Sunday, November 16, 2008

Underwriter Accountability

I received a question from my FHA website two day ago and it took me several hours to cool off before I could answer it objectively. I certainly hope this is not becoming a trend in our mortgage industry. If anyone else knows of such a practice please let me know. The question follows.

  • I am not sure if you can answer this, but I really need advice for my wife. She has over 15 years experience in mortgage underwriting and is currently manager of a small companies underwriters.

    The problem that has arisen is that the owner has decided to force all the underwriters to sign a letter stating that they are financially responsible for any underwriting mistakes.

    For example, my wife fielded a question from one of her UW's about FHA guidelines. She answered it correctly, but come to find out the lender they are using is NOT following FHA guidelines for mortgage lates so her company has to find a new lender to purchase the loan. In this instance, the owner wants the underwriter to be docked the amount of money he "lost".

    This sounds so ludicrous to me and I am wondering if this practice is common in mortgage underwriting. Thank you

Below is my answer but be warned, in some areas it gets a little heated.

  • Kevin,
    I have put off answering your email because I needed to cool off and be calm. Your email really got me cranked up.

    Ok, first of all, ... no, this practice is not common. I don't know of any company that has ANYTHING like it or in that vain at all.

    Next, and this is a fact. In today's market very few lenders are following the guidelines to the letter. Most are becoming more conservative, especially in the credit area.

    As an example, Conventional guidelines requires 4 years expired on a bankruptcy. Many, many lenders now are asking for 5 or 6 years even though the guidelines only require 4yrs. FHA only requires 3 yrs and some lenders are saying 4, even though the guidelines only call for 3.

    Do you get the picture?? Lenders are running scared! The reality is that the underwriter has the power, ... and if their guidelines are stricter than FHA, or Fannie, or Freddie, it is the lenders prerogative. Fannie, Freddie, and FHA will not challenge that.

    So, a lot of lenders like yourself are having trouble getting their loans bought because no one is following the rules. And, no one is re-publishing the rules. Every one is just winging it and leaning towards the right.

    So, what you need to do is get closer to your lenders and get conversations going with the underwriters to make sure you are all on the same page so to speak. I expect by Feb. or March most of this will be ironed out. Maybe as late as a May.

    On a final note, I cannot advise you how to deal with your owners request for financial accountability. I don't have enough information about your company policies or hiring practice, or what-ever.

    However, I can give you my opinion of what I would do if my employer made the same request.

    I would explain that no one at this time can be held accountable for guidelines since no one is following them. Your Owner obviously is totally out of touch with what is going on in the market. (Probably too busy watching his accounting sheet trying not to file bankruptcy.)

    If he insisted on my compliance I would request a dramatic pay increase because my financials could not possibly cover even one loss. And of course, it was not part of my original employment requirement. I know that because I would have to be very rich to cover possible loss.

    If at this point my if employer was still wanting me to sign this ridiculous and non-enforceable document I would give him the bird and walk. Well, I would probably also use the big bad F words also.

    I can be that bold because I am probably much older than you and can survive without
    a job. If I were younger, I would just smile, not sign, keep working, and look for another job. I would not sign under any circumstances!!

    Good Lord, what are we coming to?

    Good Luck!