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Better Understanding of Underwriting

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Z

ZZGAMAZZ

Elite Member
Joined
Jul 23, 2007
Professional Status
Certified Residential Appraiser
State
California
Does a course exist to provide a perspective of lenders' perspective of appraisals? (Seeking a better understanding of underwriting. Wondering why some lenders appear to have in-house review appraisers while others question little if anything. Wondering who would decide whether an appraisal based logically on the Cost Approach would be acceptable. Wondering who decides whether the income approach is warranted of a SFR assignment in a neighborhood comprised primarily of rental units. Especially wondering about the authority of the FHA underwriter. Etc.

Or, does FNMAE and HUD establish standards with which all lenders must comply?????

p.s. I am aware that the appraiser is responsible to generate what he or she feels is a credible report.
 
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ZZGAMAZZ said:
Does a course exist to provide a perspective of lenders' perspective of appraisals? (Seeking a better understanding of underwriting. Wondering why some lenders appear to have in-house review appraisers while others question little if anything. Wondering who would decide whether an appraisal based logically on the Cost Approach would be acceptable. Wondering who decides whether the income approach is warranted of a SFR assignment in a neighborhood comprised primarily of rental units. Especially wondering about the authority of the FHA underwriter. Etc.

Or, does FNMAE and HUD establish standards with which all lenders must comply?????

p.s. I am aware that the appraiser is responsible to generate what he or she feels is a credible report.
Click to expand...

Short answer: Fannie and Freddie and HUD establish MINIMUM standards by which the lenders must comply if the loan is to be sold and/or insured by the respective agency. However, each individual lender can be more restrictive in their guidelines (called 'overlays'). That's why a buyer that was turned down by a big box bank for (say) DTI issues not meeting their guideline overlays can go to another lender and get approved. Of course, Carnivor's answer is much more in depth :)
 
Denita Neuenhaus said:
Short answer: Fannie and Freddie and HUD establish MINIMUM standards by which the lenders must comply if the loan is to be sold and/or insured by the respective agency. However, each individual lender can be more restrictive in their guidelines (called 'overlays'). That's why a buyer that was turned down by a big box bank for (say) DTI issues not meeting their guideline overlays can go to another lender and get approved. Of course, Carnivor's answer is much more in depth :)
Click to expand...

---

Can you describe the difference between obtaining a loan directly from a bank or credit union as opposed to contacting a real estate broker, or a mortgage loan original, etc., etc., or whatever they are called? (Real Confusing to me...)
 
Carnivore said:
Here ya Go:

Selling Guide

www.fanniemae.com www.fanniemae.com

https://www.fanniemae.com/singlefamily/originating-underwriting
Click to expand...

Just opened the attachment. So the lender subjects the appraiser to the FNMAE Collateral Underwriter software tool that analyzes it--which addresses my immediate source of wonder, i.e., how the lender in an hour can pick apart my report that took several hours to generate, although now I'm wondering why--if the CU spins 20 alternative comps--doesn't the lender run a dummy analysis of the subject market and send that list of comps along with the assignment, if the lending process could be perceived as a collaborative effort towards ensuring appropriate collateralization . . . or . . . why can't appraisers access the CU to ensure that their endeavors are beyond [REGULATORY] reproach . . . or for that matter, why doesn't the lender just create a dummy/hypothetical valuation based on the CU, and eliminate the appraiser-as-middle-person?

Nevertheless, the attachment is the source of information I was seeking, despite having been totally unawares of its existence for a decade+++ of practice.
 
ZZGAMAZZ said:
Just opened the attachment. So the lender subjects the appraiser to the FNMAE Collateral Underwriter software tool that analyzes it--which addresses my immediate source of wonder, i.e., how the lender in an hour can pick apart my report that took several hours to generate, although now I'm wondering why--if the CU spins 20 alternative comps--doesn't the lender run a dummy analysis of the subject market and send that list of comps along with the assignment, if the lending process could be perceived as a collaborative effort towards ensuring appropriate collateralization . . . or . . . why can't appraisers access the CU to ensure that their endeavors are beyond [REGULATORY] reproach . . . or for that matter, why doesn't the lender just create a dummy/hypothetical valuation based on the CU, and eliminate the appraiser-as-middle-person?

