Underwriting Overreaching?

Tony Rodriguez 773.457.2043

It seems that way sometimes. I’ve had several deals this year get crippled to near paralysis as a result of some withering underwriting. If the transactions limped along to conclusion, and some did not, it wasn’t after some significant bruising.

Many involved in these transactions have been bemoaning the insertion of the underwriter into the process to a degree never before seen. I’m not saying I like it, but I understand it.

Underwriting is the process a lender uses to determine your qualifications for a loan. Your qualifications matter because if you fail to repay the lender they’re stuck with the collateral on the loan (in the case of a mortgage, the home) and a financial loss (the amount you owe, plus interest). Sometimes the home is worth it. Sometimes, many times in recent years, it is not.

There’s an oft-repeated claim that the process of vetting the loan is called ‘underwriting’ because the old process required individuals assessing and accepting risk on behalf of a company towrite their namesunder the summary of risks and qualifications.  It was personal accountability that made those early assessment teams very careful.

We know that underwriting teams let a few slip by earlier in this millenium. A few, at least. And what it lead to was one of the worst economic disasters of the modern age, with consequences so deep its after-shocks have been felt across the globe. Home values, new construction, jobs, retailers and renters have all felt it, and it has not felt good.

So the fact that underwriters are now regressing to a time when the risk was more carefully assessed, collateral was more closely examined and the prospective mortgagor more narrowly qualified does make things challenging. But it makes sense. And it is, ultimately, a good thing.

Underwriters overreaching? Maybe. But that’s better than the alternative.

For more information on how you can properly navigate the underwriting process visit www.carmenandtony.com.