A Thesis Presented by chenmeixiu


									 Chapter 1

1.1 Thesis Motivation:
The thesis motivation regarding the topic of underwriting fees underwriting is the process
that is utilized to estimate the current eligibility of a customer to receive some type of
financial product. The range of products include a number of financial devices such as
insurance coverage, mortgages for home and business property, venture project
financing, or a line of credit. In going through this procedure of evaluation, the financial
entity will determine if the transaction has a good chance in due course yield a profit in
return for the financial support. When a financial contributor such as a bank or assurance
company chooses to engage in underwriting, there are two events that are probable to
happen. First, the lender or underwriter is representative a belief in whatever projects the
borrower requirements to finance, and follows through with the financial hold that is
requested. Second, in underwriting the mortgage, insurance policy, or undertaking, the
lender is anticipating a return on the investment at several points in the future. The return
may take position in incremental payments or as a lump sum at a later date. Finance
charges or a few other type of compensatory fee such as a premium is usually included in
any form of underwriting activity.
Underwriters not only think about the degree of risk that is associated with the applicant.
Alongside with taking steps to make sure the capability of the probable client to honor his
or her end of the arrangement, the underwriter will also consider the degree of risk that
entering into this new corporation could have for other clients of the firm. The
development of standards for acceptance helps to reduce the chance for the firm to be
damaged in some manner to the point of not being capable to honor commitments to
existing clients.

1.2 Aims and Objectives of the Study:
      One of the major objectives about the topic of underwriting fees complete
       understanding related underwriting fees material and also the basic terms used
       in underwriting fee.
•      Study about the role of underwriter in underwriting and all basic rules and
       regulations related to the underwriting.
•      Study about the loan underwriting and the process of underwriting regarding the
       loan underwriting
•      What types of underwriting services do the underwriters and getting underwriting
•      At the time of underwriting of loan what guidelines have been provided by the
       lender to the underwriter?
•       A good understanding of the importance of underwriting fees.
•       A good understanding of the many legal and management facts of construction

•      One of the major objective what are the key factors and responsibilities and as
       well as the procedures and agreements by the underwriters to the related party for
       the purpose of reduce the risk.

1.3 Problem Statement:
In any industry, the practice of underwriting of loan refers to the process of accepting or
rejecting risks. It is the very heart of assertion and is the first step taken by a guarantee
company to generate premiums. Originally, compensation and underwriting were
synonymous. That is, underwriting referred to the operation of the assertion business. As
the assertion industry developed, underwriting took on a more specialized meaning. In
this step the underwriter decides whether or not to accept a particular risk. It involves
securing accurate information from the candidate, evaluate that information, and deciding
on a course of action. The underwriter is typically aided by a list of acceptable and
prohibited risks.

1.4 Research Question / Hypothesis:
    Role of underwriter or underwriting agency in underwriting of loan?

1.5 What Does Underwriting Mean?
An insurance company underwrites your policy when it agrees to obtain the risk of
insuring your life or covering your medical expenses in swap for the premium you pay.
An investment bank underwrite an initial public offering (IPO) or a bond issue as it buy
the shares or bonds as of the issuer and takes the risk of having to sell them to entity or
institutional investors to recover its investment

      The process in employment by investment bankers to raise investment capital on
       behalf of a corporation. This is done mainly through stock offerings but also may
       be proficient through selling bonds.

      The process of issuing insurance policies.
Underwriting is also a common means of financing definite projects or ventures, such as
a company that has developed and wishes to market a new technology. Generally, the
underwriter will consider several factors, such as the marketability of the new product,
the marketing plan developed by the candidate, the costs related with producing and
marketing the goods, and the changes of making a net profit off each unit sold. The
underwriter may wish to be given shares in the company as part of the compensation
package, or simply receive a fixed rate of interest on the amount of financial support
Insurance is an example of one field with the intention of utilizes underwriting as a
central part reason of the business. In the case of health insurance, the supplier will
thoroughly investigate the current and past health of the applicant, within applicable
terms. In some cases, the provider may have some uncertainties due to a past medical
incident, but choose to insure the applicant, with some pre-existing conditions omitted
from the coverage for a period of time. At other times, the medical history may specify a

degree of risk that is not satisfactory to the company, and the provider will choose to not
underwrite the health coverage. By not insure persons who are extremely likely to require
general medical coverage over the long term, the provider is able to preserve a more
stable financial base and continue providing services to other clients.

1.6 Underwriter:
The word “underwriter” is said to derive from the put into practice of having each risk
taker write his or her name under the total amount of risk he or she was ready to accept at
a specified premium (price). In a way, this is at rest true, as new issues regularly are sold
to the marketplace by an underwriting syndicate in which each firm takes the
responsibility (and risk) of selling its specific allocation.

1.7 Underwriting Fees:
Definition: Fees charged for evaluate your risk as a borrower. In the underwriting
procedure, your lenders decide whether or not they think you'll repay your loan as
decided. They look at your credit, debt to income ratios, and more.
In the fiscal earth, the term "underwriting fee" can refer to two different things. The first
is a fee connected with originating a mortgage. The second is a fee associated to an initial
public offering of a security. The fee in question is typically clear from the context of the
conversation. With mortgages, when a mortgage is developed, a key part of the procedure
is the underwriting. A staff member known as an underwriter evaluate the borrower to
decide how much he or she can afford, and how much risk the borrower presents.
Underwriters do credit checks and exercise other tools when they perform a risk
assessment. In exchange for these services, they are rewarded with an underwriting fee
which is collected at closing.
As people create an offer on a piece of real estate, the probable closing costs must be
disclosed. If money is being borrowed in the direction of finance the purchase, these will
include the underwriting fee along with a number of other fees related with the mortgage.
The underwriting fee is typically a flat fee, and buyers should be attentive that it can vary,
depending on the lender.
Other fees which can be related with a mortgage include the processing fee, which reflect
the costs related with collecting and collating information, and the origination fee, a
percentage of the loan charge by the lender for issuing the loan. Borrowers can also pay
points at closing to lower their interest rate.
Inside the case of securities, underwriters are the people who organize to sell new
securities offerings to the public. The company which needs to sell stocks or bonds links
an underwriter and arranges to sell the securities at a discounted price. The underwriters
sell the securities at full price. The differentiation between the discounted and filled price,
known as the underwriting spread, represents the profit for the underwriter and may be
referred to as an underwriting fee.
The riskier a new security offering is, the higher the underwriting fee is likely to be.
Companies which act as underwriters expect compensation for taking on major risks. A

hotly anticipated issue which presents low risk, on the other hand, will be associated with
a relatively low underwriting fee. The underwriting process allows companies that wish
to issue securities to avoid dealing directly with the process of selling and maintaining
securities, and the underwriter can use this as leverage to negotiate a favorable fee.

1.8 Difference between Underwriting Fee and Processing Fee:
There’s a difference between them. At the same time as they are both general fees
associated by means of mortgage loans, they are assigning for two different things. Here's
the difference:

      Underwriting Fee - This is a fee with the purpose of covers the underwriting
       process in particular. Some lenders contain in-house underwriters, while others
       will contract out it. The underwriter is the people who verify the information you
       give on your mortgage application, among other things.

      Processing Fee - This is an extra general fee that relate to other actions perform
       by the loan officer(s).
And just when you consideration you were out of the woods, there are more fees
connected with mortgage loans. On the whole, every time somebody lifts a finger to do
anything, there's a unique charge associated with it. Sorry mortgage lenders, but that's the
truth. In most cases, you'll also pay a free just for the "privilege" of applying for the
mortgage appropriately referred to as the loan application fee. And then there are extra
fees for origination, title searches, document preparation, property assessment, etc. Last
but not smallest amount, near is the always-controversial "suck it up" fee, which lenders
will oblige on you just because they can. Okay, so I made this last one up. But the other
complete mortgage fees.

1.9 Loan underwriting:
Loan underwriters are persons or businesses that assess and finally approve or reject a
loan request submitted by an applicant. As part of the process, the loan underwriter
verifies the data provide by the impending debtor, including employment information,
references, and other data request. Usually, the loan underwriting also involves
association credit checks on the applicant. Once the underwriter is contented that the
applicant is a valuable credit risk, the loan is approved.
Commercial loan underwriting take place with a lot of types of loans. The correct process
the underwriting process takes will vary base on factors such as the nature of the loan and
current policy that apply in the jurisdiction wherever the transaction is taking place. In
any situation, the reason of the loan underwriter is to decide if the amount of risk
associated with a client is low sufficient to grant the loan. Some underwriters will only
judge clients with a high credit evaluation and constant employment, while others may
meet the requirements applicants with less than ideal credit for a loan, but at an advanced
rate of interest.
Commercial loan underwriting is one of the more than a few loan underwriter jobs
obtainable today. This type of underwriting in general involves the evaluation of loan

applications connected with businesses. In this situation, the underwriter is not
investigating an individual’s credit value, but the financial reputation of the company.
This determination means looking at the company’s market share, current debt load,
profit margin, and cash flow.
Loan underwriting is also part of the procedure necessary to approve a mortgage
application. The mortgage loan underwriter will believe such key factors as the past
credit history of the applicant, current credit ratings, and the amount of outstanding credit
before now available to the individual. In adding, the salary and wages of the candidate
are also measured very important. It is not strange for a loan underwriter to also be
interested in how long the applicants have been with his or her current employer.
Underwriting loans helps financial institutions to meet the requirements applicants,
making sure they do meet the minimum standards for authorization that are set in place
by the institution. Those standards will vary, with banks usually having the strictest
requirements. Funding companies that concentrate in high-risk loans resolve have
broader criteria that the underwriter will use to assess the loan. Payday loan companies
typically have the broadest standards for underwriting a loan of any type. It is not
remarkable for any loan underwriter to have specific loan officers or others who are
approved to research and assess each loan application before favorable or rejecting the
loan request

1.10 Loan underwriters:
Loan underwriters are person’s persons who higher on behalf of the financial
organization or by the lender for the purpose of dealing out the loan by the given papers
receive by the applicants who heed a loan. So in one of the main task and working
comprise for the underwriters by the order of lenders to reduce the risk and on behalf of
this look underwriters getting fees called loan underwriting fees.

1.11 Loan Underwriting Fee:
Many lenders are more and more using automated underwriting systems (AUS) to
evaluate the credit risk of loans. Secondary marketplace investors like FNMA and
FHLMC provide AUS and charge lenders for the service. Further times, lenders might
use subcontractors to perform the loan underwriting assignment. In order to make up for
these costs, lenders might charge borrowers an underwriting fee.

