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Appendix J: Underwriter Interview Guide
Bank Name: Examiner: Exam Date: Product:
As necessary, ask follow-up questions until it is clear how requirements or procedures apply to the files to be examined and until the rationales for unusual policies are understood. Items in bold are apparent violations if not carried out as prescribed in Regulation B. Examiners may conduct a second interview to discuss inconsistencies found during file reviews.
If the bank’s standards are unclear or if loan files lack data on applicants’ qualifications:
• Ask what specific problems were the basis for the reasons for denying applicants cited on the notices of adverse action.
• Using specific approved applicants, ask how the bank determined that they differed from the denied applicants.
• Use file comments (if any) that characterize qualifications as “good,” “adequate,” “weak,” etc., as points of reference.
GENERAL
1. Obtain from the chief underwriter an overview of the underwriting procedures and standards. Review written policies, procedures, standards, etc.
2. Do underwriting policies differ across the different loan products within the loan purpose categories of the focal points for this exam? If yes, how?
3. Do underwriting policies differ by lien status, occupancy, property type, loan purpose, or documentation type?
4. Does your bank apply different standards in any of the geographical areas within the proposed scope of the examination? If so, why?
5. Does your bank apply different standards based on the size of the loan or the value of the property securing the loan requested?
6. Does your bank apply different standards based on the amount of the applicant’s income?
7. Are there any factors we have not addressed that might make it inappropriate to compare some transactions within the proposed scope to others?
Comptroller’s Handbook for Compliance 123 Fair Lending
8. Please provide all policy manuals and underwriting guidelines for the products included in the focal points for this examination.
9. Were there any policy changes during the period under review? If yes, are there changes that would preclude combining the data for the entire time period (i.e., prevent comparison over the entire time period)? Please provide a summary of all policy changes.
10. Are there any other reasons why any two applications in the focal point could not be compared?
11. If the focal point covers home improvement loans, are home improvement loans underwritten differently from home equity loans?
12. Are any of the 2nd lien Home Purchase or Refinance loans piggyback loans? If so, how are underwriting policies different if it is a piggyback loan vs. a stand-alone 2nd lien loan?
13. What creditworthiness factors does the bank consider when making underwriting decisions for these products?
14. How are creditworthiness factors used – for example, do you use ranges of values for the FICO score, or LTV and apply different underwriting policies based on tiers that applicants fall into? Or, do you use an absolute cutoff for values of the credit score, LTV, or DTI?
15. Obtain any exception reports maintained on loans approved despite failing to meet requirements. Learn who approves exceptions.
16. How does the bank ensure that all information related to an application for credit is retained for 25 months after notifying the applicant of action taken, pursuant to Section 202.12(b) of Regulation B?
17. Find out if a credit-scoring system is used. If so, obtain information and follow guidance as called for in appendix B, “Considering Automated Underwriting and Credit Scoring Risk Factors.”
18. Obtain copies of any consumer guidance on the loan process (such as: how to develop a viable application).
19. Obtain copies of any checklists, log sheets, or other loan-processing aids used by bank personnel.
BANK STRUCTURE
1. Could you explain the bank’s organization in terms of prime, subprime or near-prime units; or subsidiaries? Are there any differences in underwriting/pricing across units/subsidiaries?
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2. Could you explain the bank’s organization in terms of channels ‒ wholesale, retail, Internet,
correspondent banking, etc.? Are there any differences in underwriting/pricing across channels?
3. What are the bank’s primary markets or geographic areas of operation?
4. Where are the service centers for each business unit and/or channel?
5. Could you explain how an applicant gets channeled to a particular business unit?
6. Could you explain the relationship the bank has with brokers? (Correspondent vs. broker lending) What kind of discretion do brokers have in underwriting/pricing?
7. Please provide a list of the specific products and programs within the loan purpose category of the focal point for this examination?
APPLICATION PROCESS
1. Could you walk us through the application process for each of the relevant products in each channel and/or business unit?
