An Underwriter is the lender's last line of defense against fraud. An Underwriter takes ALL the aspects of the borrower, their income, their assets, their liabilities, along with the appraised value of the property, and then creates a decision to lend, or to deny credit to the borrower. Occasionally there are "compensating factors" that if the borrower doesn't quite meet the guidelines, they can show that there are other areas of the loan that they are "over qualified" for.
The Underwriter acts as the "sound of reason," and sometimes make a decision for the borrower that they may not like, but is in their best interest... basically, they tell the borrower that they would be over-extended. So an underwriter looks out for the bank and the borrower, and they do this by looking at default rates, Debt-To-Income ratios, liabilities, credit scores, etc.
With all the fraud in the world lately, the banks have to have their underwriters give "conditional approvals", that is... The loan is approved, but they require additional information in one or more areas. Think of it like this... if a fraudster knows EVERYTHING the lender will ask for and "creates" all the documentation necessary to fool the underwriter and bank to get a loan, then the fraud becomes very easy. If the banks are allowed to ask for additional verification information to ensure that no fraud is being committed, then the banks will feel more confident in the truthfulness of the loan file, and that will lead to less default rates, and less fraud, which will lead to overall lower rates for the consumer.
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