Shelving Broken Concepts

Written By: Bonnie Wilt-Hild, Op-Ed Writer

Once upon a time there lived young women who, during a down turn in employment, embarked upon a career adventure that would ultimately become a life changing event. Having limited job skills, she accepted employment as a loan processor for a small Savings & Loan in Maryland. This experience was quite unique as the only job skills she possessed were those that one might acquire working undercover for a local police department and needless to say, these skills were not the least bit useful in a business environment. Nevertheless, the president of the Savings & Loan offered her the position as well as agreed to mentor her as she learned the skills of the trade. This young woman of course was I.

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Now at this time, the president of our little savings & loan was quite a knowledgeable man who I will refer to simply as Michael, and as I said he taught me the business. Each day our routine included what I like to call Michel holding court, usually seating himself in front of my desk and as the conversation and deliberations began, one by the one the entire staff would join in. Many things would be discussed on these mornings, everything from the development of the GSE’s, the growing secondary market as well as the invention of the fax machine, yea I know, but one of the most memorable conversations we had was one that involved the concepts of credit scoring and automated underwriting. Now I will mention first and foremost that Michael in his infinite wisdom completely disagreed with both concepts and the subsequent use of either system of modeling for various reasons which included disparate practices, but most importantly because he felt that in using credit scoring and AUS, you eliminate the most important component of mortgage underwriting which is the human element and the exercising of common sense. He simply felt that a computer model or a simple credit score indicator could not predict long term performance of the asset as they simply based their assessment on a snapshot in time where the borrower’s financial history was concerned. Needless to say, at that time and up until the present, I have agreed with his principal’s whole heartedly not to mention history has deemed him correct.

Now I know what you’re thinking, me, the person that authored “Common Sense Has Left the Building” and is pretty convinced that most people have a bowl of lead based paint for breakfast before leaving for the office is endorsing the human element, the common sense principal where mortgage underwriting is concerned and I have to say, I am doing just that. Now I will say that I believe some people have more sense than others and hopefully they are holding the red pen, but even if not, I still say old school underwriting is the best method and history (2007-2011) support my opinion. It has been a hard lesson but I think the mortgage industries most recent history spoke volumes as the pointlessness of credit scoring. It has pretty much been determined that it is quite possible to receive false positives as well as negatives where the modeling is concerned and it simply allows for a lack of responsibility where reasoning on the underwriters part is concerned. AU methods are no different. Very recently I was told by a student of mine that LP had approved one of their loans with a back end DIT of 253% and I myself had one in here with a 57%. Needless to say both were rejected but the bigger questions is why bother with them if they are going to approve everything and we as underwriters need to control use and outcome on a consistent basis where loan approval is concerned. It would be more efficient to just underwrite the loan, assess the credit and not the credit score and determine if the borrower will repay the debt. Credit scoring models contribute only to a false sense of security for less seasoned underwriters and disparate lending practices where overall pricing is concerned. Seriously, the Department of Justice tells us not to participate in such practices but the Safe Mortgage Act suggested by Congress does exactly that. Honestly just because a borrower had an extenuating circumstance that impeded their ability to make timely monthly payments for a period within their financial history does not make them an unworthy borrower. Honestly I would much prefer to lend to an individual with an extensive credit history under these circumstances then I would one with a 720 credit score and a 24 month credit history.

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In closing I would like to say that we as an industry have re-embraced old values where credit valuation and collateral examination is concerned so now maybe it’s time to do away with antiquated systems and move forward with the principals that we know work and I am sure if Michael were able to hold court in front of my desk today, he would say the same thing. As always everyone, 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".

Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.