It Was The Underwriting, Stupid Pt. 2

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Due to one of the comments that came in on my last post, I need to make myself a little more clear.

I’m not talking about the underwriters but the underwriting rules themselves. The underwriters were just following them. The commenter felt that while the boom was underway conventional underwriters were pressured to to do their jobs too quickly and thus made mistakes.

They definitely did receive pressure, however FHA underwriters had all the same pressures, and had all the same time constraints yet FHA default rates have actually gotten lower. The reason is that HUD holds the lenders accountable and will cut them off from the FHA program if their default levels are too high. So if a lot of business comes in the door, underwriting times just get longer. They don’t relax the rules because they know they’re selling the loan to someone else and won’t have to worry about it. HUD will cut the lender off no matter who holds the loan when it defaults.