Strong underwriting and appraiser identification can go a long way in building your business, which is why it’s so critical to examine industry best practices. Being able to identify ideal applicants and red flag trouble issues can help to get the housing market on its feet and to generate long-term growth for the industry.
To limit issues, start with strong underwriting guidelines and issues
Identify Red Flags Early
Sellers should review criteria with each sale to identify any red flags with regard to the property, including failure to document intent to rent or sell the current residence, a borrower purchasing a less expensive or smaller property, or an appraisal report that lists an occupant as a tenant or as vacant with an owner-occupied refinance application.
Establish guidelines for proper review of details and identification of red flags
Review the Applicant’s Background
A laser focus on credit, capacity and collateral are the first steps in using best practices for mortgage underwriters. Looking at credit should explore questions on whether the applicant’s credit history indicates willingness and ability to make payments on time. Review what other collateral is available if the borrower becomes unable to repay the mortgage.
Ensure that the borrower has the capability to pay for the mortgage, and evaluate the “backup plan” to see if they have collateral to cover that amount.
Generate and Implement Underwriting Controls
Generating regular underwriting controls and procedures and regularly reviewing with key staff can help to ensure that all employees are on the same page. If employees spot an issue that raises a red flag, encourage them to report it to someone else for official review. Employees should be clear about procedures for reviewing documents and details and what information should alert them to potential fraud.
Employees should also be encouraged to ask more questions when they need additional information. Individuals going through the underwriting process should feel comfortable providing additional details when they have no fraudulent involvement. If a person seems unsure or uncertain about providing additional details, or struggle to provide documentation where requested, this is a sign that fraudulent activity may be at play.
Engage employees in the discussion of fraud with regular training
Best Practices in Appraisals
Sellers should make sure to review and verify appraiser performance and licensing, as well as determining whether the appraiser has membership in a professional appraisal organization. Each appraiser should be given an appropriate amount of time to conduct their evaluation, since short-changing the turnaround time may reduce the quality of the appraisal.
- Increase your appraisal quality by working with professional and licensed individuals
- Staff should also be trained in the definition of fair market value and how to appropriately match appraisal value this with number. Staff should also be trained in Home Valuation Code of Conduct recommendations.
- Establish regular training and review opportunities for staff
- Appraisal reviews should include photos, the sales history of the mortgaged property, maps to verify property location, pending sales or current listings, and copies of paperwork with the appraiser’s signature and official license.
- Use complete appraisal review packets to document procedures