Recently our family had a hard decision to make. Do we cut down a 40 foot flowering cherry, or risk damage to our home. When we moved into our home the previous owner had planted a beautiful flowering cherry at the corner of the house. Every spring our front yard would be a showpiece as the flowering cherry would turn white for a few weeks. which is a sign that summer is almost here! Seeing that tree flowering made us think of summer break, riding bikes, the hot air balloon festival, and some nice warm nights on the porch. Sadly, however the tree had to go. The previous owners planted the tree too close to the house, which meant the root system invaded our yard causing concerns about damage to the foundation, cracked basements, and other problems if we didn’t address the issue now.
How tree removal is like underwriting
The process of removing a tree “on paper” seemed like a pretty straight forward process that shouldn’t be too hard. After going through the process of removing that tree it taught me a few things about trees, about myself, and gave me some insights into underwriting.
Underwriting (and tree removal) is a team sport
Big jobs require a team. Tree service and the loan origination process are no different. You need a leader calling the shots creating a brand that people trust and finding and making sure the work is done correctly, on time, and at a fair price. To achieve this it required hiring and training a qualified team that sells the same ideals and goals as the founder. Without an excellent team supporting the endeavor the leader can get nowhere. What makes a team a team, and not a group of individuals drawing a paycheck from the same account, is the way they work together, respect each other’s expertise, and most importantly communicate to reach that same goal. The team absolutely must have working rapport with one another that allows them to quickly and effectively communicate essential information.
During my tree removal I watched the owner move around from worker to worker coordinating, communicating, and most interestingly… taking a moment to teach a junior member of the team. The haste of finishing the job came second to a teachable moment to build up one of his team members.
Mentoring as communication
Ideally you have the benefit a small team, perhaps a junior underwriter, and processors to help shoulder the load. The team based structure is full of benefits for all involved. Working in a team based structure allows collaboration, mentoring for junior members, work sharing, and real-time QC through having multiple sets of eyes on a problem.
Effective teams don’t have a speak-unless-spoken-to culture. They foster and thrive on bi-directional communication regardless of the person’s pay grade or seniority. Is the culture in your office poisoned with “the boss is always right” mentality or the “don’t speak unless spoken to” mentality? Do whatever you can to correct that culture, things do not typically right themselves once this culture sets in.
Sizing up the job
Tree service company must first rely on their sales people and marketing efforts to hunt down the clients that are in need of tree removal. A good tree removal team will have a few services to offer and seek to benefit the customer without doing any harm to property or person’s around the job site. After the customer agrees to the estimate and the service gets the job of taking down the tree, the real work begins!
Before starting any project an assessment should take place. With tree removal you need to do the basics of ensuring you are working on the right tree and you understand the environment and particulars of what the homeowner wants done. Underwriting is no different. What file am I to be underwriting? What is on the loan application? What does the borrower want to accomplish? Is this a simple rate and term refinance, or is this a second home purchase?
Your battle plan is the loan application
Take the time to read the story. The loan application will tell you key pieces of information that will benefit you later if you know them now. Avoid the urge to jump right in and start checking credit and calculating income for the borrower. By reading the story on the application you can save yourself time and gather the information you need to make a game plan as to how to tackle this file.
- What is the product type of the file am I underwriting?
- Is this a simple rate and term refinance, or is this a second home purchase?
- What is the goal of the borrower on this file?
- What key information is on the loan application?
When you read the application you will uncover the risks that could crop up later as you underwrite? What if they borrower already has 5 other rental properties? What if there are non-occupying co-borrowers? What if the borrower wants to cash out during the transaction? These are no different to arriving to remove a tree and seeing power lines nearby or a small garden gazebo in the fall area. These are all details and risks that should be understood early so planning and execution can ensure a successful outcome.
The data in the application will guide you to the most important factors that help you ensure the borrower will qualify. Start by listing all of the steps in the underwriting process. You do have a list of all the steps don’t you? You do have a checklist to ensure you do all the steps right? Take that checklist and start putting stars next to items and make notes on the checklist for things you need to do first based on the application. This is going to be your battle plan for this file.
