Loan Processor vs. Underwriter

There are many moving parts when it comes to applying for a loan. Each loan application consists of several stages, such as gathering required information and documents and assessing the applicant’s information for approval. Because of the many steps involved, there are loan professionals who help you with each stage. For example, loan processors organize and verify loan documentation, while underwriters evaluate whether an application meets the lender’s requirements. Here’s a breakdown of what each professional does and the role they play in the loan approval process.

If you need help navigating the world of loans, consider working with a financial advisor.

What Is a Loan Processor?

Applying for a loan comes with a lot of paperwork and documentation requirements. To streamline the process, a loan processor organizes and manages the information and documents needed to complete the loan file. For a mortgage, this can include pay stubs, W-2s, tax returns, bank statements, information about assets and debts and other documents required by the lender.

Then, the loan processor gives the documentation to the underwriter, who evaluates whether the borrower and loan meet applicable lending requirements. The processor can also work with the borrower and other parties to obtain missing information or documents requested during underwriting.

Licensing requirements for loan processors depend on their duties and employment arrangement. Under federal rules for residential mortgages, individuals performing only clerical or support duties under the direction and supervision of a licensed or registered loan originator generally are not treated as loan originators solely because they process loans. Independent contractors who perform certain loan processing or underwriting activities can be subject to licensing requirements.

What Does a Loan Processor Do?

The primary role of a loan processor is to streamline the loan application process. Exact responsibilities vary by lender and loan type, but processors generally prepare the loan file for underwriting and help keep required documentation current and complete.

Loan processors gather your financial documentation. The most important part of their job is making sure required financial documents are collected and included in the file. For mortgages, these can include W-2s, pay stubs, tax returns, bank statements and documentation of assets, debts, employment and insurance, depending on the loan. Fannie Mae, for example, requires lenders to document the income, assets, debts and other financial information used to qualify a borrower.
They help verify information in your application. Processors can review documents for completeness, identify discrepancies or missing information and request additional documentation. Depending on the lender’s procedures, they may also help obtain credit, employment, asset or other required verifications.
They help keep the loan moving through the process. Processors can track outstanding documents, appraisal information and underwriting conditions so the file is ready for the next stage.
They work with the underwriter. Once the file is sufficiently complete, the processor submits it for underwriting. If the underwriter requests additional documentation or clarification, the processor may help obtain it before the file is reviewed again.

What Is a Loan Underwriter?

Loan underwriters work for lenders and help them evaluate and assess the risk of a loan applicant. So, when you apply for a mortgage or auto loan, an underwriter can review whether your application satisfies the lender’s standards for approval.

Loan underwriters review information such as your income, credit score, debt-to-income ratio and other assets. When applying for a mortgage, underwriters will also look at the value and type of the property and whether it provides adequate collateral for the requested loan. Fannie Mae’s mortgage underwriting standards, for example, evaluate factors that include credit history, reliable and recurring income, liquid reserves and the borrower’s capacity to repay.

Mortgage underwriting can be manual or supported by an automated underwriting system. Fannie Mae’s Desktop Underwriter, for example, analyzes borrower and loan information and provides a risk assessment and eligibility recommendation. The lender remains responsible for the accuracy of the information and the loan’s compliance with applicable requirements.

What Does an Underwriter Do?

After the loan processor passes the documentation to the underwriter, the loan underwriter reviews the file and determines whether it meets the lender’s underwriting standards. An application can be approved, denied or require additional information or conditions before final approval. Usually, underwriters focus on three areas to determine approval, including:

They check and assess your credit history. Your credit history is one of the important factors when determining loan approval. The underwriter’s job is to analyze your credit history and evaluate factors such as your payment history, outstanding debts and other credit information relevant to the lender’s guidelines.
They review your financial capacity. While deciding if you can pay off your mortgage, the underwriter will look over your income, employment history, assets and debt. Underwriters can also review bank and investment accounts, tax returns and your debt-to-income ratio to determine whether you meet the loan’s requirements.
They evaluate the collateral. Underwriters use the home’s current market value and other property information to determine whether it meets the lender’s collateral requirements. An appraisal or another permitted property valuation method can be used, depending on the mortgage and underwriting requirements.

If your loan application is denied, the lender generally must provide an adverse action notice stating the principal reasons for the decision or explaining how you can request those reasons. If the decision was based on information in your credit report, additional disclosure requirements apply. Correcting inaccurate information or providing requested documentation could allow you to address certain problems, but federal law does not provide a general right to appeal every mortgage underwriting denial.

Loan Processor vs. Underwriter

Both the loan processor and loan underwriter play an important role in the approval of your loan. A loan processor collects, manages and organizes the documentation needed for the application and helps prepare the file for underwriting. Once the required information has been collected, the file moves to underwriting.

The loan underwriter will then take a closer look at the applicant’s credit, income, assets, debts and, for secured loans, collateral to determine whether the application meets the lender’s requirements. A loan officer or mortgage broker can help you understand loan options and application requirements, but the credit decision is made according to the lender’s underwriting process.

What Happens After the Underwriter Reviews Your Loan?

An underwriting review does not always end with an immediate approval or denial. For mortgages, the underwriter can identify conditions that must be satisfied before the loan can proceed. These could involve updated income or asset documentation, clarification of information in the application or additional property documentation. Fannie Mae’s automated underwriting system also generates verification requirements and approval conditions based on the risk factors in a loan file.

Once the requested information is provided, the underwriter can review the file again. A loan that satisfies the lender’s requirements can move toward final approval and closing. Lenders must also confirm that required approval conditions have been satisfied and that the information used to support the underwriting decision is accurate.

If the lender denies the application, federal rules generally require it to provide the principal reasons for the adverse decision or tell you how to obtain them. Reviewing those reasons can help you identify whether the issue involves credit history, income, debt, documentation or another underwriting factor.

Bottom Line

A loan processor and underwriter discussing their work.

Loan processors and loan underwriters are key players in loan approval. While the loan processors get all your documents in order, the loan underwriter assesses the risk of lending you money for a home, car or debt consolidation. Understanding the role of each can help you know what to expect when applying for financing. After all, the better prepared you are, the more straightforward the process will be.

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