Automated underwriting is performed on every mortgage these days whether you know it or not. It can be done upfront when you take the application or later when the mortgage is submitted to underwriting.
Obviously, it is much better to know upfront instead of wondering if you are approved farther into the process.
Automated Underwriting Definition
Automated mortgage underwriting is when a computer takes in all your qualifying information along with your loan program and spits out an approval or a denial based on what it saw. If you are approved, the automated underwriting computer tells you what documentation is needed for final approval and closing. If it was a denial, it tells you why you were denied.
Even though every mortgage (barring a very small handful) gets runs through a computer, it is not always the same computer system. Fannie Mae automated underwriting has all of Fannie Mae’s guidelines and was developed by them to underwrite their loans.
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FHA automated underwriting is a totally different computer system developed only for FHA approvals. When subprime mortgages were still around, each subprime company had their own automated underwriting computer system too.
Automated Underwriting Approval
The computer does not care if your loan officer or broker is annoying, it doesn’t care who you are personally, and it does not have bad days. Also, it takes into account all your information and makes a decision based on the whole picture.
It used to be if you had parts of your file that were really strong but one that was bad, the bad one could get your mortgage denied immediately.With automated underwriting, the computer takes in all the information and if the good is better than the bad, you may still get a mortgage approval.
For Fannie Mae, the automated approval is called a finding. Findings have 2 parts. The first part is the approval of you and your credit profile. The second part is whether you mortgage fits into a specific program. What you want to see is Approve/Eligible.
That means you are approved and your loan programs fits into the guidelines. A Refer With Caution/IV means you are denied. I’m not sure why they make it so fancy instead of just saying “denied”.
And since this is a computer program, Fannie, Freddie, etc. are always changing the guidelines and criteria.
The automated underwriting computer still can’t do it all. It can tell you what documentation it needs for approval and closing but it can’t look at the documentation to see if it correct.
That is where the human underwriters come in and why they charge you an underwriting fee.
The computer can only make a decision based on the loan program and the investor requirements. The human underwriter takes the automated approval, the documents it asked for and you provided, and makes sure they are all correct and without fraud.
They still have a tough job pouring through all the paperwork and their job is on the line if a mortgage closes without the proper documentation required by the investor.
Automated underwriting is recently coming under fire as part of the cause of the mortgage meltdown and humans are now being reintegrated back into the decision making process…which is probably a good thing.
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