Nevertheless, the attachment is the source of information I was seeking, despite having been totally unawares of its existence for a decade+++ of practice.
Click to expand...

Your comment in bold above: It does not matter what they do, or how they check your Appraisal Work. What matters is that you met or exceeded the minimum requirements of their SOW that you agreed too. Yes, often times their is stuff in the SOW that is purely non-nonsensical. BUT they also then throw a monkey wrench into the process by coming up with BS stips. The one that has been discussed here ad nausea is on Page one; One Unit Housing Low, High Predominate. Predominate is the problem. If your Subject MV varies from the predominate, they want an explanation. No where in the FNMA selling guide does it say make a comment on the variance if you Subject falls within the range. BUT some lenders(actually many) have decided this needs to be addressed/commented by you the appraiser. So they have made this up! Yes, if its outside that range you should, but FNMA doesn't require nor do they want you to say anything if its within the range ONLY outside the range. i.e under/over-improvement is what they are looking for...

Here is what the FNMA Selling Guide says: https://www.fanniemae.com/content/guide/selling/b4/1.3/03.html

Price Range and Predominant Price
The appraiser must indicate the price range and predominant price of properties in the subject neighborhood. The price range must reflect high and low prevailing prices for one-unit properties, two- to four-unit properties, condo units, or co-op units depending on the property type being appraised and the appraisal form being used. Isolated high and low extremes should be excluded from the range, which means that the predominant price will be that which is the most common or most frequently found in the neighborhood. The appraiser may state the predominant price as a single figure or as a range, if more appropriate.

Nothing in there about commenting to some percentage variance of the predominate, YET many AMC Phone Monkey Dot Com will stip you for that comment.

FTR, you been here quite awhile. How could you not know about the FNMA Selling Guide? Seems like your just Trolling.
 
ZZGAMAZZ said:
---

Can you describe the difference between obtaining a loan directly from a bank or credit union as opposed to contacting a real estate broker, or a mortgage loan original, etc., etc., or whatever they are called? (Real Confusing to me...)
Click to expand...

I see two huge differences: overlays and loan program knowledge. There are also differences in cost (big box costs more).
My observations: The big box banks (Chase, Wells Fargo, Bank of America etc) have changed their mortgage loan process since the mortgage meltdown. Rather than going through the expense and time to train (and pay) professional loan officers, their application takers on the front end are not familiar with the guidelines at all for the mortgage programs and once the application is taken, they don't know where it is in the system to provide you much in the way of answers.

The very first person that actually knows the banks underwriting criteria (and all the overlays associated with that particular bank) that will see the application is the underwriter. In the meantime you have provided everything the processor has requested, the appraisal has been ordered, the home inspections done. If you have a very obvious limiting factor, say a vehicle payment, that prohibits you from purchasing the property you placed under contract, no one up to this point (not the loan officer nor the processor) has pointed out that the car payment puts you over your max DTI that the bank allows which is lower than what either Fanny, Freddie or FHA allows. The underwriter reviews and sends you a denial. They don't tell you why. They tell you no. This happens very late in the process, commonly a week before "closing". All of this could have been avoided if the MLO told you at the time of the app. Takes about 30 seconds to calculate DTI's. But the bank prohibits the MLO from disclosing any information that is helpful to you. They want every application to go through the entire process. It wastes your time, money and effort. Note: for a long time Chase reduced (to almost nothing) originating FHA loans but didn't tell any applicants. Chase isn't the only one - but an example.

If you go (online, on the phone, in person) to a lender that only originates mortgages (instead of also handling deposits and vehicle loans), the MLO will know, or should know, the guidelines so you are applying for the right program. If you have a limiting factor, you know right up front at the time of the application what the limiting factor is and how to deal with it. In the case of the expensive vehicle payment, the applicant can get rid of the payment, increase the income or find another property for which s/he qualifies with the payment. Saves everyone time, trouble and money. Most of all the buyer is not making application for a property s/he can't buy and saving frustration and embarrassment. The process is very streamlined. If you use a mortgage banker - they originate, underwrite and fund the loan. The mortgage is sold sometime after closing, but that happens anyway. This is by far the best way to apply for a mortgage IMO. There are many excellent mortgage bankers across the country. Many are also mortgage brokers so they can broker out the loan if they don't have a particular program to meet your specific needs. BTW, quite a few of these lenders don't have overlays which is a huge help (IMO) to the buyer/borrower. Some of these lenders are small banks, community banks or small regional lenders (eg: a lender in two counties only). Some of these are large mortgage lenders in every state (think Guaranteed Rate for example). These lenders have professional MLO's at the front end that are knowledgeable. Their costs are lower IME, both rates and fees. Communication is usually great.

