What does it mean if your loan has gone through local underwriting and then forwarded to National underwriting? How long is the process?
Thank you for your excellent question about mortgage processing and mortgage underwriting.
Here are four important points you should know about the mortgage approval and mortgage underwriting process before getting a pre-approval and applying for a loan:
Ultimately, the underwriter decides whether to approve a loan.
Two key elements in mortgage underwriting are:
Fannie Mae and Freddie Mac are the two largest loan buyers. The third major player, the Federal Housing Administration (FHA), insures mortgage loans, thus greatly reducing lenders’ risks. Fannie, Freddie, and the FHA have their own set of mortgage guidelines and mortgage underwriting requirements. A lender must be extremely careful to abide by all the secondary market underwriting rules and regulations. Failure to comply with these requirements places the lender at risk of having to buy back the loan.
Loan originators use one of two systems to underwrite loans — automated and manual. If the underwriting system is manual, then the underwriter needs to be extra cautious to avoid mistakes and ensure it follows all underwriting rules.
Automated systems allow lenders to transfer information in a comprehensive and orderly fashion, with built in checks and balances. If there is an initial approval status, then the file will be sent to the lender’s underwriter who will review the file before final approval. If not, then it will be sent back for manual review, examining if any compensating factors exist that allow the loan to be approved.
If the underwriting system is manual, then the underwriter will be more cautious to avoid mistakes. Any information placed in the system must be verified carefully, otherwise the lender might be at risk. If the loan defaults and the lender was not careful to follow all the rules set down by the secondary market participant (Fannie, Freddie, or the FHA, for example), then it must pay the insurer or buy back the loan from the secondary market buyer.
The major automated systems are:
|Conforming Mortgage Facts|
| General limit |
|"Super conforming" limit||$625,500|
|Maximum loan-to-value|| Fixed: 97% |
| Maximum loan-to-value |
| Fixed: 85% |
|Credit score with DTI < 36%|| Fixed: 680 with LTV >75% |
Fixed: 620 with LTV <75%
ARM: 680 with LTV >75%
640 with LTV <75%
|Credit score with DTI < 45%|| 700 with LTV >75% |
640 with LTV <75%
|Conforming loans market share, 2011||~60%|
According to Freddie Mac, an automated underwriting system improves the mortgage process by lowering costs, expanding markets, and making lending decisions faster and fairer.
Loan originators, including well-known national banks, sell most home loans to the secondary market. Other loans are insured by third parties. Fewer, generally non-conforming loans are held on by the lending institution.
Each lending institution has its own lending criteria, which can be stricter than those of the the insurer or secondary market. Therefore, it is possible that you may be turned down by one lending institution and approved by another. However, all institutions, that wish to transfer the risk of their loans to a third party, must comply with the secondary’s underwriter guidelines.
Before you shop for a mortgage, learn about the basic mortgage requirements that will make you eligible for a loan. These requirements will vary over time. As we all know, after the housing crash of 2008, the mortgage underwriting practices became much tighter and it became more difficult to gain approval for a loan. The mortgage requirements not only became stricter, but so did the verification process.
The underwriting process evaluates all aspects of the loan application, including:
Just as important as it is to evaluate the borrower and their property, the underwriter is required to verify all documentation, according to strict standards.
The HUD has a 413-page, very detailed manual, entitled "HUD 4155.1 Mortgage Credit Analysis for Mortgage Insurance." It outlines credit policy and procedure for collecting, analyzing, verifying and approving all aspects of a loan application. Among those most relevant to your personal situation, the manual stipulates in section 4155.1 1.A.1.b.:
The underwriter evaluates the four C’s of credit to determine a borrowers creditworthiness.
The four C’s of credit are a borrower’s:
- Credit history
- Capacity to repay
- Cash assets available to close the mortgage
To get an idea of just how complicated the mortgage underwriting process can be, see Fannie Mae’s Frequently Asked Underwriting Questions, which deals with types of property, discretionary withdrawals from 401(k), or paying off revolving debts to qualify for a loan.
Your first steps toward getting a mortgage loan are to learn about the mortgage requirements.
Bills.com offers many great resources about getting a mortgage and various mortgage requirements, including specific information as follows:
Once you are pre-approved and chose a property, you will fill out a complete application form and attach all relevant documents about yourself and the property. You must provide an appraisal report, according to the standards laid down by the lender and the underwriter.
The underwriters decision will be one of the following outcomes:
Once approved, you can move on to close the loan.
Although automated underwriting programs have allowed the market to streamline their operations, the mortgage underwriting process is still a long and complicated process. The mortgage eligibility requirements are complicated. Here are some reasons that your application may take more time:
Shop around with different lenders and brokers to find the loan that best suits your needs. Go to the Bills.com Mortgage Saving Center for no-cost, pre-screened quotes from mortgage lenders.