PeerViews Post TRID UW Practices Final - STRATMOR Group€¦ · Background 12/1/2015 The Post TRID...

OCTOBER 2 0 1 5

12/1/2015

STRATMOR PeerViewsPost TRID Underwriting Practices

STRATMOR PeerViews ‐ Proprietary and ConfidentialNot for external distribution

Contents

12/1/2015

Background Key Findings and Conclusions Respondent Profile General Questions Channel Specific Questions

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Background

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The Post TRID Underwriting Practices survey was the seventh survey issued under STRATMOR’s PeerViews program

PeerViews is a fast turnaround small‐survey program that gives senior mortgage executives a unique way to obtain specific qualitative mortgage industry information about: What senior executives at other companies think about issues and significant

new industry developments. What actions they are considering, planning or have taken.

The PeerViews Post TRID Underwriting Practices survey was launched on October 2, 2015 and remained open until November 6, 2015. Invitations were sent to 1,811 individuals representing 598 unique lenders. Responses were received from 54 unique lenders (a 9.0% response rate).

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Summary of Key Findings

12/1/2015PeerViews ‐ Proprietary and Confidential

Lenders’ underwriting model is split roughly equally among the following (Slide 11): Underwriters support any origination channel (33%) Underwriters are dedicated to one origination channel (26%) Underwriters are assigned to a primary channel but may underwrite for another based

on workload demands (41%)

93% of Independent lenders allow their underwriters to work from home (if only on a selective basis) versus only 52% of Banks (Slide 12): STRATMOR believes this flexibility gives Independent lenders a competitive edge in

recruiting seasoned underwriters.

15% of Banks versus 4% of Independents do not run a fraud check (Slide 13): STRATMOR believes that Banks that are portfolio lenders focus on their own customers

and may not need to run fraud checks based on the customer information available.

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Summary of Key Findings (cont’d)


Most lenders (74%) ‐ but especially Independents (89%) ‐ have system stops in their LOS that prevent a loan from closing if data has changed that could impact the underwriting decision but has not been re‐submitted to underwriting (Slide 15).

91% of all respondents have changed their process for documenting underwriting decisions since the QM/ATR rules went into effect (Slides 16 & 17): 83% of Banks have the underwriters complete a QM/ATR form or checklist

documenting the decision. 72% of Independents have the LOS capture the loan details at the time of the

underwriting decision.

Just under 48% of respondents originate non‐QM loans (Slide 18): As would be suspected because of their portfolio funding capacity, more Banks (56%)

originate non‐QM loans than do Independents (41%).

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Of the 48% of lenders that originate non‐QM loans, more than half (58%) use manual checklists and 50% have made changes to the LOS to ensure compliance (Slide 20): LOS changes identify Appendix Q conditions and/or Investor’s determination of Ability

to Repay requirements

Surprising results are that 31% of lenders report that they have made no changes to their underwriting processes as a result of TRID; and another 20% reporting that they have not yet determined what underwriting changes, if any, they need to, or should, make (Slide 21)

95% of lenders offer their originators underwriting support to help them in deal structuring of new loans (Slide 23): 56% of lenders provide an underwriting support desk 39% of lenders allow originators to call any underwriter at any time to seek assistance

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Overall, for 54% of all lenders ‐ and for 67% of Independents ‐ the approval of appraisals is done by the underwriting department (Slide 25). However: 30% of Banks have a separate Appraisal Team versus just 7% for Independents In 89% of the cases where appraisals are approved by Underwriting, the same

underwriter that handled the credit approval also approves the appraisal (Slide 26).

For those lenders active in the Retail and Consumer Direct channel, files go to underwriting with either (Slide 28): A specific sub‐set of documents (47%); or When the file documentation is complete (31%)

For 73% of respondents, conditions can be cleared by processors or closers (Slide 29): 81% of Banks allow this practice versus Independents at 64% Here too, we think this difference reflects the greater flexibility that Banks have as

regards portfolio funded loans versus loans sold to third‐party investors.