1.12 Underwriter Job Descriptions:
An underwriter is a person who, as an impartial third party, reviews potential clients to
assess their strength for the services provide by a health insurance company, creditor or
investment house. Underwriters have exact training which helps them to successfully
assess the financial risks a potential client could front to the company and whether the
company can offer successful services to the client.

1.12.1 Features:
An underwriter working for a mortgage or other creditor must with awareness review all
of the information in the client's application and file (which is together by the creditor
and passed along for underwriting.) The underwriter focus on four main points: the
client's capability to repay the loan, the client's visible motivation to repay the loan, the
client's existing assets, and the client's guarantee. The ability to repay the loan is only
based on the underwriter's evaluation of the client's income and expenses. The
underwriters determine whether the client is prepared to repay the loan based on an
evaluation of the credit report. In order to confirm the client's assets, the underwriters
checks bank accounts, reviewing up to six months’ statements and require that any
unusual or large deposits are clarified. Finally, in particular in the case of mortgages, the
property (collateral) is appraised to decide that it is worth the amount of the loan.

1.12.2 Functions:
There are two subtypes of insurance underwriters. Common insurance underwriters work
for companies who underwrite businesses, vehicles or homes and associated items. They
also underwrite workers' reimbursement policies. Life "assurance" underwriters hold life
insurance as well as health insurance. They compute risks based on individual or group
information to decide premiums necessary for coverage. They may exclude assured
potentially expensive risk factors (for example, pre-existing medical conditions) or need
the client to pay a higher premium in some cases. They may also require that sure
conditions are met to insure a client or ability (for example, requiring that an alarm
system be installed in a business or home). They hold rate negotiation with clients or
insurance brokers and are often accountable for actually writing the policy.

1.12.3 Considerations:
At the same time as one doesn't technically want a degree to become an underwriter,
most major companies have a preference that candidates applying for an underwriter
position have a bachelor's degree in business or a associated field, along with an
importance or experience in accounting. It's also helpful if candidates possess a working
knowledge of business law. The underwriting field offers important continuing education
opportunities, and underwriters are confident to take advantage of them. This way, they
are continually updating their knowledge of the field.

1.12.4 Effects
According to the department of Labor Statistics, bank and mortgage company
underwriters can be expecting the job market to increase by about 11 percent over the
next decade, which is reliable with the national average for most jobs. Insurance
underwriting is forecast to rise by only about 6 percent by 2016, which is below average
increase compared with other jobs. The median salary in 2007 for underwriters was
around $53,000, but salaries range as low as less than $32,000 to nearly $100,000 per

   Chapter 2
Literature Review


(Written by Malcolm Tatum)
2.1Commercial loan underwriting:
Commercial loan underwriting takes place with a lot of types of loans. The exact process
the underwriting process take will vary based on factors such as the nature of the loan and
current policy that apply in the jurisdiction where the transaction is pleasing place. In any
situation, the reason of the loan underwriter is to find out if the amount of risk connected
with a client is low enough to grant the loan. Some underwriters will only judge clients
with a high credit rating and constant employment, at the same time as others may qualify
applicants with less than perfect credit for a loan, but at a higher rate of interest.

2.2Lloyd's of London insurance company:
Underwriting was developed by to alleviate the risk of ship loss for a fee. This type of
policy expanded as a way to allow financial companies to have security beside financial
loss. The process of mortgage underwriting is established in North America, Europe and
parts of Asia.
There are three tasks that mortgage underwriters complete each day: evaluate mortgage
applications, decide total mortgage amount, and create risk analysis reports. Mortgage
underwriters are employed by the financial or banking organization in a straight line and
normally work standard banking hours. Even if some mortgage underwriters work as of
home offices, the vast greater part works in an office workspace.

2.3United States, mortgage fees:
In the United States, mortgage fees or closing costs, total around $110 billion US Dollars
(USD) per year and comprise the costs of such things as the title search and insurance,
home appraisal fees, mortgage insurance as well as a credit report request. The fees
normally fall into three different categories: origination, escrow and final costs, although
most mortgage lenders simply bump them all together.
By regulation, a lender must give a buyer some kind of estimation of what the total
mortgage fees capacity is; this is sometimes known as good faith estimation. This
estimate should be incorporated with the particulars of a home loan, and at the same time
as these fees can’t be entirely avoided, it is possible to eliminate or reduce some of them.
Not all the fees will apply for a mortgage loan that is creature refinanced. A lender may
even pay some or all of the mortgage fees in an effort to create a center of attention

2.4Risk, exclusivity, and reward:
(Lloyd's slip)
Once the underwriting agreement is strike, the underwriter bears the risk of being able to
sell the fundamental securities, and the cost of holding them on its books until such time
in the opportunity that they may be positively sold. If the instrument is attractive, the
underwriter and the securities issuer may choose to enter into an exclusivity agreement.
In exchange for a higher price paid open to the issuer, or other constructive terms, the
issuer may agree to make the underwriter the exclusive agent for the initial sale of the
securities tool. That is, even though third-party buyer’s capacity approaches the issuer
directly to buy, the issuer agrees to sell exclusively through the underwriter. In synopsis,
the securities issuer gets cash up face, access to the contacts and sales channels of the
underwriter, and is insulate from the market risk of being unable to sell the securities at a
good price. The underwriter gets a fine profit from the markup, plus possibly an exclusive
sale agreement.
Also, if the securities are priced extensively below market price (as is often the custom),
the underwriter also curries favor with powerful end customers by giving way them an
immediate profit, maybe in a quid pro quo. This perform, which is typically justified as
the reward for the underwriter for taking on the market risk, is infrequently criticized as
unethical, such as the allegation that Frank Quattrone acted inappropriately in doling out
hot IPO stock throughout the dot com bubble.

2.5Forms of underwriting:
(Lloyd's slip)
There are forms of underwriting:

2.5.1 Securities underwriting:
Securities underwriting refers to the procedure by which investment banks raise
investment capital from investors on behalf of corporation and government that are
issuing securities (both equity and debt capital). This is a method of selling a newly
issued security, such as stocks or bonds, to investors. A syndicate of bank (the lead-
managers) guarantee. The deal, which means they have in use on the risk of distribute the
securities. Must they not be able to find sufficient investors; they will contain to hold a
few securities themselves. Underwriters make their income as of the price difference (the
"underwriting spread") among the price they pay the issuer and what they collect from
investors or from broker-dealers who buy portion of the offering (Actuarial Standards
Board, December 2005).

2.5.2 Bank underwriting:
In banking, underwriting is the full credit analysis previous the granting of a loan, based
on credit information furnish by the borrower, such as employment history, salary and
financial statements; in public available information, such as the borrower's credit
history, which is full in a credit report; and the lender's assessment of the borrower's

credit needs and ability to pay. Underwriting can as well refer to the purchase of
corporate bonds, commercial paper, government securities, community general-
obligation bonds by a commercial bank or dealer bank for its possess account or for
resale to investors. Bank underwriting of corporate securities is accepted out from side to
side separate holding-company affiliates, called securities affiliates or Section 20

2.5.3 Insurance underwriting:
Underwriting may also refer to insurance; insurance underwriters assess the risk and
exposures of possible clients. They decide how much reporting the client should receive
how a great deal they should pay for it, or whether even to accept the risk and insure
them. Underwriting involve measure risk revelation and determining the premium that
wants to be charged to insure that risk. The purpose of the underwriter is to acquire—or
to "write"—business that will make the insurance company money, and to defend the
company's book of business from risks that they think will make a loss. In simple terms,
it is the procedure of issuing insurance policies.
Every insurance company has its own set of underwriting guidelines to help the
underwriter conclude whether or not the company should accept the risk. The information
used to assess the risk of an applicant for insurance will depend on the type of coverage
concerned. For instance, in underwriting vehicle coverage, an individual's driving record
is dangerous. As part of the underwriting procedure for life or health insurance, medical
underwriting may be used to examine the applicant's health status (other factors may be
considered as well, such as age & occupation). The factor that insurers use to categorize
risks should be objective, clearly connected to the likely cost of providing coverage,
practical to administer, consistent with appropriate law, and designed to protect the long-
term viability of the insurance program.
The underwriters may also decline the risk or may give a quotation in which the
premiums have been loaded or in which various exclusions have been set, which restrict
the circumstances under which a claim would be paid. Depending on the type of
insurance item for consumption (line of business), insurance companies use automated
underwriting systems to encode these rules, and decrease the amount of manual work in
processing quotations and guidelines issuance. This is particularly the case for certain
simpler life or personal lines (auto, homeowners) insurance.

2.6 Other forms of underwriting:
2.6.1 Real estate underwriting:
In assessment of a real estate loan, in adding to assessing the borrower, the property itself
is scrutinized. Underwriters make use of the debt service coverage ratio to figure out
whether the property is able of in your favor its own value or not.

2.6.2 Forensic underwriting:
Forensic underwriting is the "after-the-fact" procedure used by lenders to conclude what
go incorrect with a mortgage. Forensic underwriting refers to a borrower's aptitude to

work out a modification situation with their current lien holder, not to meet the criteria
them for a new loan or a refinance. This is classically done by an underwriter staffed with
a team of people who are knowledgeable in every aspect of the real estate field (Herald
Tribune March 12, 2008).

2.6.3 Sponsorship underwriting:
Underwriting may also refer to financial sponsorship of a business enterprise, and is also
used as a term within public broadcasting (both public television and radio) to explain
funding given by a company or organization for the operation of the service, in exchange
for a talk about of their product or service within the station's program.

2.7Basic Concept and legal Regulation:
2.7.1Anglo-American property law:
According to Anglo-American property law, a mortgage occur when an owner (usually of
a fee simple interest in realty) pledge his interest (right to the property) as security or
collateral for a loan. So, a mortgage is an encumbrance (limitation) on the right to the
property just as an easement would be, but because most mortgages occur as a condition
for new loan money, the word mortgage has become the general term for a loan secured
by such real property.
As by means of other types of loans, mortgages have an interest rate and are scheduled to
amortize over a set period of time, typically 30 years. All types of real property can be,
and frequently are, protected with a mortgage and bear an interest rate that is imaginary
to reflect the lender's risk.
Mortgage lending is the primary device used in many countries to finance private
ownership of inhabited and commercial property. Even though the terms and precise
forms will differ from country to country, the basic works tend to be similar:

      Property: the physical residence mortal financed. The exact form of ownership
       will vary from country to country, and might restrict the types of lending that are

      Mortgage: the security interest of the lender in the property, which may involve
       limits on the use or disposal of the property. Limits may include requirements to
       purchase home insurance and mortgage insurance, or pay off exceptional debt
       earlier than selling the property.

