Delegated Vs. Non-Delegated Loans
When dealing with lenders in the past, you may have heard them talk about the qualification between a delegated loan and a non-delegated loan. What’s the difference, and what does it mean for you?
When a loan is delegated, that essentially means your lender is underwriting the loan in-house, as opposed to submitting the loan to an outside underwriting party. Since no two loans are alike, this enables your lender to customize the terms. It also means the loan closes faster, which is great for everyone involved.
Brokers Become Lenders:
In order to offer non-delegated loans, this means a mortgage broker must become accredited as a lender. This ensures the protection of both the borrower and the lender, as the mortgage company is then subject to the compliance regulations and rules that govern the industry.
While in-house underwriting can mean it’s easier for individuals to receive a home loan, that doesn’t necessarily mean it’s going to be at the most competitive rate. Even when underwriting is centralized, decisions are still made based on the borrower’s income—and in some cases, the loan may still be delegated to an outside underwriter. In those circumstances, the loan amount, the borrower income, or a compilation of circumstances may be the reason.
Risks and Rewards:
While the convenience of offering underwriting in-house is huge for the customer, it does present some risks to the lender. If a small company is doing the lending, they may lack the on-hand capital to recover if a loan goes bad. Further, while regulations are applied, the infrastructure to prevent fraud is still being developed on both sides of the table, as in-house underwriting was first adopted in many cases only 5-6 years ago.
Written by: Shannon Pierce, Processor at Royal United Mortgage LLC