Mortgage Underwriters Role During Mortgage Process

This BLOG On Mortgage Underwriters Role During Mortgage Process Was UPDATED On May 2nd, 2019

The mortgage underwriter is the most important person in the mortgage application and approval process.

• The most important person in the mortgage application and approval process, the underwriter, is the person borrowers will never talk to nor meet
• The mortgage underwriters role is to determine the loan approval and issues the clear to close
• The clear to close, also referred to as the CTC is when the lender is ready to fund
• The mortgage underwriters role is to make sure that every loan application under review meets mortgage guidelines
• Underwriters need to make sure borrowers meet federal mortgage guidelines set by HUD, FANNIE MAE, FREDDIE MAC, VA, and/or USDA
• They also must make sure borrowers meet the lender’s guidelines, which are called mortgage lender’s overlays

Mortgage Underwriters Role During Mortgage Process And Duties

The mortgage underwriters role during mortgage process is to make sure borrowers meet federal mortgage guidelines as well as the mortgage lender’s overlays.

• The mortgage underwriters role during mortgage process can be as simple as making sure that the figures are correct and verified
• Underwriters need to make sure the loan they fund can be sold to the secondary market after loan closes and funds
•  One mistake overlooked by the mortgage underwriter can mean that lender cannot re-sell the mortgage loan to Fannie Mae or Freddie Mac
• If the lender cannot re-sell the loan that they fund to Fannie Mae or Freddie Mac, that means lender needs to hold a loan in their books
• Cannot relieve their warehouse line of credit
• The mortgage underwriters role during mortgage process is to make every effort to make sure borrowers is qualified and is able to afford the new housing payments and loan does not default

Mortgage Guidelines Versus Overlays

The first and most important mission for mortgage underwriters is borrowers meet minimum federal guidelines as well as mortgage overlays. Most lenders have additional mortgage guidelines that above and beyond those of minimum mortgage guidelines set by the government and/or Fannie/Freddie called mortgage overlays.

• The mortgage underwriters role during mortgage process is to review the following:
  • income
  • credit
  • credit scores
  • credit history
  • liabilities
  • assets
  • overall credit and financial profile both the past and current
• The mortgage underwriter role during mortgage process is to make a judgment and decision
• Underwriters issues loan approval once they are convinced borrowers can make their mortgage payments timely
• The mortgage underwriter needs to believe borrowers will not foreclose on the home and have the ability to repay
• Past performance is indicative of the future performance
• That is why the past credit history and employment history is closely reviewed
• Borrowers need to show that he or she has been making timely payments
• This is reflected in borrower’s credit report via his or her payment history
• Borrowers minimum monthly debt obligations must meet the maximum debt to income ratio requirements
• Debt To Income Ratio guidelines is mandated by both federal guidelines and the mortgage lender’s overlay requirements

Mortgage Underwriter Role During Mortgage Process Prior To Clear To Close

The mortgage underwriter will need to verify assets that need to be used for the home buyer’s down payment and closing costs. Underwriters also make sure that those funds are properly seasoned ( 60 days seasoned in the applicant’s bank statements ).

• Any irregular deposits within the past 60 days need to be sourced
• For example, here is a case scenario:
  • has an irregular deposit of $1,000 from a sale of a car or other high ticket item
  • copy of the check, as well as a bill of sale, will be required
  • this will be required in order to be able to use the $1,000 deposit as verified assets

Income needs to be documented income.

• Cash income does not count in the mortgage business
• Part-time income, overtime income, and bonus income can be used if borrowers can show a history of two years of steady part-time income, overtime income, or bonus income
• The underwriter needs to be convinced that other income will likely continue for the next three years

Other Mortgage Underwriters Role During Mortgage Process

The Mortgage Underwriters Role During Mortgage Process is to oversee the whole mortgage file.

• Mortgage Underwriters need to review the following:
  • home appraisal
  • make sure the home buyer has sufficient coverage to protect the lender
  • make sure that there is no cloud in the title
  • a mortgage loan can be sold to Fannie Mae and/or Freddie Mac after loan funds and closes
• The mortgage underwriter will have the final say on the loan approval
• Ultimately the mortgage underwriter is the person that issues a clear to close

Once a mortgage underwriter issues a clear to close, the mortgage company then prepares closing docs and wires funds to the title company.