Delegated underwriting

How delegated underwriting works

In a non-delegated arrangement, the seller sends each file to the buyer, and the buyer underwrites it and issues an approval before closing. Under delegated underwriting, the buyer approves the seller once, gives it written guidelines, and lets it make the credit decision itself. The buyer then purchases loans that meet the guidelines, usually after a post-closing review or sample audit.

The Office of the Comptroller of the Currency’s mortgage banking handbook notes that brokers generally do not underwrite loans unless they have delegated underwriting authority, and says institutions should have effective systems to oversee delegated arrangements, including checking that the third party is well managed, financially sound and meets the prescribed guidelines.

Why it matters to a private lender

Delegation speeds up closings, because you don’t wait on someone else’s credit desk. The trade-off is responsibility: if a delegated loan later turns out not to meet the guidelines, the purchase agreement usually lets the buyer require you to repurchase it. Buyers typically grant delegation only after a track record of clean files, and they can suspend it.

Example

Hypothetical. A lender with delegated authority approves a $350,000 bridge loan that fits the buyer’s leverage and experience limits and closes it on its own approval. A post-purchase audit finds the borrower’s experience was overstated, which breaches a representation, so the buyer asks for a repurchase.

Compare this with direct capital placement, where the capital partner reviews the full file before it commits.