In Basic Characteristics And “Life” of Residential Mortgage Loans mortgages expert witness J. F. “Chip” Morrow writes:
Loan underwriting is performed by the mortgage banker’s underwriter who decides whether the loan will be consistent with governing loan program underwriting standards and, therefore, should or should not made by the mortgage banker. Also, the mortgage banker’s underwriter, where the PMI underwriting is delegated to the mortgage banker, decides whether the loan qualifies or does not qualify for PMI insurance. Based on at all the information gathered during the wholesale loan processing by the mortgage broker, the loan underwriter analyzes and considers these three areas of risks ─ collateral risk (loan-to-value), capacity risk (ability-to-repay/income) and character risk (credit, reputation).
Collateral risk is analyzed by reviewing the appraisal to ensure that all the criteria required by the appraisal standards are met. Second, the underwriter must address the liquidation value of the property if it should go into foreclosure. Third, the underwriter must address the marketability timeframe if the mortgage banker had to sell the property after foreclosure. After determining that the answers to these areas are satisfactory, the underwriter determines the appropriate loan-to-value (LTV) ratio for the collateral.