Underwriting bad habit costs thousands in revenue

One of the quotes I try to live by when developing content is:

 “If you can’t explain simply, you don’t understand it well enough” – Albert Einstein

A good income report demonstrates knowledge and communicates complex details simply.  In the day to day auditing review of loans I can tell you that many loans close without the concept of “well explained income analysis” in place.  Sure, some files don’t need much to explain on the income, but for a company to survive and not lose profitability it is not a chance we can take.

I spent three years in auditing as part of my underwriting career.  If had to estimate, over 50% of loans in audit had nothing explaining the income that was used to approve the loan.  That bad habit simply has to stop.

Although it did make my days interesting playing “where’s waldo” searching for an explanation of income in the file.  I am sure the bank would have appreciated having the millions of dollars spent on defaulted loans due to income calculation errors back in the reserve accounts.  To add insult to injury with the income analysis missing, we could not even determine a course of action to “fix” what was done wrong.

That experience in auditing lead us to our income worksheet design. We knew that IncomeXpert not only was about calculating income, but just as important had to clearly, simply, and effectively communicate how that income was determined.  This is needed to stand up to audits for years to come.

 

Good Habits of an Income Report

I want to share with you what we feel is best in class design of our report.  Sure you can skip using an income analysis tool in your company, but one of the many benefits of this tool is the exponential improvement of income “explanations”.  Clients tell us over and over, clear income reports STOP income debate discussions.  That is money saved.

 

Part One – The Overall Summary

Part One – All of the borrower income summarized in one box

Our first section of the report puts everything in one spot. No searching through tabs of excel sheets and pages of 1008 notes to see what the borrower earns.  We laid out the report in the same fashion as the 1003 or any AUS entry format to make it familiar and well understood.

Part Two – Income Source Summary

Part Two – A Summary Of Each Type Of Income By Name And Type

 

Our second section is where each income is broken out as a summary.  This allows the clients understand the total for each income.  In the example below we have the client entered description (IE FORD) and the second row shows the type of income.  This makes it easier to identify the documents and the guidelines the income must adhere too.  The great thing about IncomeXpert is it will format one or one thousand types of income in this organized and uniformed fashion.

 

Part Three – The Income Detail Analysis

 Part Three – Detailed Analysis Of Each Income

The detail section of the report does as deep of analysis as any investor would require.  Not only does IncomeXpert show the math, it confirms each line of a tax return the calculation is sourced from. We also show all the options the client could have used (one year / two year average) compared to what was choose, and the trending analysis.

 

Part Four – Guideline Checks & Advisories

But we did not stop there, we implemented every corner of the guidelines so you don’t fail an audit on a “gotcha”.  To name just a few features we have 1088 forms for all self employed types, guideline reminders on key fields cash flow adjustment fields that have the highest probability of “failing” an audit.

There is a note section where the client can explain any “odd” item the next party should know about the income type or even explain their thought process on using the income.

The result is even the most in experienced client can get these incomes accurate to the penny and successfully qualify a borrower’s income.

Summary

Let me ask you a question.  What is the lack of clear income analysis costing you?

• Lost time between sales and operations discussing income verbally or by long emails
• Lost time between underwriting and auditing explaining final analysis
• Loss of sales partners because frustrations of “foggy” denials due to income calculations

In my experience the answer to that question is “Too Much”.