      Borrower: the person borrowing who also has or is creating an ownership interest
       in the property.

      Lender: Any lender, but typically a bank or other financial institution. Lenders
       may also be investors who own an interest in the mortgage from side to side a
       mortgage-backed security. inside such a circumstances, the initial lender is known
       as the mortgage originator, which then packages and sells the loan to investors.

       The payments from the borrower are subsequently collected by a loan service.
       (Sonia Kolesnikov-Jessop, January 29, 2009)

      Principal: the original size of the loan, which may or may not include sure other
       costs; as any principal is repaid, the principal determination goes down in size.

      Interest: a fiscal charge for use of the lender's money.

      Foreclosure or repossession: the opportunity that the lender has to foreclose,
       recover or seize the property under certain situation is essential to a mortgage
       loan; without this feature, the loan is possibly no different from any other type of

2.8Underwriting Agreement:
Written by Malcolm Tat:
Underwriting agreements are contractual documents that engage specific covenants
between an underwriting group and a corporation that is choosing to issue new securities.
Usually, an agent is designated to define the terms of the contract, along with an
authorized give of the corporation. The underwriting contract is now and then referred to
as a purchase contract or opening agreement.
The major reason of an underwriting agreement is to clarify all the terms and conditions
associated with the underwriting procedure related to these new securities. To that end,
both the firm and the underwriter will make specific commitment regarding the stock
issue. Inside the text of the contract, the rights and responsibilities of both parties will be
expressly detailed, so there is no chance of any mistake between the two entities.
At the same time as some details of an underwriting agreement will vary base on factors
as the type of stock issued, the country of origin, and any current applicable laws that
direct the issue of corporate stock, there are a small number of elements that will be
found in any contract of this type. An underwriting contract will routinely define the
business structure and purpose of both entities that are entering into the contract. After
establishing the identities of the participants, the contract will go on to define the terms
every one party will make out and take.
There are five other key points that will be address and defined within the body of the
underwrite contract. First, the underwriter will covenant to buy the stock issue. Second,
the public offering price of the stock will be set. Next, the conditions determination
address the decided upon underwriting spread. Fourth, the contract will specify the
settlement date. Last, the net proceeds that are to be realized by the issuer will be definite.
In several cases, the underwriting contract will take on a form that is referred to as a best
hard work agreement. fundamentally, this is a modified form of the underwriting
agreement that indicate that the underwriter will make a best attempt to place the
securities in accordance with the spoken wishes of the corporation.

The underwriting procedures begin with the decision of what type of offering the
company wants. The company usually consults with an investment banker to decide how
best to organization the offering and how it should be distributed.
Securities are more often than not offered in either the new issue, or the additional issue
market. Initial Public Offerings (IPO's) are issues from company’s first going public, at
the same time as additional issues are from companies that are already publicly trade.
In addition to the IPO and additional issue offerings, offerings might be further classified
      Primary Offerings - proceeds go to the issuing firm.
      Secondary Offerings - profits go to a main stockholder who is selling all or part
       of his/her equity in the firm.
      Split Offerings - An arrangement of primary and secondary offerings.
      Shelf Offering -Under SEC Rule 415 - allows the issuer to sell securities over a
       two year period as the funds are wanted.
when new shares are issued, there is a increase between what the underwriters buy the
stock from the issuing firm for and the price at which the shares are offered to the public
(Public Offering Price, POP). The price paid to the issuer is known as the underwriting
profits. The increase between the POP and the underwriting proceeds is dividing into the
following components’:
      Manager's Fee - goes to the supervision underwriter for discuss and organization
       the offering.
      Underwriting Fee - goes to the managing underwriter and association members
       for assuming the risk of buying the securities from the issuing firm.
      Selling Concession - goes to the managing underwriter, the organization
       members, and to selling group members for introduction the securities with

2.10 Role of underwriter:
The most visible and recognizable element of the initial public offering process is the
underwriter. The underwriter is the association that is actually responsible for pricing,
selling, and organizing the issue, and it may or may not provide extra services. With
direct public offerings, there is no requiring for an underwriter.

2.10.1 Selection of a good underwriter is of the utmost importance:
It’s important to know that many underwriters are regularly selective of their clients.
Because an underwriter's repute depends on successful issues, few firms will be willing
to bet their reputation on uncertain companies.

2.10.2 When selecting an underwriter:
It’s important to seek out a recognized company with a good reputation and quality
research coverage in your field. The result may also depend on the kind of conformity the
underwriter is willing to make regarding the sale of shares. For profitable and recognized
private companies, it shouldn't be complicated to locate an underwriter willing to make a
firm promise arrangement. Under such a contract, the underwriter agrees to buy all issues
shares, regardless of ability to sell them at a exacting price.

2.10.3 For riskier or less established companies:
An underwriter may offer a best attempt agreement for the initial public offering. A best
efforts contract requires the underwriter to buy only sufficient shares to fill investor
demand. Under this arrangement, the underwriter accepts no liability for unsold shares.

2.10.4 Aside from fees and sales arrangements:
Most underwriters are reasonably similar in their roles. An underwriter will help in the
training and submission of all appropriate SEC filings, helping potential investors make
informed decisions about your offering. All underwriters are necessary to exercise due
attentiveness in verifying the information they submit, so a certain amount of
investigation should be expected from any accountable underwriter.

2.10.5 In addition to SEC registration filings:
The underwriter will make a preliminary prospectus that will become a major part of the
issue's advertising campaign. This document is also referred to as the scarlet herring, after
a small red passage in the document that states that the company is not attempt to sell
shares prior to SEC agreement.

2.10.6 Once SEC approval is obtained:
The underwriter and the business will go on board on a road show to measure and attract
interest from investors. While the road give you an idea about does not involve getting
compulsory commitment from investors, it helps the underwriter determine the best
strategies for pricing and issuance.

2.10.7 After the initial public offering:
The underwriter continues to provide services for the newly public business. For months
or even years after the offering, the underwriter may go on to make a market for the
stock, ensuring liquidity for investors and making the shares more attractive. Twenty-five

days after the issue, the underwriter is also allowable to create statements or projections
regarding the company and its forecast. Prior to that time, there is an SEC-mandated quiet
period, since investors are compulsory to rely only on the documents filed by the
underwriter. Most underwriters choose to provide constructive coverage at the end of the
silent period.

2.10.8 Because an initial public offering is so complex and expensive:
It’s important to have a good considerate of what to expect from an underwriter. Without
knowing what to expect, it's impossible to make a wise and knowledgeable collection.

2.11 Responsibilities Of underwriter:
(Published by Israel's Business Arena on March 21, 2000.)
A captivating initial public offering (IPO) requires months of working very closely
collectively with many people underwriters, lawyers, accountants, printers, transfer
agents and others. They all have critical roles to play and form the nucleus that will make
or break your IPO.
Today’s Enable provides you with a general idea of the underwriter typically a major
investment bank that acts as your agent in offering your securities to the public. The
collection of the underwriter will be the most significant and toughest task in your quest
to become a public company.
Take your time and look for out the best probable underwriter well previous to you in fact
need one. In fact, most underwriters want to meet with you before you need them and it is
in your best interest to create a association with one as early as probable.

2.11.1 Your Underwriter's Responsibilities:
Public offerings characteristically include a syndicate of underwriters lead by a lead
underwriter. In addition to underwriting services, the underwriter will also take action as
your advisor and salesperson. This includes advising you as to the best timing for an
offering, its size, and the most favorable pricing of the transaction.
The most important liability of the underwriter is to implement the offering in a logical,
methodical and organized way. In doing so, the underwriter provides many services
including due diligence examination of the issuer, helping decide which market you will
go public on, planning and preparing the road show, and consultation.
The underwriter must also be able to help you put yourself in the best possible light vis-à-
vis the investing public. This may comprise suggestions regarding a reformation of your
company, changing the capital structure, and selling with potential conflicts of interest.
The investment banker must also be able to add value throughout the training of the
The underwriter must also be a sales person marketing and selling the offering to
generate investor command. He or she must be able to provide research and trading hold

up for your company’s stock next the offering. This is crucial in order to uphold investor
interest in your company and foster a steady market for its shares.

2.11.2 Reputation Is the Key Criterion:
In select the underwriter, reputation plays a major role. Look for one that has a very
physically powerful reputation in your particular technical field. You must also make
sure that they have leading and respected research analysts that understand your exacting
Furthermore, before choosing any underwriter, you must watchfully examine his/her pre-
existing relationships with your current and future customers, supplier and competitor.
You must also remember that not all underwriters will be involved in your exacting
offering. It may be too small, in a attractive industry or it may just be that the underwriter
believe that the chances for your success are not value the risk of underwriting your
contribution. Keep in mind that the underwriter’s repute is based on the success of the
offerings he/she is concerned in. Underwriters are usually compensated on a success only
basis, and they will not want to invest significant time and effort unless they are
rationally sure that you’re offering will be doing well.

2.12 Importance of underwriting:
(i)     Guarantee of sufficient Finance Underwriting is a guarantee given buys the
        underwriters to take up the whole issue or remaining shares, not subscribed by
        public. In the deficiency an underwriting agreement, a company may face a
        condition where even minimum subscription is not received and, it will have to
        go, into liquidation. In case of an existing company, it may have to delay its
        projects for which the issue was meant. As a result of an underwriting contract, a
        company has not to wait turn over the shares have been subscribed before
        entering into the required contracts for purchase of fixed assets etc. it can go in
        advance with its plan self-assuredly. Thus, underwriting agreement assures of the
        required funds within a sensible
(ii)    A subsidiary advantage of underwriting is with the intention of the issuing
        company gets the benefit of expert advice. An underwriter of status would go into
        the soundness of the plan put forward by the company before entering into an
        agreement and suggest changes wherever necessary, enable the company to avid
        certain pitfalls.
(iii)   The good underwriters being men or firms of financial truthfulness an established
        reputation. As we have already explained that underwriters satisfy themselves
        with the financial truthfulness of the company and feasibility of the plan, the
        investors therefore, run a great deal less risk when they buy shares or debentures
        which have been underwritten by them.
(iv)    Normally, underwriters maintain working arrangement wit other underwriters and
        broken all through the country and in other countries too and as such, they are

      capable to tap the financial resources for the company not only in on exacting area
      but also in other areas as well.
(v)   Underwriter renders useful services to the viewpoint buyers of securities by
      giving them specialist advice regarding the safe investment in sound companies.
      Sometimes they publish information and their specialist opinion in respect of
      various companies. Therefore, they render useful services to the buyers of
      securities too.

