Underwriting. Maybe one of the most mysterious parts of lending because it can have different descriptions depending on the industry. In fact, a quick Google search will turn up no less than five different definitions.
So what exactly do mortgage underwriters do? We’ve broken it down for you.
So what IS underwriting?
In the mortgage industry, underwriting is the process of assessing a borrower’s creditworthiness and agreeing to fund a loan. In the old days, an underwriter would take the documents compiled by a loan officer – including credit reports, bank statements, paystubs, history of employment, tax returns, and more – and sort through them by hand, identifying missing information and worrisome details by noting what they call a condition. Conditions are pieces of information that the underwriter needs to determine approval on the loan.
Today, loan officers start the process with an AUS – an automated underwriting system. The AUS takes a homebuyer’s credit history, bank statements, tax documents, and other credit characteristics, as well as the property value and any other factors, and runs a risk analysis on all the information provided.
AUS is a machine, got it. So what does the underwriter do?
Once the loan officer has compiled the necessary information – either by hand or through our digital Easy App mortgage application – and runs the AUS, qualified files goes off to the underwriter. At Movement, our underwriters have a goal to underwrite initial submissions within six hours. Since the loan officer has already run the AUS, the underwriter will review all the documents in a file to confirm the analysis, and then make a decision on the file to determine if the file proceeds to a processor to clear the conditions, if the file is denied, or if it’s routed back to the loan officer as not ready – needing more information.
Is that the last time they see the file?
Not at all. Underwriters usually see the file a total of three times before it’s considered closed.
Once the underwriter passes the file off to the processor, the processor works on clearing the conditions. Example of conditions might be paystubs without a W2, bank statements showing the available balance but not a complete 60 day history, an insurance quote but not a final policy, or an estimated value but not a complete appraisal showing the appraised value of a property.
As the file is reviewed, the information may create additional conditions that will need to be addressed – anything that might be a potential risk for the company, should they agree to fund the loan.
After the processors have worked through a file, they send it back to the underwriter to review the conditions they’ve signed off on, or cleared. If the file looks good, the underwriter sends it to the pre-closing team to get ready for closing.
Once the file gets through pre-closing and quality control – a department which serves as a second round of review – it comes back to the underwriter one last time. If it all looks good, the underwriter signs off on the file and it goes to closing. And then boom, you’re on your way to a new home.
Is that all underwriters have to deal with?
Nope. On top of the loans they carry – called a pipeline – in various stages of the process, underwriters also have those loans they qualified as not ready that come back in from the loan officers; loans that have things change at the closing table; questions from loan officers regarding conditions or decisions; and of course, questions from processors.
Often, the processor might have questions about conditions or when the underwriter would clear them. At Movement, Underwriting Team Lead Jerry Eberhart says communication between the two teams is encouraged, and beneficial to both parties. “I make sure that it’s no problem if a processor walks over and asks me or anybody else a question. That’s part of why we’re here.”