Mortgage Finance Blog

Automated VS Manual, Underwriting Approvals

July 29th, 2012 10:36 AM by Diego Quintero


The latest market trends have made it increasingly difficult to obtain speedy conditional approvals. Due to declining interest rates, low home prices, and an increasing demand for homes, the underwriting process is taking slightly longer than usual. Contributing to the underwriting turn-times, are the aggressive loan products of the Home Affordable Refinance Program and FHA’s Streamline Refinance Program.

Conditional approvals used to take a couple of days to obtain, at most. At this point it is taking the better part of two weeks to get a decision. Surprisingly, it is not taking longer than the standard 30 days to close the entire transaction, but it adds some complexity on the real estate side when the submission takes so long.

Are you upholding your fiduciary duty?

Real Estate agents are placed under some scrutiny when it comes to protecting earnest money. What about other expenses? There are inspection fees, termite inspection fees, and other specific inspections to sort-out like mold, radon, etc., if the need arises. Some buyers are more than one thousand dollars into due diligence fees, before finding out if the underwriter found a deal-killer that an automated system could not detect.

When a loan pre-approval is written from a lender, it is typically an application that is uploaded to the Fannie Mae underwriting system, this provides an automated approval. Most systems allow the user to toggle or modify some of the variables of the application to obtain an approval. Upon submission to an underwriter those ‘switched variables’ are accounted-for using supporting documentation, whether to prove increased assets or paid charge-offs.

It is a fairly simple process if the loan applicant diligently collected the required information. But, the system has some minor drawbacks. The system is unable to determine whether the type of income is acceptable. Self-employed applicants, commission-paid applicants, & new landlord applicants make it a challenge to determine the exact calculation that an underwriter will use to determine income. Some institutions publish this information, but most decide at underwriting as the file may be measured by compensating factors.

Several other variables exist, including "time on the job," and the results of verified deposits, rent, & employment information. The list goes on and on. These can prove to be great compensating factors or represent that the file is risky.

The short of it is, as a Realtor or consumer, ask the questions about the process! Although, in good faith the inspections should be performed as you await the initial underwriting approval, it may be in the buyer’s best interest to wait until the initial underwrite is complete. At this phase of the process, the underwriter indicates all of the parts of the file that need additional support. If the listed conditions cannot be met, this is where your client would have saved the money of forgoing the inspections.

Perhaps Realtors should ask for extended inspection times and wait until that initial approval arrives before ordering all of the services. It’s just a thought, but as an agent, are you providing the best fiduciary duty by ordering the services in advance. As a consumer, is $1000 better in your pocket than spent on a wasted effort?

Posted in:General
Posted by Diego Quintero on July 29th, 2012 10:36 AM

Perhaps the mortgage business should get its house in order! Perhaps you should not hand out pre-approvals like candy. Perhaps there should be some accountability on behalf of the mortgage broker who says "oh sure - we can get that done" only to later tell everyone "sorry". I hope you are taking your own advice about fiduciary responsibility and holding off ordering appraisals until you have a conditional UW approval in hand.
Posted by Charles on August 1st, 2012 10:16 AM

Charles, I agree that the mortgage business should get its house in order. I also believe that mortgage brokers should be somewhat accountable. And, yes, I do walk this fine line. This is not to say that surprises do not appear on an individuals credit report but if a transaction is close on debt ratios or if a job history is difficulty to prove, I will run it manually to determine if we should cancel. With quick escrow closings, this has become a challenge as we do not have the time to wait. Thank you for reading Charles! I appreciate your feedback.
Posted by Admin on August 1st, 2012 2:14 PM


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