Mortgage Underwriting Process Tips

Getting through the mortgage underwriting process today will probably be one of the most frustrating experiences of your life. No amount of empathy or understanding will make it better.  However, there are a few details your loan originator should be monitoring in case there is a need for additional documentation.  The originator should have the documentation in the file BEFORE it ever goes to the underwriter.  This could really save a lot of time and confusion.

Your home address is such a simple thing and silly to think it could cause delays.  IF ... the addresses on the credit report do not reflect what is on the 1003 there could be problems.  Your loan officer/originator should look at this information and if there is a variance it should be document in the file with a letter of explanation.  A mortgage underwriter would see this discrepancy as a red flag. The underwriter would ask for documentation and your file would be set aside.

The loan officer should also look on the credit report for any alias names that may have been used in the past.  Anything unusual or out of the ordinary should also be documented or your file will be set aside.

The credit report offers so much information.  The number of inquires should also be checked.  If there are inquiries from other mortgage lenders a Red Flag will be noted.  Or, ...  if there are numerous other inquires for credit the underwriter will want to know what is up.

This is the tough one.  Your loan officer should look at your bank statements to make sure they reflect your monthly income.  Large unaccounted for deposits are a red flag.  Also large debits that don't reflect current creditors could also be questioned.

Any of these red flags can cause delays with underwriting.  This is just a few examples.  Once an underwriter starts to see discrepancies in a file they become cautious and it seems to be a never ending story.  Mortgage underwriting in today's market is "A Brave New World".  So, try to document stuff before the file is ever sent to the underwriter.  Good Luck.

What Is The Mortgage Loan Process

I have a web page that explains the mortgage loan process and I thought it was comprehensive but I get at least one question a day about the loan process. Perhaps it is unclear because many things actually happen in parallel.

First of course, you should shop interest rates and find a local mortgage broker that you feel comfortable with, is experienced and reputable.

Application:

You go into the brokers/bankers office and you fill out a 1003 (loan application). You also bring copies of your bank statements, retirement accounts, 401ks, W2s and tax returns and what ever else the Loan Officer requested. The Loan Officer makes copies of the documentation and gives you back your originals.

An application can be filled out on line but I don't recommend you do that. Filling out an “on line” application is ok if you know whom you are dealing with and they are local. This can save you a trip to the office. But you should never just fill out an application on line if you don't know who they are or if they are not local (even if they are a major branded company). Do not complete any request that suggest multiple offers as these companies sell your information over and over.

During the time you sit with the loan officer he will review your documentation and with most companies he will pull your credit report while you are with him.

During your conversation the LO will tell you "based on the information he has" that you qualify for "this type" of loan. He should also at this time tell you about all loan types you qualify for. He will also discuss interest rates and terms. He will have you sign several disclosures.

At this point you guys decide on your course of action. HE SHOULD AT THIS TIME GIVE YOU A GOOD FAITH ESTIMATE. The LO then puts all your official paper work in the file and turns it over to the processor.

Processing:

The processor makes sure all the documents are in the file, puts the paperwork in order, enters it into DU or LP (automated systems) and then receives an automated approval or turn down. This is always "subject to" supporting documentation including appraisal, inspections, and title work.

The processor then verifies employment, verifies residence, orders an appraisal, and orders a title. I won't go into the documentation requirements here but this is when things start to happen in parallel.

When the processor has received all these verifications, the appraisal, and basic title work, they will review the file again and if it still qualifies they will forward the file to the lender’s underwriter.

Note: At this point she does not have a title policy or guarantee, but the title company has reported that there are no clouds on the title. Shame on the processor if she forgot to order this because it can delay your loan later. The actual title policy is not issued until later when the underwriter gives a “clear to close”.

Underwriting:

The lender’s underwriter then reviews what is in the file, runs the numbers, and verifies that all of the documentation is present and that it supports the DU or LP approval.

They also review the appraisal and the title at this time. This is part of the underwriting process. If there are problems in the appraisal review or title they will address them to the processor.

The processor will communicate with the LO and appraiser and/or title company to resolve the issues. This is part of the underwriting process. The processor collects the requested “stuff” and then forwards all information to the underwriter.

The underwriter is then happy and gives an "ok to close". This ok is usually subject to receiving the title insurance policy from the title company. The title company faxes or transmits electronically the info to the lender. Then the Lender sends the closing documents to the closing company. This can sometimes take two to three days.

You have an appointment to close. You sign the documents and your loan is closed and you get the keys.

