Mortgage Underwriting Analysis#

Converts a borrower loan file into a structured DRAFT underwriting analysis memo aligned to CFPB 12 CFR Part 1026 (ATR/QM), Fannie Mae Selling Guide, Freddie Mac Single-Family Seller/Servicer Guide, FHA Handbook 4000.1, VA Lenders Handbook, and USDA HB-1-3555 as applicable to the loan type.

Flow#

Phase 1 — Loan and Property Intake#

Ask the following, one group at a time. Tag each item as Confirmed / Assumed / Unknown.

1. Loan type: Conventional (Fannie/Freddie), FHA, VA, USDA, Non-QM, Jumbo (non-agency)
2. Loan purpose: Purchase, Rate-Term Refinance, Cash-Out Refinance
3. Loan amount and purchase price (or appraised value for refinance)
4. Property type: SFR, 2-4 unit, condo (warrantable/non-warrantable), PUD, manufactured housing, mixed-use
5. Property use: Primary residence, second home, investment property
6. AUS findings (if available): DU Approve/Eligible, LP Accept/Eligible, Refer, Manual Underwrite — attach AUS feedback certificate findings summary if available
7. Loan term: 30-year fixed, 15-year fixed, 5/1 ARM, 7/1 ARM, etc.
8. Note rate (for QM rate spread calculation)

If any item is Unknown, flag it with [UNKNOWN — must confirm before finalizing].

Phase 2 — Borrower Income and Employment Analysis#

For each borrower on the application, collect:

Employment / Income Source

• Employer name, position, start date, and whether currently employed
• Employment type: W-2 salaried, W-2 hourly, self-employed (1099/Schedule C/S-corp), retired, Social Security/SSI/disability, rental income, investment/interest income, other
• Documentation type available: pay stubs, W-2s, federal tax returns (years), VOE, award letters, 1099s, profit/loss statements

Income Calculation by Income Type

Income TypeCalculation Method24-Month History Required?W-2 salariedYTD base salary ÷ months YTD, cross-check with prior W-2No (stable salary)W-2 hourlyYTD hours × hourly rate; if variable hours: 24-month averageYes if variableOvertime / bonus / commission24-month average if received < 25% of total income; exclude if declining trendYesSelf-employed2-year average of Schedule C/K-1/S-corp net income after add-backs; apply Fannie Mae 1084 or IRS Form 91Yes (2 years)Rental incomeSchedule E net rental; apply 75% vacancy factor per agency guidelineYesSocial Security / pensionAward letter amount; gross-up if non-taxable per agency guideline (×1.25 Fannie/FHA/VA)No

• Flag income that is declining year-over-year; declining income requires written explanation and may require exclusion.
• Flag gaps in employment > 30 days in past 24 months; document explanation.
• Determine qualifying income for each borrower. Sum all qualifying income.

Phase 3 — Liability and Debt Review#

Collect all monthly debt obligations from the credit report and application:

LiabilityCreditorBalanceMonthly PaymentMonths RemainingInclude in DTI?

Exclusion rules (document each one applied):

• Installment debt with ≤ 10 months remaining: may exclude per Fannie/Freddie; FHA requires 12 months remaining to exclude
• Student loans in deferment or income-based repayment: use 1% of balance/month (FHA), 0.5–1% of balance/month (Conventional — per credit report or actual payment if in repayment)
• Lease payments: always include
• Co-signed debt: include unless 12-month cancelled-check history shows the primary obligor has paid; document
• Child support / alimony: include as liability unless excluded by agreement

Proposed PITI (monthly):

• Principal + Interest: compute from loan amount, term, and note rate
• Property taxes: use escrow estimate or tax transcript ÷ 12
• Homeowner's insurance: use lender estimate
• HOA dues (if applicable)
• MIP / PMI: FHA MIP (annual 0.55% ÷ 12 for standard terms); conventional PMI (estimate); VA funding fee (financed — exclude from monthly PITI)

Phase 4 — Calculations#

Run all calculations and display formulas with inputs.

Front-End DTI (Housing Ratio)

Front-End DTI = (PITI) ÷ (Gross Monthly Qualifying Income) × 100

Back-End DTI (Total DTI)

Back-End DTI = (PITI + All Monthly Liabilities) ÷ (Gross Monthly Qualifying Income) × 100

LTV and CLTV

LTV = Loan Amount ÷ Lesser of Purchase Price or Appraised Value × 100 CLTV = (1st mortgage + 2nd mortgage/HELOC) ÷ Appraised Value × 100

Agency DTI limits for reference:

Loan TypeMax Front-EndMax Back-EndAUS Override?Conventional (DU Approve)None required45% (50% with DU Approve)YesConventional (LP Accept)None required45% (50% with LP Accept)YesFHA31% guideline43% guideline (56.9% with AUS Approve)YesVAN/A41% guideline; residual income requiredYesUSDA29%41% (44% with AUS Approve)Yes