2. Where are applications accepted? Who handles them?
3. Which bank or subsidiary staff meets face-to- face with applicants?
4. Which bank staff review or have access to the applications with completed monitoring information?
5. For a home purchase or refinance loan, how is government monitoring information obtained to comply with section 202.13 of Regulation B?
6. For other loans, how are staff directed not to obtain prohibited information?
7. If the product is covered by HMDA, when and how are data entered on the LAR?
8. What applicant information verifications are obtained? When and how?
9. What happens if there is a problem obtaining verifications or if they are inconsistent with the application data?
10. Is the applicant asked if assistance or explanation is needed?
11. Is there a “conditional approval” stage in the process?
12. Do files document conditions and attempts to resolve them?
13. How long are terms locked in by a written or oral agreement?
14. Under what circumstances are lock-ins extended?
15. How does the bank determine whether married applicants intend to apply jointly or
Comptroller’s Handbook for Compliance 125 Fair Lending
individually?
16. Do you discuss with applicants all loan products they qualify for, or only the product requested by the applicants?
17. What is the extent of automation in underwriting?
i. How is the risk level of an applicant
determined?
ii. Are the products being analyzed here eligible
for automated underwriting?
iii. Do you use the Desktop Underwriter, Loan
Prospector or some customized system?
iv. If applications are auto-decisioned, would the loan officer only be involved to verify information? If information cannot be verified what is the next step?
v. Who has discretion during the underwriting process?
vi. What controls are in place to monitor this discretion?
vii. What percent of applications are automatically “approved” or automatically “denied” – without additional manual review?
viii. If there are no automatic approvals or denials, what percent of applications that are on the path to approval after risk level determination are eventually denied, and what percent of applications on the path to denial are eventually approved?
ix. If there are no automatic approvals or denials, what is the nature of the manual review? Is it primarily verification of information?
x. Are there second reviews for denials? Are there any second reviews for approvals? Please explain what factors are considered during these second reviews.
18. Are there any other aspects to the application process that we should keep in mind during our analysis?
19. If an applicant is denied a loan for the product he or she was applying for, does the lender make an effort to offer other loan products more suitable? Please explain this process.
20. Which loans are sold in the secondary market? Are different underwriting guidelines used for these loans?
21. Is there a certain time limit to receiving required documentation? After the time limit has elapsed would the application be denied automatically?
Fair Lending 126 Comptroller’s Handbook for Compliance
22. Is there guidance given to the applicant when there is documentation outstanding? If the loan officer follows up with the borrower, how many contacts would be made?
CREDIT HISTORY
1. Which credit report is used?
2. When multiple credit scores are obtained, which score is used – lowest or middle?
3. Do you use any custom score – own or vendor product? Could you describe the elements used if it is a custom score?
4. Is the credit score of both primary applicant and co-applicant used in the credit decision? If yes, how?
5. Review with the underwriter a copy of each type of credit report used. Obtain copies of any code sheets or other guidance on using the credit report(s).
6. At what stage of the transaction is a credit report obtained?
7. Does the bureau send a copy of the report (or abstract) to consumers? Obtain a copy of the transmittal letter.
8. Do you look at details in the credit report – if so, for all or only marginal applicants? Could you give examples?
9. Do you consider compensating factors if creditworthiness factors are not satisfactory? Can you provide some examples?
10. Does the bank require that corrected information come from the bureau, or will it accept corrected information directly from the customer?
11. What constitutes a sufficient credit history on which to make a decision?
12. Is a minimum number of accounts reported required?
13. Is a minimum length of reported credit history required?
14. Has the bank made loans to persons who did not meet these standards?
15. In such a case, what evidence of creditworthiness substituted for the bureau report?
16. How does the bank evaluate additional information when an applicant seeks to correct or explain credit information from another source?
17. How does the bank evaluate joint spousal accounts when a married person applies for individual credit?
18. How does the bank treat unmarried joint applicants in terms of evaluating their creditworthiness?
Comptroller’s Handbook for Compliance 127 Fair Lending
19. How does the bank evaluate accounts held jointly with a former spouse that an applicant for individual credit asks to be considered to show his or her own creditworthiness?
