Recently, lenders and investors have suspended or changed their published financial assessment requirements. Based on NRMLA guidance put forth last fall, the best processes offered were aimed at addressing an increase in borrower tax and insurance defaults.This reassessment has given rise to a heightened awareness of the effects of a borrower’s prior delinquent T&I payment history, requiring additional focus on underwriting process to determine the ability and willingness of the borrower to meet these expense obligations in the future.
The likelihood and predictability of T&I default has been well documented and reviewed by lenders, servicers and HUD. This first round of assessment, which some hoped would adequately address the T&I problem, didn’t end up solving much. It seems as though the operation was successfully completed, but the patient wasn’t any better off. We have yet to see what’s in store for round two.
Unsurprisingly, this overall marketwide experience has given rise to more underwriting requests for explanation of T&I payment history. Perhaps for the first time, originators are embracing the fact that the consumer disclosure stating, “This product may not be appropriate for all older American loan needs,” is a double-edged sword that must be mastered.
Ralph’s Checklist During the height of market focus on financial assessment, many of us didn’t realize the page had turned on the calendar. Now, we are looking at our 2012 to-do list. Perhaps your list should include some or all of the following:
-Review existing agreements (LO compensation agreements, lender agreements, vendor agreements, etc.) for another year of use and applicability to your present operations.
-Review workflow and processes for purposes of enhancing efficiency and reducing unnecessary expenses.
-Review your Product Matrix – if you don’t have one, add it to your list to build one. A comparative “all in one” document will allow you to maximize minor variances from lender to lender in price, guidelines and operational requirements, which could lead to more loans approved and funded as well as additional marketing opportunities.
-Hold a town hall meeting with all company members. Have participants brainstorm and suggest new marketing opportunities, policies, procedures and “likes and dislikes” for management’s consideration.
-Best business practices set a benchmark for performance that leads to quality loan files and a quality reputation. Have you circulated or posted these recently?
-Compliance, compliance, compliance: 2012 could be the year of greater audit and control reviews by outside parties. Be prepared!
-When was the last time a group of you got together and actually read the documents from start to finish? You would be amazed by what is in your forms and what forms you are missing!
-Look for education, training and support resources to improve each area of the loan process. One of the best resources is our industry trade association, NRMLA. Are you a member?
-Force yourself to learn something new each day. We all know this program is a work in progress, so stay on the leading edge.
-And yes, get out the underwriting manual. Learn, absorb and ask questions. Underwriters will tell you that the number of unusual scenarios encountered (and processed) is increasing. The intensity list for underwriting is growing, especially in the area of occupancy and the always present “final value.”
Lastly, consider the “Underwriter Question of the Day:” Can you define the components of “no seasoning requirement” and the underwriting evidence to support your claim that the transaction is not a “flip?
