Chapter 1
Federal Mortgage Laws and Consumer Protection Regulations
Course: Safe Mlo Prep
Subject: Safe Mlo Prep
Chapter: Mortgage Loan Origination Activities
OVERVIEW
Underwriting is the process of evaluating overall borrower risk and determining whether a loan meets program guidelines to receive a credit approval. Understanding the underwriting process — including AUS findings, the 4 Cs, overlays, and conditions — is essential for every MLO.
- The 4 Cs of Credit
Every mortgage loan is evaluated on four dimensions:
Capacity: Can the borrower afford to repay the loan?
- Measured through income documentation, DTI ratios, and employment stability
Credit: Does the borrower have a history of repaying obligations?
- Measured through credit scores, credit history, and derogatory items
Capital: Does the borrower have the assets needed?
- Measured through verification of down payment, closing costs, and reserves
Collateral: Is the property adequate security for the loan?
- Measured through the appraisal, LTV ratio, and property condition