Automated Underwriting System: Case Scenario

Automated Underwriting System

The majority of mortgage lenders require that a mortgage loan borrower 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, derogatories, public records, assets, liabilities, and scrutinize every aspect of the mortgage borrower’s credit report.  Within minutes the automated underwriting system will issue FINDING of either approve eligible, refer eligible, refer with caution.  What we are looking for is an approve eligible.

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 you get an approve eligible per DU FINDINGS, it will generate a report on what is required and the mortgage loan borrower needs to abide by the requirements of DU FINDINGS.  Most of the requests are reasonable such as providing W-2s for two years, two years tax returns, 30 days paycheck stubs, 60 days bank statements, proof of funds, and other basic items.

Verification Of Rent

However, there are times when DU FINDINGS will require rental verification and 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is issued by AUS and the mortgage loan borrower cannot provide rental verification, the approve eligible DU FINDINGS is no longer valid.  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 and a rental cash receipt is worthless for rental verification purposes.  An alternative to providing 12 months of cancelled checks is if you rent your home from a registered property management company, a letter from the property manager will be sufficient.  Unfortunately, most home buyers rent from private individuals or investors and the only way to prove rental verification is by providing 12 months cancelled checks.  If you are a renter, it is imperative that you pay your monthly rent with a check.

Automated Approval Requesting Rental Verification

If Fannie Mae’s DU FINDINGS gives you an approve eligible but asks for rental verification and you cannot provide it, your mortgage loan originator can see if he can submit your file to Freddie Mac’s Loan Prospector, also known as LP.  Also, if you get a referred eligible from DU FINDINGS, you can see if your mortgage loan originator can submit your file to LP.  Many times when you get denied by Fannie Mae’s automated underwriting system, you 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 mortgage lender your mortgage broker is submitting your 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 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.

By Gustan Cho

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