For anyone who’s been through the mortgage process, particularly in the current regulation-heavy environment, they may feel that an underwriter’s only purpose is to be difficult. Although it may feel that way sometimes, underwriters actually are the superheroes of the mortgage industry.
To appreciate why underwriters are so indispensable, it’s important to first understand a few of the underlying processes in the mortgage industry. No matter which institution you choose to do your mortgage, it’s a near certainty that that loan will one day be sold to a different institution. This buying and selling of mortgages is collectively referred to as the “secondary market”. It’s this buying and selling of mortgages, that enables institutions to continue to have funds to lend and without this market, the entire system would come to a screeching halt. For a mortgage to be considered viable on the secondary market, it must be structured and delivered in a way that proves that it is indeed a good investment (adequately low risk) and is consistent with industry standards.
This brings us back to the heroes of this story, the underwriters. Loans are delivered to underwriters complete with a large collection of supporting documents intended to prove a borrower’s income, ability to repay the loan, credit worthiness and the circumstances in which they are purchasing the property. An underwriter’s job is to then look at the big picture and ask the difficult questions. Is the borrower’s income consistent and stable? Are the borrowers using the property as a primary residence, 2nd home, or investment? Are all debts being taken in to consideration when determining a borrower’s ability to repay the loan? Does the loan make sense, and will it be purchased by an investor?
Underwriters are expected to pose questions that may impact the loan’s marketability and request additional documentation to answer these questions. When an underwriter has done their job well, the loan will easily be sold and will continue on, issue free. It’s this step that keeps the secondary market, and ultimately the mortgage industry plugging along.
So take it easy when answering an underwriter’s request for additional information and thank them. They keep homebuying possible!