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For the 38 companies who allow processors and closers to clear conditions, those conditions are most likely to include (Slide 31) : Executed Docs, for example, the 1003, disclosures, signatures on tax returns, purchase

agreements, etc. (63%) Proof of Sale (55%) Property inspections (37%)

53% of Wholesale lenders do not allow brokers to submit incomplete loan files (Slide 33): Independents are significantly more likely to allow brokers or non‐delegated

correspondents to submit files before they are fully documented (56%) than Banks (36%)

For the 15 Wholesalers who allow brokers to submit less than a full file, 73% require a sub‐set of key income, asset and credit documentation (Slide 34). The underwriter is far more likely to be the one clearing conditions (Slide 35).

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Independents are far more likely to delegate underwriting to their correspondents than Banks (Slide 37): 82% of Banks have fewer than 20% of their Correspondents approved for delegated

underwriting By contrast, 67% of the Independents have more than 60% of their Correspondents

approved as delegated underwriters However, for those companies who do allow delegated underwriting, 65% of the

companies re‐underwrite the loan files (Slide 38) This latter practice seems to undercut the appeal of being a delegated underwriter in the eyes

of the Correspondent and dilutes potential cost benefits as well.

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PeerViews ‐ Proprietary and Confidential 12/1/2015

Respondent Profile

How would you describe the ownership of the company?

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For purposes of analysis, Builder / Realtor Affiliated responses have been combined with the responses of Independent lenders. Out of 54 respondents,

50% are analyzed as Independents / Realtors/ Builders

Similarly, Credit Unions have been combined with Banks; therefore: 50% are analyzed as

Banks / Credit Unions.

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In which channel(s) does your company do business?

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51 out of 54 respondents, or 94%, participate in the retail channel.

26 lenders, or 48%, originate loans out of a single channel, with 25 of the 26 originating just retail.

For the 28 multiple‐channel lenders, roughly 68% have a consumer direct channel, 82% a correspondent 60% a broker channel.

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What was your origination volume across all channels for 2014

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Results include companies of all sizes: Including all channels,

40% of lenders originated $1 billion or less;

35% originated between $1 and $5 billion

24% originated over $5 billion.

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General Questions

Which of the following best describes the way your company has organized its underwriting operations?

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The full wording for the responses was: Any Channel: Our

underwriters underwrite loans for any origination channel in which we operate.

Dedicated Channel: Our underwriters are dedicated to one origination channel.

Primary Channel: Our underwriters are assigned to a primary channel but may underwrite for other channels based on workload demands.

The respondents underwriting model is split roughly equally among the three options.

Banks are slightly more likely to have underwriters assigned to a Primary Channel (41%) than Independents (33%).

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Banks Independents Total

Any Channel 9 9 18Dedicated Channel 7 9 16Primary Channel 11 9 20

Any Channel 33% 33% 33%Dedicated Channel 26% 33% 30%Primary Channel 41% 33% 37%

# of Respondents by Category

% of Total Respondents by Category

Do you permit your underwriters to work from home?

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The predominant model appears to be allowing underwriters to work remotely on a selective basis. Often companies

offer this option to recruit or retain a seasoned underwriter.

This practice is often used when the talent pool has been exhausted in a particular geography.

While 33% of the respondents allow underwriters to work from home, the Independents are much more likely to offer this option at 52% versus 15% for the Banks.

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Yes 4 14 18On a selective basis 10 11 21No 13 2 15

Yes 15% 52% 33%On a selective basis 37% 41% 39%No 48% 7% 28%



Do you run a fraud check service when underwriting loans?

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87% of respondents run a fraud check as part of the underwriting process While the majority of

Banks (85%) do run a fraud check, 15% of the respondents do not.

The “Other” responses indicate that those respondents will run fraud checks when it is required by the investor.

