LA Real Estate Advice: Underwriters Marching to Lenders’ Tune

Westside LA Real Estate Advice: Bernie Madoff’s daughter-in-law, Stephanie Madoff, is changing her name. She says the Madoff name is tainted with scandal and she wants a name with less negative connotation. She will now be known as Stephanie bin Laden.
 
But an underwriter is an underwriter, regardless of name. Lately I have been hearing from producers, some of whom are upset about the current lending environment, some not. But for a slightly different view of things, here is what one very experienced and knowledgeable underwriter wrote to me: “It used to be that we could ‘underwrite’ a loan and use common sense to navigate individual circumstances and actually make a decision that a loan was a good credit risk.  Then DU and LP came along and gave us the laundry list that had to be followed.  We were still able to manually underwrite loans for those transactions that did not fit the box.  Then the bottom fell out of the business and everyone got scared and new rules came out. Investors and Wall Street were to blame for allowing individuals who were not telling the truth to buy homes. Today investors are pre-underwriting loans prior to purchase and we have to ‘march to their tune’ including getting pieces of paper that seem ridiculous, but since we need the investor to purchase the loan so we obtain them anyway.  Only the most qualified borrowers with all their ducks in a row get loans these days.  Manually underwritten loans are subject to scrutiny such as we have never seen before and frankly, we do not have the courage to paint outside of the lines because we cannot afford to have a loan purchase refused. Today, it takes two to three times as long to underwrite a loan and we have checklist upon checklist that help us make sure all of the i’s are dotted and the t’s are crossed.  I have been doing this for over 30 years and frankly we are back to the rules of the early 80’s or worse when it comes to documentation.”
 
Speaking of analyzing credit, are you ready to have an underwriter at the closing table? In Fannie’s latest letter to lenders, the company states, “Borrower Credit – Undisclosed Liabilities: Lenders are responsible for determining that all debts incurred or closed by the borrower, up to and concurrent with settlement on the subject mortgage loan, are disclosed on the final loan application that is signed by the borrower at closing. These debts must be evaluated and included in the qualification for the subject mortgage loan. Lenders must have adequate internal controls and processes to support this requirement.”

Source: Mortgage New Daily