Thursday, February 28, 2008

Underwriting and Appraisals

Underwriting and appraisals - two items that originators have only limited control of. Our role as originators is to know the products we offer, just like a doctor would know a drug, and to educate people about those products. Within the scope of these products there are many variables. The constants remain; income, assets, credit score, debts. However, within each transaction there is the understanding that the "underwriter" may see something they don't like and either...

A) Ask for more information from or about the borrower
B) Check with "Senior Management/Review Board" for approval
or C) Deny the loan entirely.

There is some responsibility that must be placed on the originator as the "quarterback" of the deal to make sure enough information is collected up front to find the right program. However, there are times when this doesn't happen and we will call it human error.

(Please forgive us for the times we make mistakes - as much as you want the loan to go through, so do we -- our well being depends on it...very high levels of stress)

In order to avoid the small underwriting snag along the way; before you come to the table for a loan, as a consumer, be prepared to answer questions about everything from last night's meal to the time you almost had your tooth knocked out of your head by that remote control airplane. (Don't ask - long story.) In all honesty, we don't mind the information and the more upfront and honest you are, the more smoothly the process can go. From there, we will do our best to find the best program for you based on your plans and financial capabilities. Be willing to learn and we will be willing to teach. You may not like what we have to say or offer, but I am sure that we hate delivering bad/different news than what you were looking for just as much as you hate hearing it.

Note: Underwriting and programs are changing constantly. I cannot stress enough that products/loan programs available today may very well be gone tomorrow (kind of like interest rate changes). Be prudent with your decision but don't hesitate too long unless you are prepared for the changes that can occur.

Appraisals - the quick run down. Completely out of our control and if we knew what your house was worth we would be a licensed appraiser. But, I am not and most LO's I know aren't as well. We do have access to resources that may give us a good estimate, but again a full appraisal by a licensed appraiser is the only way to know what your house is worth - in theory, on paper, based on what other people have listed for sale/paid for a similar house in that neighborhood.

If you aren't sure about the value of your house, you can take the risk and have the appraisal done or you can wait. I would love to pay for every single person's full appraisal but at an average of $350 a pop (though I make a million dollars a year...I would still be able to only do appraisals for about 3000 homes) you can see how costly that would be. The scrutiny placed on appraisals is currently slowing down underwriting times and with the lenders/investors constantly in "Caution" mode (link to article on AZ Central today - reinforces this weeks topics) it is taking a long time for deals to be closed.

Quick Hits:
  1. Disclose as much information to your LO as possible (this will help them choose the best loan)
  2. Be patient during the process. Understand that some things are just due to the human element involved in underwriting and originating.
  3. Appraisals can make or break some deals (especially today) but don't let it discourage you from refinancing or purchasing if you are in need. It just may mean that things need to be adjusted later.
  4. Current Market - May take a while for underwriting and it is definitely time to be as clear as possible with your situation and loan request.

Excuse the length of the blog. I am trying to cover a bunch of information quickly so that you have a good base as we move through this year. As I move forward I will try to bring more insight, knowledge, and resources to the table to help you in the process.

Next week-- Step-by-Step look at the overall origination process from initial pre-approval to application to closing of the loan.

Have a great weekend...until Monday!

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