     Chapter 3
Research Methodology

3.1Research Design:
3.1.1 Research strategy:
As there is not mush of date available on my topic of underwriting fees. I have very much
access into all of material. My research has been to piece of collection of data from all
sources to build up strong arguments regarding this research. I have been used deductive
reasoning as there is simple research done on this topic which helps me to prove my

3.1.2 Data collection:
I have collecting secondary Data for my research as there is rich but small and difficult
data available for my research question and I have been direct access to relevant topic

3.1.3 Literature review:
In this dissertation in the literature review, because the reason is that researcher has
discussed published information in a particular subject area and information in a
particular topic area with in a certain period of time.
A literature review has been just a simple summary of the sources, but it usually has an
organizational pattern and joint both summary and syntheses, A summary is a recap of
the Important information of the source by a synthesis is a re-organization or a resurging
of that information. It strength give a new interpretation of old material or join new with
old interpretation literature review provide you with a handy guide to the researcher’s for
the particular topic.

3.1.4 Method of analysis:
During research collected the relevant data and than use methods for analysis the
collective, data to get for better result.

3.1.5 Ethical Issues:
I have surely during my research morally and remain confidential because privacy is one
of the ethical issues in undertaking the research. Use of this data should protect and
individual right to anonymity. I should respect the individual rights.
   I have concentrated all these points during my research.
•   Not to answer any question.
•   Not to be subject to the question that creates stress or discomfort.
•   Not to be harasses to participants.
•   Not to be contact to the people unreasonable time.

•      Try to target right person.
•      Not to be subject to any attempts to prolong the duration of the interview or

        Time has been spent for this dissertation as follows.
               Data collection                        2.5 weeks
               Review of literature                   1 week
               Data analyzing and organizing          1 week
               Final draft                            1.5 weeks

               TOTAL Time                             6 weeks
3.1.7 Analysis, presentation and Results:
After the analysis, interpretations have been prepared of the results.

3.1.8 Conclusion and Recommendations:
After the completion of first four chapters, summary and conclusion have been drawn and
recommendation for further improvement represented.

            Chapter 4
Analysis, Presentation and Results

4.1 Introduction of Austin Home Loan:
Austin home loan is basically a home loan underwriting agency. It is provide services to
the lender at the time of borrower who need the loan and want by the lender against the
mortgage of the property then lender higher the underwriters with the contact to the
Austin home loan agency Austin home loan investigate each and every thing about the
borrower for the purpose of evaluate the risk and calculations about the home loan and
charge the fees by the lender on behalf of the provide services to the lender.

4.2Loan Underwriting:
Following the information on the loan application has been validated, the value of the
property has been confirmed and the title search has been complete, the loan is ready to
be underwritten. Typically, a trained professional appraisal all of the information,
analyzes the creditworthiness of the borrower and renders a decision on the loan request.
More and more, much of the critical tasks of underwriting are performed by technology
through artificial aptitude and use of databases. There are common secondary market
underwriting rule, but many variables are considered in the analysis. The next outline
some of the fundamental areas and items considered in the process.

4.3Underwriting the Appraisal:
Normally, underwriters are not professional appraisers and do not re-appraise the
property. They will assessment the appraisal to assure that it meets the requirements of
the investor and occasionally request additional information to substantiate the value.
They may request that a second appraisal or review appraisal be performed. A review
appraisal can be completed from a site examination or review of the written appraisal. In
both cases, another professional appraiser will perform the evaluation.

4.3.1 Monthly Housing Expenses and Total Debt Obligations:
One of the first things an underwriter determine is the borrower's considered monthly
housing expenses and total monthly debt obligation.
      Housing expenses: These comprise the monthly principal and interest payments
       that are predetermined on the mortgage note. In addition, the monthly housing
       expenses comprise a monthly amount for the property taxes and risk insurance
       (1/12 of the annual taxes and insurance). There may be other expenses, such as
       condominium fees, homeowners fees, particular assessments, etc., that are
      Monthly debt obligations: These comprise monthly credit obligation, such as
       installment payments, rotating charge cards or other borrower obligation that will
       carry on longer than 10 months. Usually, 5% of the current balance of a rotating
       charge account is used for the monthly payment.

      Total monthly debt obligations: This combine the monthly housing operating
       expense and monthly debt obligation.

4.3.2 Monthly Income:
One of the most significant components of the loan underwriting process is determining
the borrower's monthly income. The income of all borrowers and co-borrowers is
incorporated in the computation. The income can be derived from more than a few
sources, but it must be support by historical documentation and have a high likelihood of
continuance. The following outlines the types of income that are use and the means to
hold up them:
      Salary: Income derived from any kind of salary, whether monthly, weekly or
       hourly is suitable. Two year employment history is usually required.
      Commission and bonus: Commissions and bonuses can be use for income. The
       underwriters will standard the last two years of income revealed on federal
       income tax returns and the year-to-date earnings from the written confirmation of
       employment or pay stub.
      Self-employment income: usually, the underwriter will average the income
       derived all the way through self-employment for the last two years from the
       applicant's federal tax returns as well as the year-to-date earnings from a profit
       and loss statement on the business.
      Other income: Other income can be used for loan qualification. Income
       consequent from rental properties, interest, dividends, pensions and social security
       can be use.

4.3.3 Income to Debt Ratios:
Following formative the monthly income of the borrower and any co-borrowers, the
monthly housing expenses and the total monthly debt obligation, the underwriter
calculates two ratios that are helpful in the loan underwriting procedure.
      Primary Housing Expense (PHE)/Income Ratio (I): This relation is the result
       of dividing the housing
      Expenses for the planned loan by the monthly income of the borrower(s). For
       example, if the main housing expenses are $1,000 and the whole monthly income
       is $4,000, the ratio will be 25% ($1,000/$4,000 = 25%).
      Total Obligations (TO)/Income Ratio (I): This ratio is the consequence of
       dividing the housing expenses for the planned loan plus the borrower(s) other
       monthly credit obligation by the monthly income of the borrower(s). For example,
       if the total obligations of the borrower is $1,400 ($1,000 for housing expenses and
       $400 for other credit obligations), the ratio would be 35% ($1,400/$4,000 = 35%).
       Qualify ratios are only one component of the underwriting procedure and many
       other variables are considered in the final result.

4.3.4 Funds to close:
When the planned loan is being used to finance the purchase of a home, underwriters will
verify the source of funds for the down payment and closing costs. The following are
satisfactory sources of funds for closing:
      Cash: Cash in any depository institution or investment company is suitable.
      Stocks, bonds, mutual funds, etc.: Cash equal investments are acceptable forms of
       funds. They can be validating through statements from investment companies for
       the last two months.
      Sale of obtainable property: Many times the source of funds for the down
       payment on a home comes from the equity in a property that will be sold. The
       sales price of the property being sold is indicated on the loan application and any
       existing loan is verified on the credit report or through a verification of preceding
      Gift from family members: Gifts from family members for the downward
       payment and/or closing costs are suitable so long as there is no condition for
       repayment. Some loan programs limit the amount of gift funds allowable.

4.3.5 Credit Analysis:
Another part of the underwriting procedure is influential the creditworthiness of the
borrower. Loan underwriter’s assessment the borrower's credit report to locate evidence
of debt refund behavior. Some of the significant area that is review is:
      Past and obtainable mortgage debt: The past repayment history on mortgage
       debt be able to be a good indication of a borrowers attitude toward mortgage
       obligation. A good disbursement history on mortgage debt is very important in the
       credit analysis. Generally, payments usual 30 days past the due date are reflect in
       the credit report as late. Lenders vary in stringency and a few may not allow any
       late mortgage payments, at the same time as others will allow 1 or 2 in the last
       two years if there is a good clarification.
      Installment and revolving credit: Other items on the credit report can also point
       to a borrower's position toward credit obligation. Credit reports point to the
       outstanding balance, current balance and terms of payment on the borrower's
       rotating and installment debt. Underwriters review these credit obligations to
       determine the borrower's pattern of credit use and repayment behavior. Rotating
       credit encompasses department store and bank credit cards. Installment credits
       include longer term credit with structured payment plans, such as car loans.
       Generally, underwriters are not concerned over lonely and minor slow payments
       indicate on the credit report.
      Collections, repossession, foreclosures and bankruptcies: Credit reports also
       point to public records such as collections, repossessions, foreclosures and
       bankruptcies. While these items may point to past credit problems, they

       occasionally have valid explanations. Underwriters may need a letter of
       explanation on items noted in the public records. A lot of times consumers have
       re-established credit and have an outstanding payment history on their current
4.4Compensating Factors:
The underwriters consider a lot of variables in their analysis. No two borrowers have the
same credit and income profile and underwriters use all of the information in the loan file
to render a choice. Many times, borrowers fall outside the guidelines, but have strong
compensate factors that reflect low credit risk. Some compensating factors are the past of
savings, long-term job stability, and history of making monthly credit payments that
equal or exceed the future payments, an extensive down payment or a large cash set aside
after the close of escrow.

4.4.1 Final Credit Decision:
After the underwriter has review the entire loan package, there can be four outcomes:
1.     Approval: If the loan is "picture perfect" and the underwriter has no questions,
       the loan will be approved with no circumstances.
2.     Approved with conditions (the most common response): There are two types
       of qualified approvals: (a) If the underwriter needs additional certification before
       a final credit decision can be made, a "prior- to- document" qualified approval
       will be rendered. In essence, the loan documents will not be prepared until the
       circumstance has been satisfactorily met. An example of a "prior to document"
       condition could be a pay stub to confirm the borrower’s income. (b) If the loan
       can be approved, but a condition must be meeting prior to closing, a "prior to
       funding" conditional approval will be rendered. In this case, the loan certificate
       will be prepared and sent to the closing agent, but the lender will not fund the loan
       until the circumstance has been met. An example of a "prior to closing"
       conditional approval could be proof of sale of to be had home where the equity
       will be used as the down imbursement.
3.     Suspended: occasionally the underwriter will be unable to make a decision on a
       loan file because it is either incomplete or there are many unrequited questions. In
       these cases, the underwriter will ask for additional information from the borrower
       earlier than an underwriting decision is made. An example of a suspension may be
       large gaps in the borrower's preceding employment history and no tax returns to
       designate the place of employment.
4.     Denial: Underwriters will be unable to endorse a loan if the loan file has
       substantial deficiencies and does not meet the minimum standards of the lender or
       the lender's less important market investors. Most lenders require that a second
       underwriter assessment the loan package before a final denial is communicated to
       the borrower. Denial letters with the motivation for denial are sent to borrowers
       within 3 days of the final credit decision. Underwriting criteria is able to be

       dissimilar among lenders and a borrower might find other satisfactory alternatives
       in the market place.

