Should I Use Fannie Mae or Freddie Mac For AUS

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In this article, we’ll discuss about Should I Use Fannie Mae or Freddie Mac for Automated Underwriting Systems (AUS). There are two distinct types of AUS available. Many loan officers may not realize that if a borrower fails to receive automated approval from Fannie Mae’s system, they could still obtain an “approve/eligible” status through Freddie Mac’s Loan Prospector. Loan originators leverage these two separate systems to obtain automated approval for borrowers using the Automated Underwriting System.

Automated Underwriting System Findings

It is referred to as DU, or Desktop Underwriter and the findings are:

• approved/eligible: This means the borrower meets all eligibility requirements and has an automated underwriting system
• referred/eligible: This means the automated system cannot issue an automated approval but the file may be eligible for manual underwrite
• referred with caution per DU FINDINGS: This means the file does not qualify

Freddie Mac Automated Underwriting System

It is referred to as LP, or Loan Prospector and the findings are:

• approved/eligible
• referred/eligible
• referred with caution per LP FINDINGS

In this article, we will discuss and cover the differences between DU and LP AUS.

What Is The Automated Underwriting System?

On both DU and LP FINDINGS, an approve/eligible per automated findings means that the file has an automated approval. Automated Findings of referred/eligible means that the file is eligible for DU/LP approve/eligible.

But the automated system is warning that the file cannot be issued an automated approval.

Should I Use Fannie Mae or Freddie Mac If I Cannot Get an Approve/Eligible Per AUS

The Automated Underwriting System (AUS) may struggle to provide a firm automated approval for several reasons, including:

• The borrower may need more down payment.
• The borrower’s debt-to-income ratio may surpass the guidelines set by the Desktop Underwriter (DU) or Loan Prospector (LP).
• The requested loan amount may exceed the maximum conforming loan limits Fannie Mae and Freddie Mac set.
• The borrower’s credit report may contain unresolved items or derogatory marks that need clarification.

The mandatory waiting period required after events such as bankruptcy, a deed in lieu of foreclosure, or a short sale may still need to be fully met by the borrower. Additionally, the borrower may only partially meet the mandatory waiting period required after events such as bankruptcy, a deed instead of foreclosure, or a short sale.

So, when asking yourself, “Should I use Fannie Mae or Freddie Mac?” consider these potential issues and consult with a lender to determine the best option. Get approve for Fannie Mae or Freddie Mac

Referred Eligible Per AUS Findings

Referred/Eligible per AUS Findings may be eligible for Manual Underwriting with FHA Loans. Whether applying for an FHA, VA, USDA, or Conventional loan, the loan application needs to be entered into the Automated Underwriting System for automated underwriting approval via Fannie Mae and/or Freddie Mac.

If you get a refer with caution, that means that you do not qualify for a mortgage and that something is wrong with your credit profile. Here is a list of some of the many reasons why a mortgage file will render a refer/with caution with Fannie Mae and/or Freddie Mac Automated Underwriting System:

• Too many derogatory tradelines and late payments in the past 12 months
• The borrower does not meet the mandatory waiting period after bankruptcy, deed in lieu of foreclosure, foreclosure, or short sale
• Multiple mortgage late payments in the past 12 months

Lower credit scores that the borrower does not meet the minimum credit score requirements.

Should I Use Fannie Mae Or Freddie Mac With FHA Loans?

Over 90% of all banks and mortgage lenders use Fannie Mae DU Automated Underwriting System as their AUS of choice in getting an automated underwriting system approval. Not all mortgage lenders are Freddie Mac-approved. The common word on the street is that is it easier to get approval with Fannie Mae than with Freddie Mac.

