Automated Approval Downgraded To Manual Underwriting


Mortgage Approval Process

The mortgage approval process starts when the mortgage loan borrower completes the mortgage application and submits the necessary documents such as two years tax returns, two years W-2s, 60 days bank statements, recent paycheck stubs, and other documents verifying the items stated on the mortgage application.  The mortgage loan originator then pulls credit from the three credit reporting agencies.  The mortgage application and credit report is then submitted to the Automated Underwriting System for an automated approval.  Within minutes, the Automated Underwriting System will render its decision whether the mortgage loan applicant is approved or not.  There are two different types of Automated Underwriting System.  Fannie Mae’s Desktop Underwriter, also known as DU and Freddie Mac’s Automated Underwriting System which is known as Loan Prospector or LP.  Majority of lenders will run DU versus LP because they are not a Freddie Mac approved mortgage lender.  If a mortgage loan applicant gets an approve eligible per DU FINDINGS, then the mortgage loan applicant needs to abide by all conditions listed on the automated approval by Fannie Mae.  Some of these conditions may require reserves, rental verification, or other items in order for the DU FINDING to be a valid approve/eligible.  There are times that a mortgage loan applicant will get an approve/eligible per DU FINDINGS but cannot deliver on the conditions.  For example, the approve/eligible DU FINDINGS may condition that the mortgage loan applicant needs rental verification.  A rental verification can only be acceptable if the mortgage loan applicant can provide 12 months cancelled checks payable to the landlord unless he or she is renting the home from a property management company where a letter from the registered property management property manager will be sufficient.  If the mortgage loan applicant cannot provide cancelled checks and have been paying the landlord with cash, then the mortgage loan applicant’s approve/eligible per DU FINDINGS will be null and void.  What can the mortgage loan applicant do?

Mechanics Of Automated Underwriting System

The Automated Underwriting System is an extremely sophisticated computer system that will evaluate every aspect of a mortgage loan applicants mortgage application, credit history, credit scores, public records, asset, income, and make a determination on what they will condition for.

If you cannot provide conditions requested by Fannie Mae’s Desktop Underwriter’s DU FINDINGS, then your mortgage loan originator can submit your file to Freddie Mac’s Loan Prospector Automated Underwriting System.  There are many times where conditions requested by Fannie Mae’s Automated Underwriting System is not conditioned from Freddie Mac’s Automated Underwriting System.  As with the rental verification example, Fannie Mae’s Automated Underwriting System can condition it but Freddie Mac’s Automated Underwriting System may not request it.  However, if Freddie Mac’s LP Findings conditions rental verification and the mortgage loan applicant cannot provide it, what do you do?

Manual Underwriting

There are many mortgage loan applicants who get an automated approval by Fannie Mae’s and/or Freddie Mac’s Automated Underwriting System but cannot qualify due to the fact because they cannot provide conditions requested.  Rental verification, employment verification, minimum credit tradelines, reserves are some of the conditions that the automated underwriting system may require.  If the mortgage applicant cannot provide the conditions, then the only way the mortgage applicant can get a residential mortgage loan approval is by the mortgage broker finding a wholesale mortgage lender that will downgrade the automated approval to a manual underwriting mortgage loan application.  Manual Underwriting is only offered by a few mortgage lenders and not all mortgage lenders will offer manual underwriting.  Manual Underwriting is when the file is manually underwritten by a mortgage loan underwriter.  The mortgage loan underwriter will evaluate the mortgage loan application and will look for compensating factors in deciding whether or not to approve the mortgage loan application.  Manual underwrites are files that do not meet Fannie Mae’s and/or Freddie Mac’s Automated Underwriting System’s guidelines.

Gustan Cho

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