Here are five quick tips loan originators can use to help prevent FHA mortgages from falling through during processing. For some mortgage originators these tips will seem ridiculously basic. Unfortunately, conversations with FHA underwriters show me that many loan officers haven't caught on to these ideas yet.
1. Make sure the loan you are submitting makes common sense.
Incredibly, this is one of the most common mistakes made by originators who entered the mortgage business within the last 5 to 7 years. Subprime programs generally only required that the loan fit into their matrix and never cared about the reasons the person had credit problems. Make sure that you can verbalize a good case that it makes sense to believe that this borrower can reasonably be expected to make the payments on the loan. Often this requires asking a lot of uncomfortable questions of the borrower to make sure that you truly understand their situation. Even when your submission is approved by the automated underwriting system and theoretically the underwriter needs only to validate the information and does not need to make a credit decision, the underwriter may well find something wrong if the loan does not make common sense. Lenders are held accountable by HUD for loans that default. They can always find a reason to override the automated underwriting findings if they want to.read maore
Stating a good case for loan approval is even more important when the FHA Total Scorecard underwriting system has referred your loan to an underwriter to make the decision. Do not ever assume that just because the debt to income ratios meet guidelines and the borrower hasn't been late on any payments in the last 12 months that you don't need to submit a well constructed cover letter with your loan - in addition to the borrower's own credit explanation. Make sure that both your cover letter and the borrower's explanation fully account for what happened to cause the borrower to have credit problems and why the underwriter should now believe that the borrower has solved the problem.
1. Make sure the loan you are submitting makes common sense.
Incredibly, this is one of the most common mistakes made by originators who entered the mortgage business within the last 5 to 7 years. Subprime programs generally only required that the loan fit into their matrix and never cared about the reasons the person had credit problems. Make sure that you can verbalize a good case that it makes sense to believe that this borrower can reasonably be expected to make the payments on the loan. Often this requires asking a lot of uncomfortable questions of the borrower to make sure that you truly understand their situation. Even when your submission is approved by the automated underwriting system and theoretically the underwriter needs only to validate the information and does not need to make a credit decision, the underwriter may well find something wrong if the loan does not make common sense. Lenders are held accountable by HUD for loans that default. They can always find a reason to override the automated underwriting findings if they want to.read maore
Stating a good case for loan approval is even more important when the FHA Total Scorecard underwriting system has referred your loan to an underwriter to make the decision. Do not ever assume that just because the debt to income ratios meet guidelines and the borrower hasn't been late on any payments in the last 12 months that you don't need to submit a well constructed cover letter with your loan - in addition to the borrower's own credit explanation. Make sure that both your cover letter and the borrower's explanation fully account for what happened to cause the borrower to have credit problems and why the underwriter should now believe that the borrower has solved the problem.
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