4.5 Loan Closing:
Once your application for a mortgage loan has been approved and you have conventional
a commitment letter from the lender, the final step previous to you can call the house
your own is the closing, or settlement, of the purchase transaction and mortgage loan.
Even although you have signed purchase agreement and your loan request has been
approved, you have no being rights to the property, including access, until the legal title
to the property is move to you and loan is closed. You should have a good understanding
of what is involved in the closing process, for the reason that there are a number of things
that you can do to make sure that it goes easily and on time.
At closing, you will sign the mortgage loan documents, the seller will carry out the deed
to the property, funds will be collected and disbursed and the closing agent will record
the essential instruments to give you legal ownership of the property. Settle intended of a
mortgage loan is a legal process, so specific procedures and requirements will vary
according to state and local laws, but a general explanation of closing practices can help
you through the procedure.

4.5.1 between Commitment and Closing:
As soon as you receive firm agreement from the lender who is making your mortgage
loan, you should confirm the actual date of loan closing. An expected closing date was
probably specified in the sale contract, but a firm date needs to be set through you, the
seller of the property and your lender. You want to make sure that settlement will take
place by your loan commitment expires and before any rate lock agreement (guaranteed
terms of the loan) expire. The settlement date also has to allow adequate time to assemble
all of the required documentation. If maintenance or maintenance on the property is a part
of the lender's commitment, there must be time to complete them. The real estate agents
involved in the sale transaction and the lender are often the best people to organize the
closing arrangements. Most lenders require at last 3 to 5 days go forward notice of the
closing date in order to prepare the loan documents and get them to the closing manager.
There are standard documents and exhibits that are usually required for a loan closing,
regardless of jurisdiction. Some of these will be your liability and others will be the
responsibility of the seller. The following documents are typically required for final.

      Title Insurance Policy:
Every lender will need title insurance. The company issuing the given name insurance
policy will have researched legal records to make sure that you are in receipt of clear
title, or ownership, to the property. Their title search has established that the seller of the
property is the legal owner, and that there is no claim, or liens, against the property. The
title company offers both a lender's policy and an owner's policy. You will have to
disburse for a lender's policy and it is advisable for you to have an owner's policy as well.
For a small extra premium, it will protect you up to the full value of the property if fraud,
a lien or faulty title is exposed after closing.

      Homeowner's Insurance:
The lender will require you to have risk insurance on the property at least in the amount
of the substitute cost of the property. You have to make sure the policy covers the value
of the property and filling in the event they are damaged by fire or storm. You must pay
for the strategy and have it at concluding. You are free to choose the insurance carrier,
but the lender will need the company to meet rating standards and be rated by an accepted
insurance rating organization.

      Termite Inspection and Certification:
In a lot of areas of the country, the property has to be inspecting for termites and the
inspection is necessary in the purchase agreement. In some parts of the country, this may
be called a "wood infestation" report. The statement is required on all FHA and VA loans
as well as a lot of conventional loans.

      Survey or Plot Plan:
Your lender might need a survey of the property, presentation the property boundaries,
the location of the improvement, any easements for utilities or street right-of-way and any
encroachments on the boundaries by fences or buildings. Encroachments can be minor,
such as a boundary marker, or may be stern and have to be corrected before closing. In
some areas, an addition to the title policy eliminates the need for a survey.

      Water and Sewer Certification:
If the property is not serving by public water and sewer services; you will need confined
government documentation of the private water source and sanitary drain facility.
Properties with well and infected water sources are typically governed by county code
and standards.
      Flood Insurance:
If the lender or the evaluator determines that the property is located inside a defined flood
plain, you will would like, and the lender will require, a flood insurance policy. The
policy has to remain in strength for the life of the loan.

      Certificate of Occupancy or structure Code conformity Letter:
If your home is new structure, you will have to have a Certificate of residence, typically
from the city or county, by you can close the loan and move in. The builder will get the
certificate from the suitable right. Many local governments require an inspection while a
home is sold to see if the property conforms to local building codes. Code violations may
need repairs or replacement of structural or automatic elements. The responsibility for
order the inspection and paying for any required repairs should be spelled out in the
purchase agreement.

      Other Documentation:
Further documentation necessary for closing will be set out in the obligation letter from
the lender and will depend upon terms of the sale, custom of the property and local
ordinance and custom. Examples would include private road maintenance agreement if
the street in front of your property is not maintained by a municipality or proof of sale of
your previous home if that was a form of support of your loan. inside 24 hours prior to
the actual closing, your and your real estate agent must make a final assessment of the
property to make certain any required repairs have been complete, all property describe in
the sale contract, such as kitchen appliances, carpeting and draperies are there and that no
recent fire or storm damage has occurred. In most cases, the lender will make a
comparable inspection by closing.

4.6 The Loan Closing:
The real loan closing procedure, including who conduct the closing and who is there,
depends upon local law and custom and lender practices. Some states need that you be
represent by an attorney, others do not. Yet if it is not required by law, you may want to
have an attorney, review the concluding documents.
Several lenders will close the loan in their offices, some will use title or escrow
companies and several will send their commands and documents to their attorney or
yours to do the closing. As soon as you receive your commitment letter from the lender,
you should decide who is responsible for closing preparations.
The real closing is conducted by a closing agent who might be an employee of the lender
or the title company, or it may be an attorney on behalf of you or the lender. The lender
and seller, or their legislature, and the real estate agents may or may not be at the actual
closing. It is not strange for the parties to the deal to complete their roles with no ever
meeting face to face.
The closing agent will have conventional instructions from the lender on how the loan is
to be recognized and the funds disburse, and will have collected the entire required
exhibit from you, the seller and the lender. The closing agent will make sure that all
essential papers are sign and record and those funds are properly disburse and accounted
for when the closing is complete.
You typically need to come to the closing with a specialized check for the closing costs,
as well as the balance of the down payment. You can obtain the exact figure a day or two
prior to the closing from lender or the closing agent. You should also bring the
homeowners insurance policy and evidence of payment if it has not been deliver
For the mainly part, your role at closing is to review and sign the frequent documents
connected with a mortgage loan. The closing agent must explain the nature and reason of
each one and give you and/or your attorney and chance to check them before signing. A
brief explanation of the major documents may help you understand their purpose and

      Settlement Statement :
This form is necessary by Federal law and is prepared by the closing agent. It provides
the details of the sale transaction as well as the sale price, amount of financing, loan fees
and charges, probation of real estate taxes, amount due to and as of buyer and seller and
funds due to third parties such as the selling real estate agent. It must be signed by both
buyer and seller and become a part of the lender's permanent loan file.
A few of your charges on the may have already been paid, such as credit report and
appraisal fees. They will be noted as P.O.C. (paid outside the closing). You will
frequently be charged interest on the loan from the date of resolution until the first day of
the next month and your first payment determination is due on the first day of the month
and your first will be due on the first of the following month. Make sure you know
exactly when you’re first and following payments are due and what the penalties are for
creature late.
If your loan is better than 80 percent of the value of the property, you resolve most likely
have to pay for mortgage insurance that protect the lender in case you default. One year's
premium will frequently run between .5 percent to .75 percent of the loan amount.
In adding to your monthly payments on the loan, most lenders will need you to maintain
an "escrow", or "impound," account for real estate taxes and insurance. Present law
permits a lender to collect 1/6th (2 months) of the likely annual real estate taxes and
insurance payments at closing. As well, real estate taxes for the current year will be pro-
rated between you and the seller and paid at closing. After closing, you will remit 1/12 of
the annual amount with each monthly imbursement. Tax and insurance bills must be sent
to the lender who will pay them out of the escrow funds composed.

      Truth-in-Lending
This structure is also required by Federal law. You were given an initial TIL before long
after you completed the loan application. If no change have taken place since that time,
the lender require not provide one at closing. If, though there are significant charges, you
must receive a correct TIL no later than resolution.
      The Mortgage Note:
The mortgage note is legal proof of your indebtedness and your formal promise to repay
the debt. It sets out the amount and terms of the loan and also recites the penalties and
steps the lender can take if you fail your payments on time. It outlines the amount of the
debt, the conditions and payments, the interest rate, limits and caps for Arms, the name of
the lender (beneficiary), the name of the borrower (mortgagor) and any other material
item necessary by the lender. The borrower obligations sign the note.

      The Mortgage or Deed of Trust:
This is the "security instrument" which gives the lender a claim beside your house if you
fail to live up to the terms of the mortgage note. It recites the legal rights and obligation
of both you and the lender and gives the lender the right to take the possessions by

foreclosure if you default on the loan. The mortgage or deed of trust will be record,
providing public notice of the lender's claim (lien) on the property. Usually the security
instrument is recorded as a public file.

      Miscellaneous Documents:
There will be a number of documents or affidavit that you will be asked to sign at
closing. Some are lender requirements (e.g. a statement that you intend to reside in the
properties your primary residence), or are required by state or Federal law. These
instruments should not be taken lightly. Some provide for criminal penalty for false
information, and some may provide the lender the right to call your loan, which means
the entire loan amount becomes directly due and payable. When everything has been
signed and the finishing agent is satisfied that all of the instructions for closing have been
comply with in full, you become the owner and are given the key to the property.

4.7 Loan Consideration:
Scientists who study and calculate human behavior find that buying a home is one of the
most demanding experiences of our lives. Contributing significantly to this nervousness
is waiting for the mortgage to be approved. Much of the homebuyers' unease results from
not knowing what are going on. You know credit checks and verifications of employment
are attractive place-but what makes the difference between receiving and not getting that
loan, and how long does it take? This page can dismiss at least some of that anxiety by
detail the steps the lender takes in making the loan decision-process called
"underwriting." Listed below is the topics address on this page.

