With the industry turning back to the tried and true FHA loans, many in the mortgage industry are becoming aware that there is an alarming lack of DE Underwriters. With the industry focus being on the Alt A and subprime market over the last few years, the training of underwriters for the FHA market had taken a back seat.

 

Going back a few years with FHA only doing 2% of the mortgage business and DE Underwriters being more expensive to hire, the training programs were minimized or in some cases eliminated in favor of the more popular conventional loan products.   The current mortgage crisis brought back into focus the essential basics for the need of sound underwriting decisions which includes the analysis of risk for both FHA and the lender.  The advent of the Automated Underwriting System (AUS) perpetuated the problem of training the pool of potential DE Underwriters. Consequently, we find ourselves where we are today.



 

When FHA revised one of their Handbooks in the 90’s that addressed this issue, it has been overlooked or little used due to the lack of originations for FHA financing.  FHA foresaw the need for “Full Eagle” lenders needing qualified underwriting assistance for some specialty programs or when the Lender had large increases in volume.  FHA allows one Full Eagle lender to work with another Full Eagle lender for such things as the underwriting of HECM loans when their DE Underwriter is not approved to underwrite HECM loans or underwrite other programs such as 203k (rehabilitation loans) or the New FHASecure program, which has been implemented recently to help Americans save their homes from foreclosure.



 

One DE Underwriter that we spoke to has been in the mortgage business since 1981 and tells us her story of how five years ago she ended up working as a contract underwriter for a PMI company in favor of utilizing the nearly 30 years of experience she had as a DE Underwriter.  As a contract underwriter she was forbidden by FHA rules to use her extensive experience because she was not an employee of the Lender for which she was underwriting. She maintained her training and kept herself updated with FHA rules with the hope that they would come back some day.



 

To make matters worse today, the pool of potential DE Underwriters has been reduced greatly because this pool comes from FHA Processors and there are less of them for the same reasons that the DE Underwriters are reduced, reduction in FHA loans in the past few years. This can be evidenced by the many groups and organizations that are providing FHA training. Now, this might replenish the pool of potentials but it doesn’t provide the experience sometimes necessary when it comes to evaluating risk on many of the FHA products today. Remember, that the manually underwritten loan looks at both the Lender investing the money and whether FHA should insure the loan.


 

The Quality Control Department



 

DE Underwriting for the Quality Control Department presents similar issues. FHA Handbook 4060.1, Chapter 7-6 F., states:

 

Each Direct Endorsement loan selected for a quality control review must be reviewed for compliance with HUD underwriting requirements, sufficiency of documentation and the soundness of underwriting judgments.

If the QC Underwriter is going to analyze for soundness of underwriting judgment and is not a DE Underwriter, then a true check of the original underwriter is not made. Since there were so few FHA loans originated, many shops have FHA loans reviewed by non-DE Underwriters. Now, of course, filling the QC Department with at least one DE Underwriter when there isn’t a sufficient number in the Underwriting Department, especially in small institutions, makes for a difficult proposition.



 

The QC situation is much easier to rectify than the one in the Underwriting Department according to FHA rules. FHA allows for outside contracting of the Quality Control function although the Lender is still liable for the QC program. Many outside QC firms do not use DE Underwriters when they review FHA loans and therefore the issue of checking the Lender’s and FHA’s risk by the original Underwriter has not changed with outside contractor providing the service.



 

Where Do We Go From Here?



 

Until such time as the pool of DE Underwriters gets replenished, the most viable and cost-effective alternative is to go with a Full-Eagle Lender to contract out the DE underwriting for both the Underwriting Department and Quality Control Department. The contractor is paid for only those FHA loans that need to be underwritten rather than hiring full-time DE Underwriters for both the Underwriting and Quality Control Departments.



 

About the Authors: Daniel J. Duplantis, CMB, CRU is a 35-year veteran of the mortgage finance business and is Executive Vice President and Chief Credit Officer of USA Underwriters a division of American Reverse Mortgage Corporation. He has held a single-family and multi-family DE from FHA since 1983. Duplantis is one of only 10 in the US that holds both the CMB and CRU designation from Mortgage Bankers Association of America. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .



 

Barbara C. Santner, CMB, CRU has been  a DE Underwriter since 1986 and serves as Vice President of Underwriting for USA Underwriters, a division of American Reverse Mortgage Corporation. She manages the team of all DE Underwriters for helping other Full-Eagle Lenders in their underwriting of all FHA products. She is also one of only ten in the US with both the CMB and CRU designation from Mortgage Bankers Association of America. She can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .