Back to Basics: Understanding Delegated and Non-Delegated MI Underwriting
During the homebuying process, all the paperwork that a borrower submits eventually makes its way from the loan officer to the loan processor and underwriter.
When that (figurative) towering stack of papers lands on your desk, you then have the task of submitting the loan for mortgage insurance. Do you go with delegated or non-delegated underwriting?
At first, the difference can be confusing. Each MI underwriting option has its own benefits and drawbacks, and there isn’t a cookie-cutter formula for deciding when a loan should be submitted for MI as a delegated vs non-delegated underwrite.
In this article, we’ll unpack the topic of delegated vs non-delegated and discuss it in a way so you have mental guidelines to follow for the next loan that lands on your desk.
Delegated MI Is Underwritten by the Lender
A delegated underwrite means your lending organization underwrites the loan for mortgage insurance eligibility. After you underwrite the loan and determine that it meets the MI company’s guidelines, you’ll need to provide the MI insurer with a MI loan application.
In the case of using Enact’s MI website, you would enter this data into the delegated application on our website and get a Commitment/Certificate of Insurance in 60 seconds.
To be able to underwrite mortgage insurance for a loan with Enact, your organization must be approved for the Delegated Underwriting Program which allows you to submit loans on a delegated basis. This means that you represent and warrant that all the information you use to underwrite the loan is truthful, accurate, and meets the mortgage insurer’s guidelines.
What Are the Benefits of Delegated Underwriting?
There are plenty of benefits to delegated underwriting. It can make the entire mortgage approval process faster which can help improve your relationships with your borrowers.
It’s also easier to keep everything under one roof, especially if your lending organization has the capacity to do everything in-house.
What About Drawbacks?
Delegated underwriting does have some drawbacks. Your organization may be open to more rescission risk with delegated underwrites. This can stem from not meeting the mortgage insurer’s underwriting guidelines.
Underwriting delegated loans may also not be ideal for small lending shops that don’t have the internal underwriting capacity.
Non-Delegated MI Is Underwritten by the MI Provider
A non-delegated underwriting service is provided when the lender chooses a mortgage insurance provider, say Enact for instance, to perform the risk underwrite and render a decision on their behalf. Our Mortgage Insurance (MI) Only Flow Non-Delegated Underwriting team supports lenders with underwriting services performed to Enact Guidelines.
To underwrite a non-delegated loan, you have to collect all the documentation you normally request from a borrower to underwrite the loan. This may include pay stubs/VOE, W-2s, bank statements, appraisal, tax returns and purchase contract if applicable.
When you select a non-delegated underwrite through Enact Mortgage insurance, you can quickly order your mortgage insurance via your Loan Origination System (LOS) or enter the necessary data and upload the loan file documents on our MI website. Once the mortgage insurance is ordered, you can track your loan progress real time through our visual pipeline.
After an Enact Underwriter evaluates your loan, they will return a Decision Document to you electronically via your LOS, the MI Site, and/or email.
Why Should I Choose Non-Delegated Underwriting?
When you choose to do a non-delegated underwrite, you have the advantage of tapping into a large pool of seasoned underwriting talent at the mortgage insurer you choose. With Enact Mortgage Insurance, you have coverage from 8:00 AM to 8:00 PM EST.
Enact provides day one rescission relief for eligibility, underwriting, and guideline errors on non-delegated underwrites. This means you can reduce your rescission relief overall by allowing our underwriters to perform your non-delegated underwrite. However, keep in mind that generally, MI companies do not pay claims on loans with fraudulent or misrepresented information.
In some instances, the Enact MI underwriter may request additional documentation. This may stem from missing documentation or loan qualification.
Delegated vs Non-Delegated: Which Is Right for My Organization?
There are many factors a lending organization needs to evaluate to decide when delegated vs non-delegated underwriting is better. Operations and Risk departments play a huge role in this decision.
We should mention that if a lender chooses delegated underwriting for a subset of their loans they may still choose a non-delegated underwrite as well.
Now that you’re more familiar with delegated and non-delegated underwriting, you’ll be able to make a better decision for loans that come to you in the future.
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