Differentiation Between Origination and Underwriting In Lender Vocabulary

LReed's picture
Rank: Almost Human | 6,658

Hey all, pretty simple question here, that frankly I'm embarrassed to be asking. But anyways, I notice at a lot of boutique lenders some shops tend to differentiate between their Originations team versus their Underwriting team. From my understanding originations is more about sourcing and being in the market anticipating what types of capital solutions you can provide to capital seekers. My question then is what exactly does a designated "Underwriting Analyst" do? Strictly modeling and diligence? Is there a reason why debt groups don't let their modeling analysts face the world? Please advise.

Comments (10)

Jul 8, 2019

Underwriting analysts typically don't touch it until the deal is signed up but they're helping with the credit memo and all the processes necessary to get through committee. I'm not sure the exact reasoning but I think it's kept separate because they're not incentivized by that particular deal closing (moreso general company performance). They typically interact with the borrower so it's not like they don't talk to anyone though.

Jul 8, 2019

So do originators do the bulk of the modeling/quoting or are the underwriters the model-jockeys.

Jul 8, 2019

Most companies have the following set up:

Originations analyst - sizing up the loan and issuing LOI
Credit analyst - once the LOI is signed, credit analyst takes over to make the full presentation and full due diligence

Some shops have the same analyst doing both

Most Helpful
Jul 8, 2019

^^^ This. Most banks, life companies and to lesser extent debt funds have two groups that work together to originate loans: "originations" and "credit". The origination team develops the relationships and sources deals, provide indicative pricing/structure, and serve as the face of the deal. An originators role is more akin to a broker in that they focus on generating volume. The credit team focuses on structuring/pricing, making sure a deal aligns with portfolio goals, and asks the tough questions.

"Underwriting Analyst" are essentially support staff for the origination ans credit teams. This could mean loan sizings, completing credit memos, Argus modeling, market research, drafting term sheets, etc.. They provide the analytical and process support for both functions.

Debt funds mirror banks and life companies but they run very lean and have fewer staff and more overlap in the two functions (credit/originations). Agency and CMBS debt are totally different animals.

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Jul 9, 2019

I've found that lenders can really vary in how this is set up. Some lenders will have the same person source, underwrite, and close the loan. Others will have the originator source the deal, do back-of-the envelope math to decide whether to kill the deal or not, and then pass it on to the underwriting team to take it from there. Some lenders have the originator send an LOI before passing it on to the underwriting team.

Jul 9, 2019

So in a nut-shell, like everything in real estate, there is no answer and everyone's mileage will vary.

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Jul 9, 2019

Yes, but there are two things that you can know for sure. The Originations team is there to bring in business. The Underwriting team is there to get the deal approved and closed.

The emphasis of what they do can vary significantly depending on the shop though.

Jul 9, 2019

I'm being frank, but don't kid yourself, in lending, originations gets all the glory.

If you are at a point in your career where you have this flexibility, I would avoid an underwriting role unless it was for mezz, bridge, construction loans, or B-pieces. That's where you'll actually do intense credit analysis. Would not do first mortgages. Again, only if you have the flexibility and a choice in the matter, and obviously you can find a way to sell any type of experience.

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Jul 10, 2019
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