From time-to-time during the mortgage application process a question will arise that will need further explanation. The underwriter’s concern about certain facts uncovered during her verification of the statements made on an application can usually be addressed in a Letter of Explanation signed by the borrower(s). A professional Loan Officer will usually pick them up during his interview. Here a few of the typical concerns that need to be addressed.
Credit Inquiries: If the borrower has a credit inquiry on their credit report dated within 120 days of their application, a Letter of Credit Explanation will be requested stating the purpose of the inquiry and whether or not any new debt was incurred as a result of the inquiry.
Joint Account Holder on Bank Account, But Not On Loan: If a spouse or an6y other person is a joint holder on a bank account where the funds will be used for the down payment or closing costs of a mortgage, a Full Access Letter will be required from that person confirming that they give the borrower 100% access to the funds to use in the transaction.
Address Discrepancy: If an address shows up on the credit report, pay stub, or bank statement that is not the same as the borrower’s current address on the application, or listed as any previous address on the application, a Letter of Explanation must be submitted explaining the discrepancy with dates the borrower occupied said address.
Derogatory Credit: If any derogatory credit trade lines appear on the credit report, a Letter of Explanation must be submitted stating what they are for and what event triggered the derogatory credit. If it is a significant event, stating how the borrower intends to prevent reoccurrence in the future will be very helpful.
o Documenting a file with the appropriate Letter of Explanation prior to submission of the application will save time in processing and underwriting.
o All Letters of Explanation must be signed and dated by the borrower
o Additional documentation that might better explain a questionable situation should be submitted with the Letter of Explanation
o Any new debt that was incurred as a result of the credit inquiry and is not shown on the credit report must be supported by a copy of the current monthly billing statement.
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“When You Work With a Professional, You Get Professional Results”
The Mortgage Underwriter is one of the most important people in the Mortgage Application process. Without the approval of an underwriter, no lender will fund or close on a loan. It is the job of the underwriter to ensure a borrower can repay the loan they are applying for and to determine that the sales price is supported by the appraisal value before granting lending approval.
Approval of a Mortgage Application is based on several things: income, credit history, debt ratios, and savings.
♦ A borrower must be able to prove a stable income and job history needed to repay the loan.
♦ They also must have a credit history that reflects a stable record of repaying obligations and a balanced debt to income ratio. Additionally, a borrower’s monthly debt must fall within acceptable limits determined by the loan product’s guidelines.
♦ Lastly the borrower must show that they have enough money saved for their down payment and closing costs. It is also smart to have a few months of mortgage payments saved away in case of an emergency.
It is the Mortgage Underwriter’s job to make sure all of these factors meet particular loan guidelines. The underwriter will evaluate all of this information and sometimes ask for more information or explanations from a borrower to clarify and support their decision on the Mortgage Application.
Mortgage Underwriters also review the Appraisal to make sure it is accurate and thorough, and that the home is truly worth at least the purchase price. A property’s appraised value is also reviewed by the underwriter to ensure the value supports the amount of the loan you are requesting. A good underwriter will also take into consideration the condition of the property, the location of the property and how it may be affected by natural disasters, such as floods.
An Mortgage Underwriter does his or her best to evaluate the potential risk involved when lending to a borrower. In January 2014, the Consumer Financial Protection Bureau enacted stricter requirements on some mortgages, which included tougher background checks into your bank account, spending and employment history. If an underwriter does not follow all guidelines and makes a poor lending decision and the loan defaults, meaning a borrower stops making payments on their mortgage, it could result in a hefty cost to the lender.
The Mortgage Underwriter has final approval and final responsibility for the Mortgage Loan. They must make important decisions based on the facts presented in the file, their own judgments and similar application experiences. The Mortgage Underwriter has to take a calculated risk and do his/her best to determine if a file adheres to not just the letter but the intent of the loan program guidelines. It is not an easy job.