Cutting down the tree
There is no other way to cut down a tree, except to cut down a tree. No short cuts, no robot to do all the work for you, you just have to roll up your sleeves and start taking that tree down. Work deliberately, not accidentally. While it is obvious that you would not try and worry about stump removal before you have cut down the tree, same goes for underwriting.
If you want to ensure you don’t waste your time underwriting use a repeatable sequence. What does this mean? Be sure to follow your battle plan in order. You sequenced your battle plan for a reason. Just because one step lower on the list is easy to do, that doesn’t mean you should do it now. Avoid the temptation to do the easy stuff first. If you want higher throughput, start with the hard stuff first. The bulk of the underwriting process can be defined as review of the four “c’s” of underwriting. They are: reviewing the borrowers Capacity (Income & Debts) Credit, Cash (Down Payment and Reserves), and Collateral.
What lies beneath
Trees appear to be 99% above ground and 1% underground. The physical work of getting “what lies beneath” taken care of was just as big if not bigger than the tree removal. When underwriting you might say the job is largely done when you have reviewed those “Four C’s of Underwriting”. Fact of the matter is that there is still a massive root system lying just beneath the surface that needs to be investigated and addressed.
Dig deep for the gold
How does this part relate to underwriting you might ask? First off the job wasn’t done just because the tree was no longer visible. There was quite a bit of work left to do after the big and visible task was completed. Next, the more I dug and investigated, the bigger and more obvious the problem became.
If you had to ask what is the main purpose of the position of underwriting it would be risk analysis. Or said in other words we get paid to see what is in the dirt and recognize if what we find is a problem (moldy soil, roots in sewer lines) or just basic dirt. What if you are reviewing the appraisal and you find some anomalies? What if the credit report shows multiple addresses that were not on the application? What if you see a new name that wasn’t on the application? On the surface the borrower may have great credit and income, but these other roots crop up and present the underwriter with a problem.
Stay calm and focused and don’t take the victory lap when you get the credit and income completed, there is more work to be done and the deal can yet unravel on you.
Clean up the worksite
Underwriting isn’t a messy occupation like tree removal can be there is still cleanup work to be done. The mess you leave in underwriting is the pages of calculations you have along with all your notes to condition the file. The cleanup is where you need to transfer the mess into entering good notes in the file and show your work in all math calculations, condition required, and any company process’s to move the file to its next stage are all followed. At the time it feels odd to be writing down what you already know, but as everyone in underwriting knows the value of good notes pay dividends in a few months when the file is audited. Here are a few tips!
- Be clear
- State the obvious & be verbose
- MCAWs / 1008 need to be clear on the 4c’s and anything unusual that was addressed. For example, explain the transaction is a delayed financing loan
- Pay special attention to fully explaining your income calculations, thousands of dollars are lost every year due to buy back’s over bad income calculations
Therefore when it comes to showing your work I have to give a shameless plug to uber-writer.com. The income calculation reports fully document and breakdown the income calculations for you. Slip the UberWriter report into the file and you are done.
If you are not using UberWriter then you need to ensure that you have clearly documented HOW you came up with the numbers. The likelihood of defending these calculations in the future is high so save yourself some time and put down some good notes now.
One of the biggest failures in the mortgage business, in regards to the profession of underwriting, is our lack of effort in the “replanting” of new underwriters. Ask anyone in the business the exact steps from graduating college to getting your first job as an underwriter and you will hear nothing but those crickets wondering where there tree went and what the answer is to the question of “how do you get a job in underwriting”
We need to become better at creating a crystal clear process to plant the little underwriters in the ground and give them the attention and mentorship they need to learn this great profession. The suggestion that I can offer here is to take the lessons that you learned on the previous file and share them with others. By replanting that knowledge into the other team members heads it will build a stronger and more collaborative organization.
One of the habits more underwriting teams could benefit from would be after action reports or lesson learned meetings. The Operations Manager who is calculating metrics on the office and individuals, tracking errors, and buy-backs. Turn this into a teachable moment and have a short meeting combined with some targeted training to correct those issues. Most of all, hand out some praise to balance the tone of the meeting.
- Share your wins
- Share your losses
- Everybody has something to contribute
- Everybody has something to learn
If you can start this replanting it can change the culture. As a result it will be slow, and it will take time, not unlike a tree growing. These changes can take root, grow and blossom into a beautiful tree one day. Here’s to the future.