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Yes 23 24 47No 4 1 5Other 0 2 2

Yes 85% 89% 87%No 15% 4% 9%Other 0% 7% 4%



Are there edits within your LOS to determine if a loan must be re‐submitted to underwriting and/or prevents such a loan from closing if data has been changed that could impact the underwriting decision but the loan has not been re‐submitted?

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Most companies (74%) have systemic stops in the LOS that will stop a closing if data related to the underwriting decision is changed

The Banks are less likely to have these hard stops built into the system at 59% versus the Independents at 89%

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Yes 16 24 40No 9 1 10Other 2 2 4

Yes 59% 89% 74%No 33% 4% 19%Other 7% 7% 7%



Has your process for documenting loan decisions changed since the advent of QM/Ability‐to‐Repay (ATR)?

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Almost all of the respondents have changed their process for documenting underwriting decisions since the QM/ATR rules went into effect There was little

difference in the results for Banks and Independents

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Yes 24 25 49No 3 2 5

Yes 89% 93% 91%No 11% 7% 9%



If your process for documenting loan decisions changed since the advent of QM/Ability‐to‐Repay (ATR), how do you document these decisions?

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The full verbiage for the responses to this question were: Print 1008 (and/or

comparable FHA/VA form)

Print AUS findings Print (and file or image)

summary screen(s) from the LOS at the time of each decision

For every decision, the LOS captures loan detail at the time of decision

Require the UW to complete a QM/ATR form/manual checklist that documents the loan decision and then file/image that form

83% of Banks have the underwriters complete a QM/ATR form or checklist documenting the decision

72% of Independents have the LOS capture the loan details at the time of the underwriting decision

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Print 1008 6 13 19Print AUS Fundings 5 14 19Print LOS Summary Screen 4 8 12LOS Capture Details 7 18 25UW Completes QM/ATR Form 20 13 33Other 1 1 2

Print 1008 25% 52% 39%Print AUS Fundings 21% 56% 39%Print LOS Summary Screen 17% 32% 24%LOS Capture Details 29% 72% 51%UW Completes QM/ATR Form 83% 52% 67%Other 4% 4% 4%



• This question was only available to the respondents who answered “Yes” to the previous question

Do you originate non‐QM loans?

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Just under 48% of the respondents originate non‐QM loans. Slightly more Banks

(56%) originate non‐QM versus Independents (41%)

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Yes 15 11 26No 12 16 28

Yes 56% 41% 48%No 44% 59% 52%



For non‐QM loans, what tools have been implemented to insure compliance with Ability‐to‐Repay requirements?

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For participants who do originate non‐QM loans, more than half (58%) use manual checklists and 50% have made changes to the LOS to ensure compliance. These changes to the LOS

identify Appendix Q conditions and/or Investor’s determination of Ability to Repay requirements

The Other tools implemented include: Income Worksheets Second review by a credit

risk team QM specific, auto‐

populated underwriting conditions

We may intentionally approve non‐QM loans that do not meet Appendix Q under appropriate conditions with exception approval authority required.

Created separate product profiles for loans that are considered non‐QM that specify non‐QM guidelines and features

On Non‐QM products, underwriters follow appendix Q and an underwriting manager reviews

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None 0 1 1Changes to LOS 7 6 13Manual Checklists 9 6 15Other 5 2 7

None 0% 9% 3%Changes to LOS 47% 55% 36%Manual Checklists 60% 55% 42%Other 33% 18% 19%



How has TRID impacted underwriting processes?

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31% of respondents indicate that TRID has not impacted their underwriting process

The full text of the choices available was: Not at All The UW is now

responsible for identifying some or all “changed circumstances” and adjustments to Cash to Close which result in issuing a revised Loan Estimate or Closing Disclosure.

Have not determined changes to UW processes related to TRID.

