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it's ginger bell and i am here today with mark gagliari and we are talking about the role of an underwriter so mark thank you so much for joining us today thanks for having me you know there's so much that goes into underwriting a file and you know one of the things i think it's important for a new loan originator to understand is what the role of the underwriter is in the transaction understood the biggest role of an underwriter is to assess the risk with any loan and so we're making sure that the customer will pay back the loan that the collateral for the loan is enough to secure it and that it meets all guidelines set forth by the parameters of either the government agency that's that it's being sold to or the individual investor that it's being sold to right so our job is to make sure that the loan meets qualifications meets industry standards or investor standards and is approved based on those right and you know one of the things too you talked about the underwriting guidelines as far as the loan program and then also the investor are those always the same not the same not the same so so how can they be different basically fannie mae and freddie mac and the government agencies whether it's fha va or usda set forth guidelines or parameters for underwriters to follow those are public it's public information so loan originators should know them also right so it begins the foundation then correct that is the minimum standard so to say and it's a guideline not a rule so we as underwriters look to see if income assets credit collateral meet those guidelines and really where the second set of eyes are really the third set of eyes that see that file the originator is where it starts right they're the first ones to pre-qualify and to ensure that it meets guidelines their processor then picks up the ball and that's the second set of eyes before it ever gets to an underwriter a couple people should have already looked at it and determined that it meets guidelines right overlays is what we call investor guidelines uh usually are a little more in-depth there are some investors that don't like certain certain things and so they put tougher restrictions okay so like maybe an uh found you know we have the foundation then as far as what the guidelines are for the loan program that the government sets and then on top of that then we would have an investor guideline to maybe put a baseline as far as maybe a credit score correct okay correct and so those are then called overlays yes ma'am okay which makes sense because you have the base and then you have the overlays and they're usually addressing some risk uh some risk in a loan that that investor doesn't want an example would be fha could say our minimum credit score is 580 with a minimum down payment right some investors would say we'll take the loan if it's over 600 or 620 or 640 and knowing those investor guidelines or investor overlays are important for both the loan officer and underwriters because again if we try to if we approve a loan with a certain credit score and then pass it off to an investor they're just going to send it back to us as a loan that's not viable right and that will cost the company money um and in the end give give headaches right absolutely so being educated in those loan programs are important not just from the the standard but also then from each investor that that originator may be working with yes which may be one lender or maybe on a third party basis to be able to work with a variety of lenders yes okay so mark we talked about having that foundation as far as knowing guidelines and so once that foundation is in place now the loan originator is going to structure the file and they're going to send it into the underwriter so what are the three most important things that they should focus on in structuring that file it's many things so i don't know if i can detail those three well i think what happens in any loan file you have in anybody's life because what we're doing is we're taking a client who has a life right and presenting that to an underwriter in a form of paperwork so bank statements pay stubs w-2s tax returns uh there are often each individual is unique and so you may bank different than i do you may get paid different than i do so i think what happens is it's very important for a loan officer to put together a file that makes sense to an underwriter if the paperwork behind the customer for income is sketchy or unique they should explain it and so i always suggest to new loan originators and all loan originators to put together a cover page that discusses the big four credit is there anything unique about credit right income is there anything unique about income assets and collateral those four components which we call the building blocks right of a loan file if there's any weaknesses address it so that when an underwriter opens up the file and sees pay stubs that are hand written they were already why yeah why because we're going to ask that question most people have an automated payroll company however smaller contractors or small employers they'll use the old-fashioned payroll book again it requires additional documentation the loan officer should know that based on the guidelines so there are i think many things that an originator needs to focus on the best being prep the underwriter for what to look for if they know in advance that there's a wage garnishment if they know in advance what it's for and why then the questions and concerns that an underwriter might have are are alleviated to a certain extent and again if the documentation explaining them will lead to more of a chance of loan being approved less chance of a suspension or denial which again an originator doesn't want to hear those words but in reality that's it's how well they prep the file how well they prepare it because really what you're doing is you're you're saying to an underwriter please approve this loan and we have to make a determination of will they pay it back do they have the ability the capacity and the willingness to pay that loan back based on paper most times the originators have talked to the customer met the customer whereas we're just looking at numbers and credit reports and credit scores for us it's it's make it come to life make the customer come to life so that we understand who they are and why they're buying why they're refinancing what created any uh problems in their life or challenges in their in their loan profile right i think that's probably the number one thing that that a loan officer can do is just communicate to the underwriter the story behind their customers right and i love the way you talk about the story because i think sometimes in the transaction especially when we get one removed like the underwriter is so the loan originator is having that conversation the real estate agent is having that conversation but then when you get into underwriting you're not having that conversation with that individual so so building that road map almost like building a case to where you can look at that and and i love what you talked about in letter of explanation or what we call an loi to be able to explain you know the information and go through that you know one of the the things about being an underwriter is being able to be subjective and to look at the information because obviously