By Andrew Morgenroth
A common phrase used in mortgage underwriting is “Tell your story.”
In its simplest form, telling your story means integrating a narrative within a loan file that paints a complete picture of the borrower(s), the loan terms and the underwriter’s methodology.
Beyond having all your Ts crossed and Is dotted, loan quality is determined by ensuring all eligibility criteria were followed and red flags addressed. Few loan files are cut and dry. Each has its nuances and challenges that make an underwriter’s job extremely important. Telling your story paints a picture of the totality of the loan file, allowing a reviewer to follow the logic used in arriving at a lending decision. It’s not meant to replace missing documents but rather to identify how they were used and resolve “gray” areas.
If it were easy, lenders could solely rely on the Automated Underwriting System (AUS) decision and be done with it. However, AUS feedback is merely a tool used to help the underwriter and is only as valuable as the information put into it. Secondary market loan approval still requires an experienced professional with knowledge of the Selling Guide(s) to answer the questions posed by the feedback. This also includes the expertise to look beyond the black and white and inquire deeper when something does not seem quite right.
Mortgage underwriting process: Tips for telling your story
When you include notes and worksheets, you help to spotlight focus areas for the underwriter. This also provides an easy way to put down a file and pick it up later, without having to spend time reinventing the wheel.
Wipfli’s previous article “Secondary-market quality-control appraisal review: Will yours stand up to investor scrutiny?” discussed the importance of a thorough review of appraisals, including clearing any UCDP findings. Having a checklist or marked-up version of the appraisal and SSR report shows you have done your due diligence while also providing the reviewer with a jumping-off point.
Additional areas where a narrative can contribute to the integrity of the file include:
- Including detailed underwriter comments on the Uniform underwriting and transmittal summary.
- Highlighting red flags on the credit report and how they were addressed.
- Documenting income calculations and filling in gaps. For example, if the borrower got a raise, when did it occur? When are bonuses paid out?
- Including detailed information. While documenting credit inquiries is a requirement in most cases, the more detailed the documented explanation the better.
- Consistently utilizing checklists, and updating them periodically to align with current investor guidelines.
- Providing notes clearing any outstanding underwriting and/or closing conditions.
- Using electronic sticky notes and comments for electronic documents.
The benefits of telling your story
A well-organized file that includes complete documentation and appropriate notes to connect the dots fosters confidence in the quality of the loan.
When an investor does come back to your financial institution with a question or suspected error, having a guided narrative makes it much easier to retrace your steps. This can be an effective way to avoid making misstatements and having to backtrack on your word. Investors are not looking for a gotcha moment; they are looking to build trust. Investors may be more willing to offer leniency if you have documented your story and they can see where the error occurred, versus having to reanalyze the file or guess for themselves.
Quality control (QC) teams are acutely aware of the value of telling your story. They do not know your borrowers and must interpret the loan terms from the information in the file. They rely on your institution to tell the story of the borrower(s). The better the narrative and documentation evidencing that you asked the right questions, the greater the confidence in in the quality and completeness of the underwriting.
Everyone is human and makes mistakes. Notes that demonstrate your thought process helps to identify the source of the error more easily. Whether it’s a one-time miscalculation or missed document, or a systemic issue that warrants further training or investigation for maleficence, a major benefit of QC is to identify these disconnects and any knowledge gaps before it becomes a bigger problem.
It can also translate to cost savings. A well-documented file equates to a faster review. If findings are identified during QC, the Institution’s personnel will spend less time on responses and tracking down follow-up documentation.
How Wipfli can help
Wipfli offers secondary market quality control services. Our QC team is comprised of seasoned lending professionals who all come from different backgrounds and areas of expertise. Secondary market mortgage lending is a highly specialized field that not many people have much familiarity with, even within the financial institution. At Wipfli, we work with our clients to build lasting relationships with a positive impact to help achieve your goals. Our team of QC professionals willingly share knowledge and best practice guidance to give institutions a solid leg to stand on. With Wipfli on your side, you can be more confident in the integrity of your loans and the benefit of knowing your review is being done completely independent of the mortgage origination and underwriting departments.
If you prefer to keep the process in-house and need assistance in reviewing existing procedures and/or developing policy and new testing procedures, our professionals can help on this as well. Contact us to get started.
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