Many, not all, Credit Unions are underwritten by a third party. I'm not a fan of that because the process is bogged down and miscommunication is high. I love Credit Unions for vehicle loans and almost everything else, but not mortgages. Even the big guys (USAA and NavyFed) are very slow and uncommunicative when it comes to a mortgage application.

The next category is what I think of as telemarketer mortgage apps. This would be the Quicken/Rocket Mortgage type issuer. The front end is a telemarketer. They have zero mortgage knowledge and a high degree of denied loans because their front end doesn't have enough knowledge of the guidelines to help the buyer/applicant make application for the right mortgage loan. In my area, if you supply a "pre-approval" from QL, the listing office/agent is unlikely to take your offer seriously. (Same with WF). So who you have as a mortgage lender makes a huge difference.

I wouldn't use a real estate agent to originate a loan.
 
Carnivore said:
Your comment in bold above: It does not matter what they do, or how they check your Appraisal Work. What matters is that you met or exceeded the minimum requirements of their SOW that you agreed too. Yes, often times their is stuff in the SOW that is purely non-nonsensical. BUT they also then throw a monkey wrench into the process by coming up with BS stips. The one that has been discussed here ad nausea is on Page one; One Unit Housing Low, High Predominate. Predominate is the problem. If your Subject MV varies from the predominate, they want an explanation. No where in the FNMA selling guide does it say make a comment on the variance if you Subject falls within the range. BUT some lenders(actually many) have decided this needs to be addressed/commented by you the appraiser. So they have made this up! Yes, if its outside that range you should, but FNMA doesn't require nor do they want you to say anything if its within the range ONLY outside the range. i.e under/over-improvement is what they are looking for...

Here is what the FNMA Selling Guide says: https://www.fanniemae.com/content/guide/selling/b4/1.3/03.html

Price Range and Predominant Price
The appraiser must indicate the price range and predominant price of properties in the subject neighborhood. The price range must reflect high and low prevailing prices for one-unit properties, two- to four-unit properties, condo units, or co-op units depending on the property type being appraised and the appraisal form being used. Isolated high and low extremes should be excluded from the range, which means that the predominant price will be that which is the most common or most frequently found in the neighborhood. The appraiser may state the predominant price as a single figure or as a range, if more appropriate.

Nothing in there about commenting to some percentage variance of the predominate, YET many AMC Phone Monkey Dot Com will stip you for that comment.

FTR, you been here quite awhile. How could you not know about the FNMA Selling Guide? Seems like your just Trolling.
Click to expand...

----

Yea I exclude isolated high's & low's as statistical outliers that can legitimately be exluded from a search.

I caveated my original post by indicating that I know I'm responsible to create a credible report, but I wish to know more about the industry without having a tangible dog in the race.

Swear on my fat belly that I never once heard of the FNMA Selling Guide til you mentioned it; and I only heard by the CU within the past 72 hours. (Wondering seriously why appraisers can't access the CU if the goal of the process is appropriate collatorialazation, possibly the fragmented nature of the real estate industry causes factions, although the beauacracy is a strange bedfellow with private enterprise . . .

Although I quite often post about issues that I find intriguing--often what I feel are incongruities in the appraisal industry protocol--they almost always are considered to be pertinent because of the volume and quality (often contradictory) of the responses . . . presuming that "trolling" is as bad as it sounds. I'm sincere in all I say and too, just a little bit too curious at times, although time is running out ...
 
