Automated Underwriting

Over the past several years, the process of mortgage loan underwriting has gone through considerable evolution. In today's world, the mortgage industry is increasingly relying on automated underwriting systems to assess the risk of applicants in a more efficient and fair manner. These automated systems function by permitting lenders to input pertinent borrower information into the computer and allowing the program to assess the applicant's risk profile under pre-set lending guidelines. The guidelines used under these systems vary greatly. Most automated systems incorporate guidelines created either by secondary market investors, including the Fannie Mae and Freddie Mac, or mortgage insurers. In some instances, they may be proprietary systems created by the mortgage lender itself based solely on its own lending and risk experience. The common factor under these automated systems is that they perform the underwriting process efficiently and in very quick timeframes, providing fair and non-biased loan decisions based only on the data entered into the system.

It must be noted, however, that even the most advanced automated underwriting systems allow for significant discretion by lenders. These systems are designed to complete a standard underwriting analysis leaving more complicated loan decisions to human underwriters. In fact, automated systems are generally designed so that no applicant is ever denied a loan on the basis of artificial intelligence alone. When an applicant's loan file information does not meet the standards established under the lender's system, the computer will "refer" the loan to "manual" underwriting to allow a human analyst to reconsider the loan file and approve it, determine if it fits into a special or alternative loan program, or deny it altogether. The important item to note is that although automated underwriting systems increase efficiency and lower cost by quickly approving applicants with clearly satisfactory loan risk profiles, they leave the decision-making in borderline or more complicated cases to lenders, who must still make the hard calls.

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