Written By: Bonnie Wilt-Hild
As FHA is pretty much the only game in town and most investor are becoming more documentation oriented, even on the conventional products, most processors are beginning to realize that utilizing AUS findings for the purpose of documentation guidance is no longer helpful. Over the past several months FHA, FNMA as well as FHLMC have made it very clear that they are looking for files that have been sufficiently documented regardless of AUS documentation waivers. Additionally, the secondary market is not using the lack of documentation in files closed prior to 2008 as reasons to repurchase loans that are now in default. As I have stated before, we have learned a lot over the past decade, most importantly that you cannot underwrite a file using nothing more than an underwriting recommendation nor is it good practice to waive crucial documentation used during the underwriting process. So my question is, why am I having such a big problem getting a properly documented file.
There are several things that processors now need to consider in addition to application documentation that can really impede getting a loan closed in a timely fashion and the first piece is now the compliance piece. Under the new RESPA rules processors now need to review the compliance piece of the file and make sure that all necessary disclosures and well documentation regarding changed circumstances and the like have been included in the underwriting package because as everyone grows into the new laws, underwriting is going to particularly careful with the piece. Next of course if file documentation. From a processing standpoint a processor really needs to review all of the documentation provided by the borrower to determine if additional documentation is needed. One month worth of paystubs, 2 years W-2’s, bank statements covering the most recent two months, a credit explanation, inquiry explanations and of course verification of rent regardless of what your AUS findings tell you.
Also remember to document any other circumstances such as large deposits, multiple small deposits, deductions on paystubs, low year to date earnings and even collect the EMD regardless of if the borrower needs to it to close or not. If you provide all of this documentation to the underwriter there should be very little else needed unless the case is a really strange case and at that point you might wait for additional direction from underwriting anyway.
As volume increases it will become increasing harder for a less than diligent processor to keep the pace with processors that fully documenting their files because they will spend more time getting cases out of Suspense status then they will actually processing and will begin to fall further and further behind. It is critical that processors spend an adequate amount of time on the set up piece of the loan process to determine what additional documentation is needed from the borrower prior to submission to underwriting. If this is done and the documentation is collected prior to submission to underwriting, generally a processor will receive a clear approval and the case will move to closing. If not, then it will most likely be suspended and the loan officer at that point it forced to begin asking borrowers for documentation a few days prior to closing.
This not only upsets the borrowers and the realtors but ultimately the underwriter because at that point, underwriting is forced to drop everything they are doing and continually revisit a file as conditions come in one by one.
Worse still are the files that have been submitted to underwriting the day after they are received missing the most basic information. I have recently received files into underwriting that did not even contain a final typed 1003. Basically someone fastened the case into a file folder and sent it in overnight. Sorry but that is not processing, that’s moving paper. Please realize that when you submit FHA streamline refinance transactions to underwriting with no payoff or UFMIP refund information, the case is going nowhere. Underwriting is going to Suspend for the information required to just calculate a loan amount. This ultimately results in a greater length of time in underwriting because now that the case has been picked up and suspended, it gets tossed into the drawer that holds such files. If the lender you are working with is on a 48 hour turn time for conditions, once you send in the basic suspense items then you still have to wait 48 hours.
At this point the case might be moved to an approve status and the rest of the conditions may be issued, but the processor must now go back, collect the additional conditions and then wait another 48 hours to have them reviewed. All in all the file because a case that took longer than a week to clear to close vs. a well processed file that could move through underwriting in two hours and close the next day.
In closing I am asking that everyone slow down and put some effort into the cases that are submitted for underwriting. I realize that everyone is busy but honestly submitted files that have not been properly processed is not speeding things up, it’s slowing them down. I will leave everyone with that thought and wish all a good week.
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time 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". If you're interested in becoming a writer for NAMP®, please email us at: firstname.lastname@example.org.