The complexities in the mortgage industry witnessed in the year 2020 can be dubbed as a reality check for lenders about the redundancy and loopholes in their current operations. Dynamism in regulations, erratic financial conditions of borrowers will continue to make it a daunting task for underwriters to execute their tasks without any hiccup. This has necessitated a relook at the current mortgage loan underwriting process and bring changes as required.
Adopting a technologically advanced underwriting model– Data analytics in mortgage loan underwriting process will be key in assessing a borrower’s financial health and create an accurate risk profile. Intelligent AI algorithms will help in accurately predicting a borrower’s ability to repay the loan within the agreed timeline. As indicated earlier about the undulating financial condition of a borrower, there are chances that a borrower who is determined as risky can appear to be a profitable prospect due to a sudden turn of financial events. An ideal way to keep track of a buyer’s financial health is to leverage social media analytics that can analyze a buyer’s creditworthiness by isolating the Covid 19 financial impact on the buyer’s financial portfolio.
Setting minimum requirements and approval standards – Lenders should earmark the minimum requirements for the documentation process, risk determination, and information analysis. Lenders must set their credit standards that are in line with the kind of risks they generally face while servicing a loan. Outsourcing these tasks to a mortgage underwriting vendor will ensure executing processes that are well aligned with the gold standard Fannie Mae and Freddie Mac guidelines.
Fulfilling the three C’s in the mortgage loan underwriting process– It goes without saying that underwriters must strictly scrutinize a borrower’s credit history which fulfills the first C. This involves reviewing borrowers’ credit score and checking whether they are up to date with the repayment of their past loans such as student loans, auto loans, and others. An underwriter must thoroughly review borrowers’ debt, assets, income, tax returns, 401k and IRA accounts, and other income sources. This fulfills the second C that denotes the capacity of a borrower to repay a loan. The third C stands for collateral and this entails an underwriter ensuring that the current market value of a borrower’s property is worthy enough as loan collateral.
Adopting pre-underwriting– This is the initial stage of filtering out under-qualified loan applications. This is essential to bring speed in the entire mortgage underwriting process. At this stage, only those files are processed that meet the pre-underwriting qualifications set by lenders. A pre-underwriting review is critical in filtering out all the loan applications which cannot be serviced as well as flag any such application with a missing or inconsistent document. Setting up a pre-underwriting process also reduces the overall production costs and speeds up the mortgage underwriting process.
Mortgage lenders are recovering from the pandemic-induced economic disruptions. Government-led stimulus packages to aid the financial recovery of organizations and individuals will trigger further complications in the mortgage lending process. To look at the brighter side, this will provide ample of opportunities for lenders to bring necessary improvisations in their traditional mortgage loan underwriting process to make it more resilient and effective.