4.7.1 Are You a Good Risk?
Now as wise stock market investors carefully investigate the companies in which they
plan to buy stock, alert mortgage lenders investigate the financial setting of each loan
applicant. In lending the prospective homebuyer the money to buy the home, the lender
assumes a long-term risk. The statement is that the borrower is going to finally repay the
loan as well as in the meantime make the loan payments on time.
Once all the information is composed and eligibility is recognized, the lender decides
whether to extend the homebuyer credit. In other words, lenders examine the risk of
lending (making the investment), and match it to a suitable interest rate and loan term.
There are no recognized, industry-wide standards for underwriting, although most lenders
follow standards set by government-related agencies, private mortgage insurers, private
mortgage investors or institutional investors. The huge majority of mortgage lenders try
to approve a loan application if at all carefully possible, but to approve a loan that will
become delinquent serves no one's best interest. The burden falls on the lender to
establish that an applicant is capable.

4.7.2 The Initial Interview:
The procedure typically begins with an interview where the prospective borrowers and a
agent of the lender sit down to discuss the potential loan. More and more, however,

lenders are not requiring a face-to-face meeting and accept a completed request by mail.
Many lenders today will even qualify you for a loan before you begin to shop for a home.
Many lenders promote this service in the local newspaper, but any lender can provide it.
Knowing approximately how much money you are qualified to borrow can save you time
and prevent dissatisfaction when you are looking at house.
When going to see a lender for a first interview, you should take:
      Purchase contract for the house if you contain one.
      Certificate of Eligibility as of the Veterans Administration (VA) if you want a VA
       loan. (Note: If you do not have one, the lender will get the information for you
       from your service records.
      Bank account numbers and the address of your bank branch. This determination
       save the lender time in checking your credit.
      Credit card bills for the past several bill periods.
      Pay stubs, W2 forms or other evidence of employment and salary.
      If you are self-employed, you be supposed to be able to present balance sheets,
       tax returns and other information about your business.
The significant document that gets the whole process rolling is the loan application. It
asks in-depth questions about you, your income, assets and liabilities, your credit, and
your legal history, as well as a description of the property you wish to buy. The lender
will confirm the information you provide on the application before making the decision
whether to expand the loan.
Applicants frequently will know after the initial interview if they are qualified for the
type and size of loan they want. Lenders try to let the borrower know as quickly as likely
if they really are not qualified for the size of loan that they ask for. Consumer Safeguards:
The initial interview sets in motion some significant consumer safeguards. The Truth-in-
Lending disclosure requirements provide the applicant with a probable yearly cost for the
loan - the Annual Percentage Rate (APR). The other important disclosure that follows
from the Real Estate resolution Procedures Act (RESPA), a federal law. This requires
lenders to provide homebuyers with information on known and predictable closing costs.
The preliminary interview also starts a clock that will allow applicant to know whether or
not they have been approved in about 30 to 60 days from the submission of a complete
application. If the loan is denied, the lender must disclose the specific reason (s) for the

                                              32 Is Your Income Sufficient?
Subsequent the initial interview, or loan application, the first step the lender takes is to
confirm your employment or income. This is done by mail employment and income
forms to current and past employers, and it will help the lender determine how much debt
you can fruitfully take on. Income Requirements:
A common rule is that you can meet the requirements for a loan of up to twice the
family's income (i.e. a family with income of $30,000 a year usually can meet the criteria
for a mortgage of up to $60,000). Often, the amount you earn may not be as significant as
how you earn it. Bonuses and commissions can vary greatly from year to year, and
lenders are unwilling to depend on them if they make up a large percentage of your
income. There are similar evils when a large portion of your salary is based on overtime
pay, and you rely on it to qualify for the go forward. In the case of bonuses and
commissions, the lender will want to verify your bonus and charge status back two or
three years to get a better idea of what you earn from those sources on average. In the
container of overtime, the lender will establish whether the work is expected to continue
and whether or not the amount of overtime income is reasonable for the extra work. After
establishing these point, the mortgage lender will make a decision as to how much to
allow for these additional source of income.
If you are self-employed, you should plan on produce a balance sheet, profit and loss
statements and copies of your federal income tax returns intended for the past two or
three years. Tax returns may also be required to verify other income claims, such as at
what time income from securities are a major source for mortgage payments. Income/Expense Standards:
Lenders use a set of general principles (income/expense ratios which show how much
income is used for various expenses) to test the application intended for qualification.
These principles are based on what experience shows a homeowner can use to own the
home and also take care of other long-term financial obligations, though lenders use their
own prudence in making the final decision.
Lenders generally say that housing operating cost (including mortgage payments,
insurance, taxes and special assessments) should not surpass 25 percent to 28 percent of
the homeowner's gross monthly income. For Federal Housing supervision (FHA) loans,
this figure is not to exceed 29 percent of the homebuyer's gross monthly income. With
loans certain by the Department of Veteran's Affairs (VA), lenders measure prospective
homebuyers with remaining Income, or the monthly income minus expenses. The
remainder is then measured against physical and family size data to qualify the borrower.
Your lender will work out this information for you when you sit down to discuss the
mortgage you want.

      FHA Loans Housing Expenses = 29 - 31% disgusting monthly income
      Housing Expenses plus Long-Term Debt = 41 - 43% gross monthly income Debt:
Lenders more often than not define long-term debt as monthly expenses extending more
than 10 months into the future. These expenses are supposed to not exceed 33 percent to
36 percent of the homeowner's gross monthly income. FHA-insured mortgage lenders
describe long-term debt as monthly expenses extending 12 months or more into the
future, and seem for these expenses plus housing expenses not to exceed 41 percent of the
homeowner's gross monthly income. Is Your Credit Good?
Before extending credit, lenders will want to look at the risk of not getting the money
back. To do these lenders will look at four crucial aspects of your credit history when you
apply for a mortgage:
      History of past credit - what be the size and terms of past loans?
      Type of Credit - have you obtain real estate, auto, and personal or other
       installment loans in the past?
      Attitude toward credit - are active accounts current, and is there any recent
       bankruptcy or judgment?
      Lapses in employment or debt repayment - how many mysterious lapses are there,
       and for how long?
From the information exposed through these four questions, lenders can develop a fair
idea of just how you will handle your responsibilities once you have signed the
agreement for repaying the loan. However, lenders cannot examine everything when put
together a credit history. They have two extremely important limitations on credit
information meeting. Credit Information Safeguards:
The first limitation is the Fair Credit Reporting Act, which was intended to ensure fair
and accurate consumer credit reporting. The Fair Credit Reporting take actions stipulate
that lenders must certify the purpose for which the information is sought and use it for no
other reason. The Act also prohibits reports based on subjective in order from neighbors
and others concerning temperament, general reputation and other personal aspects.
Certain other credit information, such as bankruptcy more than seven years before, is also
prohibited unless the principal concerned in the action was $50,000 or more.
The second consumer safeguard limiting the credit in order lenders can use to make a
mortgage decision is the Equal Credit Opportunity Act (ECOA). ECOA prohibits
favoritism in lending based on race, color, national origin, sex, marital status, age

(provided the candidate may legally contract), and the fact that all or part of the
applicant's income comes from a public help program.
Lenders are also prohibited by law from asking:
      Questions about the applicant's spouse, unless the spouse will be contractually
       the spouse's income will be used to meet the criteria, the applicants live in a
       community property state, or the applicant will use child support, maintenance or
       disconnect maintenance payments from a spouse or former spouse to qualify.
      Questions concerning future parenting tactics (although the lender may ask the
       ages and current number of children the applicant has). Can You Make The Down Payment?
Lenders expect homebuyers to have sufficient money available to make the down
payment of between 10 and 20 percent of the asking price future for the house-though
FHA and VA loans require smaller down payment (0 to 5 percent) and to pay their share
of the closing costs (3 percent to 6 percent of the loan amount). If, though, you cannot
come up with a 20 percent down payment, a lender can make you a loan for as little as 5
percent down. He will, however, need you to carry private mortgage insurance for
conventional (not FHA or VA loans), for which you will pay a premium for the first year
and an extra monthly fee in following years.
Source on which potential homebuyers may draw for the down payment and the closing
costs comprise savings, stocks/bonds, Individual departure Accounts (IRAs), pension
funds, real state holdings, life insurance policies, common funds or worker savings plans.
Homebuyers may also rely on another basis of financial hold up for the down payment-a
gift, or money given by a parent or other relative that need not be repaid. A being may
give one more person up to $10,000 per year with no either party being taxed. A
matrimonial couple, therefore, could give a child or spouse as much as $40,000 for a
down payment tax-free. Keep in mind, although, that if you use gift money for a down
payment, you will require to there a letter so state and sign by both the giver(s) and the
receiver(s) to your lender.
Mortgage lenders mail a form to the homebuyer's savings institution(s) to make sure the
amount obtainable for purchasing the house, as well as the amount of outstanding loans
with that association. Is The House You Are Buying Worth The Price?
Mortgage lenders also look at the real estate being purchase to make sure that, in case of
foreclosure, the lender has a salable property. The property's suitability is recognized by
an independent assessment.

The evaluator looks not only at what the home is worth today, but how the neighborhood
dynamics will affect the property value in the future. The three major points the evaluator
check is:
      Substantial security of the property. Age, structural soundness, landscaping,
       etc.Location. The kind of neighborhood, nearby houses, access to transportation,
       commercial development nearby, etc.
      Local government's strategy for the area.
      How zoning and taxes strength of mind affect the property in the years to come. Do I Get the Loan?
Your lender has completed all the checks. Your income, credit, assets, property and all
essential documentation have been scrutinized. Now comes the large decision.
If the lender's decision is to make bigger the credit, you will be notifying, typically all the
way through a promise letter. The mortgage lender can endorse the homebuyer for the
entire amount asked for, or a lesser amount based on the borrower's experience. The
promise terms relating to interest rate and/or discount points may be firm at the time of
promise or trained on the market rate at the time of closing. If the decision is not to make
bigger the credit, the lender has 30 days from the receipt of the completed application to
notify the potential homebuyer. This notification must also comprise the reason(s) for the
If the loan is eligible for government insurance or security, written agreements stating so
are issued. These can be also an FHA or Firm Commitment or VA official document of
promise. Conventional loans (not FHA or VA) receive a request for private mortgage
insurance if the downward payment is less than 20 percent of the buy price.
By now you should feel a bit more at ease concerning what happen after you apply for a
mortgage. If you have a good credit rating, it will speak for itself. Also, it is awake to the
lender to prevent homebuyers from over-extending themselves to the point of losing their
homes. Prudent underwriters should prevent this from occurring.
Certainly there will always be some nervousness connected with applying for a mortgage,
but if you understand the process, waiting for approval will be far less worrying.

