Why has New American Funding's VA loan approval rate decreased from 85% to 70% over the past six months?

Introduction

The decline in New American Funding's VA loan approval rate from 85% to 70% over the past six months is a significant issue that requires thorough investigation. This analysis will systematically identify, validate, and address the root cause while considering both immediate and long-term implications for the company's VA loan product.

Step 1

Clarifying Questions (3 minutes)

• Looking at the timing, I'm thinking there might be seasonal factors at play. Have we seen similar approval rate fluctuations in previous years during this same period?

Why it matters: Seasonal patterns could explain the change and inform our solution approach. Expected answer: No significant seasonal patterns observed in previous years. Impact on approach: If seasonal, we'd focus on adapting to cyclical changes; if not, we'd investigate other factors.

• Considering potential policy changes, has there been any recent modification to VA loan eligibility criteria or underwriting guidelines?

Why it matters: Policy changes could directly impact approval rates. Expected answer: No major changes to VA loan policies in the last year. Impact on approach: If policies have changed, we'd focus on adapting our processes; if not, we'd look at internal factors.

• Thinking about market conditions, has there been a significant shift in the types of applicants or property values in our target markets?

Why it matters: Changes in applicant profiles or market conditions could affect approval rates. Expected answer: Some increase in property values, but applicant profiles remain consistent. Impact on approach: If market shifts are significant, we'd need to adjust our risk assessment models.

• Considering internal changes, have we implemented any new automated underwriting systems or scoring models in the past six months?

Why it matters: New systems could introduce unintended biases or errors affecting approval rates. Expected answer: A new automated underwriting system was implemented four months ago. Impact on approach: If a new system is involved, we'd focus on validating its performance and accuracy.