How Underwriting Affects Customer Satisfaction

MAR 14, 2014 2:43pm ET
Comments (6)

I started as an originator back in the '80s, and I learned very quickly that there was a difference between one underwriter versus another. In fact, I not so fondly remember one particular underwriter (call her Betty Barracuda) who would be far tougher to get loans through than others.

I knew it, and knew I was in for a tough ride if she got my loan file. I knew to explain a one month gap of employment (even on a six figure salary senior manager) and made sure to get all those detailed explanations of the JCPenney's credit card late payments from four years earlier. You see, Betty believed in underwriting by the pound, and I must have always been a few ounces light.

We all observed the early 2000s when mortgage loan underwriting was somewhat of a lost art. Some would argue that we didn't really underwrite loans at all. You've heard all the jokes about "fogging mirrors" but that turned out to be not as funny as a lot of people thought. For years we only had to get a lead to know that we had a good shot and getting the loan closed.

In other words, conversion of application to funding was pretty high, and you did not have to really worry about underwriting creating many problems along the way. After all, in a period of "light doc-alt doc-no doc," hardly anyone got denied.

Customers may have liked how fast and easy it was too close loans, but the investors sure ended up not liking the results (apologies to the industry vets for actually using the phrase "fast and easy" in a columnóclick here for a trip down memory lane). So, if the '80s was "underwrite by the pound," then the 2000s were lean and mean!

Skip ahead to today. Now, underwriting is back in style and underwriters are in high demand as the requirements of investors and regulatory considerations require more documentation and more scrutiny around whether a borrower can pay back the loan. In fact, in our surveys, we saw a sharp increase in compensation for underwriters as the market demanded more from them and more of them.

But before we get knocked over by the pendulum swinging back in the other direction (from "no underwriting" to "excessive underwriting"), maybe we should think this whole part of the process through a bit, and think about how it impacts the customer and ultimately impacts conversion. (Have I mentioned that I think Conversion should be the word of the year for 2014?!)

One thing that has become crystal clear to lenders using our MortgageSAT program is that the loan underwriting process has a significant impact on overall customer satisfaction. This is true even when the loan goes all the way to close. Some borrowers demonstrate marked dissatisfaction with the length of time it takes to get an approval and the amount of documentation required to do so. Leading lenders are asking, "What can we do about it?"

Well, it turns out, plenty.

Solid underwriting is the new world order for mortgage lenders, that's a given. Investors want it and regulators require it. However, every company has to realize that you shouldn't just measure what an underwriter forgot to ask. That's not effective quality control in today's environment. It should also be, "Is an underwriter asking for too much and what is the resulting impact on customer satisfaction?"

What we see consistently is that humans matter, when it comes to customer satisfaction. That means we have to take a closer look at their performance. Take your underwriter, an employee that on average is involved in two funded loans a day. That's about 40-50 closed and funded loans per month. A really good loan originator may close 10 loans per month, so an underwriter touches at least four to five times more loans than a typical LO, and probably twice as many as any processor.

So, underwriters have an impact on a lot of loans, and if you measure borrower satisfaction by underwriter you may see some differences among underwriters, where certain underwriters have lower satisfaction scores than others. That's been the experience of some of the banks that work with Stratmor. Those lower scores are driving down conversion rates. Underwriters don't just kill loans through denials, they also kill through conditions. Call it death by paper cut, but it still ends up dead.

Underwriters think they're doing their jobs by stopping questionable deals, and they are, but they can't treat every borrower like a problem in the process. Here are some ways you can make your underwriting department more consumer friendly.

First, realize that the underwriting process starts at application. Provide enough information about the process to shape the borrower's expectations, to prepare them for what's coming. Then try to get as much documentation up front as possible so there are no surprises.

Secondly, if your LO knows that there are items that will need to be explained and that information doesn't fit neatly into the boxes of a 1003, write it out, put a memo to file, even get the borrower to sign the explanation so you're not asking your underwriter to guess. They hate guessing. For instance, say your borrower tells you some great story about how they switched careers.

That doesn't fit into a box on the 1003, but it explains some things about their work history. Put this into a memo or a note to the underwriter. And if you do it early you may not need to "ask for an explanation" later in the process. The same thing goes for the borrower's credit report. If there is a pattern of credit report issues or there was a high debt service because they went back to school and got an advanced degreeómaybe that doesn't show up on a loan application, but it absolutely shows up in a loan file if it's properly documented.