4.8Estimate Your Closing Costs:
Closing costs are the set of fees that you pay at closing to get a mortgage and relocate

4.8.1 Common fees:
These fees generally total an amount equivalent to 2% of the loan amount.
4.8.2Table of common fees:
Look up a fee and learn why it is charged and how much it might cost you.
4.8.3 Lender and Title Fees
These tables show you what is classically charged at closing, depending on the place of
the property and the lender.

4.9 Loan fees:
While you send your application to the lender, they assessment and process it. This costs
them money, and so costs you money, frequently between $750 and $1,500. A quantity of
these fees can be paid by the seller (assuming that it is a buyer's market or a local
tradition). To learn more about receiving the seller to pay your closing costs, ask your
real estate agent.

                                      TABLE 1.1

Lender fees       Based on        Paid to          Approximate cost

Origination       Loan amount     Lender           1%

Discount fees     Loan amount     Lender           0%-3%

Appraisal fees    Flat fee        Appraiser        $300-$1000

Credit report     Flat fee        Credit agency    $50-$75

Processing fees   Flat fee        Lender           $150-$300

Courier fees      Flat fee        Lender           $25-$50

Underwriting      Flat fee        Lender           $200-$300

Document pre.     Flat fee        lender           $50-$250

Assignment        Flat fee        Lender           $8-$10

Source (http://www.austinhomeloan.com/costs/lender_title/fees.html)

4.10 Title fees:
You won't be capable to get a mortgage except you can prove to the lender so as to the
seller actually owns the property. This is complete by hiring a title company to check the
history of the house, and then by insuring the consequences of that search.

                                      TABLE 1.2

       Title fees      Based on               Paid to                Approximate cost

Settlement/closing     Flat fee               Title                  $75

Attorney fees          Flat fee               Title                  $65

Title insurance        Loan amount            Title                  $100

Restriction            Flat fee               Title                  $20

Messenger services     Flat fee               Title                  $35

T-36 endorsement       Flat fee               Title                  $75

Recording fees         Transaction            Title                  $20

Tax detection          Flat fee               Title                  $25

Source (http://www.austinhomeloan.com/costs/lender_title/fees.html)
4.11 Prepaid fees and additional costs:
locate out about extra costs such as property taxes and prepaid interest. Your home might
have a well or septic, be in a flood zone or require pest examination.

4.11.1 Prepaid Fees & Settlement Charges:
These tables show you what is normally charged at closing, depending on the position of
the property and the lender.
4.11.2 Prepaid fees:
Lenders want to be certain that you have enough money left over from your down
payment and closing costs to pay your bills, so they need you to prepay a few of them at

4.12 Impound/Escrow accounts:
It’s in most people's best interest to create as large a down payment as likely. So, if the
lender sees that you can't put 20% down, they worry that you have so little cash on hand
that you won't be able to pay your first few month's bills, much less provisions.
If so, the lender can set up a reserve account and require you to deposit sufficient money
to cover the first few months of mortgage insurance, hazard insurance and as much as 8
months of property Taxes. Your bills are then remunerated from this account.

                                       TABLE 1.3

Prepaid items           Based on          Deposited with       Approximate cost

Interest                Closing date      Lender               0-30 days interest

Mortgage                Loan amount       Lender               0.25%-0.95%

Hazard insurance        Loan amount       Lender               0.32%-1%

Tax assessment          Loan amount       Lender               0.32%-0.65%

Flood insurance         Loan amount       Lender               0.035 per %10000

SOURCE (http://www.austinhomeloan.com/costs/prepaid/fees.html)
4.13 Settlement charges:
These are fees that can be necessary by you close your loan.

                                       TABLE 1.4

           Additional   Based on          Paid on              Approximate cost

Survey                  Flat fee          Surveyor             $270

Pest inspection         Flat fee          Title                $50

Well/septic             Flat fee          Title                $0-$20

Flood certificate       Flat fee          Title                $25

Amortization            Flat fee          Lender               $13

Tax service fee         Flat fee          Title                $100

Bank verification     Flat fee             Bank                  $0-$20

Warehouse fee         Flat fee             Lender                $100

Funding / wiring      Flat fee             Lender                $100

SOURCE (http://www.austinhomeloan.com/costs/prepaid/fees.html)

4.14 Comparing Fees:
There are nearly a dozen parties concerned in processing and approving a mortgage, and
everyone wants something for their hard work.

4.14.1 Unavoidable fees:
Most fees come with the province and can't be avoided (you may live in a desert, but
you'll still need a flood certification). With these unavoidable fees, understand what you
are paying for and create sure that you aren't being overcharge, but try not to lose sleep
over them (it doesn't help).

4.14.2 Lender and broker fees:
Lenders and brokers charge for their services in different ways. This can make it not easy
to evaluate the cost of different loans luckily, the federal government require that all
brokers and lenders quotation an Annual Percentage Rate (APR) with every loan.
4.14.3 APR:
An APR show the whole annual cost of a mortgage (closing costs and interest) over its
full term (usually 30 years), shown as a percentage of the amount borrowed.

4.15 Estimate Your Closing Costs:
While APR is not essentially the best indicator of the total cost of a loan, it is the best
way to contrast mortgages.

4.15.1 APR shows the total cost of a mortgage:
Lenders sever up the amount that they charge you into interest rate, fees, and points. By
look at either only the fees and points or only the interest rate, you don't see the complete
picture. Using APR helps you compare apples to apples. An APR combines the two, so
that you won't be puzzled by different fee and interest rate combination.

4.15.2 APR is universal:
Lenders and brokers are necessary by law to provide you with an APR when they
quotation you the rate of a loan. So, if you are looking at loans from two different

lenders, or from a broker and a lender, you can compare the loans' APRs to see how the
loans' total costs are different.

Example: $100,000 fixed rate mortgage:
You're looking for a 30 year fixed rate loan and have quotes from two lenders. The first
lender quotes you a 7.875% interest rate with $2,000 in fees (including discount points).
The second offers you an 8% interest rate with no fees or points. Rather than doing the
math to figure out which of these two lenders' loans is cheaper, you could just look at the
APRs and see what the total costs are.

                                        TABLE 1.5

                       Interest rate           Fees and points         Arp

Lender one             7.875%                  $2,000                  8.087

Lender two             8.000%                  $0                      8.000

SOURCE (http://www.austinhomeloan.com/rent/apr.html)

4.16 Different fees in calculation:
Although lenders are required to give you an idea about the APR, they don't all use the
same fees in the calculation. You have to be careful to make sure the two APRs that you
are compare use the same fees to do a true apples-to-apples comparison. Otherwise you
could end up compare a golden delectable to a crabapple.

4.16.1 Not your true cost:
An APR calculates the total cost over the full term of a mortgage, but a small number of
people keep a mortgage for that long. Typical mortgage strength has a 30 year term, but
few people hold them for more than 5 years. This means that the APR calculation
includes interest that you will by no means pay and spreads the closing costs over too
many years.
4.17 Discount Points and Lender Rebates:
Your total closing costs will vary from almost not anything (if you get rebate points), to
up to 5% of the purchase price (if you buy discount points). A position is one percent of
the loan amount, and can be positive (discount point) or negative (rebate point). It is a fee
or credit that is added to or subtract from your closing costs. Your pay almost not
anything in closing costs if you opt for refund points.

4.17.1 Points and taxes:
Points are tax deductible.

4.17.2 How Discount and Rebate Points Work:
Lenders usually offer the same loan at various interest rates depending on how many
points you choose. Pay more points, and you'll get a lower rate. Or, in exchange for a
higher rate, get refund point to offset a few of your closing costs.

                         Example: 8.00% loan with zero points
                                       TABLE 1. 6

      Interest rate                         Discount points / (rebate)

       7.750%                               1.000

      8.000%                                0.000

      8.250%                                (1.000)

SOURCE (http://www.austinhomeloan.com/rent/disc_points_wk.html)

4.17.3 Paying discount points:
Every discount point you pay normally lowers your interest rate by about 0.25%. So, if
the current market rate with zero points is 8.00%, you could pay a lender to decrease it to
7.75% by paying one discount point. On a $100,000 loan, that one discount point would
cost $1,000

4.17.4 Getting rebate points:
Each rebate point you receive typically increase your interest rate by about 0.25%. So,
using an 8.00% rate with zero points, you might obtain one rebate point in exchange for
raising your interest rate to 8.25%. On a $100,000 loan, that one rebate point would equal
a $1,000 credit towards your closing costs. Letter that you can't get any cash from rebate
point and they can only pay for some of your closing costs.
4.17.5 Costs they don't cover:
 Rebate points don't cover prepaid risk insurance, prepaid interest, mortgage insurance
impounds, risk insurance impounds, and property tax impound.

4.17.6 Discount point strategies:
To figure out how several points to get, you need to decide how a great deal you can
afford to spend up-front, each month and in whole. Discount points directly affect these
costs and agree to you to find a balance that fits your budgeting requirements

4.18 Total cost:
Discount points lower your interest rate. The longer that you hold a mortgage, the longer
you will enjoy the savings of the lower interest rate.
As you can see in the table under, if the example mortgage is detained for two years, the
lowest total cost would be with -2 discount points (or 2 rebate points), but over five years
it makes more sense to get 3 discount points

                   Example: $100,000 30 year fixed rate mortgage:
                                       TALBE 1.7

       Discount      Interest rate         Total cost over 2     Total cost over 5
points (rebate)                            years                 years

(2.000)              8.125%                $17,820               $44,550

(1.000)              7.875%                $20,402               $46,504

0.000                7.625%                $19,987               $45,476

1.000                7.375%                $19,576               $44,441

2.000                7.125%                $19,169               $43,423

3.000                6.875%                $18,766               $42,416

The mortgage payments made include discount points and $ 2,000 in closing costs.
SOURCE (http://www.austinhomeloan.com/rent/disc_strategies.html)
As you can see in the table below, if the example mortgage is held for two years, the
lowest total cost would be with -2 discount points (or 2 rebate points), but over five years
it makes more intelligence to get 3 reduction points.

