So much has been attributed over the years to the All Powerful Underwriter – you know, the person(s) who has the power to make or break your deal. But is this really true? What is this mysterious force that stands between you and your new home or investment or a better rate? Perhaps more common sense than power actually. That force has changed over the years too. Reality is that with all of the automation that we have – and that is a lot- there is still a team of humans reviewing your loan, seeing you and your file as a unique human with your unique situation. It’s a good thing because they aren’t just watching out for the investor’s interests, they are watching out for yours as well.
Before there were credit scores... there was a lot more paperwork, explanations and hair pulling about what was good enough credit and what credit was good. Scores based on periodically changing algorithms calculated on payment history, amount of credit and number of accounts over the life of the credit file started sometime in the 90’s. They were a love/hate relationship that has improved some over the years as the algorithms have become more fine tuned. The tool wasn’t perfect though. Some borrowers with legitimate challenges that they had overcome and would normally be documented enough to satisfy even the most particular of underwriters were thrown under the credit score bus. Others with credit up to their eyeballs who somehow managed to pay on time in spite of serious overextension, still had reasonable scores. An underwriter who might have previously raised an eyebrow at such things became compelled to approve something they might have previously passed on based on the risk factors.
Automated underwriting… showed up not too long after all of that. By the turn of the century in 2000 the machines were now driving decisions. To the horror and delight of many a loan originator, ratios that we had often fought to bend some or massage were now so unimportant to the all knowing machines that spit out approvals for borrowers with little down and 60% back ratios. I remember getting a loan declined at 37% back ratio because 5% down was just too small for them to approve. This quickly became a thing of the past once Automated Underwriting joined the lending team. It’s formulations for loan performance in the past based on similar criteria changed risk management forever and the old days of lending quickly faded in the light of the brave new automated world.
It’s been decades… since these systems were put in place and guess what? We still have underwriters! The machines didn’t and couldn’t replace them because truly every file has a unique story and every property can be unique as well. There is still a stack of guidelines and investor overlays that the underwriter must verify have been addressed in the file of documents that automated requires borrowers to produce. They look at the docs and the story and compare to what the programs allow and address anything that requires clarification.
The process now… is pretty simple. Pull credit. Run automated. Collect items the machine asks for. Submit to underwriter for review. Collect the balance of the items they might require and re-submit. When everything has been properly addressed then it’s off to closing. In some ways we have become a loan conveyer belt where it stops at each station to be given it’s special treatment on down to closing and then into the investor pile to be shipped off with all of the loans similar to it. Not so scary, just checking the boxes and verifying the borrower’s story to assure an investor will be happy, borrowers can afford their purchase and are likely to repay. Reality is that the lender does NOT want your house back. They want to make loans and be repaid. They are setting up the highest likelihood of that happening and seeking to minimize any risk. The end result should be a win-win for everyone.
While by and large, this is what happens in most situations there are always exceptions and there are programs out there for folks who don’t fit the regular box or investors doing short term loans and so forth. If you don’t fit the box, find a broker who has access to offbeat programs. If you do fit the box, hopefully this will take some of the unknown out of the who, what, where and why of getting a mortgage.
Reducing the fear factor always makes it more exciting cause usually underneath the fear of the unknown things is a lot of excitement about the possibilities ahead.
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