when a mortgage is to be insured by the FHA. These items, although paid up-front, will be reflected on the Good Faith Estimate disclosure (GFE) as part of the total estimated cost the borrower will incur, but they are paid only once, so this should not be of concern.

Good Faith Estimates and Truth-in-Lending (TIL) disclosures must be provided to mortgage borrowers within seventy-two hours of the application date; this is required by the real estate settlement procedures act (RESPA) regulations. In addition to the disclosures mentioned, a mortgage processor will most likely request some of the items/updates discussed earlier, which a borrower should be prepared for.

That having been said, I would expect that potential borrowers who have read this page would not allow a list of items (Opening letter) cause them to worry too much, because ultimately, this kinds of preparations made ahead of time would create mortgage application readiness under most circumstances. As you probably gathered by now, the ability to anticipate what is going to be required of a borrower during the mortgage application process creates confidence, which works to allay nervousness and reduce the heart palpitations caused by surprises.

Surprises are often the result of unawareness. So, try to be as prepared as you can be and always keep in mind that at each stage of a mortgage loan application process, there is a highly trained professional (required now more than ever before by state and federal laws), putting forth his/her best efforts to get your loan approved and, ultimately closed. Readiness, focus and calm often leads to a successful mortgage closing.

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

Humor or Irony?

If the government can’t run business, how come 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?