4.18.1 Monthly cost:
Unless you can have enough money the up-front cost and monthly payments, talking
about the total cost of a mortgage doesn't always help. As you can observe in the table
below, the more you pay at closing, the lower your monthly payment.

Example: $100,000 30 year fixed rate mortgage
                                        TABLE 1.8

Discount points        Up-front cost           Interest rate          Monthly cost

(2.000)                $0                      8.125%                 $743

(1.000)                $1,000                  7.875%                 $725

0.000                  $2,000                  7.625%                 $708

1.000                  $3,000                  7.375%                 $691

2.000                  $4,000                  7.125%                 $674

3,000                  $5,000                  6.875%                 $657

SOURCE (http://www.austinhomeloan.com/rent/disc_strategies.html)

4.18.2 Another option:
Rather than use rebates to lower your closing costs, you can simply borrow more money
and use the extra money to pay the closing costs. This can be more attractive than getting
rebate points if you have a large down payment (over 20%) and you plan to be in the
home for more than a few years since it doesn't raise your interest rate

4.18.3 Points and Taxes:
Unlike interest, points are paid upfront. If you're purchasing a home, you can deduct the
points from your taxes in the year you buy the house. That means money in your pocket
this year, rather than spread out over the next 5 to 30 years. If you're refinancing, the tax
deduction from the points gets spread over the term of the loan (less help with this year's
taxes). Points are tax deductible.

4.19 Results:
The results of the underwriting analysis are summarizing on Eligibility Summary. The
Eligibility review must be signed, dated, and filed in Position, and must replicate the
confirmed applicant and property information at the time of loan underwriting. If the
results of the analysis designate that the applicant’s loan is feasible, the Loan Originator
should propose that it be approved. Before forwarding the case file, the Loan Originator
should evaluation it to ensure that all documentation required for approval, is included.
The Loan Originator also must reconfirm that the documentation in the case file
demonstrates that: while the case file is complete, the Loan Originator forwards the case

file to the Loan Approval Official for review and approval. For leadership on the
documentation required prior to loan agreement. .

Policy and underwriting exceptions are circumstances in agreed loans that are in breach of
the bank’s lending policies or underwriting guidelines. In an automated approval
environment, policy exceptions should be rare. Though, if the underwriting procedure
includes a judgmental element, overrides are more likely to occur. Examiners should look
for evidence that management has provide guidelines and limitations for granting loans
that do not conform to the lending policy and underwriting guidelines and that it has
established procedures for tracking and monitor loans approved as exceptions
Tracking exceptions is an important tool for several reasons. In addition to aiding the
assessment of portfolio risk profiles and the adequacy of loss allowances, it helps hold
staff responsible for policy compliance and reassess the appropriateness of existing
policies and practices.
Exceptions are tracked both on an individual and collective basis. Tracking the aggregate
level of exceptions is common and helps notice shifts in the risk characteristics of the
credit card portfolio. It facilitates risk evaluation and helps management recognize new
business and training opportunities. Analysis of aggregate exceptions eventually enables
management to associate particular types of exceptions with a higher probability of
defaulting. Policy and underwriting exceptions that are viewed independently may not
appear to substantially increase risk. But, when aggregate, those same exceptions can
considerably increase portfolio risk. As such, early uncovering and analysis of adverse
trends in exceptions is a necessary element for ensuring timely and suitable corrective
An excessive or increasing volume or a example of exceptions could signal unintended or
unwarranted relaxation in underwriting practices. If the volume of exceptions is far above
the ground, management may be prompted to reconsider its risk tolerance, revise policies
to be better aligned with the credit background or current market conditions, establish new
restrictions on the volume of exceptions, or change the type of exceptions permitted.
When organization has revised policies in response to high volumes of exceptions,
examiners should assess the implications of the revisions, as well as impacts on the
bank’s risk profile.
While high volumes of exceptions may indicate greater than before risk, so can a lack of
exceptions. A lack of exceptions may indicate that the policy is too general to set clear
limits on underwriting risk. If examiners identify an absence of exceptions, they should
carefully evaluation the bank’s policies to determine whether such policies provide
adequate and clear guidance and restrictions.
Examiners should measure the sufficiency of portfolio managers’ events for compare the
performance of exception loans with that of loans made within established guidelines. To
facilitate comparison, management often uses exception coding and retains it even if the
condition triggering the coding no longer exists. Examiners should appraisal

management’s practices for dropping exception codes or re-coding and should identify
whether the practices skew or spoil the efficiency of exception tracking.

A selection of indices is available regarding the underwriting function and its relationship
with the marketing function. Items of interest comprise, but are not limited to:
•      Origination cost per account, which is the total beginning cost over a measurement
       time in relation to the number of accounts that were originate during that same
       period. It measures the cost of establishing a new account connection.
•      Approval rate, which is the number of accounts approved over a dimension period
       in relation to the number of applications (or responses) received.
•      Booking rate, which is the number of accounts really booked over a measurement
       period in relation to either the number of accepted accounts or the number of
       applications (or responses) received. In some instance the customer applies for
       credit but then declines the offer after approved.
•      Override rate, which is the number of overrides over a dimension period in relation
       to the number of applicant in the population.
•      High-side override rate, which is the number of applicant over the cut-off score
       who were denied credit in relation to the number of applicant over the cut-off
•      Low-side override rate, which is the number of applicant below the cut-off score
       who were given credit in relation to the number of applicants under the cut-off
•      Application processing time, which is the amount of time it takes the organization
       to process the application from the time of receipt to the point the credit decision is
       made and communicate to the consumer.
Portfolio problems can normally be traced back to the bank’s business generation and
underwriting practices. Management is expected to devote enough resources to analyze
changes in underwriting and credit scores, use appropriate systems and analytical tools to
inspect the results, and monitor warning signs of market deterioration. Ordinary reports
found in the underwriting department include, but are not limited to, those detailing
policy changes, average credit score for new accounts, standard initial credit lines assign,
approval rates, booking rates, and costs associated with the marketing and underwriting
functions. Examiners should also decide whether management is monitoring reports as
detailed in the Multiple Account Strategies and Policy and Underwriting Exceptions.
They should also look for evidence that management is using appropriate and sufficient
segmentation techniques (program type, vintage, marketing channel, score distribution,
etc.) within its reporting and is frequently monitoring marketing reports, frequently no
less than monthly.

          Chapter 5
Conclusion and Recommendations

I have concluded, about the topic of underwriting fees, and as well as the role of
underwriter in the underwriting of loan and also the process of loan underwriting.
underwriter how to hedged the risk at the time of loan underwriting and also the
calculation related to the loan underwriting after the full understanding and then writing
in the dissertation about the topic is called underwriting fees. I have analysis about the
underwriting fees. Underwriting fees have pay for the purpose of receiving the services
on be half of the lender or the any of the financial institution and the insurance company
also the organizations that preferred the initial public offering and also the underwriters’
have been hired for the purpose of issue of any other financial products like shares,
bonds, and as well as marketable securities. But according to my point of as underwriter
who charge the underwriting fees from both partier. First one is lender and second one is
applicant because underwriter a person who also encouraged to the applicant and
consultancy provide to the applicant for the purpose of the preparing Documents use in
the loan and as well as mortgages and other marketable securities’ but not by default.
I have suggestion about their services because applicant not easily understand the
requirements of related Documents lender not properly guide to the applicant because not
charged any fee about those services that’s way in the Documentation or any other
information provide by the applicant not full fill the criteria and also the underwriter not
easily understand the risk order by the lender. So this type of fee and service also include
In the underwriting process this fee was beneficial both parties but in the shelter of truth
not to default first one is applicant easily provide all information and Documents for the
purpose of commercial loan, mortgage of property, and any other type of loan provided
by the lender and second one is underwriter must be bound by both parties and not make
the wrong judgment about the processing to underwriting even unranked company,
initial public offering and also the any other financial institution underwriter done his
duty perfectly for the purpose of underwriting fees.
I have also suggestion about the initial public offering because in which brokers must be
bound by the company became take the risk for the purpose of commission and the
underwriting fees. I have suggested that reduce the risk and chance of loss you the
brokers who are responsible for sold out the chare bond and any other securities in the
market they were analysis about the market and also the reputation of desire company
then decide whether provide the services to the company for the purpose of profit or the
risk which done at the time of agreement with the company for the purpose of the
underwriting fees.
Underwriter as a profession it is one of the most important understanding about the
related company s well knowledge about the initial public offering and its process as a
underwriter firstly know how about the how to exactly working related any product of
underwriting like mortgage underwriting and its process related to like a home mortgage
underwriting as well as loan underwriting know how about the loan underwriting process
like a student loan underwriting then underwriting agency hired as a underwriter and
provide the services as a underwriter for the purpose of the underwriting fees.

I have given some suggestions like a recommendations related to the underwriting and
loan approval process.

5.2.1 Underwriting and loan approval process:
Review of the underwriting and loan agreement process is important because the goal of
the examination is not only to identify current portfolio problems, but on the way to
identify potential problems that may arise from ineffective policies, unfavorable trends,
lending concentrations to policies. Examiners normally review items such as.
•      The configuration of the underwriting department and the expertise of its staff.
•      Applicable board and/or committee action (in coordination with the examiner-in-
•      Underwriting policies and procedures.
•      Underwriting similar documents summarizing changes in the underwriting and
       loan approval process.
•      Planned underwriting and loan approval changes.
•      Management exposure, track, and monitor, as well as department statistics,
       portfolio statistics, and other segmentation statistics.
•      Automated underwriting systems.
•      Controls over judgmental underwriting processes.
•      Management’s recognition of and response to unfavorable trends in the
       underwriting and loan agreement area.
•      Audits or other review of the underwriting and loan approval function.
The following items may signal current or future high risk and, as a result, capacity
warrant follow-up:
•      Excessive or rapidly rising approval rates.
•      Frequent or substantial changes in underwriting criteria.
•      High employee turnover in the department.
•      High or increasing exemption volumes.
•      Extremely low or missing exemption volumes.
•      High or increasing volume of accounts closed shortly after booking.

•   Adverse presentation of several account holders compared to cardholders with
    only one account.
•   A small number or else ineffective management reports.
•   Trends in the credit score allocation toward higher-risk financial records.
•   High or increasing volume of consumer complaints.
•   Credit position not in agreement with products offered or with the target markets
    risk profile.
•   Trends showing clear changes in normal assigned position.


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