How Do I Lower the Risk? - Strategies for Second Mortgage Approval Part 1

Second mortgage lenders are not under any obligation to lend. It's what they do.

However it is incumbent upon the second mortgage lender to weigh the elements of risk in mortgage transaction and ensure that the risk is analyzed fully and deemed acceptable.

Exactly what is in the balance?

• The second mortgage lender must balance the business goal to lend against the depositors, investors or secondary market investors interests. The role of the underwriter is to balance those risks. The risk of the application goes through the following phases.

• The underwriter reviews the application to determine if the application can be approved immediately or should be conditioned.

• The underwriter reviews files that are conditioned. They determine what conditions should be applied and forward the conditions to the mortgage broker for completion.

• The underwriter completes the package and forwards to the mortgage/title insurer, if required, for review. Finally, once the application has gone through the process the investor, in the case of private second mortgages, will determine if they will invest.

The elements that the underwriter considers as they review the application are as follows:

1. Credit

2. Interest rate

3. Collateral

4. Potential for Default

5. Compliance

6. Price and Market Liquidity

7. Secondary market

8. Portfolio

9. Character and circumstances of the client.

Second mortgages have a higher risk over conventional mortgages, and as result require more hands on. Each of the nine elements is weighted with a mind to ensuring that the second mortgage comes to term and is refinanced successfully.

Credit is the first issue that is addressed. In second mortgage applications, especially where debt consolidation is being sought, the credit score of the client has usually been damaged. Most second mortgage lenders will look at beacon scores 500 plus. Clients with scores in the low 500's and below will need to consider boutique private lenders who buy on loan to value (LTV) alone.

The credit score will determine the interest rate provided by the second mortgage lender. The poorer the credit the higher the interest rate usually prevails. If the client has a good story, one that speaks to personal misfortune rather personal malfeasance rates can be negotiated. The role of the mortgage broker is important in this case. A mortgage broker can advocate on the clients behalf for a break in interest rates. The broker can provide insight into the personal circumstances of the client that goes beyond the black and white application.

Engaging your broker with the circumstances of your story is the first step. A sympathetic broker will be your personal evangelist. The broker will able to ensure that your application has a face and a need to be funded. (Part 2.)

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