Written By: Bonnie Wilt-Hild, Op-Ed Writer
As we continue to become a lending industry mitigated with financial reform, we continue to question the usefulness of technology tools that perpetuated the abandonment of underwriting and lender responsibility, where overall mortgage risk assessment is concerned. The sway in early 2000 to complete dependency of automated underwriting methods as well as risk assessment via credit scoring, crippled the mortgage industry to such an extent that a complete overhaul of underwriting practices and principals is now required in order to not only moderate lender behavior where mortgage underwriting is concerned but to also build a new foundation of underwriting principals that seemed to have been forgotten in the boom of automated underwriting methods.
Untangling automated underwriting methods from true underwriting practices and principals will be no easy task for an industry that has become somewhat of a slave to the technology tools that we allowed to assess risk and determine mortgage eligibility for the most recent 10 years and to further complicate things, many industry professionals entered the industry after the use of these technology tools became mandatory for use further diminishing the skill set of future of underwriters where assessing overall credit risk is concerned. Many underwriters over the most recent 10 years where taught to simply validate their AUS findings, confirm that all information as required by the documentation checklist was collected and to make sure that the overall loan met program parameters as required by the investor. Convoluting things further was the proliferation of sub-prime programs and alternative programs that required little if no documentation at all because risk assessment was based solely on credit scoring and perhaps LTV.
So the question we have to ask us ourselves is what’s next. How do we bring an entire generation of mortgage professionals back to the basics while at the same time re-teaching the basics of risk assessment and mortgage underwriting beyond automated underwriting.
Based on new legislation dictating financial reform as a must, the mortgage industry will now be subject to many changes which will include overall guideline reform embracing changes to everything from home valuation policies to underwriting criteria. Among these changes, the industry will begin to embrace further things such as underwriting due diligence, underwriter responsibility and a return to basic principals regarding assessing financial risk in mortgage credit analysis.
HUD has taken a larger stance on lender accountability sanctioning 1500 lenders nationwide last week alone and will move further in that direction in the future beginning with an overhaul of the post endorsement technical review process for lenders. With this overhaul, HUD will begin to assess lenders and underwriters in categories including overall risk assessment which is something we as underwriters were never subject to in the past. With this HUD will not only assess if or not documentation requirements have been met in the files selected for audit but will also perform a full underwrite to determine if the underwriter adequately assessed overall case file risk providing a safe investment for HUD from a mortgage insurance standpoint.
With this in mind all underwriters industry wide will need to focus less on automated underwriting as a method to decision a case and more on actual underwriting and overall risk assessment which can only be achieved with a full manual underwrite. By allowing documentation waivers, underwriters deny themselves all the documentation necessary to provide a full overall risk assessment of a mortgage case file. Limited documentation will allow a general assessment such as the calculation of ratio’s, LTV and sufficient funds required for closing but assessing risk overall requires a much deeper look at the borrowers overall financial behavior which of course can only be done with documentation sufficient to determine overall long term credit behavior, spending habits, debt accumulation as well savings patterns. These are things that will ultimately allow an underwriter to determine if the case will perform long term.
As we move forward, we now need to learn to separate automated underwriting from risk assessment relying on automated underwriting as no more than an underwriting recommendation and looking harder at the quantifiable data contained in standard documentation. Understanding that AUS systems simply provide an analysis of the borrower current financial position, not past and future will allow us to complete further risk assessment which will provide for sound lending decisions as well as a stable housing industry nationwide. Have a great week, happy underwriting.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie holds mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".