Mortgage decisioning criteria, and why you care!

Program rules
All mainstream mortgages are subject to universal program rules. If lenders do not follow these rules they will not be able to sell the mortgages (which virtually all are), OR WORSE - lenders will be obliged to buy loans back at a later stage. It is the fear of buybacks that drives the current over the top scrunity. Buyback processes can be huge! and are virtually always initiated for non-performing loans (we've seen a few of those as of late I think) - so there is a risk that a lender has to buy back all non-performing loans ever originated if it does not strictly adhere to the program rules. Imagine the fear this instills into the business environments at mortgage lenders nowadays!
You can find all program rules (FHA, Fannie Mae, Freddie Mac, USDA, VA) at my Information Center.

Lender rules: "Overlays"
In addition to the program rules referenced above, all lenders have their own, unique underwriting criteria, usually called "overlays". Lender overlays are mandated by the risk tolerance of the lender, or the investors who buy the lender's mortgages. Overlays are what makes one lender different from another. As an outsider you will never know what the forever changing details/differences are, which is why you need the support of a knowledgable mortgage specialist - and here is why you are best of dealing with a mortgage banker.

Underwriting
Underwriters are charged - and burdened! - with making loan decisions in the highly charged, risk adverse environment I described above. Now more than ever they need perfected loan applications, in full compliance with often changing rules, and then some! They appreciate additonal details, documentation, narratives, notes, etc. Underwriters really want to approve loans, but we need to give them the tools and comfort to do so! This is why borrowers need to be encouraged to volunteer information, and deliver complete documentation (and more of it, rather than less), quickly.
Note that Underwriters do not "have to" approve any loan. It's rare, but it is possible to be declined - even if everything fits. Conversely, underwriter discretion can work in the borrower's favor as well where a loan gets approved that would in most other cases be declined. Here again is why you need to work with a mortgage expert, skilled in loan advocacy and matching presentation techniques to make sure loans get approved.