20. What credit history deficiencies would cause denial?
21. Does a mortgage payment defect negate otherwise good credit? Does a good mortgage payment record offset other credit defects?
22. How far into the past is derogatory information relevant?
23. Does it matter if the debt has been paid?
24. Is minor derogatory information ignored? What kinds?
25. Does the bank solicit explanations? In what circumstances? Obtain the form letter to the applicant, if one exists. If the mode of contact is by phone rather than letter, are these noted in the file?
26. What constitutes a “good” explanation?
27. Is the failure to disclose serious derogatory information on the application fatal?
28. Is derogatory information associated with a medical problem in the applicant’s household treated differently than other derogatory information?
29. How does the bank view judgments, repossessions, and collections?
30. Under what circumstances would the bank lend to a customer with a bankruptcy in his or her record?
31. How does the bank view inquiries? Would the bank ever deny a loan solely on the basis of inquiries?
FUNDS TO CLOSE
1. What items must be covered by funds for closing?
2. How many months of cash reserves are needed?
3. When are funds from undocumented sources acceptable?
4. Are applicants with inadequate or marginal cash to close advised on how gift funds may be applied?
5. Are grants acceptable as gifts? From what sources?
6. How does the bank assure that applicants are advised uniformly regarding the use of grants?
7. May family or household cash be pooled for closing?
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8. How are funds to close documented by the applicant?
EMPLOYMENT AND INCOME
1. How many years on the job are required for income to be deemed stable? How many years in the line of work?
2. What length of gap or frequency of changes in employment is regarded as negative? Are explanations routinely requested for employment negatives?
3. How is stable income defined?
4. Do loan originators routinely ask for verifiable unstable sources of income, such as overtime and seasonal work?
5. Is rent paid by household members counted as income?
6. Do loan originators routinely ask about rent paid by household members?
7. Is any or all nontaxable income to be “grossed up”?
8. Are applicants routinely asked whether they expect their income to rise? What type of documentation is needed to establish a projected increase?
9. How is part-time income handled?
10. How is annuity, pension, or retirement income handled?
11. How is income from alimony, child support, and separate maintenance handled? How is income from public assistance handled?
PROJECTED HOUSING COSTS AND DEBTS
1. What types of debts are included or excluded from ratio calculations?
2. Are certain types of accounts viewed more negatively than others, for example, revolving debt?
3. Under what circumstances would an applicant be advised to pay down debts?
4. Would the bank specify which debts should be paid off?
DEBT RATIOS
1. What maximum housing debt and total debt ratios are used?
2. What is the source or rationale for them?
3. What would justify approving an application with a ratio higher than the requirement?
4. Are applicants with qualifying ratios ever refused because of debt considerations?
COLLATERAL/APPRAISALS
1. Are applicants advised of their right to obtain
Comptroller’s Handbook for Compliance 129 Fair Lending
a copy of the appraisal report on their property? Is a copy routinely provided? If the FHFA Code5 applies, are applicants provided a copy of the appraisal upon completion or at least three days before closing unless they waive the right?
2. Does the bank employ its own appraisers? If the FHFA Code applies, does the bank take appropriate steps to prevent the improper influencing of such in-house appraisers and affiliated appraisers, appraisal company, or appraisal management companies?
3. Review the guidance the bank provides appraisers, whether employed or independent.
4. What rules govern adjustments to initial appraised values? If the FHFA Code applies, ensure any such adjustments are consistent with the appraiser independence safeguard standards.
5. Who reviews appraisals? If the FHFA Code applies, does the bank quality control test a randomly selected 10 percent of appraisals?
6. When is PMI required?
7. What does the bank do if a PMI company refuses to insure the loan?
8. On adverse action notices and HMDA-LAR “reasons for denial,” does the bank report PMI denials as “denied for PMI,” or does it merely repeat the substantive reason that the PMI company cited?
