MReport May 2021

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 29 of 67

28 | M R EP O RT FEATURE T he capacity crisis in mortgage originations is being precipitated in part by a lack of compe- tent underwriting talent relative to demand. With pipelines bulging, the cost of an under- writer has virtually doubled in the last six months and loan cycle times have extended dramatically, exceeding 80 days (up from 45). Underwriters provide the critical thinking skills necessary to determine if a borrower is eligible for a loan. Underwriters must successfully complete their analysis or there is no loan—none. To determine if a borrower is eligible for a loan, an underwriter must detect and resolve inconsistencies (i.e., anomalies) that occur within the infrastructure of a loan. Underwriters look for anomalies across the three elements of loan infrastructure: • the borrower's application • data about the borrower (paystubs, bank statements) • investor guidelines—the criteria a secondary market investor will use to determine if the loan is eligible for purchase. Anomalies abound. It is virtually axiomatic that every loan contains anomalies so serious that the loan cannot be granted until the anomalies have been resolved. Resolving anomalies in accordance with generally accepted underwriting principles is what underwriters do. That's their job. For example, a borrower's application states that he/she makes $10,500 in gross income per month. However, the borrower's income documents (paystubs) demonstrate that he/ she only makes $9,350. Further, the borrower cannot meet the investor guidelines and qualify for the loan unless he/she makes in excess of $10,100 in gross monthly income. An underwriter must resolve the preceding anomalies or there is no loan. To add insult to injury, each loan presents a unique set of anomalies; no two loans have the exact same set, and most differ substantially. Often anomalies are stubborn, hard to resolve, often requiring an abundance of adaptive and dynamic thinking to wrestle to the ground. Moreover, assuming that Malcolm Gladwell was correct, the mortgage industry cannot meet current or future demands for underwriting talent. Gladwell asserts that it takes 10,000 manhours to develop a complex skill such as underwriting. That's five years of training per competent underwriter. Undersupplied on Underwriters W e need thoU.S.nds of new underwriters now and it takes five years to make just one! This is the essence of a bad situa- tion. Additionally, we are about to turn a bad situation into a worse situation. The industry is about to dramatically increase the com- plexity of underwriting. The problem is actually part of the solution, and that's the current, protracted period of ex- tensive forbearance programs. In early 2020, the federal government mandated that mortgage holders grant forbearance to borrowers who were negatively impacted by the pandemic. As posted on the Fannie Mae website: "If you own your home and are expe- riencing financial hardship as a result of COVID-19, you may be able to receive a forbearance plan. Entering into a forbearance plan can give you some financial breathing room. A forbearance plan doesn't erase the amount you owe on a mortgage, but it temporarily suspends or reduces your mortgage payment until your hardship is over. At the end of the forbearance plan, you must repay what you missed, but necessarily not all at once. Talk with your servicer about your situation, so they can help you and give you the best mortgage relief option for your situation." Facing Down the Mortgage Industry's Looming Capacity Crisis A shortage of underwriters may soon collide with the recent foreclosure moratoria to create headwinds for the industry. By Thomas Showalter

Articles in this issue

Archives of this issue

view archives of TheMReport - MReport May 2021