Underwriting bad habit costs thousands in revenue

One of the quotes I try to live by when developing blogs,  training courses , or live seminars is:

 “If you can’t explain simply, you don’t understand it well enough” – Albert Einstein


Talk about challenging yourself when designing training items.  I am sure he had to explain much more complex items than I ever have on a 1008.

In the day to day auditing review of loans I can tell you that many loans close without the concept of “well explained income analysis” in place.  Sure, some files don’t need much to explain on the income, but for a company to survive and not lose profitability it is not a chance we can take.

I spent three years in auditing as part of my underwriting career.  If had to estimate, over 50% of loans in audit had nothing explaining the income that was used to approve the loan.  That bad habit simply has to stop.

Although it did make my days interesting playing “where’s waldo” searching for an explanation of income in the file.  I am sure the bank would have appreciated having the millions of dollars spent on defaulted loans due to income calculation errors back in the reserve accounts.  To add insult to injury with the income analysis missing, we could not even determine a course of action to “fix” what was done wrong.

That experience in auditing lead us to our income worksheet design. We knew that UberWriter not only was about calculating income, but just as important had to clearly, simply, and effectively communicate how that income was determined.  This is needed to stand up to audits for years to come.

 

Good Habits of an Income Report

I want to share with you what we feel is best in class design of our worksheet.  Sure you can skip using an income analysis tool in your company, but one of the many benefits of this tool is the exponential improvement of income “explanations”.  Clients tell us over and over, clear income reports STOP income debate discussions.  That is money saved.

 

Part One – The Overall Summary

1003 summary

Part One – All of the borrower income summarized in one box

Our first section of the report puts everything in one spot. No searching through tabs of excel sheets and pages of 1008 notes to see what the borrower earns.  We laid out the report in the same fashion as the 1003 or any AUS entry format to make it familiar and well understood.

Part Two – Income Source Summary

individual 1003

Part Two – A Summary Of Each Type Of Income By Name And Type

 

Our second section is where each income is broken out as a summary.  This allows the clients understand the total for each income.  In the example below we have the client entered description (IE FORD) and the second row shows the type of income.  This makes it easier to identify the documents and the guidelines the income must adhere too.  The great thing about UberWriter is it will format one or one thousand types of income in this organized and uniformed fashion.

 

Part Three – The Income Breakdown

 income breakdownPart Three – Detailed Analysis Of Each Income

The detail section of the report does as deep of analysis as any investor would require.  Not only does UberWriter show the math, it confirms each line of a tax return the calculation is sourced from. We also show all the options the client could have used (one year / two year average) compared to what was choose, and the trending analysis.

 

Part Four – Guideline Checks & Warnings

But we did not stop there, we implemented every corner of the guidelines so you don’t fail an audit on a “gotcha”.  To name just a few features we have 1088 forms for all self employed types, guideline reminders on key fields cash flow adjustment fields that have the highest probability of “failing” an audit.

There is a note section where the client can explain any “odd” item the next party should know about the income type or even explain their thought process on using the income.

The result is even the most in experienced client can get these incomes accurate to the penny and successfully qualify a borrower’s income.

income warning

Summary

Let me ask you a question.  What is the lack of clear income analysis costing you?

  • Lost time between sales and operations discussing income verbally or by long emails
  • Lost time between underwriting and auditing explaining final analysis
  • Loss of sales partners because frustrations of “foggy” denials due to income calculations

In my experience the answer to that question is “Too Much”.

Until next  time!

By |2018-11-28T20:31:55-04:00November 28th, 2018|Uncategorized|2 Comments

About the Author:

Michael Whitbeck
Michael is a subject matter expert on the process of mortgage underwriting. With 25 years in the mortgage business holding different positions in his career such as loan officer, underwriting manager, auditing supervisor, and chief credit officer. Through those experiences, he continually built content and systems to teach a process to improve people's underwriting skill set. Michael is the co-creator of UberWriter. UberWriter is the only online mortgage calculator that can determine any of the 30+ types of income listed in the agency guidelines. UberWriter has been a huge success in the market and half of the top 10 companies on the Scotsman Guide use UberWriter and produce thousands of income reports per month. Outside of the mortgage world Michael is a recreational pilot, loves Jeep adventures with his wife Jennifer. As a military veteran himself, he helps out with veterans organizations.

2 Comments

  1. AAB November 29, 2018 at 4:00 PM - Reply

    Couldn’t agree with you more here!

    • Michael Whitbeck
      Michael Whitbeck December 6, 2018 at 11:44 AM - Reply

      Thank you Alyssa, attention to detail is so important in our field. I know a lot of great UW how have the job down pat…but tend not to do a great job on the documentation part!

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