Brokers facing roadblocks in subprime underwriting.

Appraisal desk and/or field review is the top unexpected issue for mortgage brokers in subprime underwriting, according to a national survey of brokers on the subprime niche. And disputes over credit reports are the No. 2 issue, according to a majority of 2,000 broker respondents.

These are some of the findings found in a new study of the subprime mortgage market released last week. The new research is based on a nationwide survey of mortgage brokers that was sponsored by Inside Mortgage Finance and conducted by Campbell Communications of Washington in December.

"The survey allowed us to get a comprehensive picture of how subprime lenders interact with their brokers," reported Tom Popik, principal of Geosegment Systems and designer of the survey.

"With increasing defaults in the subprime market, there are brokers lenders want to do business with and those they don't. Now we have hard data showing what's bothering brokers--allowing sales executives to refine their tactics and target the higher-quality brokers."

Adding to the survey findings regarding appraisals, the survey found that high LTV loan products are popular in the subprime market, including 100% LTV One Loan and 80/20 combo loans.

With these loan products, appraisal accuracy is especially important because home price appreciation has stalled in many parts of the country. And with little or no borrower equity, reliable credit reports are important as well.

"With increasing early payment defaults in subprime, you can see why many subprime lenders are insisting on pulling their own credit," Popik said.

"But the way they manage this process--often not informing the broker upfront of their preferred credit bureau--causes disruptions and hard feelings if multiple credit pulls result in FICO score declines."

"Lenders should let us know which credit bureau is acceptable to them so we can pull it from which one they want us to," said one broker responding to the survey. Another noted: "Sometimes the borrower's score drops, after the lender pulls credit. It is not supposed to, but this happens often enough to be a problem, as subprime borrowers are usually close anyway." Rate concessions by themselves can't make up for problems in underwriting, according to surveyed mortgage brokers. Out of 24 factors brokers use in selecting subprime lenders, factors relating to underwriting were No. 4 and 5, following three factors relating to account executive service. In contrast, pricing-related factors were ranked No. 9, 17, 20, and 21 by survey respondents.