Written By: Bonnie Wilt-Hild
In a new twist to the never ending saga of new things to watch for in the mortgage industry is investor audits of older loans that have now gone into default. That’s right forget reps and warranties, it seems that every investor is now auditing any older loans that have since gone into default and to some degree inventing reasons why the loan should be repurchased my the original lender. Most of the reasons are directly related to what is essentially being deemed as unsound underwriting practices during original underwriting which in their interpretation voids any automated underwriting finds and ultimately places the burden of repurchase on the originating lenders.
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Additionally, the mortgage insurers are doing the same so sometimes you will get a letter from both regarding the discovery and why the case is not of investment quality. Now the good news is most of these investors are sending letters to the lenders indicating what they have discovered during the audit which makes the case deficient and the lender is given the ability to respond to the audit and provide any supporting documentation to demonstrate that no deficiency exists within the file and if this can be adequately demonstrated then most of the investors are accepting this documentation and moving on. I have responded to two of these already for loans that were closed 3 or more years ago and fortunately for me, I had the documentation that they were suggesting was not included in the loan file but for those lenders out that who had really embraced documentation waivers in the past, this could cause quite a problem.
Now I know a lot of you are thinking that if AUS didn’t ask for it then we didn’t need to get it but that doesn’t account for the due diligence in underwriting thing that has been widely embraced over the past year and quite frankly some of the material deficiencies being suggest really do boarder on what could be deemed as subject when it comes to sound underwriting practices. For instance, I had a case that was audited that was closed in 2007 under the FHLMC 97% program and if everyone remembers correctly they actually had underwriting guidelines that would allow a self employed borrower to state 50% of self employment income. That’s correct no need to verify. Well fortunately I am not a fan of Automated Underwriting let alone documentation waivers so I never allowed the use of this income unless it could be documented and it paid off because one of those loans did in fact go into default and we received a letter indicating that we used income to qualify the borrower which was not verified and as a result the borrowers ratio’s were actually something like 69% which exceeded guidelines. As I told you above, I verify everything and was actually able to respond with “Oh yes it was!” and provide the documentation and of course the politely said thank you and went away. In other instances it appears that they are simply reaching for straws with things like a HUD I documenting the sale of a current residence is missing, you know just something to make you jump through a few hoops but never the less annoying.
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So here again I will strongly suggest that in order to avoid those repurchase request, you document, document, document and again leave nothing undocumented. HUD is looking hard at the stuff, the investors are looking prior to purchase and of course if the loan goes into default later on down the road, they are looking again to see if there is anything that they might just be able to identify which would justify repurchase of the case by the originating lender which is never a good position to be in. As always all, happy underwriting.
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
