Automated Underwriting offers a process of underwriting loans that uses automation as the main component in the underwriting process. It allows mortgage brokers to streamline the process, reduce the documentation requirements and increase the percentage of loan approvals.There are both pros and cons to using an automated underwriting system for a mortgage loan. The benefit would be that all files are evaluated evenly and something that may be overlooked by a human underwriter is avoided. On the other hand, there are often special circumstances and compensating factors in a borrowers situation that require a human touch and cannot be taken into account with automated underwriting.
Automated Underwriting systems have several advantages. One is that they allow higher debt ratios than manual underwriting. Many manual underwriters will allow a maximum of 45% for a debt ratio while the automated systems will allow 50,60, and even 70% if you have sufficient credit and reserves.
Automated Underwriting (AU) is a statistical, and objective, way for a lender to evaluate a borrower's credit, employment, and asset history. The goal is to make a calculated estimate of the borrower's likely performance on the repayment of a loan. The advantage of AU is that it is consistent from borrower to borrower, removes any potential prejudice a human underwriter might have, is quick and inexpensive, reduces the cost of making a loan, and allows each loan to be processed according to its specific needs rather than putting all borrowers through the same exhaustive process.
In the past, underwriting was done manually. An underwriter would review the information, examine the data, and offer an underwriting answer. The process typically took between 30 and 60 days.
The Fannie Mae automated underwriting system is know as Desktop Underwriter (DU) and serves to analyze numerous risk factors and give a decision as to the applicant's eligibility for a conforming loan.
The DU also spells out what documentation and conditions are required for the loan. The bank making the loan will also assign a human underwriter to the file who may or may not ask for additional documentation not specified on the DU report.
You may have a situation where your loan scenario can not be underwritten with these systems, however it's not the end of the road. There are lenders who will allow loan scenarios that don't fit the normal guidelines. These are called exceptions.
Automated underwriting usually shortens the loan process considerably enabling borrowers to close their loans in as little as 3 days plus lowers the cost of the loan in most cases.
Automated underwriting is a technology-based tool that combines historical loan performance, statistical models and mortgage lending factors to determine whether a loan can be sold into the secondary market. The most widely used automated underwriting services are Freddie Mac's Loan Prospector? and Fannie Mae's Desktop Underwriter?.
Compare to manual underwriting, most Automated Underwriting engines place a higher importance on the homebuyer's credit scores. Very often the difference between an automated approval and a suggestion to submit for manual underwriting is only a few credit score points.
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