The final step is to measure the impact of the process on the customer. You need to measure the impact of the borrower's satisfaction, based on the files being underwritten by each individual on your team. You need to know how this process is impacting your borrowers and make the changes necessary to keep your conversion rates high. Sometimes, it's just a matter of additional training.

Sometimes it's awarenessójust publishing results can drive change in culture. In some cases you may be working with underwriters who can't transition effectively into the new environment. And that's a problem.

Today, borrowers vote with their feet. If they're not satisfied, they'll go elsewhere, dropping your conversion. Also, regulators have no sense of humor when it comes to customer satisfaction, so make sure everyone on your team is on the same page about it. That's the way to keep your conversion rates high.

Until next time...oh, and if you see Betty, tell her I said hello.

Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience.

Comments (6)
So the three main ways to make the underwriting department more consumer friendly are.....1) to warn the borrower, 2) take a complete application and 3) put a memo explanation in the file? Now That's some powerful and helpful advice. Not!
Posted by | Monday, March 17 2014 at 1:48PM ET
In 1985, an underwriter conditioned a file for something I felt was foolish and unreasonable. The borrowers elected to say "no, they will not provide it". She looked puzzled, and didn't know what to do when I informed her of their comment. "Approve or deny the loan based upon the information they had provided". What to do, prey tell?

Well, after realizing that all the "paper" in the world was not going to ensure these borrowers would make timely payments, she went ahead and approved the loan, and they closed.

Now I ask you that in today's world, are underwriters justified when requiring a source funds on a $200 deposit when it has no impact at all on the file? Many would say "yes", many would say "no", and many would say "that's why I stopped originating mortgage loans". Most underwriters would tell you that's what they have been taught to do since 2009, but is that really the case, or are they simply trying to cover their ass? Argue both sides all you want, but I ask you each to answer what your decision be if someone answered that they "won the money in a crap game in vegas". Would you deny the file? (If so, why?) Maybe just disallow the funds? (Well then, why was it asked for in the first place?)

I have a question ... why doesn't the MBA come up with an explanation as to what they feel happened when the real estate markets collapsed. Something that's as simple as what really happened? Think about it, not rocket surgery (as Michael Vick would say.)

No doubt, good underwriters are hard to come by. One's that make decisions, and stand by them. Sadly, there's not many left.

PS, "Fast and Easy" is a program coined by Countrywide--not experienced mortgage bankers.
Posted by | Tuesday, March 18 2014 at 4:45PM ET
This article exhibits the classic blame game laid upon underwriting. Your cure for shaping better underwriters is originators doing their jobs. Fascinating, but completely frustrating and insulting to a seasoned underwriter.
Posted by Heather O | Tuesday, March 18 2014 at 6:47PM ET
This article exhibits the classic blame game laid upon underwriting. Your cure for shaping better underwriters is originators doing their jobs. Fascinating, but completely frustrating and insulting to a seasoned underwriter.
Posted by Heather O | Tuesday, March 18 2014 at 6:48PM ET
David, some of what you say is understandable. Let me ask you this. If there is an investor requirement list staring you in the face and it says "document all employment gaps" do you think the underwriter is picking on your excellent borrower by requiring this? Please don't let your brain go there. If underwriters continue to ignore those things and "let them slide" they will soon be fired. The investor requirements are what they are. The underwriter didn't write the requirements. Some investors requirements seem over board. But if you had a loan that was rejected by the investor, you are on dangerous ground. Should the underwriter risk their job because borrowers don't like to gather documentation, and LO's hate to ask them because it usually pisses them off? It is your responsibility to explain to the borrower the rules of establishing a two year work history. If properly presented in the very first meeting, the borrower will be more likely to understand they are not in control of the amount of information lenders need.

I am an underwriter, and I have often wondered if Loan Officers and Processors are reading the same book I am. If such things as employment gaps are required , ask the processor if she is aware. If the same condition comes back over and over, you have got to wonder if somebody out there has a stumphead. I am sorry if that sounds cruel, but even a blind squirrel finds a nut once in awhile. I have had to ask for many many, many pieces of paper and proof of this or that, and I may have thought it was so stupid of the investor to want it, but if that's the rules, then I can play by them or go home. I just try to write them out a gently as possible. Or start the sentence, per program guidelines..I hope I have given you pause to look at it from another angle.
Posted by | Tuesday, March 18 2014 at 9:15PM ET
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