Manual Underwriting Versus Automated Mortgage Approval

Manual Underwriting Versus Automated Mortgage Approval

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About Manual Underwriting Versus Automated Mortgage Approval

There are two types of Automated Underwriting Systems (AUS):

  1. Fannie Mae’s Automated Underwriting System is referred to as Desktop Underwriting (DU)
  2. Freddie Mac’s AUS is known as Loan Prospector (LP)

All government and conventional loans need to go through either DU and/or LP Automated Underwriting System for the following:

  • Approve/Eligible
  • Refer/Eligible
  • Refer/Ineligible

AUS Findings Cho Associates-MortgageBankers

An approve/eligible means that the borrower has an automated mortgage approval per automated finding:

A refer/eligible means that the borrower can get approved for a mortgage loan but the AUS cannot determine it through the Automated Underwriting System and needs a human mortgage underwriter to manually underwrite the borrower:

  • Borrowers Who Are One Year Into A Chapter 13 Bankruptcy Repayment Plan
  • Mortgage Borrowers Who Just Had A Chapter 13 Bankruptcy Discharge But The Discharge Has Not Been Seasoned 2 Years
  • Assets Listed On The Mortgage Application Is Not Sufficient For Cash To Close
  • Debt To Income Ratios Are Higher Than Required By Automated Mortgage Approval

What Does Refer/Eligible AUS Findings Mean

A refer/ineligible is when the borrower does not meet mortgage guidelines such as the following:

Fannie Mae’s AUS is more popular than LP AUS. The majority of lenders in this country will only accept an approval via Fannie Mae’s Automated Underwriting System with an approve/eligible DU Findings in order for them to proceed with the mortgage underwriting and approval process. It is possible to get automated loan approval with Freddie Mac but not Fannie Mae and vice versa.

Difference Between Manual Underwriting Versus Automated Mortgage Approval

Fannie Mae’s and Freddie Mac’s Automated Underwriting System is a sophisticated computer system that takes the following into consideration before rendering an automated mortgage loan approval:

  • Income
  • Assets
  • Debts
  • Liabilities
  • Credit Scores
  • Credit history
  • Borrower’s Payment history
  • Job longevity
  • Public records
  • Judgments
  • Tax Liens
  • Derogatory credit
  • Foreclosure/Deed In Lieu Of Foreclosure/Short Sale

Factors Taken Into Account By AUS

Factors Taken Into Account By AUS

Re-established credit is taken all into account. The Automated Underwriting Systems computes all of these items and renders a decision as follows:

  • Approve/Eligible
  • Refer/Eligible
  • Refer/Ineligible

Fannie Mae’s Automated Underwriting System will also take debt to income ratios into consideration as well as asset and gift information.

  • AUS will also determine whether the mortgage loan borrower needs verification of rent
  • AUS will also determine whether or not collection accounts or charge offs need to be paid off
  • In the event, if a mortgage application gets a referred/eligible from the Automated Underwriting System, the mortgage application is not completely dead
  • There are lenders that can and will do Manual Underwrites on mortgage loan applications
  • Manual Underwriting is mortgage loan applications that need to be manually underwritten by a mortgage underwriter

This is because the automated system cannot render an automated approval per Automated Underwriting System.

Why Manual Underwriting Versus Automated Mortgage Approval

The Automated Mortgage Approval System will pick up whatever is listed on the mortgage application as well as the information on the borrower’s credit report.  Automated Underwriting System will pick up errors on the credit report. So if the loan officer needs an accurate AUS Approval, then the borrower’s credit report needs to be corrected prior to submission to AUS. Rapid Rescores by the loan officer can fast track and expedite errors on the credit report. Once the errors are updated, the loan officer needs to re-pull credit with the correct updated credit report. Unfortunately,  very few mortgage lenders are able to do Manual Underwriting.

Gustan Cho Associates is a national mortgage company licensed in multiple states with no overlays and does Manual Underwriting on FHA and VA Loans.

Types Of Loans That Require Manual Underwriting Versus Automated Mortgage Approval

Over 75% of our borrowers at Gustan Cho Associates are folks who either gotten a last-minute mortgage loan denial or are stressing during their mortgage process with their current lender. A large percentage of our borrowers are home buyers who are planning on buying a home during a Chapter 13 Bankruptcy Repayment Plan or those who recently were discharged of a Chapter 13 Bankruptcy.

Under FHA Guidelines On Chapter 13 Bankruptcy, a borrower can qualify for FHA Loan one year into a Chapter 13 Bankruptcy Repayment Plan with proof of on-time payments for the past 12 months. There is no waiting period after the Chapter 13 Bankruptcy discharged date. However, all FHA Loans During A Chapter 13 Bankruptcy and any borrower who had a Chapter 13 Bankruptcy discharge but the discharged date has two years or less in seasoning, it needs to be manually underwritten.

The Now-Defunct HUD Back To Work Mortgage Program

FHA Back To Work Loan Program

Another example of Manual Underwriting Versus Automated Mortgage Approval was the case of the now-defunct FHA Back To Work Loan Program. HUD, the parent of FHA, once shortened the waiting period for those mortgage loan borrowers who had a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale to a mandatory one year waiting period via the FHA Back To Work Mortgage Program, which no longer exists:

  • The FHA Back to Work Extenuating Circumstances due to an economic event mortgage program are all manually underwriting
  • Since it shortened the waiting period after Bankruptcy and Foreclosure to a one year waiting period instead of the two to three year waiting on traditional FHA Loans, all of these loans had to be manually underwritten

The borrower needs to have been unemployed or underemployed for at least six months or more prior to the initiation of the following:

  • Bankruptcy
  • Foreclosure
  • Deed in lieu of foreclosure
  • Short sale

The FHA Back To Work Mortgage Program, which is no longer in existence and has been discontinued by HUD, was a temporary loan program that catered to Borrowers who were impacted by the Great Recession of 2008 and had a reduction of at least 20%  of household income. The Back To Work Loan Program turned out to be a major flop and disaster where HUD discontinued it.

Qualify Today For FHA And VA Manual Underwritten Loans

Borrowers who need to qualify for FHA and VA Loans via manual underwriting versus automated mortgage approval, contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at We are direct lenders with no overlays licensed in multiple states with a five-star national reputation. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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