A failure in conventional mortgage underwriting is that many trustworthy and reliable borrowers are considered ineligible for a loan and puts them beyond the reach of lenders. Why? Due to legacy scoring methodologies that verdict a borrower’s low credit score as not credible or reliable.
And it’s a relief that the dependence on this inflexible type of automated mortgage underwriting is receding as lenders got edgy and wanted a desperate way out of this. They wanted to reel in more borrowers with thorough mortgage loan underwriting processes, by avoiding rigid scoring systems.
This has generated the requirement for proficient underwriting processes having in-depth loan considerations, the sole reason why customized processes and proficient mortgage loan underwriters are having a much higher demand these days.
Why Customized Underwriting Matters More
Previously the process was dependent on borrower credit scores, and a low score meant that the borrower is ineligible. The process is now highly improvised by generating credit reports for in-depth analysis. It can help lenders figure out the components that keep a low score. These will be about factors that caused late payments, related borrower’s concerns or issues, or whether such concerns/issues affecting payment has been settled, etc. This meticulous approach in the mortgage loan underwriting process reveals these elements based on legitimate documentation and could foster a rational loan approval to a borrower. And yes these loans aren’t perfect and are unconventional.
Most lenders have already started to ignore the scoring, automated mortgage underwriting. And now they analyze the borrower’s net disposable income, and inclination to make payments – as some will be capable, but will be reluctant to do so. This is achieved by analyzing borrowers’ detailed history.
Reasons why Automated Mortgage Underwriting became Less Relevant
- Credit cards are not used by millennials anymore
- The punishment related to card surrendering
- The monthly cash flow management is ignored
- Timely utility bill payment records are ignored
- Big medical expenses are ignored
Why Custom/Rational Mortgage Underwriting is Preferred
- Analysis of overall payment history is done
- Analysis of financial stability on a long-term basis
- Overall credit history length is analyzed
- Analysis regarding the debt-to-income ratio
- Considers the down payment amount
Limitations to Standard Mortgage Loan Underwriters
There is a huge base of understanding and critical thinking required in this type of mortgage loan underwriting process. This is why it cannot be done by every underwriter and it requires more time and proficiency for perfect execution. And lenders understand the fact that it can only be done by highly experienced professionals with a broad skill set, capable of dealing with different types of mortgage loans. This is why such extreme professionals are considered for this task with rational and judgmental thinking regarding borrower repayment capacity. Factors such as child support, alimony, and available income percentage for mortgage payments, is sure to aid lenders in receiving insights to make highly meaningful and educated decisions.
In short, analytical and custom mortgage underwriting has gone beyond science and has paved the way to a new and more efficient means by blending the art of critical thinking. It’s not about determining mortgage loan approval based on pure statistics, but thorough the analysis from a borrower’s perspective and lifestyle. And this has been highly helpful to lenders to grow their business by accepting and bearing up the associated challenges and uncertainties of borrowers.