A credit underwriter is responsible for approving or denying credit applications, weighing the possible profits against the risk of default. They review credit reports, financial documents, and collateral value, and can approve, decline, or counter-offer loans. Appeals can be made to senior underwriters.
A credit underwriter is an individual employed by a bank or finance company who has ultimate responsibility for approving or denying credit applications. Preliminary decisions to approve or decline a loan are usually made by the loan officer accepting the application or by an automated credit approval system, but decisions are generally not final until the underwriter has reviewed the application. Underwriters need to weigh the possible profits that a new credit account can generate against the risk of the borrower defaulting on the loan.
Typically, a credit underwriter has a background in lending or finance, and some experienced loan officers move into credit underwriting roles. Underwriters have approval limits and can only review loan requests for amounts within their lending authority. An experienced credit underwriter can make decisions on large dollar loans, but large commercial loans are typically reviewed by a team of underwriters and executives rather than just one individual.
The underwriting process typically begins with the credit underwriter requesting a copy of the applicant’s credit report and reviewing it to verify that the applicant’s credit score meets the minimum necessary to qualify for a loan or other credit product. Underwriters may make exceptions to the minimum credit requirements if an applicant has extenuating circumstances. The underwriter also reviews all supporting documentation related to the borrower’s financial situation, such as copies of recent tax returns and pay stubs. Using the credit report and income verification documents, the underwriter can calculate the applicant’s debt/income level (DTI). Finance companies have DTI limits and people with excessive levels of debt are not eligible for additional credit.
In loan applications secured by some form of collateral, the credit underwriter must determine whether the collateral is of sufficient value to secure the loan. Outside appraisers are hired to conduct home and commercial property appraisals, and the underwriter reviews the appraiser’s report to ensure that the loan amount does not exceed the property’s value. Underwriters are also responsible for ensuring that no legal issues such as unpaid liens prevent the lender from securing a loan against the collateral pledged by the borrower. After reviewing the borrower’s information and the collateral report, the underwriter can approve the application, decline it, or counter-offer for a loan at a lower amount.
Loan agents and applicants have the right to appeal the underwriter’s decision. If it is possible to conclude that the decision should be reversed, the original underwriter should ask a senior underwriter to review the application. In most cases, the senior writer’s decision on an appeal is final and cannot be challenged.
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