Automated Underwriting System Findings On Home Mortgages

This Article Is About Automated Underwriting System Findings On Home Mortgages

The automated underwriting system is a sophisticated computerized system used by mortgage lenders to get automated findings on government and conventional loans.

  • Programmed in the AUS is data of all updated agency mortgage guidelines
  • All lenders will either use Fannie Mae’s DU or Freddie Mac’s LP AUS on all of their mortgage applicants
  • All loan applicants need to get an approve/eligible per AUS FINDINGS if the home mortgage process is going to proceed unless it is a refer/eligible and can be downgraded to a manual underwrite
  • Only FHA and VA loans allow manual underwriting
  • Not all lenders will do manual underwriting on FHA and VA loans
  • Gustan Cho Associates is a national mortgage company licensed in multiple states with no lender overlays on government and conventional loans

Gustan Cho Associates will just go off AUS FINDINGS and has zero lender overlays on FHA, VA, USDA, and Conventional loans. We just follow the minimum agency Fannie Mae and/or Freddie Mac agency lending guidelines on conventional loans. We have no lender overlays on conventional loans.

Fannie Mae DU And Freddie Mac LP AUS Explained

What is Fannie Mae DU and Freddie Mac LP AUS

There are two different major types of automated underwriting system (AUS):

  • Fannie Mae’s AUS is called Desktop Underwriter or commonly referred to as DU
  • Freddie Mac’s automated underwriting system is commonly referred to as Loan Prospector or LP
  • Majority of lenders require borrowers get an approve eligible per automated underwriting system before they are willing to proceed with the mortgage loan application and approval process
  • Running the file through the automated underwriting system is the first phase of the qualification and approval process
  • In most cases, you need an AUS Approval in order to proceed with the mortgage process

In this article, we will discuss and cover how the Automated Underwriting System works.

Data Analyzed By The Automated Underwriting System

All government and conventional home loan applications need to go through the AUS and get an approve/eligible AUS findings approval for the mortgage process to proceed.

The automated underwriting system is an extremely sophisticated system that will analyze the mortgage applicants:

  • income
  • credit
  • credit history
  • credit scores
  • derogatory
  • public records
  • assets
  • liabilities payment history 
  • after bankruptcy and/or foreclosure

In this article, we will cover and discuss how the automated underwriting system works. The importance of AUS Findings will be explained and covered so our viewers fully understand.

What Does The Automated Underwriting System Analyze And Render The Automated Findings

The automated system (AUS) will scrutinize every aspect of the mortgage borrower’s credit report

  • re-established credit after periods of bad credit, collections, charge off accounts. late payments, public records, and other positive and negative factors on consumer credit reports
  • special scrutiny will be placed in payment history in past 12 months and late payments after bankruptcy and/or a housing event

Within minutes the automated system will issue FINDINGS of the following:

  • approve eligible
  • refer eligible
  • refer with caution
  • What we are looking for is an approve eligible
  • Refer/Eligible findings means borrowers are eligible but needs to be downgraded to manual underwriting
  • Refer/Eligible means the borrower may or may not be eligible but the AUS cannot determine the eligibility and needs a human mortgage underwriter to manually underwrite the file
  • Only FHA and VA loans allow for manual underwriting

All manual underwriting requires timely payments in past 12 months and verification of rent.

Fannie Mae And Freddie Mac Automated Underwriting System

What is that Automated Underwriting System: Fannie Mae And Freddie Mac

The most common and favored automated underwriting system is Fannie Mae’s Desktop Underwriter which is also known as DU.

  • Majority of mortgage lenders go by DU FINDINGS
  • When borrowers get an approve eligible per DU FINDINGS, it will generate a report on what is required
  • Borrowers needs to abide by the requirements of DU FINDINGS

Most of the requests are reasonable such as the following:

  • providing W-2s for two years
  • two years tax returns
  • 30 days paycheck stubs
  • 60 days bank statements
  • proof of funds
  • reserves
  • funds required
  • other basic items

Verification Of Rent

However, there are times when DU FINDINGS will require rental verification. When this request is issued by AUS and the mortgage loan borrower cannot provide rental verification, the approve eligible DU FINDINGS is no longer valid. Verification of rent is required on all manual underwrites.

  • Those who pay rent in cash will automatically be disqualified and will need to seek other options
  • Rental verification is only proven by providing 12 months of cancelled checks
  • Cash payments do not count
  • Rental cash receipt of cash rental payments to landlord is worthless for rental verification purposes
  • An alternative to providing 12 months of cancelled checks is if renter rent home from a registered property management company, a letter from the property manager will be sufficient
  • Verification of rent form will be provided by lender for property manager to complete and sign and date
  • Unfortunately, most home buyers rent from private individuals or investors
  • The only way to prove rental verification is by providing 12 months cancelled checks

Renters, it is imperative to pay monthly rent with a check or online via bank transfer.

Automated Approval Requesting Rental Verification

If Fannie Mae’s DU FINDINGS gives an approve eligible but asks for rental verification and borrowers cannot provide it, mortgage loan originator can see if it can be submitted to Freddie Mac’s Loan Prospector, also known as LP.

  • Also, if borrower get a referred eligible from DU FINDINGS, they can see if mortgage loan originator can submit file to LP
  • Many times when borrowers get denied by Fannie Mae’s AUS but can get approved by Freddie Mac’s AUS
  • Freddie Mac’s LP AUS is much easier to get an automated approval

However, the loan officer who is submitting file too needs to be a Freddie Mac approved mortgage lender.

Freddie Mac Versus Fannie Mae

What is Verification Of Rent

Many times when I get a denial from Fannie Mae’s DU automated underwriting system, I take it to Freddie Mac’s Automated System (AUS) and get my automated approval this way.

  • Rental verification is a huge issue
  • I recently got a DU approval but asked for rental verification
  • My client paid their rental payments with cash so the approval was not valid
  • I submitted the same file to Freddie Mac’s LP automated system and I got an approve eligible and no rental verification was required

Borrowers who need to qualify for mortgage with a national mortgage company licensed in multiple states with no lender overlays on government and conventional loans can reach out to us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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