A Few Comments About Recent Underwriting Trends

Since the collapse of the financial market, and since most people attribute this to the loose underwriting standard of mortgages prevalent in the past few years, the obvious response is to tighten underwriting standards. From our front row seats as brokers we see lenders across the board tightening loan approvals.

The range of actions start with requiring more equity in the property to higher credit scores. But more importantly is the changes in philosophy: every loan goes under the magnifying glass regardless of how well qualified the borrowers are.

Examples of what I mean are all borrowers are now required to sign forms authorizing the lenders to pull transcript of their tax returns and most lenders are pulling and re-verifying the information. Most lenders are also performing verbal verification of employment on the day of settlement to make sure job status have not changed.

It is understood by most people mortgages are getting harder to qualify, besides the required down payment and the thorough review of past credit history mostly defined by your credit score and the careful review of your ability to make payments. New hurdles include extra layer of underwriting by mortgage insurers if you need mortgage insurance; this means even some of the most qualified borrowers cannot get mortgage insurance in certain instances. Appraisers frequently receive challenges on the value of the property, requiring more supporting documents. Lenders can ask for a myriad of minor details which can be inconvenient or downright raise havoc.

For example the borrower who’s HR person responsible for verification of employment is on vacation on the day of the settlement and lenders cannot close the loan because of it.
I think most of us understand this is a normal course of business when responding to a catastrophic event, as evidenced by recent airline security changes.

Almost all of our loans are conventional loans with FannieMae and FreddieMac guidelines, and we have been relying on their AUS (automated underwriting system) for instant loan approvals, now the most obvious change is underwriters not relying strictly on the Automated Underwriting System (AUS) decisions and imposing additional review or documentation requirement, making the approval process longer and more complicated, bringing back memories of old days of loan underwriting.

Well folks, be patient, for you the well qualified borrowers, just like the airline security lines, the loan approval process will eventually cycle back from one extreme to another.