the role the underwriter is to make sure that you're protecting the lender or the investor so what what about your job do you find most challenging well naturally any loan officer that brings in a file uh wants that loan to be approved that they've conveyed confidence to the customer that hey we'll get you your house or hey we'll get you the money to pay off your debts or whatever it is in the scenario whether it's a purchase or refinance i think that the hardest part for us is trying to explain to loan officers why something doesn't meet guidelines or what additional documentation they'll need to get the answer they want because if a file is put together well and documented well it will be approved if it meets guidelines it will be i think what happens is the most challenging part of our job is the loans are brought in halfway done it's like a half baked cake right and then we are tasked with making a decision with half the information and so when in doubt most underwriters are going to lean towards conservative because our job is to protect our company it is to protect the end investor whether it's fannie or freddie one of the government agencies that is our job our function is to assess risk and if we don't have all of the facts that's going to lead to the answer that most people don't want the biggest challenge i think is again every loan officer thinks their loan is the most important their client is the most important they're all important right but you will have a lot less headaches if you put together the complete puzzle so that your underwriter isn't trying to figure out exactly which ends up right so so that segues into the next question and talking about the the file flow because obviously the file goes into the underwriter very seldom is at one time because often what comes back is conditions or steps yes so so what you know and and i think you said a lot of it but probably to recap what they can help as far as file through file flow to keep the the transaction going it's a it's a challenge because in any loan transaction there are a lot of moving parts and so i think that getting as much information up front from the customer in writing not well he told me or she we hear it all the time she told me that it works this way that's great without it in writing we can't put that in a file right well there's hearsay involved and the loan officer said right so again building that case you must build the case and you must build it with documentation evidence so to say and early so so build it up front rather than coming back correct and building it later on correct in other words a loan officer the sharp loan officer comes in the door with a loan file that has two months bank statements they have already looked at them and addressed any large deposits or large withdrawal so look at it is the key to not just collect the information but to actually and loan officers when they're busy selling they have a different skill set and they have a different responsibility than an underwriter they have a processor that helps them piece together the puzzle but the more they bring in the more questions can be answered at their desks before it gets to my desk because then they get upset that we asked for it why did you deposit six thousand twenty three dollars on the fifth why did you come back on the tenth with another eight thousand dollars we need to address any large deposits the loan officer knows that they should address it in advance but they want they wait they hope we won't find it that's not our job we'll find it um so we find it we request that additional documentation and that creates a time lag where now the linux just to go get it bother the customer for it oh that nasty underwriter asks for this that the other thing they explain that to the realtors as though those pesky underwriters most of it is known in advance right so if you reviewed the documentation why did the income from 2012 go down in 13 when everybody else is hoping to make more money answer the question before i ask it because we're going to ask why do we have declining income it's it's an important consideration in a loan files if the income's declining why is why is the credit sporadic why you know you have to address everything and so what happens is i think that most loan officers do a pretty good job at piecing together the the bulk of the information they look through most of the information but they don't look through it the way we do which again we have a different responsibility and we have a different skill set and because of that we're detailed on what we ask for and again if they addressed it coming in it would not come back and forth between underwriting and processing or underwriting and originators that many times however in defense of them they have a hard job because people don't live their lives about getting a mortgage all of a sudden it's hey i want to buy a house so we go and i said what happened two months ago in your bank account oh yeah i forgot about that forgot about all the overdrafts or bounce checks we ask those questions because we're looking to see if the customer is stable right um and and believe me people have things go on in their lives life happens life happens and so if you ex document it and explain it you we understand it it's not the first time that somebody lost a job or went through a period of of illness right where income got disrupted and therefore things happen but if it's doc explained i can't just arbitrarily say well i was sick that six month period so i didn't go to work for six months we kind of want more that's pretty sick are you better now yeah therefore we'd like to see some kind of documentation that supports that right because i could just lie to you buyers have been known to do that every once a while yeah so have loan officers so again getting back to that loe the letter of explanation right yes okay so how do you like to communicate with loan originators it depends on who the originator is okay most originators uh most originals we normally and it depends on company and the and the size of the company that the scheme most underwriters talk to processors more than originators uh there are originators that that we'll have conversations with that i will have conversations with right most of the time it's by email because again if a file is put together well there aren't that many conversations if a file is brought in and it's a train wreck and it's poorly documented and then that loan officer wants to argue the point of they'll focus in on the one issue when they're 17. right and so you could lose half a day arguing with certain loan officers or certain loan originators that just want to argue and they really it's just too much time too much time and energy if the loan comes in well done and well presented it'll get the right answer with limited additional documentation necessary most of the time if originator was honest with themselves they would understand that they should have gone an extra mile to clean it up with letters of explanation from either the customer or even themselves so the ones who we talk to the most are the ones probably doing the poorest job on the origination side interesting yeah so again it goes back to building that case yes ma'am to be able to build that roadmap so what makes a superstar loan originator we've talked about communication and talked about putting