Other

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How has TRID impacted underwriting processes? (cont’d)

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For the 20% of respondents who indicated that processes were impacted in Other ways, the comments included: Looking at underwriting first

model. Created new condition type

PTCD, PTCD conditions need to be cleared prior to CD. PTCD conditions are those that would need to be cleared to ensure accuracy of CD.

More timely review of appraisal

We created a separate change circumstance team to identify and re‐disclose.

Some system changes for changed circumstances

Changed file flow UW is not SOLELY

responsible. Clarified which conditions

must be cleared prior to closing conditions and added a debt monitoring service that monitors new activity through funding

Will want to approve loans at T‐10

No functional changes, but UW will experience significantly more rushes due to the CD needing to go out up to 6 business days prior to closing

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What type of explicit underwriting support do you provide to assist originators in “deal structuring” new loans?

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The majority of companies (56%) provide a support or scenario desk to originators

39% of companies allow the originator to call an underwriter with questions or for assistance

The full question text was: We provide an

underwriting support desk to assist originators in deal structuring new loans.

An originator may call into any underwriter with questions or ask for assistance at any time.

We do not provide any structured or formalized support.

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Who approves appraisals?

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For both Banks (41%) and Independents (67%), the underwriting department approves the appraisal

Banks are more likely to have a separate Appraisal Team

Other: Appraisal department for

conventional and Underwriting as required by FHA and VA.

UW can review CU risk level up to 3. Appraisal department approves 4 and 5 along with Jumbo values and quality review samples

Underwriting and on higher risk appraisals the appraisal department performs the review and then UW approves the appraisal after

40‐50% of appraisals are reviewed by dedicated Valuation Underwriters. The remaining are reviewed by the credit underwriters.

Usually underwriting, but we are moving more collateral underwriting to the appraisal team

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Underwriting 11 18 29Appraisal Team 8 2 10UW after Appraisal Team Review 4 5 9Other 4 2 6

Underwriting 41% 67% 54%Appraisal Team 30% 7% 19%UW after Appraisal Team Review 15% 19% 17%Other 15% 7% 11%



If appraisals are approved by underwriting, who in underwriting is the approver?

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For those respondents who indicated that appraisals are approved to underwriting, 89% indicate that the same underwriter approves credit and appraisals

Only 5% of respondents have appraisal specific underwriters

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Channel Specific Questions

Retail and Consumer Direct: At what point in your origination process do you perform initial underwriting?

12/1/2015

For those companies active in the Retail and Consumer Direct channel, files go to underwriting with either a specific sub‐set of documents (47%) or when the file documentation is complete (31%)

12% of companies do an underwrite before the loan goes to processing

10% of companies answered Other with the following comment: Hybrid with some loans

that meet certain characteristics going straight to underwriting while others go to processing first

Based on request by customer as to prequalification, preapproval or full credit approval

Both directly submitted by LO and fully documented from processor

50/50 between LO and Processor submissions

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Retail and Consumer Direct: Are Processors or Closers allowed to clear any conditions?

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For 73% of the respondents, conditions can be cleared by processors or closers

Banks are more likely to allow this practice at 81% versus Independents at 64%

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Yes 22 16 38No 5 9 14

Yes 81% 64% 73%No 19% 36% 27%



Retail and Consumer Direct: What types of conditions can your Processors or Closers clear?

12/1/2015

For the 38 companies who allow processors and closers clear conditions, those conditions are most likely: Executed Docs (e.g.,

the 1003, disclosures, signatures on tax returns, purchase agreements, etc.) at 63% or:

Proof of Sale at 55%

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Retail and Consumer Direct: What types of conditions can your Processors or Closers clear? (cont’d)

12/1/2015

Other types of conditions include: Any type of

documentation needed that does not require contact with the borrower. LO is sole borrower contact.

Conditions that are not directly related to Income calculations and any condition that the underwriter indicates can be cleared by a processor or closer

Conditions that do not impact the credit decision

Insurance docs, final payoffs

AUS Accept loans in which they were granted lending authority to clear

Hazard, few title items Only closers can clear

conditions. Processors do not.