Processing should only take a week after you have provided all the documentation requested. The underwriting normally takes about 14 to 28 days. This time includes communicating with the processor if there are any deficiencies.

Every loan file is different and each Lender has different requirements and markets vary, so it is impossible to give an exact duration for each step.

The Key: Understand the sequence and demand your loan officer gives you full details about what is going on. If you don't understand don't be afraid to say so. This is YOUR investment. Demand the facts. LO's sometimes use industry terminology, ask what they mean if you don’t understand!

Always,

Connie

Good Grief, How Long Does It Take

Up Dated February 2010

Yesterday I received the following question from K.S. who lives in Antelope, California. I want you to know I get this question over and over. It is one of my pet peeves because there is absolutely no reason for it to be such a frustrating reality to so many people applying for a mortgage. Here's the question:

"how long do i have to wait for underwriting???? i have been waiting week after week. he said completion review would be complete the 19th after last week he said 48 hrs .. last message he sent said he would know more on the 19th ...gr"

Answer:

The amount of time in underwriting depends on the lender, the type of loan, the issues that need to be resolved, and how saturated the market is. It can take 1 (one) week or up to 6 (six) weeks (worse case).

I don't know what the issues are on your loan or what type of loan you are qualifying for. However, your loan officer does!

Sometimes the problem of time is an issue of "when it was REALLY submitted" to the underwriters or what issues still need to be resolved. Your loan officer needs to be totally up front with you. If you don't think he is, ask to speak with his broker/manager.

I'm serious about this issue. You need FACTS! Ask exactly when it was submitted. If it has been more than two weeks, you have a right to know exactly why. Ask for documentation. No kidding. It is your loan and you are paying them a lot of money to broker it. You should demand, without being arrogant, real and true information.

Good Luck,
Connie

I found out during the conversation with K.S. that the Company she is doing business with is one of , if not the largest Lender in the US. That is too Sad. I also found out she is applying for an FHA loan and in all fairness these loans do take a little longer to close.

Like I said, this is one of my pet peeves so let me tell you why. I've been in the business for a long time and pretty much seen it all. I know that sometimes an incomplete package is submitted to underwriters. I know that there can be issues with appraisals or titles that can take time to correct or clear up. Sometimes a simple VOE will take longer than it should. Sometimes the borrower may be a little weak in some areas and the underwriter may ask for more or unusual documentation, they have the authority to do that.

I also know that sometime, more often than we like, the package just doesn't qualify under that lenders guidelines so the loan officer starts sending it out to numerous other lenders while he prays, and I mean literally prays that one of these lenders will approve it out of the kindness of their heart or that perhaps that their guidelines are not as tight. Well, we have all been there and every now and then it works, ... but at this point it is usually a lost cause, only that, ...we just can't let it go because we are heart broken for the borrower and we find ourselves in a state of denial.

If you are in the business you know that all these scenarios are reality and do take time. OK, so here is the issue I have with all this. This is why it angers me so: While all this is going on the borrower is left in the dark.

Most borrows don't understand all the steps we go through or the documentation process. But it is their loan be it a good one or not. They are paying a lot of money for this process. We owe it to them to keep them informed about any problems or issues that arise. They are part of the process. They have a right to know and if they don't understand then we must explain it so they do. Our avoidance of the issue and reluctance to inform the borrower puts them through a tremendous amount of stress and anxiety.

Borrowers, people, you and I, ... all expect to be treated with dignity and respect. We expect honesty from the people we do business with and we expect the people we are doing business with to have integrity and compassion. Pretty simple, huh? So why don't people get it right?

Borrowers have a right to know and the loan officer or company has an obligation to keep them informed.

Alright, I'm Done. I do hope I don't get this question again for at least a week!

Connie

P.S.

I originally made this post in 2008.  Today, in 2010, all the above still stands true.  However, the mortgage market has changed so in the past two years that there are additional factors causing delays.

The mortgage crisis and federal intervention has most lenders/underwriters being more conservative due to "fear of the feds".  Unfortunately this is a fact.  I have heard it from many underwriters.

Appraisals and property value is another big issue that causes delay.

The low down payment or no down payment programs are overloaded now that the subprime loans are gone.  They don't have enough staff to handle the volume.  This causes great delay.

As a consumer you still have a right to know the status of your loan.  Demand it!  If you have questions leave them in the comment section and we will respond.

Good Luck

Mortgage Underwriting Process