Mortgage underwriting in the United States
What is mortgage underwriting in the United States?
The process of assessing the risk of a borrower being able to repay their mortgage. Lending criteria may be set both by the mortgage bank and whoever the bank sells the loan onto.
Where have you heard about mortgage underwriting in the United States?
Mortgage underwriting practices were criticised following the 2007-2008 financial crisis. New rules have since been introduced to make sure borrowers are clear about the terms of their mortgage before signing.
What you need to know about mortgage underwriting in the United States.
The mortgage market works slightly differently in the US to Europe. Rather than banks keeping the loans on their balance sheet, US mortgage banks sell them on in the secondary mortgage market. They use the funds generated from this to make more loans.
Mortgages are often sold to a US government sponsored enterprise (GSE) who pool many mortgages and sell them to investors as mortgage-backed securities. GSEs have their own lending standards for any loans they take on, which will form part of the bank's lending criteria. The underwriter will consider your credit history, capacity to repay and collateral (the type of property) when deciding whether or not to offer you a loan.
Find out more about mortgage underwriting in the United States.
Discover how competition in the mortgage securitization market contributed to the US subprime mortgage crisis in our guide.