How Do Automated Underwriting System Work In Mortgage Process

This BLOG On How Do Automated Underwriting System Work In Mortgage Process Was UPDATED And PUBLISHED On October 11th, 2019

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.

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.

How Does The AUS Work

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
• special scrutiny will be placed in payment history in past 12 months

Within minutes the automated system will issue FINDING 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

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

Automated 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is issued by AUS and the mortgage loan borrower cannot provide rental verification, the approve eligible DU FINDINGS is no longer valid.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. Commercial loan origination software
• 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 automated underwriting system, but can get approved by Freddie Mac’s automated underwriting system
• Freddie Mac’s LP automated underwriting system 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

Many times when I get a denial from Fannie Mae’s DU automated underwriting system, I take it to Freddie Mac’s Automated Underwriting 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 underwriting system and I got an approve eligible and no rental verification was required

Borrowers who need to qualify for mortgage with a direct lender with no mortgage overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.