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.
Read more about this topic: Mortgage Underwriting In The United States
Famous quotes containing the words approval and/or decision:
“The approval of the public is to be avoided like the plague. It is absolutely essential to keep the public from entering if one wishes to avoid confusion. I must add that the public must be kept panting in expectation at the gate by a system of challenges and provocations.”
—André Breton (1896–1966)
“A good decision is based on knowledge and not on numbers.”
—Plato (c. 427–347 B.C.)