Mortgage Underwriters Role In Home Loan Process

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About Mortgage Underwriters Role In Home Loan Process

A mortgage underwriters role in mortgage process is to be the devil’s advocate. Mortgage Underwriters are the professionals that approve and/or deny loans

The mortgage loan applicant’s file goes through opening, processing, and then it goes to underwriting. Most loan officers will qualify borrowers prior to taking their loan application. Once borrowers meet all guidelines, then the loan officer will review mortgage docs and prep them for the loan opener. Loan Opener will register the file and make sure all docs are in order prior to submitting it to an assigned loan processor

The Loan Processor’s role is to process the mortgage file and make sure all documents are complete

Mortgage Processor does the following:

  • Order Verification Of Employment
  • Verification Of Deposit
  • Verification Of Rent (if applicable)
  • Request IRS 4506T
  • Order appraisal

Mortgage Processors And Underwriters Role During Loan Process

A good experienced mortgage processor will have the file in complete order prior to submitting it to the mortgage underwriter. Underwriters’ job is to scrutinize and analyze every single mortgage document a mortgage loan borrower has submitted and check for validity. If the mortgage loan defaults or the loan cannot be sold in the secondary market due to not meeting federal and/or Fannie/Freddie Guidelines, a mortgage underwriter can lose their job. The underwriter will look for reasons to deny a mortgage loan. Their job is to make sure that the odds are that the mortgage loan borrower will be able to repay their mortgage payments on time as well as have the ability to repay their mortgage loan.

Risks Of Mortgage Underwriters

Banks and Mortgage Companies rely on mortgage underwriters to determine risk when approving a loan. Many times, especially on manual underwriting files, mortgage underwriters have a great deal of discretion in approving a home loan. Mortgage Underwriters is the person that issues a conditional loan approval. Underwriters are the mortgage professionals who sign off on clear to close (CTC). It is the underwriter’s stamp and signature that lenders depend on whether or not to fund a home loan. Underwriters will review all the conditions after the conditional loan approval and if satisfied, will issue the clear to close.

What Mortgage Underwriters Look For

Mortgage Underwriters will look for whether or not borrowers meet the minimum mortgage guidelines.

  • Lenders who have lender overlays, underwriters will not just make sure that borrowers meet federal lending guidelines, but also see if borrowers meet the company’s lender overlays
  • Lender Overlays are guidelines that are above and beyond those of minimum mortgage guidelines by FHA, VA, USDA, Fannie Mae, Freddie Mac
  • Borrowers can qualify for mortgage loans with prior bad credit and not having to pay outstanding collections and/or charge off accounts

However, underwriters want to see that borrowers have been timely in the past 12 months.

Credit Scores Versus Credit Payment History

What is the difference between credit scores and credit payment history

The reason lenders want to see overall payment history is because past payment patterns of borrowers are a good indicator of future payment behavior. Just meeting the minimum credit score requirements is not sufficient in getting loan approval. People can have had extenuating circumstances in the past due to the following:

  • Unemployment
  • Illness and medical reasons
  • Loss of business
  • Death in Family
  • Victim of crime and/or fraud (example, ex-partner embezzled)
  • Due to the Great Recession of 2008
  • Divorce

However, underwriters want to see borrowers back on their feet and see re-established credit and on-time payment for the past 12 months.

Ability To Repay Mortgage And Quality Mortgage (QM)

One of the main concerns that underwriters will have is whether or not the borrower has the ability to repay their mortgage loan once the loan is funded (QM: Quality Mortgage). It is the mortgage underwriter’s role to approve a mortgage loan borrower who will not be late on future mortgage loan payments and avoid a default on a mortgage loan thus avoiding foreclosure. The mortgage underwriter’s role is also to make sure that the mortgage loan borrower is not committing any acts of fraud.

In the event, if the mortgage underwriter does make a mistake and approves a mortgage loan borrower who is not qualified and does not meet federal lending guidelines the mortgage loan cannot be sold. If the loan is sold and an audit reveals that the underwriter made a mistake, the mortgage company will be required to purchase the mortgage loan back. The lender needs to hold the loan in-house or take a loss and sell it as a scratch and dent.

Mortgage Underwriters Role Is To Analyze Risk

A mortgage underwriters role is to look at late payments from the borrower and to see whether the borrower has had a history of late payments and the circumstances why they had late payments.

  • Previous payment history
  • History is a good indicator of future payment behavior
  • Has the borrower been late after a prior bankruptcy and/or foreclosure?
  • Has the borrower been timely on all payments for the past 12 months?
  • Does borrower have reserves and history of saving money?
  • Does the borrower have compensating factors?
  • How much is payment shock?

Mortgage Underwriters Role Is To Make Sure Borrower Has Ability To Repay The Mortgage

Although there are late payment fees assessed with future mortgage late payments, that is not what the mortgage company wants.

  • They want a mortgage loan borrower who has the ability to repay the mortgage loan
  • Not just be able to pay their mortgage payments but the ability to pay their mortgage payments on time
  • A mortgage underwriter will understand prior late payments but they will want to know the extenuating circumstances why the mortgage applicant was late
  • Examples are such as a job loss, divorce, or medical situation or items listed above
  • However, if mortgage applicants have good credit scores but a history of being a late payment payer for the last ten years, it will be hard to prove that borrower will be paying new mortgage payments on time and it will be hard to prove that they will be timely on future payments

A habitual late payer is considered to be a financially irresponsible person and the chances to get a mortgage loan approval will be difficult.

Letter Of Explanation Is What Can Make You Or Break You

Why the explanation is what can break you

Home Buyers who had a prior bankruptcy or foreclosure, a mortgage underwriter will want to know the circumstances surrounding the economic event and the reason why the borrower initiated the bankruptcy or foreclosure.

  • Mortgage underwriters will frown on mortgage loan borrowers who are late on any payments after a bankruptcy or foreclosure but it will not be a deal killer

Late Payments after bankruptcy and/or housing event is considered very bad:

  • Many lenders will not approve a borrower who had any late payments after bankruptcy and/or foreclosure because they label them as a second offender

Agency Guidelines Versus Lender Overlays

Many banks have mortgage lender overlays that will not accept anyone who was late after a bankruptcy or foreclosure:

  • However, many mortgage bankers and mortgage brokers will have lenders or investors who will allow a few late payments after a bankruptcy or foreclosure
  • GCA Mortgage Group will approve borrowers with late payments after bankruptcy and foreclosure as long as they get an approve/eligible per Automated Underwriting System

The mortgage loan borrower can provide a good letter of explanation and provide facts attached to the letter of explanation.

Borrowers With Late Payments After Bankruptcy And Foreclosure

Borrowers who are looking to get qualify for a mortgage with a five-star national direct lender with no lender overlays on government and/or conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text for faster response. Or email us at [email protected] Please visit us at and subscribe to our Newsletter.  We are available 7 days a week, evenings, weekends, and holidays.