TheMReport — News and strategies for the evolving mortgage marketplace.
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26 | M R EP O RT FEATURE O ver the last few months, COVID-19 has taken the world by storm, causing individuals and businesses to change their day-to- day processes to ensure everyone remains safe and healthy. While this is not business as usual, it's still business—simply with differ- ent processes and guidelines in place. Just as with other industries and sectors, underwriting has seen an impact from the virus that makes the day-to-day a bit more difficult and uncertain. Between changes in borrowers' employment, delays in tax filing, and ensuring all information is up to date, underwriting has become more of a "real-time" process. Reaching nearly 15%, unemploy- ment has increased to levels not seen since the Great Recession, and while many businesses are beginning to open, there are still some areas that have remained closed, with layoffs and furloughs as a result. A lot can happen in 30 days, including changes to a borrower's employment status and income. For lenders, it is vital to proac- tively and regularly gauge changes in the status of the borrower and to ensure all things are in place to make for an easy and successful closing. For servicers, it is just as important to stay abreast of infor- mation on any type of leniency to assist borrowers that may be facing a hardship. Keep in mind that loose un- derwriting practices contributed to the last recession, so lenders should work to keep the lessons learned from those mistakes at the forefront of each transaction to avoid repeating past mistakes that resulted from not instilling strict guidelines or doing regular checkups to make sure that the borrower is still a good fit for the loan. Without meeting the guidelines, both the lender and borrower could be in a tough position that causes the mortgage to fall through, go into default, and ultimately create a difficult and stressful situation for both parties. Additionally, there needs to be a form of flexibility to work with borrowers that may have asked for forbearance previously, have temporarily reduced income, or have experienced other circum- stances that would still allow them to obtain a loan that is ultimately not too risky for either lender or borrower. Forbearance has been in high demand due to COVID-19. According to Black Knight, 8.8% of home loans and 47 million homeowners are under forbear- ance. This means that lenders need to make sure they have viable candidates for loans and should look into the borrower's current mortgage status to make sure they are not seeking a new loan while simultaneously asking for forbearance or modification. While navigating this new landscape, what should be taken into consideration during the underwriting process to ensure a smooth closing? Let's discuss a few tips and tricks. The Need for Extra Assurance F inancial situations can change in an instant. Many companies are seeing hardships which trans- late into changing the employ- ment status of their employees. Whether it means terminating employees, implementing fur- loughs or making cuts in commis- sions, the virus has shown us all that nothing is certain. For lenders to ensure they are providing a loan to a viable buyer, additional steps are needed in the underwriting process. A lot can happen between origination and closing. For many origina- tion documents, the traditional age requirements still may be sufficient, even in this environ- ment. However, with last minute changes in employment status or credit, a deal can be off the table or become an issue later if the buyer has significant changes in their status. We are seeing more frequent "check-ins," including during the post-underwriting timeframe, to make sure nothing has changed. There also are a few steps lenders should integrate to prevent any hiccups down the road that can interrupt the loan, potentially push it into default, or result in a costly repurchase. Steps Lenders Should Take T he underwriting process consists of many moving parts and 30 days can go by rather quickly. It is the lender's duty to make sure all origination documents are current and meet guidelines. In order to do so, lend- ers should check borrowers' credit profiles and utilization more frequently. Significant changes in credit can be good indicators that there may be changes in employ- ment or financial circumstance. How Has COVID-19 Impacted the Underwriting Process? Analysis says lessons learned from the Great Recession can assist during the most-recent downturn. By Brian Kucab