In today's evolving financial landscape, the current approach to underwriting is falling short and fails to accommodate the profiles of many modern borrowers. A borrower’s loan application is a combination of assets, credit utilization, repayment history, current housing obligation to proposed obligation, pattern of savings, and so much more. You can’t expect each of them to fit the same criteria.
For example, professionals like traveling nurses typically make higher wages than staff nurses and have stable employment. However, current underwriting guidelines make it difficult to use defendable logical approaches to their ability to repay. As a result, travel nurses and other variable pay/contract work professionals frequently face frustrating hurdles for loan approval.
As the needs and qualifications of borrowers’ pivot, so must the processes used to evaluate them. Today’s standard underwriting requirements must be more flexible and adapt to the individuals’ complexities. For our industry to create loans for potential homeowners, agencies must implement four key strategies:
Create Flexible Evaluation Criteria
The current process tends to overlook the circumstances of every prospective borrower, cutting out a large population for needless reasons. The moving parts of an individual’s repayment ability make it nearly impossible to put them all into the same box, creating the need for increased underwriter discretion.
While single source verification (SSV) and Day 1 Certainty (D1C) are strong tools, borrowers might not have the desire or knowhow to leverage these tools to their benefit. Manual underwriting is another option, but this can open the lender up to more risk. Adopting a flexible criterion can give lenders a better assessment of the true creditworthiness of such applicants.
Leverage Technology and Innovations
While many exciting new underwriting tools have become available, adoption is still a challenge for our industry. Misconceived notions or negative perceptions around these tech-based solutions can create opposition to these innovations. To shift the narrative, mortgage companies must be transparent with borrowers wary of technology platforms and AI solutions. The gap in understanding prevents borrowers and lenders from reaping the maximum benefits of these tools.
Advocate for Regulatory Reforms
As lenders move to make housing more affordable and accessible for all Americans, there needs to be a more strategic approach to advocacy on both the state and federal levels. Engaging with regulatory bodies, including the U.S. Department of Housing & Urban Development (HUD) can help advance underwriting with the proper funding, which would help bridge the gap between conventional and government loans. Facilitating these relationships can help advance the industry and streamline processes, benefiting both lenders and borrowers.
Promote Industry Collaboration
Calling for change to crucial processes is always more efficient when it’s a cross-industry effort. Collaboration ensures that there are new regulations and standards which create a more inclusive environment for borrowers and lenders of all scales and sizes. Joining industry trade groups such as the Mortgage Bankers Association (MBA) or Community Home Lenders of America (CHLA) ensure that all stakeholders can be part of change that will benefit the entire industry.
Borrowers are More than Checks in a Box
The current underwriting process and guideline restrictions simply don’t align with modern borrower needs. By implementing these strategies, lenders can better serve a diverse group of borrowers and help move the industry forward. All stakeholders must understand the simplest facet of the borrowing process – borrowers are not just numbers that fit or don’t fit into specific criteria. Lenders using discretion can look at the bigger picture and ensure we are doing everything we can to support modern borrowers in today’s world.