Colleen M. Olivas, Underwriter Roles and Responsibilities
Part 1 - Responsibilities and Roles as an Underwriter…an Overview
As our society has evolved culturally,ethnically, and demographically, so has theapproach to qualifying mortgage applicants.
Secondary market guidelines still providestructure (and with good reason), but todaysunderwriting flexibilities allow an underwriterto review each situation individually.In this way, the underwriter works as a teamwith the loan officer.
The goal of this mini-course is not totrain the reader to underwrite anyparticular program-- as specificguidelines change regularly.I simply want to present fundamentalunderwriting concepts.
Many lenders use automated underwritingsystems (AUS) in their underwriting decisionmaking processes. An AUS, such as FannieMae’s Desktop Underwriter or Freddie Mac’sLoan Prospector is a computer softwareprogram that empirically assesses individualand overall risk of an application.
Federal Regulations make it clear thatmortgage lenders have a responsibility toattempt to satisfy mortgage loan requests aslong as the risk is analyzed fully and deemedacceptable.
The desire to make loans must be balanced bya mortgage lender’s fiduciary responsibility toprotect whoever provides funds for thoseloans: depositors, shareholders, governmentagencies or secondary market investors.
All lenders, servicers, investors and insurersshare the danger that even properlyunderwritten mortgages may becomedelinquent.
Mortgage Brokers/Bankers have no margin forerror. Every loan they underwrite must be soldto a permanent investor. If a poorlyunderwritten loan is not secondary marketableat a reasonable price, it may result inconsiderable loss to a mortgage broker/banker.
The Underwriting mechanism has significantand lasting financial effects. Therefore it isimperative to adopt prudent guidelines,maintain an objective auditing structure,develop and maintain professionalunderwriting expertise and reviewunderwriting performance through qualitycontrol.
All mortgage loans involve the risk of possiblefinancial loss. The underwriting analysisquantifies the risk factors present andmeasures these against other strengths in thefile to determine whether the strengths offsetthe weaknesses.
Risk is never completely eliminated…it is onlymanaged.
Credit – based on the credit history of theapplicantCollateral – the condition and value of theproperty being securedDefault – debt repaymentInterest rate – changes in market interest ratesvs. loan interest rates….to name a few.
It is important to stress that only underwritingguidelines exist, not specific, precise formulasto apply to every applicant.
Although today’s underwriter has access tosophisticated automated underwriting systems(AUS), credit scores and mortgage scores, thetime-honored industry saying still rings true:“underwriting is an art, not a science.”
A successful underwriter’s greatest asset is notthese powerful analytic tools, but the abilityto apply common sense and creativity to themany situations that arise when qualifyingmortgage applicants.