NMP - December 2016 - 105
How to Handle the
are a pretty hot
now. While this is
great for that handful
experienced professionals, it's
causing some difficult challenges for
As a former underwriter, I cannot
help but feel happy for my tribe-a
hardworking group that, let's face it,
has taken the brunt of the blame for
a lot of issues in this industry.
Fortunately for them, the tides have
started turning. First came
recognition, courtesy of the
foreclosure crisis, which took us out
of the background and into the
spotlight. More recently, it's the tech
industry that's making waves, as its
constituents scramble to disrupt the
mortgage industry, with the fury of a
nine-year-old chasing Pokémon.
Ours used to be the broker vs.
banker battle. Now it's start-up vs.
experienced, tech vs. tried-and-true.
We don't know who's winning the
war, but I will tell you who's coming
out on top: Underwriters. And who's
getting the short end of the stick?
The underwriter shortage
and how to handle it
Why is this happening? Aside from
normal attrition and increased
demand created by on-again/offagain refi booms, we now have wellfunded startups infiltrating our
industry. They've got their eyes on
the industry's skilled employee base
and they're dangling some pretty
attractive perks in front of them. In
addition to higher salaries, these
companies offer Silicon Valleyesque benefits that range from extra
cash each month for paying student
loans to dog-friendly offices. And
it's working. Employees-including
some of the more skilled positions,
like underwriters-are flocking to
these companies, leaving traditional
lenders in the lurch, and in the
middle of a precarious refi boom, no
So what's a lender to do? One of
the solutions I see lenders moving
toward is outsourcing the
underwriting function. It makes a lot
of sense, particularly in
unpredictable markets like the one
we're in. The primary benefit of
outsourcing is that scaling is oh so
easy. But don't think you can just
put on your blinker and take a right
on to Easy Street. There are a lot of
things lenders need to know before
they employ this remedy. Do your
homework before taking the plunge.
The most inexpensive outsourcer
could end up costing you more than
you planned to save, and viceversa: the seemingly most
expensive could end up saving you
Underwriting is detailed, and the
mortgage industry is subject to a lot
of regulations. One false move
could cost a lender dearly, and
when I say "dearly," I mean fees
and fines so high they could trigger
a major downsize or even closure.
So how do you protect yourself?
You've got to ask the right
questions and know the right
in three categories
First, take a good look at the
outsourcer's technology. An
uncountable number of details are
involved in every transaction, and all
of those little pieces need to be
cross-referenced, verified and made
consistent with every system
involved in the transaction. Find out
which technology systems the
outsourcer uses. Make sure you can
integrate your LOS, system-tosystem, with theirs. Both
companies' data and processes
must be synced and updated in
Details matter. Little mistakes can
extend transaction times by days, a
week or sometimes more. If, for
example, your system indicates the
subject property as condo number
12, but in reality, that condo is
number 15, all files should reflect
that. That correction should not be
limited to the underwriter's file. The
same goes for other decision data
points. If, for instance, the borrower
listed $50,000 in assets but only has
$48,000, that discrepancy needs to
be adjusted across the board. DU
approvals can be tricky. In my
experience, it's best to err on the
side of caution. You don't want any
discrepancies in decision data
points, however minor.
The second point you should
evaluate and understand is the
outsourcer's audit practices and
policies. You cannot take promises
at face value. You need to know that
the outsourcer does what it says it
does, not just in workflow, but with
training and hiring as well.
Evaluating audit programs isn't an
open and shut activity. It can be
time consuming. But do yourself a
favor and take the time to be
thorough. Don't cut corners.
Your goal is to only use
competent and qualified
underwriters. In addition to being
trained and educated properly, every
underwriter must be thoroughly
background checked. Without
exception, outsourcers should have
a formal written program for hiring
and training. Ask to see those
guidelines. How, specifically, does
the outsourcer conduct background
checks on employees? How do they
ensure that all references have been
checked and that staff members
meet their hiring guidelines?
Employee screening is any
company's first line of defense.
Make sure you can audit your
outsourcer's hiring processes.
Underwriting is a skilled
profession. Training and education is
paramount. All outsourcers should
have a program for testing
determining areas of weakness,
providing training to develop and
correct those areas, then re-testing
once more for competency. They
should also have a formal audit
program in place. Know how often
staff members are audited, and what
that audit entails.
If you're dealing with a high
quality outsourcer, you shouldn't
have an issue getting a copy of the
documentation that outlines the
company's processes. Compare
them to your company's standards
and tolerance levels. Your
outsourcer's processes should
always meet or exceed your own.
Make sure you can verify that they
do what they say they do.
The last factor major you need to
evaluate is communication. This is
By Lisa Binkley
fairly simple to assess, but the
details can be tricky because
communication is very easy to take
for granted. No one bats an eyelash
when everything goes as it should.
But when communication breaks
down, mistakes get expensive.
Losses can take the form of time,
revenue and customer relationships.
Find out your outsourcer's
communication protocol. Know who
is allowed to communicate with
whom, and by which media. Do
they use a certain vehicle that
automatically creates an auditable
paper trail, or is that something
you'll have to manage internally, on
your side? How are teams notified
once the loan has funded? Make
sure they have an automatic
process in place for taking a final
snapshot of the loan at funding.
On a similar note, you'll want to
know how the outsourcer handles
changes and updates. Know your
outsourcer's deadlines. Find out the
point at which no more changes are
allowed. You don't want your team
thinking it has one more day to
make adjustments when the
outsourcer has already passed its
cutoff time. These types of mistakes
can get expensive for everyone,
including the borrower.
These three areas cover the
majority of issues that lenders
encounter with outsourcers.
Outsourcing can be a quickly
implemented, cost-effective choice,
but lenders need to be careful. They
are responsible for all work
contracted to any third parties.
Outsourcers may say what they
think you want to hear. Take the
time to look beneath the surface.
By the time you're in the market
for an underwriting outsourcer, it's
going to be tempting to rush to
implementation. Resist that urge.
Invest a few extra days. Evaluate
each outsourcer thoroughly. The
days you spend can save you
weeks each year, while protecting
your warehouse line and customer
Lisa Binkley is senior vice president with Platinum Data
Solutions. Lisa has more than 15 years of underwriting
experience that includes creating and managing quality control
and fraud investigation divisions. Lisa has been chair of the
MBA Quality Assurance Leadership Council, vice chair of the
MBA Fraud and Ethics Working Group, and chair of the 2006
Quality Assurance Conference Committee.