Mortgage Underwriters Role In Home Loan Process
In this article, we will be covering and going over the mortgage underwriters role during the mortgage loan process. Mortgage companies that are mortgage bankers have in-house mortgage underwriters. The mortgage underwriters role in the home loan process is to be the devil’s advocate. Mortgage Underwriters are the professionals that approve and/or deny loans.
The mortgage loan applicant’s file goes through opening and processing, and then it goes to underwriting. Most loan officers will qualify borrowers prior to taking their loan application. Once borrowers meet all guidelines, then the loan officer will review mortgage docs and prep them for the loan opener. The loan opener will register the file and make sure all docs are in order prior to submitting it to an assigned loan processor.
What Is The Role of The Mortgage Loan Processor
The Mortgage Loan Processor’s role is to process the mortgage file and make sure all documents are complete. Mortgage Processor does the following:
- Order Verification Of Employment
- Verification Of Deposit
- Verification Of Rent (if applicable)
- Request IRS 4506T
- Order Appraisal
Mortgage Processors and Underwriters Role During Loan Process
An experienced mortgage processor will have the file in complete order prior to submitting it to the mortgage underwriter. The underwriters’ job is to scrutinize and analyze every single mortgage document a mortgage loan borrower has submitted and check for validity. If the mortgage loan defaults, the mortgage underwriter will get scrutinized and can lose their jobs.
Why Are Mortgage Underwriters So Critical With Conditions?
If the mortgage loan cannot be sold on the secondary market due to not meeting federal and/or Fannie/Freddie Guidelines, a mortgage underwriter can lose their job. The underwriter will look for reasons to deny a mortgage loan. Their job is to make sure that the odds are that the mortgage loan borrower will be able to repay their mortgage payments on time as well as have the ability to repay their mortgage loan.
Risks of Mortgage Underwriters
Banks and Mortgage Companies rely on mortgage underwriters to determine risk when approving a loan. Many times, especially on manual underwriting files, mortgage underwriters have a great deal of discretion in approving a home loan. Mortgage Underwriters is the person that issues conditional loan approval.
What Are The Responsibilities of Mortgage Underwriters During Home Loan Process
Underwriters are mortgage professionals who sign off on clear to close (CTC). It is the underwriter’s stamp and signature that lenders depend on whether or not to fund a home loan.
An underwriter is responsible for examining applications for insurance loans, or other similar applications, and evaluating the risk of said loans. The underwriter is in charge of making a decision to either approve or disprove any application.
What Mortgage Underwriters Look For
Mortgage Underwriters will look for whether or not borrowers meet the minimum mortgage guidelines. For lenders who have lender overlays, underwriters will not just make sure that borrowers meet federal lending guidelines, but also see if borrowers meet the company’s lender overlays.
What Are Lender Overlays?
Lender Overlays are guidelines that are above and beyond those of minimum mortgage guidelines by FHA, VA, USDA, Fannie Mae, and Freddie Mac. Borrowers can qualify for mortgage loans with prior bad credit and not have to pay outstanding collections and/or charge-off accounts. However, underwriters want to see that borrowers have been timely in the past 12 months.
Credit Scores Versus Credit Payment History
The reason lenders want to see overall payment history is that past payment patterns of borrowers are a good indicator of future payment behavior. Just meeting the minimum credit score requirements is not sufficient in getting loan approval. People can have had extenuating circumstances in the past due to the following:
- Unemployment
- Illness and medical reasons
- Loss of business
- Death in Family
- Victim of crime and/or fraud (for example, ex-partner embezzled)
- Due to the Great Recession of 2008
- Divorce
However, underwriters want to see borrowers back on their feet and see re-established credit and on-time payment for the past 12 months.
Ability To Repay Mortgage And Quality Mortgage (QM)
One of the main concerns that underwriters will have is whether or not the borrower has the ability to repay their mortgage loan once the loan is funded (QM: Quality Mortgage). It is the mortgage underwriter’s role to approve a mortgage loan borrower who will not be late on future mortgage loan payments and avoid a default on a mortgage loan thus avoiding foreclosure. The mortgage underwriter’s role is also to make sure that the mortgage loan borrower is not committing any acts of fraud.
What Does a Mortgage Underwriter Do on a Daily Basis?
In the event, that the mortgage underwriter does make a mistake and approves a mortgage loan borrower who is not qualified and does not meet federal lending guidelines the mortgage loan cannot be sold.
An underwriter will examine your credit, income, debts, and asset documentation and make a determination to approve or deny the loan based on your overall financial position in the context of the size of the loan you are seeking. The decision they render depends on the above factors as well as your credit score.
The Mortgage Underwriters Role Is To Analyze the Risk
The mortgage underwriters role is to look at late payments from the borrower and to see whether the borrower has had a history of late payments and the circumstances of why they had late payments.
- Previous payment history
- History is a good indicator of future payment behavior
- Has the borrower been late after a prior bankruptcy and/or foreclosure?
- Has the borrower been timely on all payments for the past 12 months?
- Does the borrower have reserves and a history of saving money?
- Does the borrower have compensating factors?
- How much is payment shock?
The Ability To Repay The Mortgage
Although there are late payment fees assessed with future mortgage late payments, that is not what the mortgage company wants. They want a mortgage loan borrower who has the ability to repay the mortgage loan.
A missed payment will typically remain on your credit report for about seven years, which means the mortgage underwriter can see any late payments as far back as that, although they will typically only look at your payment history over the past year or two.
Not just be able to pay their mortgage payments but the ability to pay their mortgage payments on time.
How Far Back Do Mortgage Underwriters Look Back at Late Payments?
A mortgage underwriter will understand prior late payments but they will want to know the extenuating circumstances of why the mortgage applicant was late. Examples are such as a job loss, divorce, medical situation, or items listed above. If mortgage applicants have good credit scores but a history of being late payment payers for the last ten years, it will be hard to prove that borrowers will be paying new mortgage payments on time. It will be hard to prove that they will be timely on future payments. A habitual late payer is considered to be a financially irresponsible person and the chances to get a mortgage loan approval will be difficult.
Letter of Explanation Is What Can Make You or Break You
For homebuyers who had a prior bankruptcy or foreclosure, a mortgage underwriter will want to know the circumstances surrounding the economic event and the reason why the borrower initiated the bankruptcy or foreclosure. Mortgage underwriters will frown on mortgage loan borrowers who are late on any payments after a bankruptcy or foreclosure but it will not be a deal killer.
How Do Mortgage Underwriters View Late Payments After Bankruptcy
Having a prior bankruptcy or foreclosure will not disqualify you from qualifying for a mortgage loan. FHA, VA, USDA, Fannie Mae, and Freddie Mac have mandatory waiting period requirements after bankruptcy and foreclosure. However, late payments after bankruptcy and/or foreclosure are considered very bad. Lenders label consumers with late payments after bankruptcy and foreclosure second offenders. However, Mortgage Lenders For Bad Credit, Inc. can help borrowers with late payments after bankruptcy and foreclosure.
Agency Guidelines Versus Lender Overlays
Many banks have mortgage lender overlays that will not accept anyone who was late after a bankruptcy or foreclosure. However, many mortgage bankers and mortgage brokers will have lenders or investors who will allow a few late payments after a bankruptcy or foreclosure. Mortgage Lenders For Bad Credit will approve borrowers with late payments after bankruptcy and foreclosure as long as they get approve/eligible per Automated Underwriting System. The mortgage loan borrower can provide a good letter of explanation and provide facts attached to the letter of explanation.
Borrowers With Late Payments After Bankruptcy And Foreclosure
Late Payments after bankruptcy and/or housing event is considered very bad. Many lenders will not approve a borrower who had any late payments after bankruptcy and/or foreclosure because they label them as a second offender. However, the team at Mortgage Lenders For Bad Credit has special non-QM mortgage loan programs for borrowers with late payments after bankruptcy and foreclosure with a 30% down payment.
Borrowers who are looking to get qualify for a mortgage with a five-star national direct lender with no lender overlays on government and/or conventional loans, please contact us at Mortgage Lenders For Bad Credit, Inc. at 800-900-8569 or text for faster response. Or email us at gcho@gustancho.com.
This blog on the mortgage underwriters role was updated on October 30th, 2022.