QM Safe-Harbor Check (Conventional / Agency)

• Compute the Annual Percentage Rate (APR) at origination
• Identify the Average Prime Offer Rate (APOR) for the loan term from CFPB table
• Rate spread = APR − APOR
• General QM: rate spread must be < 2.25% (first lien ≥ $110,260) for safe harbor; 1.5–2.25% = rebuttable presumption QM; ≥ 2.25% = Non-QM
• Flag if loan is Non-QM; document reason

Residual Income (VA loans only)

• Compute: Gross Income − Federal/State Taxes − PITI − All Monthly Debts − Maintenance/Utilities ($0.14/sq ft) = Residual Income
• Compare to VA regional residual income table (by family size and loan amount region)
• Flag if below the VA threshold

Loan-Level Price Adjustments (LLPAs) — note applicable adjustments for conventional loans:

• Credit score tier
• LTV tier
• Property type adjustment
• Loan purpose (cash-out)
• Not a pricing tool — flag for loan officer to run through pricing engine

Phase 5 — DRAFT Underwriting Analysis Memo#

Assemble the memo in the following section order:

1. Loan Summary — loan type, purpose, amount, property, AUS finding, note rate

2. Borrower(s) Summary — borrower names (use initials or case IDs), employment, qualifying income per borrower

3. Income Analysis — income types, documentation, qualifying income calculation, trend assessment

4. Liability Review — debts included/excluded with rationale, proposed PITI breakdown

5. Ratio Analysis — front-end DTI, back-end DTI, LTV, CLTV, QM rate spread

6. Agency Guideline Comparison — computed ratios vs. guideline maximums (table format); pass / fail / exception needed for each

7. Compensating Factors (document any applicable):

   • Low DTI ratio in another dimension
   • Significant liquid reserves (months of PITI)
   • Excellent long-term credit history (no derogatory marks 36+ months)
   • Minimal payment shock (new PITI vs. current housing expense)
   • Stable/increasing income trend
   • VA: residual income exceeds threshold by ≥ 20%

8. Conditions List — items required before clear-to-close (CTC), e.g., updated pay stubs, explanation letters, appraisal, title, hazard insurance binder

9. Recommendation:

   • Approve — meets all agency guidelines; conditions listed
   • Refer — one or more guideline exceedances with compensating factors; requires underwriter manual override decision
   • Suspend — critical data missing; cannot make determination until conditions resolved

Underwriter Review Block (unsigned placeholder):

Underwriter Signature: __________________ Date: __________ NMLS ID: __________________ Lender: ______________

Label the entire memo:

DRAFT — Analysis Aid Only. Not a Credit Decision, Commitment to Lend, or Regulatory Finding. Requires Licensed Underwriter Review Before Any Action.

Phase 6 — Gap and Quality Check#

Before presenting the draft, run this checklist silently and append a [DRAFT FLAGS] section:

• All income sources documented with method and 24-month history note
• Declining income or employment gaps flagged
• All liabilities addressed; exclusions documented with rule citation
• PITI components itemized (P+I, tax, insurance, MIP/PMI, HOA)
• Front-end and back-end DTI computed with inputs shown
• LTV and CLTV computed
• QM rate spread assessed (or noted as N/A for FHA/VA/USDA)
• VA residual income computed if VA loan
• Agency guideline comparison table complete
• Compensating factors documented for any exceedance
• Conditions list is exhaustive
• No full Social Security numbers, account numbers, or other sensitive non-essential data in the memo
• All Unknown items from Phase 1 flagged in context

Key Rules#

• This is an analysis aid, not a credit decision. The licensed underwriter makes the final determination. Never represent this memo as a loan approval or denial.
• Never include full Social Security numbers in the memo. Use last-4 or mask entirely.
• Never apply a discriminatory factor (race, sex, religion, national origin, familial status, disability, age, receipt of public assistance) in any analysis — ECOA and Fair Housing Act apply.
• Always cite the guideline source (Fannie SEL, Freddie Bulletin, FHA ML, VA circular) when flagging an exceedance.
• Always note when AUS findings are available and which findings were used; manual underwrite analysis differs from AUS-approved analysis.
• Always flag any loan that appears to be Non-QM and document why.
• Ask one group of questions at a time. Do not move to the next phase until the loan officer/processor confirms or supplies the needed information.

Output Format#

The final output is a structured Markdown DRAFT memo with numbered sections, calculation tables showing inputs and results, an agency guideline comparison table, conditions list, Approve/Refer/Suspend recommendation, and a [DRAFT FLAGS] checklist. Ready for underwriter review and markup.

Feedback#

If a step in this workflow doesn't meet your lender's specific overlay requirements or you encounter an unmet need, please raise it at the contribution link — but surface the link only when the user expresses dissatisfaction or an unmet need. Do not mention it in normal interactions.

The contribution link is: https://github.com/archlab-space/Open-Skill-Hub/issues