Broker discusses underwriter exceptions

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When it comes to difficult files some brokers avoid asking for exceptions from underwriters; but, according to one reader, it can often be the last recourse in trying to get a deal funded.

“I could not imagine not asking for an ‘exception ... within reason,’ after all efforts to finding a solution become exhausted,” MBN reader, Anthony C. wrote. “Provided that you have done your due diligence when qualifying the deal and there is supporting documentation to meet conditions precedent, isn't it our duty as originators to persuade the lenders to see the merits of the covenant, all the while doing so with decorum and without malice towards the lender, should they decline the file?”

The comment was in response to an article about the importance of being up-front and transparent with clients about the documents needed for underwriters to evaluate a file.

“I just tell clients up front that this is a federal government mandate and we’re happy to help but there are certain things we require from you,” John Thompson of TMG The Mortgage Group told “I get all the info up-front; some brokers shy away from asking for these requirements because they think it will scare the client away.”

For difficult files, Thompson also avoids asking underwriters for exceptions because he believes finding a solution is just one part of a mortgage broker’s job.

But according to Anthony, asking for exceptions is another facet of the mortgage broker’s job – when the need arises.

“Sometimes all it takes is just the right persuasive dialogue to get the lender to review/escalate/approve the deal … a little self-diagnosis is good on occasion and please be reminded that we are in the business of selling our deal to the lender,” he wrote. “Branch level and mobile mortgage specialists know this and argue the merits of their clients to their underwriters every day and that's a main factor as to why we lose business to the branches.”
  • Mike Rice on 2014-11-03 12:37:00 PM

    From a Lender point of view exceptions are fine but don't expect them for nothing. If Brokers want Lenders to increase the risk, don't expect full discounting in rates and maybe a fee as well depending on the application.

  • AnthonyC. on 2014-11-03 3:10:24 PM

    @ Mike Rice

    Risk assessment will determine the deal approval outcome...I totally get that and respect the lender's position when assessing risk.

    However, the argument still exists about the originator's duty to find a solution rather than push a marginal deal, vs pushing a marginal deal at risk of attracting a lender's scorn.

    Although I am of the latter camp, I would guess some hesitancy on a broker's reluctance to escalate a file has much to do with the limited resources available to us. When options are played out, we have little choice left, other than choosing which "B" lender we decide to work with.

    Were negotiating a deal on the "A" side (by reducing lender risk with a higher base rate rather than discounted rates or adding lender fees) an option that was offered by the big banks or monolines, we would be supporting this option daily.

    There are many marginal borrowers who would be pleased with bank branded financing and pay 50-75-100 bps above our broker discounted rates or pay, in addition to slightly higher rates, a reasonable "admin fee" to get the deal done.

    If you are speaking from an "B" lending" perspective, this method of "give and take" is already in place with most alternative lenders.

    I would not be surprised if we see this methodology rolled out by the big banks in the next few years as a way for them to capture a portion of the alternative or marginal markets presently being dominated by the "B" lenders.

    Meridian and B2B, and some other credit unions, although challenging lenders to appease in their own right, apply underwriting guidelines for the marginally impaired borrower and seem to be doing rather well in this segment.

    Since the proof would be in the pudding, it would be great to have the numbers on which clients are more prone to either default or mortgage arrears, when comparing bank/monoline insured and conventional clients vs. alternative lender conventional client profiles. I would risk to guess that there is equal to or marginally higher default or arrears with high ratio insured borrowers than with conventional alternative borrowers.

    Ultimately, we must supporting our clients, in whichever circumstance they may find themselves in.

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