Home Matters: Loan Processing And Underwriting

Home Matters
 
By SARAH HOSFORD-CAMPBELL
Mortage Loan Specialist
 
Last month we learned about the importance and purpose of a real estate appraisal. What happens next?
 
After the inspections and appraisal, there may be additional negotiations between you, the buyer and the seller based on the results of the inspections and appraisal. Your realtor will work with you and advise you on any additional negotiations.
 
Once you and your realtor are certain everything is ready to continue moving forward, your loan officer will now submit your loan to processing and underwriting, this moves the loan from an early approval process to the final approval process.
 
Your loan officer did an early underwriting review of the information you supplied to determine the loan program you were qualified for. Now, the loan processor will begin verifying ALL of the information you submitted on your loan application and the details of the home you are purchasing.
 
The processor has a very detail oriented job in your loan approval process and will likely ask you for some additional documentation, or updated documents, during the loan processing review.
 
What does the loan processor do?
 
The loan processor reviews your employment documents and verfies your current employment status and calculates your income, reviews your asset statements and determines the amount of your qualifying assets, begin working with the title company to order a title examination in preparation for closing, verfies the address and location of the home you will be purchasing.
 
The loan processors will submit your loan to underwriting for final loan approval and will work to answer any questions the underwriter may have about the file and gather any additional requested documentation.
 
The loan processor is also the liaison between, you, the loan officer, the realtors, the title company, the underwriter and your home owners insurance agent and anyone else involved in the transaction.
 
I often like to describe the loan processor as an orchestra conductor. The loan processor keeps all parties in the transaction moving toward the same end goal. The loan processor sets the pace and tempo for the transaction and works to make sure all the parties are working together harmoniously to reach the end of the transaction at the same time.
 
The loan processor can speed up or slow down the pace as needed. Just like an orchestra, the loan process would not run as smoothly and seamlessly without a conductor guiding each party in the right direction at the right speed.
 
After the loan processor receives the loan back from underwriting, the loan processor will review any “conditions” assigned by the underwriter and will gather documentation to clear the conditions.
 
What are conditions?
 
Loan approval conditions are requirements the underwriter has issued as a stipulation for final loan approval. The conditions may be minor, like an updated paystub from your most recent pay cycle or they may be more detailed like requesting an explanation and documentation from a past derogatory credit event or proof of satisfied judgements and personal liens.
 
Why does the underwriter care about those things?
 
An underwriter’s job is twofold. The first is to make sure your loan is documented and approved based on all federal and investor requirements. Most lenders have federal requirements that they must adhere to regarding documenting that you can pay back the loan you borrowed without subjecting you to undo hardship.
 
This requirement is known as the “Ability to Repay”. The second part of the underwriter’s job is to assess risk. All loans have a risk of default. The underwriter assesses the risk level and likelihood of default on every loan. Even if you have perfect credit, and have no intention of ever defaulting on your loan, there is still a default risk.
 
The default risk would be in the event of a tragic accident and no one was left to pay your mortgage. The loan would go into default. Or, you lost your job and were unable to find another job with a high enough income to pay your current mortgage. These are the types of default risk that exist on every loan.
 
The underwriter reviews these risks and based on other characteristics of your loan, determines the level of risk on your loan.
 
If your loan processor contacts you about clearing an underwriting condition and it seems trivial or insignificant to you, remember, you are helping the underwriter to document your loan is not at a high risk of default or you are helping the underwriter document your “Ability to Repay” as required by federal regulation.
 
While the loan processor is like an orchestra conductor, the loan underwriter is like an insurance agent.
 
The loan underwriter assesses risk, evaluates pros and cons, documents events and provides a decision regarding the stability of the loan and provides the loan investor with a sense of security.
 
What comes next? Next month we will review the role of title examination and title insurance. Stay tuned…
 
Sarah Hosford-Campbell is a mortgage loan office with Envoy Mortgage. Feel free to contact Sarah to suggest home ownership topics or for assistance with your home financing needs. Sarah can be reached at scampbell@envoymortgage.com
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