Mortgage Underwriting in The United States - Approval Decision

Approval Decision

After reviewing all aspects of the loan, it is up to the underwriter to assess the risk of the loan as a whole. Each borrower and each loan is unique and many borrowers may not fit every guideline. However, certain aspects of the loan may compensate for the lack in other areas. For an example, the risk of high LTVs can be offset by the presence of a large amount of assets. Low LTVs can offset the fact that the borrower has a high debt to income ratio and excellent credit can overcome the lack of assets.

In addition to compensating factors, there is a concept known as layering of risk. For an example, if the property is a high rise condo, occupied as an investment, with a high LTV and a borrower who is self-employed, the cumulative effect of all these aspects yields higher risk. Though the borrower may meet all requirements under the guidelines of the loan program, the underwriter must exercise caution.

There is an old saying in lending: If your portfolio does not have one foreclosure, you are not accepting enough risk. Underwriters should review a loan from a holistic point of view; otherwise they may turn down a loan that is high risk in one aspect but low risk as a whole.

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