Underwriting: it’s talked about a lot during the mortgage process but what actually do they do? It’s like a mysterious dimension that a pile of all your financial information just floats around in “Underwriting World”, before getting spit out as approved or denied. Mike Goblet, of United Mortgage Financial Group gives the insight of what actually happens behind the scenes and explains what exactly Underwriting is reviewing and looking to see in your file. To learn more or if you have more questions contact United Mortgage Financial Group at 480-503-3533.

Matt O’Brien: Welcome back to another segment of Arizona Mortgage News: Insider Update. We’re here with our resident expert, Mike Goblet of United Mortgage and Financial Group. Good morning, Mike.

Mike Goblet: Good morning, Matt. How are you this morning?

Matt: Not too bad. Surviving the heat.

Mike: There’s a lot of that going on this past week, hasn’t there been?

Matt: Absolutely. We can’t all understand the weather here, but it sounds like you can help us understand a little more about the process of underwriting.

Mike: This is part of the series that we talked about ‑‑ things to understand during the mortgage process. One of the key things, if you’ve ever done a mortgage or heard about them, you hear about underwriting and underwriters almost being a scary terminology in the process.

Matt: Yes, absolutely. They’re usually pinned as the bad guys.

Mike: They’re often perceived that way. I think it’s important to understand their role, and actually, what are they looking for. Essentially, an underwriter’s role covers two areas ‑‑ verification of the applicant and verification of the property.

Now, the underwriters usually fall into what they call the four Cs of underwriting. The Cs are capacity, credit, cash, and collateral. That’s a simple understanding. Now, three of those reflect the applicant, verification of the applicant. Let’s look at each of them.

What does capacity mean? What capacity is, and what the underwriters looks at, is the ability of the applicant to repay the mortgage. That’s really the term that’s used today, the ability to repay. The underwriter goes in. They check first to make sure that the information on the application is essentially correct.

Number two, that the debt‑to‑income ratios of what was said, and versus what we can prove with income and salary, etc., does meet the ability to meet the ratios that are allowed. Does that make sense?

Matt: Makes sense.

Mike: The credit, from that point, once they’ve verified the income, and etc., they will review the credit report. They really look at that in terms of this determines, as we’ve talked about in the past, the risk level of the client.

That, first and foremost, begins with your credit scores. The higher your credit scores, the less risk you are considered, the lower your credit scores, the greater risk you pose. But there are other things on the credit report besides just your credit scores that we get.

They need to look at, is there anything in your history of late payments, etc., that jump out, that say, “This person could be a risk.” Number two, they look at, are there any bankruptcies or anything showing on your credit report? Even though you might have a good score today, but that could influence or impact your ability to qualify for this mortgage.

They go through the capacity, in terms of the ability to repay, the credit report to view the risk level. And then the third C is cash. To make sure that the income, or the cash that you’re saying for the transaction, is available.

For instance, if it’s a purchase, that the money is there, or will be there. That becomes important, because you can’t just come up with cash for a transaction and all of a sudden say, “Hey, I had it under the mattress. And here it is.”

Money has to be seasoned for 90 days to be part of the transaction, or come from sources that are consistent, like a paychecks now coming up, and that will help provide the cash or the sale of a current home so that you have the down payment.

These are the things that the underwriter looks at when it comes to the cash portion of the transaction. The fourth C gets into collateral. What that means is the property itself, the collateral for the loan. This is where the underwriter is actually responsible to review the title.

They don’t go get the title, but they have a title company do that, but they then review it for the accuracy, make sure there are no liens on it, or what are often called “clouds on title,” that could impact the loan to the lender down the way.

They do that. They also then review the appraisal when it comes in to make sure that the appraiser did the appraisal correctly, that if there are any notes made by the appraiser, how that could impact it. For instance, an appraiser might say, “There is a problem with this,” and so the underwriter has to go in and say, “This has to be fixed before we can approve it,” if that makes sense.

Matt:  It certainly does.

Mike:  They go through the appraisal. And then finally, there are other situations about the collateral that they have to verify. That involves the insurance. Pretty simple, the homeowner’s insurance make sure it’s up to date, and that there’s a year’s coverage paid in advance.

Then actually, a fourth thing that many people don’t consider is a flood certification. We often hear from clients saying, “I don’t need a flood certification or the fee attached to it. I’m not in a flood plain.” It’s the underwriter’s job or task to prove that, not just accept it or think that’s the case. They need to prove it.

Part of every transaction, there will be a flood certification that’s necessary to prove it’s not in a flood plain, or if it is, that flood insurance is needed. It’s not a junk fee. Whether it’s shown or covered with the rebates that we talked about in the past, the flood certification is a necessary part of proving the collateral meets all the responsibilities for it.

The underwriter does all this in the viewpoint of, “Can we sell the loan to the secondary market, Fannie or Freddie, or the private investors that they use, and just make sure that the loan is cleared and prepared for that step?”

This is the person that actually does say, “Yup, everything is in order, and we approve the loan,” or, “No, we don’t approve it, and for these reasons.”

Matt:  Got to pay attention to the four Cs, it sounds like. That flood insurance always throws people in Arizona.

Mike:  Actually, the funny part about that, in Arizona, and I get a kick out of this, that actually, if you look at the hundred year flood plain, almost all of Phoenix is in the hundred year flood plain. If we got the rains that are going on in Texas right now, people who didn’t think they were in a flood plain probably end up in one.

Matt:  For sure. Good stuff to know. You don’t really have any influence over the underwriters other than getting your ducks, your four Cs in a row, before you send it that way.

Mike:  Actually, that’s a very important part. Because part of what we do with Jean, my daughter and processor, is really good at working with underwriters and has worked with them through the years.

She knows how to prepare the file for what they will be looking for, ask for things in advance so that we can make the process go smoother for the underwriter, because Jean works with them on a daily basis and pretty well understands what they’re going to be looking for.

Matt:  That’s a great experience to have. That doesn’t come with all the mortgage crew, does it?

Mike:  No, it does not. We take everybody’s loan very personally and try to make sure that it will get approved when we think it will, at the very beginning, and help the underwriter understand, “This is why it makes sense.”

Matt:  Excellent. This was, as always, great information. If people do have questions about the underwriting or mortgages in general, what’s the best way to reach out to you, Mike?

Mike:  You can call the office, here, at 480‑503‑3533. You can call my cell phone directly at 480‑220‑2329, or email me at mike.goblet at our company initials umfginc.com.

Matt:  Excellent. Stay cool, Mike. Thanks again for another good segment.

Mike:  You, too, Matt. Have a great day. Look forward to the next one.

Matt:  Sounds good.

Mike:  Have a good day.

Matt:  Bye‑bye.