9. Under what circumstances would a lender order a second appraisal?
10. If the FHFA Code applies, does the bank prohibit reliance on appraisals completed by mortgage brokers or other third parties?
11. What steps does the bank take to ensure appraiser independence and that the appraiser is not coerced or influenced?
GUARANTORS, ETC.
1. Under what circumstances would a guarantor materially increase an applicant’s likelihood of approval (e.g., if the applicant had bad ratios, poor credit history)?
2. Are applicants with such weak qualifications routinely told that a guarantor would increase the likelihood of approval?
DENIALS
1. Obtain a list of the reasons for denial and review it with the interviewee.
5 The FHFA Code will apply to all conventional, single-family loans originated on or after May 1, 2009, that are sold to the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
Fair Lending 130 Comptroller’s Handbook for Compliance
2. How is the adverse action notice prepared? Review it with the interviewee.
3. How does the bank document the timely provision of adverse action notices?
4. Are all denied applicants given a second review? Describe the review process.
FATAL FLAWS AND DEROGATORIES
1. Are there any “fatal” values for factors that would result in an automatic decline? Is there any written guidance for the same?
2. Would a bankruptcy in the last six months be fatal – if not, what would be a compensating factor? Are there any other fatal flaws – e.g., LTV >125 or DTI >100, etc.?
3. What is the time frame considered for derogatory factors? Is the magnitude of delinquencies considered as well? (e.g., x number of 30-day delinquencies compared to y number of 90-day delinquencies?) Also, within the time frame considered, would newer derogatories get more weight than older ones (e.g., if the time frame for bankruptcies is six months, would a bankruptcy which is one month old get more weight than a five- month-old bankruptcy?)
4. Are there any compensating factors that can make up for derogatory information – can you provide some examples?
SECONDARY MARKET CONSIDERATIONS
1. To whom does the bank principally sell loans?
2. Arrange to have copies of the loan purchasers’ guidance available during file review.
3. In what ways are bank standards different from those loan purchasers require?
4. What have been the lender’s experiences in attempting to persuade loan purchasers to reconsider refusals to purchase?
PORTFOLIO LENDING
1. Does the bank lend for its own portfolio?
2. How do the requirements for this differ from those for loans to be sold?
3. Does the bank hold loans to “season” them until sale? What features would cause a loan to be handled this way?
4. Does the bank purchase loans?
EXCEPTIONS/OVERRIDES
1. Are there any exceptions to the bank’s stated requirements? Can you provide examples? When would they be made?
2. Does the bank produce (for its management’s use) an “exceptions” report that lists all residential loans made that do not meet the bank’s stated requirements? Obtain any such report for the period being examined in the fair lending review.
Comptroller’s Handbook for Compliance 131 Fair Lending
3. At what level in the bank can loans be approved that fail to meet requirements?
4. Are there any overrides? Do you generate a report or list of overrides or flag them?
5. Is there written guidance on exceptions and overrides? If so, please provide.
6. Who authorizes exceptions and/or overrides?
7. Is any special consideration given based on customer relationship with the bank? If so, please explain.
COMPENSATING/OFFSETTING FACTORS
1. Do strong qualifications in certain areas overcome an applicant’s failure to meet requirements in others?
2. Describe specific factors that operate to overcome particular deficiencies (e.g., projected income compensates for excessive total debt ratio)?
3. Are compensating factors formal or informal? (Obtain any written guidance.)
4. What constitutes a “good customer relationship?”
LOAN TERMS AND CONDITIONS
1. How are prices set? Is there a range?
2. Why would prices differ? Which aspects of pricing are fixed and which are discretionary?
3. How are loan terms set? Why would loan terms vary?
4. How is the down payment set? Why would requirements vary?
5. How are collateral requirements set? Why would requirements vary?
6. How are escrow amounts set? Why would they vary?
7. What fees are imposed for the product? Why would they vary?
8. Please provide a copy of each of the rate sheets you use? If rates change often, a set of rate sheets for one or a small number of dates would be sufficient.
