If you are looking for a home and don’t have all the cash available to buy the house of your choice, you, like other homebuyers, need to borrow money from a lender (banks, credit unions, etc). And because you borrow “other people’s money”, you are required to follow their rules (or guidelines).
The majority of borrowers are usually confused about the guidelines, in the form of required documents, when working with a lender.
And to make the matters worse, the borrower is suddenly thrown with titles of different professionals working to help him – loan officer, loan processor, underwriter, closer, etc. Sometimes these professionals seem to ask for the same information from the borrower. What is more frustrating than being asked to submit the bank statements that were submitted two months ago? Or “why didn’t you (the loan officer) mention that when we talked three weeks ago”? Etc.
In this article, we attempt to explain the roles of the two important professionals that you, as a borrower, usually come across. (We will discuss roles of other professionals in another article). And why we think the loan officer is really your best friend in the process.
Loan Officers:
Usually, the very first professional you likely to call on (based on the referral from a friend/relative or you saw the name on the local billboard) is the loan officer, or mortgage loan originator (MLO) (as they are usually known.)
What does a MLO do?
The MLO will help the borrower to fill out the loan application and collect necessary documents; and based on this knowledge, the MLO will structure the loan file that will be approved by the lender. He will estimate the borrowing costs and monthly payments. The MLO is the main point of contact for the borrower and other parties in the transaction.
The MLO interacts directly with borrowers (the MLO is the face of the lender.) An MLO understands the borrower’s financial situation really well (by asking questions). He has a reasonably broad knowledge of the loan guidelines with different agencies like Fannie Mae, Freddie Mac, FHA, VA, and USDA. He has a deep understanding of different programs and products that match the borrower’s current finances and housing purchase objectives.
MLO’s get paid by his lender – commissions or base salary or some types of incentive arrangement. Most MLOs are on commissions – they are paid only when the loan closes.
Underwriters:
Underwriters are not required to be licensed (in mortgage), but it can make them more marketable to employers and demonstrate their expertise.
Underwriters usually work behind-the-scenes. They are extremely knowledgeable about guidelines with agencies mentioned above. They do not structure loan files for borrowers nor bother with borrowers’ financial details.
They “take over” the loan file after it leaves the MLO’s hand and only communicate with the MLO once they need more information or clarification. They do not interact directly with the borrower.
Underwriters review and assess the risk associated with a loan application by analyzing the borrower’s credit report, income, employment history, and other financial documents. They are the ones who determine whether a loan should be approved based on the applicant’s creditworthiness and financial situation that meet the lender’s criteria. They final say in a loan is either Approval with Conditions, Suspended, or Denial.
Since most loans will be sold to investors after close of escrow, underwriters have to ensure these loans adhere to regulatory and company policies.
An underwriter and a MLO don’t usually work in the same lending company, but if they do, they maintain their own independence in their lines of work.
As discussed above, the MLOs are motivated to work closely with and for the interests of the borrower. A true MLO is very knowledgeable about products and their requirements to advise their borrower what to do to qualify for the loan. A good MLO is not afraid to ask questions, no matter how uncomfortable they are, or ask for supporting documents from their borrower. They are trained to read the bank statements and credit reports and to question any anomalies in these documents. They ask tough questions because while the file is still under their control, they still can “fix” issues that underwriters will certainly ask later on. They can help borrower prepare an explanation letter for unusually large sums on the bank statements or advise the borrower to use a different bank statement for qualification purposes.
Remember underwriters do not choose the “right” product for the borrower – their job is to the ensure the chosen product meet the agency guidelines. Their job is “turn over every rock” – confirm and verify any suspicion – and that might derail the closing.
Nobody wants to see the loan file fails three, four weeks after the offer is accepted. It’s a waste of time for the Realtor, the lending professionals, and especially for the borrower/buyer. Therefore, it’s extremely important for the borrower to consider the loan officer as their friend and cooperate with them and submit all required documents to ensure a smooth close for the borrower so that he can move on to the next chapter of his life.