Compensating Factors are documented file strengths used to offset specific weaknesses — high reserves to offset tight DSCR, strong recent track record to offset thin credit, low LTV to offset reserve gap. The phrase appears in exception write-ups and credit memos. A file that needs three compensating factors to clear is structurally weak; one strong factor (e.g., 18 months of reserves) can carry a file across multiple borderline criteria.
Underwriting