At the discretion of underwriting, depends on whether the condition is critical to the approval

Fraud Reports, Re‐pull of credit for LQI, Verbal VOE

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Wholesale: Do you allow brokers or non‐delegated Correspondents to submit a loan prior to its being fully documented?

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53% of Wholesale lenders do not allow brokers to submit incomplete loan files

Independents are more likely to allow files to be submitted before they are fully documented at 56% versus 36% for the Banks

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Yes 5 10 15No 9 8 17

Yes 36% 56% 47%No 64% 44% 53%



Wholesale: What is the minimum documentation you require for a loan to be submitted?

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For the 15 Wholesalers who do allow brokers to submit less than a full file, 73% require a sub‐set of key income, asset and credit documentation

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Wholesale: Who typically clears conditions?

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The underwriter is most likely to clear conditions at Wholesale lenders

19% of companies allow junior underwriters and senior processors to also clear conditions

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Correspondent: What % of your correspondent clients are authorized to perform delegated underwriting?

12/1/2015

The majority of the Banks (82%) have fewer than 20% of their Correspondents approved for delegated underwriting

By contrast, 67% of the Independents have more than 60% of their Correspondents approved as delegated

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20% or less 9 2 1121% to 40% 0 0 041% to 60% 1 2 361% to 80% 1 3 481% to 100% 0 5 5

20% or less 82% 17% 48%21% to 40% 0% 0% 0%41% to 60% 9% 17% 13%61% to 80% 9% 25% 17%81% to 100% 0% 42% 22%



Correspondent: If you have delegated underwriting, do you re‐underwrite loans as part of the post‐closing purchase process if the correspondent client has delegated underwriting?

12/1/2015

For those companies who do allow delegated underwriting, 65% of the companies re‐underwrite the loan files The sub‐set analysis

showed no differences between Banks and Independents

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Correspondent: What percentage of loans purchased under delegated underwriting are re‐underwritten?

12/1/2015

For the 65% of companies who re‐underwrite loans, 33% or 5 respondents re‐underwrite more than 80% of the loans purchased under delegate underwriting The Banks were much

more likely to re‐underwrite more than 80% of the loans at 57% versus 13% of Independents

50% of the Independents re‐underwrite fewer than 20% of delegated underwriting loans

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20% or less 0 4 421% to 40% 1 3 441% to 60% 2 0 261% to 80% 0 0 081% to 100% 4 1 5

20% or less 0% 50% 27%21% to 40% 14% 38% 27%41% to 60% 29% 0% 13%61% to 80% 0% 0% 0%81% to 100% 57% 13% 33%



Noteworthy Participant Comments Regarding Post TRID Underwriting Practices

Our UWs are allowed to work from home based on an established criteria, it is not an automatic full time allowance.

Underwriters are now more aware of fees for inspections that are borrower chosen and not required.

Our underwriters have always been responsible for reviewing disclosures and making sure change of circumstance is provided and applicable. We are still reviewing potential changes.

We changed the workflow so the UW does not have to look at the file multiple times. Conditions still come up at closing that must go back to UW.

There are no 'cookie cutter' loans any longer. Even the cleanest deal has some nuance that required diligent review to assure all investor and agency guidelines are met.

I would be interested to understand how lenders are dealing with capacity constraints in high volume periods ‐ U/W, assistants, Contract MI, outsourced, etc...

12/1/2015

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Contact Us

12/1/2015

Dr. Matt LindSr. Partner

STRATMOR GroupOffice: 781‐749‐6457

[email protected]

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Nicole YungSr. Partner

STRATMOR GroupOffice: 303‐486‐6823

[email protected]

For more information on STRATMOR PeerViewsContact:

[email protected]


PeerViews Post TRID UW Practices Final - STRATMOR Group€¦ · Background 12/1/2015 The Post TRID...

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