Mortgage Underwriters Are Not Scary

March 5th, 2013

scary ghost

It is time to report on another crazy underwriting story. The paperwork that people have to provide and the rigid underwriting guidelines that I have to put them through are really absurd at times. The fact that we cannot interject any small amount of logic into the discussion is really getting painful. It is not really the underwriters fault though. They are only interpreters of guidelines imposed on all of us by the rule makers. These would be government agencies like Fannie Mae and Freddie Mac.

A real world example

I had what may be the strongest mortgage borrower of my life go through a four-month nightmare with a large bank.

Refinance Details

The client was not taking any cash out.

In fact, the client was paying down a jumbo loan of $1.4 million to $1 million.

On some jumbo loans we cannot underwrite them in-house. The underwriting has to be done at the bank.

The bank required two appraisals, which they often do on jumbo loans of $1 million or more.

The client bought the house for $2.2 million about six months ago.

The first appraisal came in at $2.2 million, and the second appraisal came in at $2.4 million.

The client made $3 million a year. Yes, I said $3 million a year.

The client had strong credit scores.

The client had almost $2 million in the bank, not to mention other assets.

So, Why 4 Months To Get To Closing?

You might be wondering what the problem was or why this loan took four months to get to closing. Me too. The length of time that it took to process the loan is primarily because the bank that was backed this loan took several weeks every time I needed them to make one decision. And these were decisions that should have been made in a day or two. They just went at their own pace without care for the client’s calendar, our calendar, or the fact that a rate lock-in was expiring.

There were lots of questions about large deposits, and where those deposits came from. And those questions needed to be paper trailed and documented. More on the rules related to documenting large deposits can be read here and here. When you make a lot of money and have a lot of assets, there are always a lot of large deposits. This was an incredibly tedious process. And for a “no cash out” refinance, it really wasn’t necessary. I can see making sure on a purchase loan that the down payment is coming from a legitimate source and to watch out for large deposits. But on a refinance it really shouldn’t make any difference at all.

Appraisal Problem

The primary problem was with the appraisal. The house was a historic, very old, and very large single-family detached home. And it was difficult to find comparable sales for the appraisal. Fannie Mae requires that in a suburban market comps be no more than 3 miles away. Because of the unique nature of this property the appraisers had to go anywhere from 7 to 12 miles away.

The bank said that this violated Fannie Mae policy of having comparable sales no more than 3 miles away, and at first rejected the loan flat out. I fought back and I got them to reconsider. They said they would consider the loan if I documented more assets. So I poured it on, and documented more assets. There was certainly enough to go around. They still had more questions and more questions.

The loan finally closed

By the time I satisfied all of their questions the loan closed in four months from start to finish. My point of this whole blog is that the underwriting process no longer has any room for logic or interpretation. Underwriters and lenders want to meet every single Fannie Mae rule with no room for error. This is to avoid a lender suffering an unsalable loan to Fannie Mae. So they ask for everything plus the kitchen sink, no room for exception.


If any client ever had room for exception, it was this one. There is absolutely no risk on this loan. It should have closed easily within 1.5-2 months, with much fewer questions. And no hassle on the appraisal. I understand that Fannie Mae and Freddie Mac and all of the lenders and underwriters want to see properties well supported in their value. But in this case somebody paid $2.2 million to buy it, and we had two appraisals that said it was worth at least that. The loan-to-value was under 50%. I think the whole banking world could have done without the 84 pounds of paperwork and the four months of hassle that this client had to go through.

Will we ever see logic introduced into the underwriting process again? Not as long as there are government entities like Fannie Mae and Freddie Mac. They can force mortgage lenders to buy loans back for the least little thing they feel that is omitted or that was not documented.

Read more on buybacks:

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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