Underwriters
Underwriters are the people closest to the loan answer. They watch the lender's computerized loan models in motion, and they carry out the lender's current policies on who gets loans and who doesn't. Underwriters exist in a variety of financial jobs throughout the industry, and they are charged with looking over applications very closely, looking for errors as well as red flags that indicate the potential for default. Also, if you're applying for an approval that includes an okay from federal or local government based on the loan guarantee program involved, the underwriter is the one who double-checks whether you actually qualify or not.
Underwriters get plenty of help from technology. Automated underwriting standards have cut the amount of paperwork for borrowers. At most lenders, computer modeling is tweaked on a daily basis to approve and reject loans based on various risk factors in the market, not the least of which are current lending rates and the availability of money to lend in the marketplace. Such automated systems include Freddie Mac's “Loan Prospector” and Fannie Mae's “Desktop Underwriter.” But people still need to be part of the process.
If you fail the lender's automated underwriting system (AUS) review, your loan officer might be able to help by changing the terms of the loan or the price to get it through. Just make sure they're acting in your interest and not jacking up the price of the loan for their benefit. Remember to check those final fees or have your real estate lawyer check them with you.
In practice, loan officers, processors, and underwriters are engaged in a constant conversation about what customers must do to properly qualify for borrowing. The underwriter is often in the position of a parent who must put his foot down on an overzealous sales team. They have to be the ones to say no when a potential borrower's credit behavior isn't great, when his income isn't quite enough to justify the amount he wants to borrow, and if the kind of loan he wants might be too risky for the lender.
If you or the people within loan organizations thought they were the bad guys before, you definitely know the party pooper now. Underwriting has definitely gotten tougher since 2005.
Yet underwriters also make sure that borrowing, at least in the short term, goes to solve problems. They may, for example, direct that a home-equity loan you're applying for be structured so some of the proceeds pay off outstanding credit card debt instead of putting cash into your wallet. Of course, they have no control over whether you'll start using those cards again, but starting out, they want your competing credit needs to be low.
A loan organization that's acting as a true originator (that is, one that sets its own lending terms) might give its underwriters a bit more leeway in the credit analysis process. Know where your lender stands in the loan process.
Keep in mind that your lender is not going to give you the name of the underwriter to plead your case if you get turned down. You will probably get a letter in the mail informing you of that fact. But if you feel it's appropriate to appeal, it's your right to ask the lender for a full explanation. Talk to your loan officer to see what additional detail you might get. If you still feel you are creditworthy, appeal the decision in writing through the process that lender makes available by federal and state law.
