Mortgage Processing: Underwriting

transmittal summary

a summary of the information on the application for the underwriter


the process of deciding whether to make a loan based on credit, employment, assets and other factors

Loan Prospector

Freddie Mac's automated underwriting system

Desktop Underwriter

Fannie Mae's automated underwriting system

Four C's of underwriting

Collateral, Capital, Capacity, Character (Credit history)

credit history criteria

last two years the most important

Chapter 7 bankruptcy

involves liquidation of assets to cancel debts so a person can start fresh

Chapter 13 bankruptcy

involves implementing a payment plan over three to
five years to pay off the debts

major credit bureaus

Experian FICO, Equifax BEACON, TransUnion EMPIRICA

an applicant that is rejected or offered other terms can...

request a statement of the reasons for the adverse
action from the lender and obtain a copy of his credit report from the credit bureau, if the adverse action was based on information in that report


a written report of an appraiser's informed, objective opinion or estimate of the market value of the property that is security for the loan, as of a specified date

comparative market analysis

used by a real estate agent to estimate an appropriate sales price for an owner wanting to list his property for sale, is not acceptable as an appraisal for underwriting purposes

market value

the most probable price a property should bring in a competitive and open market, with the buyer and seller each acting prudently and knowledgably

sales comparison approach

bases the value of a property on the prices paid for similar, or comparable, properties in the area
that have recently sold

comparable sale consideration requirements

net adjustments should not exceed 15%
of the sales price, gross adjustments should not exceed 25% of the sales price

income (capitalization) approach

used to appraise properties that produce rental

capitalization rate

the rate of return the new owner can expect to receive, including an annual rate of return desired on the investment, and a rate of return of the investment necessary to recapture the depreciation of the

gross rent multiplier

multiplying a property's estimated monthly rent by an
appropriate multiplier, the multiplier is derived by dividing the sales prices of comparable houses that have sold by their monthly rents

cost approach

estimates the value of the land and the depreciated value of the improvements on the land separately and adds the two values to arrive at an estimate of the property's total value, most often used for new construction and churches and public service build

depreciated value

equal to the cost to replace or reproduce the improvements less depreciation

replacement cost

the present cost of constructing a new substitute
structure equal to the existing structure in quality and utility, but using current construction methods, materials, design and layout

reproduction cost

the present cost of constructing a new substitute structure that is an exact replica of the existing structure

functional obsolescence

results from loss of functionality due to basic
construction techniques used, as well as inadequacy, outdatedness, or overadequacy in a building

economic obsolescence

results from factors outside and surrounding the
property, such as zoning, blight, high taxes, and pollution, and is, therefore, almost always incurable

home inspection

purpose is to report on structural defects

Fannie Mae and Freddie Mac will not purchase conventional single-family mortgages from lenders...

that have not applied the Home Valuation Code of Conduct to those loans

title commitment

commitment to issue a title insurance policy, provided certain conditions are cleared prior to closing

title insurance policy

the title company agrees to pay the insured a specific amount for a loss resulting from a claim caused by a defect in the title that had not been excluded in the policy

service release premium

the spread between the interest rate in the loan and the par interest rate paid by the purchaser of a sold loan

buyback (repurchase) agreement

provides that the investor may return the loan to the originating lender if the borrowers default within a specified period of time; there is evidence of loan fraud; the loan does not comply with regulatory requirements.