Understanding Underwriting

Why does it feel like you've been asked to fork over your first born, along with more information than the NSA gathered last year? Well, it all comes down to underwriting. When you get a mortgage, it must be underwritten to the standards set by Fannie Mae and Freddie Mac?

Fannie and Freddie aren't your cute old neighbors puttering around in their house shoes. They're government run organizations that buy mortgages from lenders and either hold these mortgages in their portfolios or package the loans into mortgage-backed securities that may be sold on the secondary market.  Loans must be underwritten to Fannie and Freddie's guidelines otherwise they can't be sold to Fannie or Freddie and must be kept on the lender's books.  

Underwriting guidelines have become MUCH more strict in the past few years due to the housing crash.  Basically the current guidelines are designed so we can avoid another housing crash. From a 10,000 ft view, prior to the crash, less than stellar loans were underwritten, repackaged as mortgage backed securities and sold on the secondary market with ratings that didn't match the actual risk associated with that loan.

So, more information, more docs and more explanations are required from you to get a loan done. Fannie and Freddie want to be sure that any loan they buy is a safe bet and not the tuna sandwich from last week's school lunch. Not only that, Congress has thrown their hat in the ring, requiring changes to the entire mortgage industry. These changes are drastic and mean a home loan is a much more involved process than it was 10, 20 or 30 years ago.

Due to the massive overhaul that the mortgage industry has seen over the last few years, believe me when I say you need a knowledgeable lender that will help guide you through the mortgage process. It's no walk in the park and sometimes you might ask yourself, "why on earth do they need to know this?!" I promise you, your lender is asking for whatever form or explanation because the Underwriter is asking for it. Without underwriting, you won't get the loan and you won't get your home.

Moral of the story? Get a good lender who knows how to put together a file that will be accepted by underwriting. Get someone local, that you can see face to face, and who cares about YOU!