The following are some reasons loans are being denied.
1) Being aggressive in determining qualifying income.
When it is difficult to come up with enough qualifying income, maybe the borrower is not qualified. With AUS engines still approving loans with questionably affordable income, aggressive income and high ratios are a lethal combination. (RATIOS ON FHA SHOULD NOT EXCEED 50%)
2) Not reading the appraisal.
The appraisal is more than a value figure. It provides a detailed description of the property, including the potential for details which could stymie sale of the loan. Listed properties and un-permitted additions are good examples of complicating issues, and the cure is more than canceling the listing or excluding the un-permitted addition from value.
3) Not reading the credit report.
The credit report is more than the score. Consumer alerts require documented follow-up. Authorized user accounts may invalidate the credit score and AUS decision. Employment and address references — if not consistent with the application — should be questioned. Reading the credit report gives insight into the borrower’s ability to manage credit.
4) Ignoring stability and trends.
At a time when many businesses are less profitable — affecting owners and employees alike — originators need to go beyond the AUS requirements when assessing qualifying income.
Those impacted no longer include only realtors and developers. Virtually any industry relying on discretionary spending has been affected like the construction and automotive trades. And, in mid-2009, ignoring what has happened since 2007 is a risky idea. Permission from the IRS to delay filing does not obligate the lender to accept income derived from dated financial data.
5) Minimizing assets.
Just because assets are not required to obtain an AUS approval does not mean they do not matter. Assets are a relevant part of the application, and omitted assets may be construed as meaning the borrower does not have any. If cash is needed to close, it is painless if accounts were already documented. Also, savings may prove to be a compensating factor when there are stability or affordability issues.
6) Believing everything that the borrower says.
Some borrowers want the lower pricing and higher LTVs offered on owner-occupied properties, and some borrowers believe misrepresentation is less of a sin if they are helping a family member. With investors limiting the number of properties a borrower can own, MERS is an invaluable tool to identify undisclosed real estate holdings. Especially on cash-out refinances, a verbal VOE done immediately before close protects the originator since some borrowers believe extracting equity is a good move when their job is at risk.
7) Believing that satisfying the AUS conditions equals underwriting.
The AUS decision provides a list of minimum documentation which may be sufficient on a slam-dunk loan. Many loans have more complex issues, and no AUS system is smart enough to figure them out. This is when a savvy underwriter’s skills pay off.
article courtesy of:
Edward Hernandez, Wholesale Rep, Camino Real Mortgage Bankers