In order to perform a due diligence review, I began by entering data from
the loan file into CLAS or StratQ. Both CLAS and StratQ permitted the due diligence
underwriter to input and access information regarding each loan. For each loan, I entered,among other information, the borrower’s assets, liabilities, and income as reflected on the
various verification documents found in the loan file. CLAS and StratQ then calculated variousmetrics that were used to evaluate the borrowers’ creditworthiness, including DTI, LTV, andCLTV. In reviewing each loan, I assessed whether the loan met the underwriting guidelines.
¯ For example, underwriting guidelines typically specify a maximum DTI ratio and required that,for stated income loans, the borrower’s stated income listed on the loan application must be
reasonable. After reviewing the loan, due diligence underwriters graded it on a numerical scale.in CLAS or StratQ. Clayton and Watterson both used a three point scale. Loans that satisfied
the underwriting guidelines were supposed to be graded as 1 s. Loans with incurable defectswere supposed to be graded as 3s. Loans with small defects that were overcome by sufficientcompensating factors were supposed to be graded as 2s.
10. At Clayton and Watterson, underwriters - including me - were under a lot
of pressure from management to review loans quickly. Clayton supervisors asked us to review atleast one loan per hour, and often expected us to review loans at an even faster pace. I felt thatthis was not enough time to adequately review the loans. Performance at Clayton was based on
the numbers; the due diligence underwriters who reviewed the most loans received the best
reviews. Underwriters who worked quickly but made many errors during their review wereretained or promoted. Underwriters who worked at a slower pace and conducted quality
underwriting were typically not staffed on future projects, and were sometimes sent home in the
middle of a job. I remember one incident where, after sending a woman home because she did