A credit underwriter is an individual employed by a bank or finance company who has the ultimate responsibility to approve or decline credit applications. Preliminary decisions to approve or decline a loan are often made by the loan officer who accepts the application or by an automated credit approval system, but decisions are typically not final until after the underwriter reviews the application. Underwriters have to weigh the possible profits that a new credit account could generate against the risk that the borrower could default on the loan.
Typically, a credit underwriter has a background in lending or finance, and some experienced loan officers transition into credit underwriting roles. Underwriters have approval limits, and can only review loan applications that are for amounts within their lending authority. An experienced credit underwriter can make decisions on large dollar loans, but big commercial loans are normally reviewed by a team of underwriters and executives rather than just one individual.
The underwriting process normally begins with the credit underwriter ordering a copy of the applicant's credit report and reviewing it to see if the applicant's credit score meets the minimum required to qualify for a loan or other credit product. Underwriters can make exceptions to minimum credit requirements if an applicant has extenuating circumstances. The underwriter also reviews all of the supporting documentation that relates to the borrower's financial situation, such as copies of tax returns and recent pay slips. By using the credit report and the income verification documents, the underwriter is able to calculate the applicant’s debt-to-income (DTI) level. Finance companies have DTI caps, and people with excessive debt levels are ineligible for additional credit.
On loan applications that are secured by some form of collateral, the credit underwriter has to determine whether the collateral holds sufficient value to secure the loan. Outside appraisers are hired to conduct appraisals of homes and commercial properties, and the underwriter reviews the appraiser's report to ensure that the loan amount does not exceed the property value. Underwriters are also responsible for ensuring that no legal issues, such as unpaid liens, prevent the lender from securing a loan against the collateral being pledged by the borrower. Having reviewed the borrower's information and the collateral report, the underwriter can either approve the application, decline it, or make a counter offer of a loan for a smaller amount.
Loan officers and applicants have the right to appeal the credit underwriter’s decision. If a case can be made that the decision should be over turned, the original underwriter must ask a senior underwriter to review the application. In most instances, the senior underwriter’s decision on an appeal is final and cannot be contested.