Sep
19

Originator Underwriting

Before we’ll purchase any loans from an originator, we do a due diligence review of the originator’s origination and asset management processes.  This is critical for us to understand, as by taking on a loan or a fractional loan from an originator, we’re not just taking on the risk of the borrower not repaying. We also take on the business risk of the originator’s processes.

When we do our due diligence on an originator, one of the first things we look at is their lending procedures.  This includes looking at:

Credit Policy – Understanding how the originator evaluates borrowers and properties.  

On the borrower evaluation front, we look at factors including but not limited to:

  • What FICO range will they lend to
  • Entity evaluation (does an entity need to have a warm body backer or not)
  • Are the loans made for business purposes (is the property owner occupied or not
  • What sort of background checks are run, and how do they validate borrower experience

On the property evaluation front, we look at:

  • Property types they will lend on
  • How is the property value calculated (appraisals, BPO’s, etc.)
  • Do they do any comparables analysis
  • What insurance do they require
  • Exit strategy analysis

Holdback/draw procedures

  • Does the originator provide the full loan up front or break it into draws
  • What does the draw administration procedure look like?
  • Who verifies work has been done for the draws?

Asset Management/Mitigation procedures

  • When a borrower is late on a payment, what happens?
  • What is the foreclosure procedure and timelines

Review of any third parties used, such as servicers and appraisal firms

Once our due diligence is complete and the lender meets our standards, we’ll start looking at their loans.