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Hong KongUnderwriting decisions explained
An underwriter approves, approves with conditions, suspends pending information, or denies. Most approvals carry conditions, and clearing them is a large part of what happens between approval and closing.
Underwriting is the decision about whether the loan should be made. It rests on the three Cs and produces one of four outcomes.
The three Cs
| C | What it assesses | Evidence |
|---|---|---|
| Capacity | Can the borrower afford it | Income, employment, ratios |
| Credit | Do they pay what they owe | Credit report, score, history |
| Collateral | Is the property adequate security | Appraisal, title, loan-to-value |
Nearly every underwriting question on the exam is asking about one of the three. Identifying which one narrows the options quickly.
The four outcomes
- Approved - rare without conditions
- Approved with conditions - the normal outcome
- Suspended - a decision cannot be made without more information
- Denied - the loan will not be made
Suspended is the one candidates misread. It is not a soft denial. It means the file is incomplete and the underwriter is asking for something before deciding.
Conditions
Requirements that must be satisfied before closing. A recent pay stub, an explanation for a large deposit, proof a debt was paid off, an updated insurance binder.
Prior-to-document conditions must be cleared before closing documents are drawn. Prior-to-funding conditions must be cleared before money moves.
It triggers a notice under ECOA stating the specific reasons, or telling the applicant how to obtain them, within 30 days of a completed application. That is a regulatory obligation, not a courtesy.
Automated and manual
Most files run through an automated underwriting system first. A referral from it, or a file that does not fit the model, goes to manual underwriting where a person applies judgment and compensating factors.
Manual underwriting is where reserves, employment stability and payment shock get weighed against a ratio slightly over benchmark.
Common questions
What are the underwriting outcomes?
Approved, approved with conditions, suspended pending more information, or denied.
What are the three Cs of underwriting?
Capacity, credit and collateral.
What is a suspended file?
One where the underwriter cannot decide without further information. It is not a denial.
What is a prior-to-funding condition?
A requirement that must be cleared before money is disbursed, as opposed to before closing documents are drawn.
What happens when a loan is denied?
An adverse action notice is required under ECOA, giving the specific reasons or how to obtain them, within 30 days of a completed application.