Denita Neuenhaus said:
I see two huge differences: overlays and loan program knowledge. There are also differences in cost (big box costs more).
My observations: The big box banks (Chase, Wells Fargo, Bank of America etc) have changed their mortgage loan process since the mortgage meltdown. Rather than going through the expense and time to train (and pay) professional loan officers, their application takers on the front end are not familiar with the guidelines at all for the mortgage programs and once the application is taken, they don't know where it is in the system to provide you much in the way of answers.

The very first person that actually knows the banks underwriting criteria (and all the overlays associated with that particular bank) that will see the application is the underwriter. In the meantime you have provided everything the processor has requested, the appraisal has been ordered, the home inspections done. If you have a very obvious limiting factor, say a vehicle payment, that prohibits you from purchasing the property you placed under contract, no one up to this point (not the loan officer nor the processor) has pointed out that the car payment puts you over your max DTI that the bank allows which is lower than what either Fanny, Freddie or FHA allows. The underwriter reviews and sends you a denial. They don't tell you why. They tell you no. This happens very late in the process, commonly a week before "closing". All of this could have been avoided if the MLO told you at the time of the app. Takes about 30 seconds to calculate DTI's. But the bank prohibits the MLO from disclosing any information that is helpful to you. They want every application to go through the entire process. It wastes your time, money and effort. Note: for a long time Chase reduced (to almost nothing) originating FHA loans but didn't tell any applicants. Chase isn't the only one - but an example.

If you go (online, on the phone, in person) to a lender that only originates mortgages (instead of also handling deposits and vehicle loans), the MLO will know, or should know, the guidelines so you are applying for the right program. If you have a limiting factor, you know right up front at the time of the application what the limiting factor is and how to deal with it. In the case of the expensive vehicle payment, the applicant can get rid of the payment, increase the income or find another property for which s/he qualifies with the payment. Saves everyone time, trouble and money. Most of all the buyer is not making application for a property s/he can't buy and saving frustration and embarrassment. The process is very streamlined. If you use a mortgage banker - they originate, underwrite and fund the loan. The mortgage is sold sometime after closing, but that happens anyway. This is by far the best way to apply for a mortgage IMO. There are many excellent mortgage bankers across the country. Many are also mortgage brokers so they can broker out the loan if they don't have a particular program to meet your specific needs. BTW, quite a few of these lenders don't have overlays which is a huge help (IMO) to the buyer/borrower. Some of these lenders are small banks, community banks or small regional lenders (eg: a lender in two counties only). Some of these are large mortgage lenders in every state (think Guaranteed Rate for example). These lenders have professional MLO's at the front end that are knowledgeable. Their costs are lower IME, both rates and fees. Communication is usually great.

Many, not all, Credit Unions are underwritten by a third party. I'm not a fan of that because the process is bogged down and miscommunication is high. I love Credit Unions for vehicle loans and almost everything else, but not mortgages. Even the big guys (USAA and NavyFed) are very slow and uncommunicative when it comes to a mortgage application.

The next category is what I think of as telemarketer mortgage apps. This would be the Quicken/Rocket Mortgage type issuer. The front end is a telemarketer. They have zero mortgage knowledge and a high degree of denied loans because their front end doesn't have enough knowledge of the guidelines to help the buyer/applicant make application for the right mortgage loan. In my area, if you supply a "pre-approval" from QL, the listing office/agent is unlikely to take your offer seriously. (Same with WF). So who you have as a mortgage lender makes a huge difference.

I wouldn't use a real estate agent to originate a loan.
[/QUOTE

-----

WOW. Thanks very much for the perspective. I just advised the intermediary to notify the lende about the existence of a modular frame construction, 2nd unit on a rural parcel although I indicated that the loan officer might not understand the distiinction between modular and manufactured-on-permanent-foundation. Last week a loan officer bought into my premise that two adjoining lots, one with a SFR and another with a 3-plex, can be appraised as a legal 4-plex without a HC, and ordered the assignment as a 4-plex based upon the hypothetical assemblage . . . although the report was kicked out of undrewriting and a new assignment was ordered of a SFR and a 3-plex, which I advised the lender was necessary in the beginning. So I made additional easy money but didn't understand [til this moment] how that was possible. So thanks very much for taking the time to educate a peer . . .
Click to expand...
 
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