a file together what else besides those things are important superstar originators often are that they're all very detail oriented they're very aggressive and remember there's a skill set your top originators are great sales people and great sales people have a sales skill set they can bring the business in the best originators are the ones with the highest close volume close ratio in other words not bringing in loans that can't be approved they know their guidelines as well as i do and they're the best to work with because we don't have to have an argument over why i need certain documentation they know i need it and they go get it or they have their processor go get it they don't make excuses they just they communicate well they present a great loan package and most of the time their loans are approved and it's not by accident they know their guidelines and that's what makes a superstar is somebody that they can go out and sell it because they completely understand it they know what to expect from me they know what to expect from underwriting and if we have a difference of opinion they're level-headed enough to set out their argument or their case and most of the time it's presented well enough where we met we change our minds we get swayed um often right by a by any originator but surely the superstar originators they know their business they know their guidelines they don't guess they don't guess because there's more to this than ratios and appraised value loan to value there's a lot more to it and they understand it so they prep their customers for what's going to be needed right and they don't submit it without it and and so i think that the superstar originator is just they're aware of what what we would expect and they get it and present it so that they get the right answer every time right that's your superstar originator right and that's as a new loan officer that's what i would focus on learn your guidelines know them inside out that way someone like myself can never say your loan's been denied right we don't want to deny loans we're not in a business we make money just like you we make money making loans right the company wants to make good loans every loan has an inherent risk to it every home the best of customer can lose their job tomorrow or get sick tomorrow but we need to make sure that that customer at the time that we approve the loan is is is viable and it was stable right and that's it it's looking for that stability so you talked about knowing the loan programs how often do you see a file come in that maybe should have gone into a different loan program than what it's in that would have made a better benefit for that borrower sometimes frequently especially not so much about suspended or denied more about maybe what was right for the customer the lower credit scores conventional lending has changed to the point where they don't like the lower credit scores they want stronger borrowers so the the fha for the first time buyer you can have a sporadic job history you can have 12 dollars in the bank and get 100 gift funds you can have lower credit scores et cetera et cetera what we see is people trying to push someone into a conventional loan program that probably isn't strong enough that's probably the the greatest right just you know hey i had a conventional loan five years ago i won another one because i don't like the evil pmi right and so the loan officer gets channeled by the customer sometimes it's the customer saying i don't want one of those and the loan officers are saying well okay we'll try this we'll try it this way right okay right not exactly the way it is like a self-diagnosis yes yes yes yes um but but i think for the most part most loan officers put them in the right program it's just then documenting it to make it work right it's um it's a not as big a problem as it used to be but i do think that it still happens and again that's the customer sometimes drives that the realtor sometimes drives that and the loan officers either experience or inexperience drives that too right so again knowing all the different loan programs whether it's a va whether it's an fha whether it's a usda or conventional and and which one's going to be the best for them yes so very important if i were a new loan originator coming into your office and asking you to mentor me as an underwriter what would be the one thing that i could say that would capture your attention you know that's a hard question because really they'd have to say i'm willing to sit here and listen okay listen because loan officers love to talk they're sales people they love to hear themselves talk they want to show me that they know what they're talking about i think that loan officers especially new originators need to listen to everyone in their office they need to listen to their fellow loan originators to learn from them they need to learn from their sales managers trainers compliance folks and underwriting staff but the biggest thing you can do is listen and take in as much information as you can but you also need to temper it from where it came from in other words well joe's a superior loan officer he's doing really well and joe said it works this way look it up the seller servicer manuals are out there all the guidelines are out there this is not secret information that underwriters have we have information that you have access to the same resources and guides that they're going to go to yes yes and we're not going to interpret it differently unless they want to take a shortcut which is sometimes what happens and again i think the biggest thing a new loan officer could ask me to get my attention would be that they're willing to listen they're willing to learn and listen and ask questions but listen to the answer often we're asked questions and three weeks later they come in with a similar loan file with a similar problem and we have to re we have to give them the same answer we gave them three weeks ago why do we need that it's retaining the information you're going to see it again trust me you're going to see it again that that's probably i think the thing that bothers underwriters the most is you're going to see this again if somebody was turned down for lack of income or or in a ratio that was 59 it's going to happen again right so when you come in with a 62 you're going to get the same answer and so you need to work on how to make them qualify again there are things that can be done on the front side of the process before it gets to me to to clean up a loan file um and it may not take long either no ma'am well and i think mentoring is important so i thank you for that no problem um but you know it's important for a new loan originator who's getting started in the industry to be able to find those mentors to have those conversations because that is truly how we learn is through that expertise and i think to your point of being able to listen and retain is very important and very valid so mark thank you we've covered a lot of information and we value your expertise and your insight into that and so you know our takeaways obviously having a conversation with an underwriter is a lot but beginning with that foundation knowing your guides to be able to provide that information up front so it builds the file flow and makes the underwriter's job easier in the end and of course the loan originator so thank you very much mark