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The Benefit Of Pre-Underwriting For Mortgage Lenders

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According to Fannie Mae’s “Mortgage Lender Sentiment Survey” optimism among lenders on the direction of the US economy and home prices remains high. Yet market dynamics are placing significant pressure on profit margins for many lenders. Key among those dynamics are the market’s pivot from a high-volume refinance dominated market to a slowing purchase market and the increase competition for the fewer, yet more lucrative, purchase mortgages. This shrinking and increasingly competitive marketplace has forced many lenders to seek new techniques to improve competitiveness while reducing overhead costs, specifically loan production costs. Pre-Underwriting is one such technique that is gaining in popularity.

For years, mortgage lenders have been providing prospective borrowers with pre-authorizations to be use as a tool when negotiating with the seller. Pre-underwriting takes this approach one step further by putting the loan application through a more thorough review process after the pre-authorization is issued but before the buyer/borrower enters into a contract with the seller. Conducted by outsourcing providers such as String, the pre-underwriting process will filter and identify qualified loan applications, with respect to both borrower and property qualifications, earlier in loan originating process. Only those applicants that meet the pre-underwriting qualifications are pushed through to the lender’s loan fulfillment center. The result for the mortgage lender is a higher percentage of loans that fund, increased loan production, reduced production costs as in-house loan processors and underwriters are not spending time on unqualified applications and the competitive advantage of a faster time to close.

Lenders choosing to pre-underwriting do have the flexibility of pre-underwriting all pre-authorized borrowers or choosing specific loans, property types or borrowers to put through the processes. At String, we have created two tiers of pre-underwriting services, providing our mortgage lending customers with a choice as to how thorough of a review is performed. Our Loan Processing tier manages the ordering and review of all the necessary reports needed for the underwriting process; including:

  • The ordering of VOE, VOM, VOD and VOR and determining the applicant’s credibility against our client’s check list.
  • The ordering of Appraisal, Hazard and Flood Certificates and updating the status on each in our client’s LOS
  • Preparation of the tax certificate
  • Ordering and/or preparation of the title search & report

For lenders looking for a more thorough pre-underwriting review, our Underwriting tier of services leverages our team of experienced loan processors to provide detailed reviews and reports; including:

  • Review of the borrower’s Credit Report and provide detailed feedback of pertinent credit issues
  • Review of the Flood Certification to determine the need for flood hazard insurance
  • Review of the Appraisal report to determine if the valuation is on par with the market and report on the appropriateness of the documents submitted.
  • Review of the Title Report to ensure that the collateral property is free of any claims, liens or lawsuits
  • Review of the entire loan file to identify any anomalies or falsifications that could signify fraud on behalf of the borrower

Regardless of the “level” of pre-underwriting you choose, it is a process that can help you improve profit margins and increase your competitiveness in the increasingly competitive mortgage market.

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