9. Please provide all policy manuals and pricing guidelines for the products included in the focal points for this exam.
10. Does pricing policy differ across the different loan products within the loan purpose categories identified in the focal points? If yes, how?
11. Does pricing vary across channels and/or geography? If yes, how? Could you provide a list of all of the areas that have their own rate sheets?
12. Were there any policy changes in pricing during the period under review? If yes, would
Fair Lending 132 Comptroller’s Handbook for Compliance
these changes preclude combining the data for the time period covered by this exam? Also, please provide a summary of these changes.
13. Were there any special promotions during the period under analysis? If yes, please explain.
14. Could you walk us through the pricing process for each of the relevant products in each channel and/or business unit? How do brokers price loans? Do they have different rate sheets? Are any rate sheets broker-specific?
15. What are the reasons why interest rates would be lower than or greater than what appears on the pricing sheets?
16. Please expand on the discretionary reasons for price differences?
i. Can you provide some examples of these reasons?
ii. How is pricing influenced by loan officers? iii. Is loan officer compensation tied to pricing? If
so, please explain. iv. How is pricing influenced by brokers?
v. How are brokers compensated? vi. Are there caps for broker compensation?
vii. Who else has discretion during the pricing process?
viii. What controls are in place to monitor discretion in pricing?
ix. Explain to what degree potential loan customers are allowed to negotiate a better interest rate/loan fees. Are loan officers or brokers allowed to deviate from the pricing sheets? If yes, to what degree, what are the criteria considered, and how are the pricing exceptions/pricing discretion documented?
17. What fees are charged? When and why would charged fees differ? Is there any discretion in charging fees?
18. Are there maximum and minimum fees? Any exceptions?
19. Do any fees vary by state due to state-specific laws?
20. Which fees affect the APR?
21. Are loan customers allowed to buy down the interest rates by paying more in discount points? If yes, explain the criteria and provide written guidance regarding this practice.
22. How are origination points, discount points, and YSP determined? Are there caps on each or caps on totals?
23. If any of the 2nd lien loans are piggyback loans,
i. How are pricing policies different if a product is a piggyback loan vs. a stand-alone second lien loan?
Comptroller’s Handbook for Compliance 133 Fair Lending
ii. How are pricing policies different if the corresponding first lien is held with another bank?
iii. Are first and second lien loans as part of a combo loan priced independently?
FILE DOCUMENTATION
1. How are contacts with the customer documented?
2. How are in-bank conferences (or other face-to- face encounters) with the applicant documented?
3. What work sheets should be found in the typical file?
ELECTRONIC DATA
1. Can automatic approvals and denials be identified in the electronic data? That is, are there identifiers for automated approvals and/or denials; or identifiers for the output from an automated system (such as DU/LP)?
2. Can “document type” be identified in the electronic data?
3. Is product name available in the electronic data?
4. Are applicant names and addresses available in the electronic data?
5. Can piggyback loans be identified in the electronic data? If yes, can one also identify if the 1st lien is from this bank or from another bank?
6. Can individual brokers be identified in the data?
7. Is there electronic information on any of the following: number of trade lines; number of 30- 60- 90-day “lates” and the time period in which those “lates” occurred; incidence of bankruptcy and/or foreclosure; combined loan to value; combined debt to income; years in job; years in occupation; loan term; identifier for whether applicant uses ACH; override codes; collateral value; customer relationship; employment type (salaried or self-employed); any measure of “stable income”; indicator for first-time home buyer?
8. Is there electronic information on any additional pricing variables that can be incorporated into the dataset – overages; underages; broker fees; total broker compensation; YSP; any other points and fees; rate lock date or period (15-30-45-60 days, etc.)?
9. Could you also provide explanations for the variables provided in the electronic dataset?
10. If you update DTI, LTV, or other credit variables during the underwriting process, does the updated information appear in the data?
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