Underwriting is the process by which mortgage loans are evaluated to make sure the submitted loan matches what the selected loan program requires. I recall years ago when I first got into the mortgage biz a loan wouldn’t ever touch an underwriter’s desk until it was completely documented. And I mean completely. The loan file itself could be as much as two, three or even four inches thick, stuffed with various forms of documentation.
This documentation included pretty much anything the underwriter might ask for. Even if the underwriter ended up not asking for it, it was still included. From bank statements to title work to full blown appraisals, everything was there. And if something was discovered that wasn’t in the loan file that should have been, the loan file went straight back to the loan officer’s desk where the missing information was ultimately included and only then returned to the underwriter for a review.
After submitting the file to the underwriter, there would undoubtedly be more questions that the underwriter had during the course of reviewing the loan application for an approval. Or not, for an approval. If the loan couldn’t be approved, the loan officer would be notified as to why the loan was turned away and then it was the loan officer’s responsibility to track down what was needed and then resubmit the loan file. All this meant that the approval process could take up to 30 days or even more.
Today however, loans can be approved in as little as ten days and with much less documentation. Instead of the loan application being reviewed after all the documentation was provided and submitted, it’s now in reverse. The lender won’t ask for much documentation until after the results of the automated underwriting decision were received. This automated decision is essentially an electronic approval. The initial loan data is entered and within just a few moments and approval is provided. Or not an approval.
It’s at this stage where the required remaining documentation is submitted. With higher credit scores and more downpayment, fewer questions will be asked. A low down payment loan with suppressed credit scores will ask for more documentation. Full blown appraisals may not even be required and a simple review from the underwriter’s desk would suffice. Two paycheck stubs covering 30 days, last two years of W2 forms and last two years of tax returns? This too can be reduced using the automated underwriting system.
Today, almost every loan approval issued is approved using this method.
GOT QUESTIONS, EMAIL US AT INFO@ESTATESBYTHEBEACH.COM
WRITTEN BY DAVID REED
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