Waking Up To A New Era

Posted by Joel pate in Uncategorized. Tagged:

Following what seemed like an eternity of foreclosure spikes and depressed home values, the U.S. economy and housing market finally went into recovery mode last year. Home values in many markets saw double-digit appreciation, resulting in a shift back toward traditional purchase loans after years of distressed sales dominating the market.
Even with all of this positive momentum, many brokers and originators find themselves beginning 2014 feeling troubled by lagging consumer confidence. With the recent federal-government shutdown, continued debt-ceiling debate and predictions of rising interest rates weighing heavily on the minds of consumers, lenders are trying to prove their ability to get borrowers into the homes that they want.
A new era has arrived, one that will be shaped by shifting underwriting demands.
Refinances, once our bread and butter, continue to decline rapidly, forcing mortgage banks and brokerages to rethink their target markets and the way that they compete for purchase business. And the competition is fierce; even traditional lenders and big banks are working hard to get ahead.
Remaining competitive in this new landscape requires an ability to offer consumers — and the real estate professionals and loan brokers who serve them — more of what they need in this market: a breadth of products, speedy processing times and more realistic expectations regarding what constitutes an acceptable credit score today. Above all, however, the most important deliverable is simply the ability to close, something that depends on underwriting that’s efficient and thorough.
To better understand why effective underwriting is more important than ever, let’s take a closer look at what matters most among today’s consumers and the professionals who work for them.
Product breadth
To account for the unique financial situations and expectations of a larger pool of borrowers, mortgage banks and lenders must expand their offerings to include a wide variety of conventional and government-loan products. The growing number of government offerings available to borrowers is impressive and well worth the consideration of organizations looking to grow their portfolios.
Effective government lending requires a deep knowledge of underwriting terms. These loans rely heavily on manual underwriting, a process that may seem foreign to underwriters who entered the field in the wake of advanced process-automation tools. Underwriting teams must be trained to account for the difficulties associated with processing loans that are driven by exceptions to the norm.
In today’s market, the ability to close quickly is crucial. Consumers depend on this speed to avoid losing their homes to other buyers, and agents rely on it to ensure that they get paid.
According to Ellie Mae, the mortgage industry’s average time to close a purchase loan was 46 days in 2012. Although this average has improved slightly over the past year (dropping to an average of 43 days this past September), further enhancement across the industry is in order. Ideally, an average of 25 days to close should be the new standard. Significant refinements in terms of underwriting can pay off with greatly expedited processing times, thereby reducing the time to close to as few as 15 days in some cases.
By providing borrowers with a shorter, more predictable timeline, mortgage bankers and originators can enjoy an obvious competitive. By promising qualified borrowers that their documents will be ready for closing within 25 days or fewer, your company can make itself a go-to lender among a growing number of purchase-market homebuyers.
Realistic expectations
In the wake of the recession and the related housing-market meltdown, mortgage banks and lenders should take a fresh look at their qualification requirements for borrowers and make sure that they match up with reality. Otherwise, they could be overlooking potential groups of borrowers, including those who temporarily may have been affected by a lagging job market and now are employed.
Require FICO scores higher than 700 may be overlooking millions of otherwise-eligible borrowers. Additionally, there should be greater flexibility concerning the appropriateness of conforming, high-balance and jumbo loan options. To accommodate the needs of today’s market, some mortgage banks and lenders have expanded their credit requirements, reducing their minimum FICO scores to 580 for certain products and making the qualification process easier on borrowers. This can widen the pool of applicants and attract the attention of institutions that wish to sign on as third-party originators.
Lowering credit expectations means taking on an additional risk. This risk can be minimized considerably in the underwriting process by requiring lower loan-to-value ratios and by reserving part or all of the fees and gain on sale as part of the credit-risk management process.
Quality underwriting
The mortgage community has been preoccupied with the uncertainties surrounding the qualified mortgage (QM) rule set to take effect. The industry continues to wait for additional guidance from the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture concerning the guidelines specific to their government products. We are, however, beginning to understand generally what will be needed for conventional loans.
Mortgage professionals should pay close attention to whatever transpires in terms of approved regulations and begin to anticipate possible outcomes. As various mandated changes become more apparent across the industry, mortgage banks and lenders that have been tracking the various compliance and underwriting implications will be in the best position to execute the necessary program changes fluidly and move to market QM loans faster, making the brokers and real estate professionals that they partner with more successful and the clients of these parties their biggest fans.
Whether you’re originating QM loans or non-QM loans, ultimately it’s the underwriting that will make or break your company. In time, banks and other lenders with the ability to underwrite and approve all types of loans should have a natural advantage in attracting repeat business.

By: Karen O’Brien, www.scotsmanguide.com

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