Most of the time when borrowers do not get an automated underwriting system automated approval with an FHA Loan, the chances are that the particular lender used Fannie Mae DU AUS to run the FHA file through. One important factor loan originators do not realize is that just because Fannie Mae’s automated underwriting system denies the file does not mean that Freddie Mac LP AUS will not grant approval. Click here to apply for FHA loans

Should I Use Fannie Mae or Freddie Mac For AUS Approval

One key important fact that loan officers need to realize is that Freddie Mac can do mortgage loans that Fannie Mae cannot do. And vice versa. There are data that Fannie Mae will not like that Freddie Mac has no issues with. For borrowers who need to qualify for Conventional Loans, they may qualify for Freddie Mac where they cannot qualify with Fannie Mae. There are mortgage loans that Freddie Mac can do that Fannie Mae cannot do.

Benefits of Conforming Loans

Here are the major bullet points on both Fannie Mae and/or Freddie Mac on Conventional Loans:

• Fannie Mae and Freddie Mac allow non-occupant co-borrowers
• Fannie Mae and Freddie Mac do not restrict non-occupant co-borrowers like HUD does with FHA Loans
• FHA Loans require non-occupant co-borrowers needs to be related to the borrower by law, marriage, or blood
• Fannie Mae and Freddie Mac will allow for W-2 Income Only Conventional Loan Programs
• All Conventional Loans are eligible for W-2 Income Only Mortgages
• Fannie Mae will require two years of tax returns on all self-employed borrowers

Freddie Mac will accept one-year tax returns from self-employed borrowers if LP renders an approve/eligible per LP FINDINGS.

Mortgage Guidelines On Conforming Loans

Fannie Mae and Freddie both have capped Debt to Income Ratios up to 50% DTI to get approve/eligible per DU/LP FINDINGS. There are no front-end debt-to-income ratio requirements per both FANNIE/FREDDIE Guidelines. However, each individual lender can impose a front-end DTI cap as part of their overlays.

With FHA loans, there are many times when Freddie Mac will issue an LP AUS automated approval where Fannie Mae DU AUS will NOT. Fannie Mae is known not to view gift funds as favorable for borrowers with lower credit scores. Especially with borrowers with credit scores of under 640 FICO. Speak With Our Expert for Conforming Loans

Gift Funds For The Down Payment And Closing Costs

Fannie Mae is notorious for not rendering approve/eligible DU FINDINGS on borrowers who have gift funds as part of their down payment but have higher debt-to-income ratios. Bottom line is that FHA will allow debt-to-income ratios up to 56.9% DTI on borrowers who have credit scores of 620 FICO or higher. However, if you list that you are getting gift funds as part of the down payment for any borrower with a 56.9% DTI, the chances of getting approve/eligible per DU FINDINGS are very slim to none.

The trick is to make sure that you do not list that you are getting gift funds for the down payment if you have higher debt-to-income ratios. Same with limited credit tradelines. Fannie Mae does not like gifted funds for the down payment on borrowers who do not have strongly seasoned credit tradelines. Again, if you do not think your file will fly with Fannie Mae Automated Underwriting System, submit it to Freddie Mac and chances are that you will get an automated underwriting approval.

Warning: DO NOT RUN FANNIE MAE IF YOU PLAN ON GOING WITH FREDDIE MAC AUS

Should I use Fannie or Freddie? Loan officers need to be careful prior to run Automated Underwriting System. Many lenders WILL NOT ALLOW a Fannie Mae referred/eligible and/or Fannie Mae referred/caution to rerun into LP Freddie Mac Automated Underwriting System. However, they will allow you to run LP Freddie Mac AUS first and then run it through DU Fannie Mae AUS

Should I use Fannie or Freddie For Borrowers Denied AUS?

Loan officers should carefully think about whether asking themselves the question should I use Fannie Mae or Freddie Mac?  Follow your mortgage company’s policy prior to running a borrower through the automated underwriting system, especially with files that are considered higher risks. There are instances where you may get approve/eligible per the automated underwriting system with Freddie Mac but not Fannie Mae. This holds especially true for borrowers with bad credit.

