Mortgage Underwriters: Meaning
Each mortgage application, whether for an individual or business, goes through a rigorous process of analysis to see and estimate the extent of risk involved in the mortgage proposal before it is finally sanctioned. All those individuals who do this analysis to decide the level of risk are known as Mortgage Underwriters. And their main objective is to see that the business/individual meets the mortgage loan sanctioning criteria of the lender.
Mortgage Loan Underwriters, considering age, employment type, past records, current financial situation, the current valuation of collateral, etc., decides whether to sanction the mortgage or not. If the applicant does not meet the given criteria, the Underwriter has the full right to decline the proposal.
Since the collateral in the mortgage loan is the same asset for which the loan is taken, the Underwriter has to conduct the process thoroughly, considering all the factors.
The main role of the Mortgage Underwriters is to analyze whether the asset buyers will be able to pay back the loan amount or not. They have to ensure the lender maximizes the profit with minimum risk or losses. They can also take the help of various software programs and external experts to conduct a flawless Underwriting process. Mortgage Underwriters analyze a lot of documents while conducting the Underwriting process.
In the case of Mortgage Underwriting, consideration of only mortgage loans takes place. On the other hand, Loan Underwriters conduct the Underwriting process for all other types of personal and business loans. Depending on the situation, this process can be automated, manual, or a combination of both.
Factors used by Mortgage Underwriters
An analysis of a lot of factors takes place under Mortgage Underwriting. Following is the list of important factors used by the Mortgage Underwriters for the analysis:-
Credit Score and Credit Report
Both the Credit Score and Credit Report act as a measuring tool for the credibility of the borrower. The Credit Report shows how loans were paid in the past. It is a detailed report showing whether there were any irregularities in payments or defaults. This report gives an idea to the Underwriter regarding the repayment pattern of the applicant. If there are existing loans, then the underwriter needs to take clarification on the priority of the same. These lenders also have a minimum qualifying standard Credit Score. The Underwriter moves forward with the underwriting process only if the applicant’s Credit Score is at least matches the minimum standard one. Credit history plays a very vital role in assessing the probability of defaults.
Income and Assets
The above two factors (Credit Score and Report) show credibility, while Income and Assets show financial stability. The Underwriter needs to analyze the income/profit-earning capacity of the loan applicant. The more stable the income source is, the better it is. Self-employed people are considered less stable than salaried. The Underwriter might ask for Income Tax (IT) returns or Bank statements for the past two or more years.
Assets owned by the applicant boost financial stability. Apart from the mortgaged property, if there are any other assets, then the Underwriter conducts a valuation to estimate the current market price (CMP).
Debt to Income Ratio (DTI)
One of the important factors useful at this stage is the ‘Debt to Income Ratio.’ It shows the link between the income earning capacity and the current debt/liabilities of the mortgage applicant. Some lenders have set a standard Debt to Income Ratio, which should match with the applicant. At this stage, the Underwriter compares the income with the existing debt and checks whether there would be enough funds for loan repayment.
All these things add up to the financial stability of the applicant.
This is the most important factor in Mortgage Underwriting. Collateral is the asset that could be a house, property, land, etc., for which the loan is taken. The applicant is taking loans for buying such properties by keeping the same property as collateral.
Since this collateral property acts as a foundation for the loan process, the Underwriters have to completely analyze the collateral risk. They have to check the current value of the collateral with the value payable by the applicant. All the document verification, including Title Clearance Certificate, takes place at this stage. Verification of the total down payment amount also occurs as the number of down payments increases and the risk involved in the mortgage loan decreases.
Results of Mortgage Underwriting Process
The Mortgage Underwriter, at the end of the process, after considering all factors, will make a decision on sanctioning the loan. The Underwriter has complete authority to approve, deny, or suspend any proposal.
If there exists a high risk and low chances of getting a Return on Investment for the lending company, the Underwriter can reject the mortgage loan proposal. It is of immense importance that the loan applicant achieves all requisite standard guidelines.
The Mortgage Underwriter can keep the loan application in a suspension mode due to a lack of few documents. The suspension is like a standby mode, where the proposal is put on hold. If the applicant is able to provide further those satisfactory documents, then the approval takes place. If not, the application goes into a denial stage.
If all documents are clean and meet up the standard requirement, the Underwriter approves the loan. At this stage also, the Underwriter might ask for additional documents like insurance forms, tax forms, etc.
Do Mortgage Underwriters Require a License?
Just like all other types of Underwriters, Mortgage Underwriters also requires a license from the statutory authority. The institution for which these Underwriters are working should also have a statutory license. To get the license, these people need to go through the examination as prescribed by the regulatory body. Moreover, this license also needs to be regularly renewed.
Remote Mortgage Underwriters
Remote Mortgage Underwriters are experts having licenses who perform underwriting work from a remote location. Their working system is like a Work-From-Home, where they provide mortgage underwriting services to the lending companies. These Underwriters offer advisory services.
Mortgage Underwriters play a crucial role in the Mortgage loan sanctioning process. They have not only just to analyze the credibility of the applicant but also have to come up with a correct valuation of collateral. They have to perform all functions with full integrity to avoid defaults and make lenders profitable.