Should I Use Fannie or Freddie With Bad Credit

Here are higher-risk mortgage files that you should question should I use Fannie or Freddie AUS? If you get a borrower that got turned down via DU FANNIE MAE FINDINGS, then review the file and see if you can run it Freddie Mac, LP AUS. Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with lower credit scores. Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with higher debt-to-income ratios.

Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with late payments after bankruptcy and foreclosure. Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with late payments in the past 12 months. Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with 3 or fewer credit tradelines that have not been seasoned for a long time. Click here with Fannie or Freddie with bad credit

FHA Loans AUS Approval on Fannie Mae versus Freddie Mac

Should I use Fannie Mae or Freddie Mac?  Loan officers often wonder whether should I use Fannie Mae or Freddie Mac.  Fannie Mae and Freddie Mac are both used with the automated approval process of government and conventional loans. However, Fannie Mae and Freddie Mac each have their own way of analyzing and reading a borrower’s mortgage application data and credit report. So each of them may have its own way of rendering an automated approval. There are many times when one says nowhere the other will say yes to an approve/eligible per automated findings.

If you are classified as a higher-risk borrower and got turned down by a lender because you cannot get approve/eligible per DU/LP FINDINGS and need a second opinion, please contact us at Gustan Cho Associates at 800-900-8569 or text for faster response. We are available 7 days a week, evenings, weekends, and holidays. Borrowers can also email us at gcho@gustancho.com.

FAQs: Should I Use Fannie Mae or Freddie Mac For AUS

• What are Fannie Mae and Freddie Mac? Fannie Mae and Freddie Mac stabilize the US housing market by purchasing mortgages from lenders and providing liquidity for new loans. Fannie Mae buys mortgages from larger banks, while Freddie Mac focuses on smaller “thrift” banks.
• What is an Automated Underwriting System (AUS)? An AUS is a software tool that lenders use to assess borrowers’ loan eligibility. It provides findings like “approve/eligible,” “referred/eligible,” or “referred with caution,” helping lenders streamline the underwriting process.
• What are the differences between Fannie Mae and Freddie Mac AUS systems? Fannie Mae’s AUS is a Desktop Underwriter (DU), and Freddie Mac’s is a Loan Prospector (LP). They produce similar results, but they assess loan applications differently.
• If a borrower gets denied by Fannie Mae’s AUS, should they try Freddie Mac’s system? Yes, it’s possible that a borrower denied by Fannie Mae’s Desktop Underwriter might receive an “approve/eligible” finding from Freddie Mac’s Loan Prospector. The systems have slightly different guidelines, allowing for variations in approval.
• What are some reasons a borrower might not receive an automated approval through Fannie Mae or Freddie Mac? Reasons could include insufficient down payment, high debt-to-income ratio, exceeding loan limits, unresolved derogatory credit issues, or not meeting waiting periods after bankruptcy or foreclosure.
• Can borrowers with FHA loans use Fannie Mae or Freddie Mac AUS? Yes, lenders often use Fannie Mae or Freddie Mac AUS systems for FHA loans. Freddie Mac’s LP AUS can sometimes approve FHA loans that don’t receive Fannie Mae DU approvals.
• Which AUS system should a loan officer use first? Loan officers should understand their lender’s policies before running an AUS. Some lenders allow switching between systems, while others do not. In many cases, starting with Freddie Mac’s LP can be advantageous.
• What specific advantages do Fannie Mae and Freddie Mac offer in their AUS systems? Fannie Mae is more restrictive with gifted funds and prefers borrowers with stronger credit profiles. Freddie Mac is often more flexible with borrowers having lower credit scores, recent late payments, or higher debt-to-income ratios.
• What should borrowers do if they’re denied by both systems? They should seek a second opinion from a different lender or consult with a mortgage professional who specializes in AUS approvals. Manual underwriting may also be an option for FHA loans.

This BLOG on whether should I use Fannie Mae or Freddie Mac was updated on May 10th, 2024.

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