Should I Use Fannie Mae Or Freddie Mac AUS?

This Blog On Should I Use Fannie Mae Or Freddie Mac Automated Underwriting System Was Written By Gustan Cho NMLS 873293

There are two separate types of Automated Underwriting Systems and many loan officers do not realize that because you cannot get an automated approval with Fannie Mae Automated Underwriting System that you can actually get an approve/eligible via Automated Underwriting System with Freddie Mac’s Loan Prospector. Mortgage loan originators use two different systems to get Automated Approval via Automated Underwriting System.

  • Fannie Mae Automated Underwriting System: It is referred to as DU, or Desktop Underwriter and the findings are approved/eligible, referred/eligible, and referred with caution per DU FINDINGS.
  • Freddie Mac Automated Underwriting System: It is referred to as LP, or Loan Prospector and the findings are approved/eligible, referred/eligible, or referred with caution per LP FINDINGS.

On both DU and LP FINDINGS, an approve/eligible per automated findings means that the file has an automated approval, referred/eligible means that the file is eligible for DU/LP approve/eligible but the automated system is warning that the file cannot be issued an automated approval because the AUS cannot render a solid automated approval due to one or more reasons listed below:

  • The borrower may not have enough down payment.
  • The borrower may have debt to income ratios that exceed the maximum DU/LP Guidelines.
  • Loan amount limit listed may exceed the maximum Fannie/Freddie Conforming Loan Limits.
  • Items and derogatories on credit report may need clarification.
  • Borrower may not quite meet the mandatory waiting period after bankruptcy/deed in lieu of foreclosure/short sale.
  • Referred/Eligible per AUS Findings may be eligible for Manual Underwriting with FHA Loans.

Whether you are applying for a FHA Loan, VA Loan, USDA Loan, or Conventional Loan, your loan application needs to be entered into the Automated Underwriting System for an automated underwriting approval via Fannie Mae and/or Freddie Mac.

If you get a referred./with caution, that means that you do not qualify for a mortgage and that something is wrong with your credit profile. Here are a list of some of many reasons why a mortgage file will render a refer/with caution with Fannie Mae and/or Freddie Mac Automated Underwriting System:

  • Too many derogatories and late payments in past 12 months.
  • Borrower does not meet the mandatory waiting period after bankruptcy, deed in lieu of foreclosure, foreclosure, or short sale.
  • Multiple mortgage late payments in past 12 months.
  • Lower credit scores that the borrower does not meet the minimum credit score requirements.

Should I Use Fannie Mae Or Freddie Mac With FHA Loans?

Over 90% of all banks and mortgage lenders use Fannie Mae DU Automated Underwriting System as their AUS of choice in getting an automated underwriting system approval. Not all mortgage lenders are Freddie Mac approved and the common word on the street is that is it  easier to get an approval with Fannie Mae than Freddie Mac. Most of the time when you do not get an automated underwriting system automated approval with an FHA Loan, the chances are that the particular lender used Fannie Mae DU AUS to run the FHA file through. One important factors that many licensed mortgage loan originators do not realize is that just because you get an automated underwriting system denial by Fannie Mae DU FINDINGS, that does not mean that Freddie Mac LP AUS will not grant an automated underwriting system approval.

One key important fact that loan officers need to realize is that Freddie Mac can do mortgage loans that Fannie Mae can do. There are data that Fannie Mae will not like that Freddie Mac has no issues with. For borrowers who need to qualify for Conventional Loans, they may qualify for Freddie Mac where they cannot qualify with Fannie Mae. There are mortgage loans that Freddie Mac can do that Fannie Mae cannot do. Here are the major bullet points on both Fannie Mae and/or Freddie Mac on Conventional Loans:

  • Fannie Mae does not allow non-occupant co-borrowers where Freddie Mac will. Freddie Mac does not restrict non-occupant co-borrowers like HUD does with FHA Loans where non-occupant co-borrowers needs to be related to the borrower by law, marriage, or blood.
  • Fannie Mae will allow for W-2 Income Only Conventional Loan Programs where Freddie Mac will NOT. All Conventional Loans with Freddie Mac, two years tax returns is required.
  • Fannie Mae will require two years tax returns on all self employed borrowers. Freddie Mac will accept one year tax returns from self employed borrowers if LP renders an approve/eligible per LP FINDINGS.
  • Fannie Mae caps Debt to Income Ratios up to 45% DTI to get an approve/eligible per DU FINDINGS. Freddie Mac can go up to 50% DTI. There are no front end debt to income ratio requirements per both FANNIE/FREDDIE Guidelines. However, each individual mortgage lender can impose a front end DTI cap as part of that lender overlays.
  • With FHA Loans, there are many times where Freddie Mac will issue an LP AUS automated approval where Fannie Mae DU AUS will NOT.
  • Fannie Mae is known not to view gift funds favorable for borrowers with lower credit scores, especially with borrowers with credit scores of under 640 FICO. Fannie Mae is notorious in not rendering approve/eligible DU FINDINGS on borrowers who have gift funds as part of their down payment but have higher debt to income ratios. Bottom line is that FHA will allow debt to income ratios up to 56.9% DTI on borrowers who have credit scores of 620 FICO or higher, however, if you list that you are getting gift funds as part of your down payment for any borrower with a 56.9% DTI, the chances of you getting an approve/eligible per DU FINDINGS is very slim to none. Trick is to make sure that you do not list that you are getting gift funds for your down payment if you have higher debt to income ratios. Same with limited credit tradelines. Fannie Mae does not like gifted funds for down payment on borrowers who do not have strong seasoned credit tradelines. Again, if you do not think your file will fly with Fannie Mae Automated Underwriting System, submit it to Freddie Mac and chances are that you will get an automated underwriting approval.

Warning: DO NOT RUN FANNIE MAE IF YOU PLAN ON GOING WITH FREDDIE MAC AUS

Should I used Fannie Mae or Freddie Mac? Loan officers need to be careful prior to running Automated Underwriting System. Many mortgage lenders WILL NOT ALLOW a Fannie Mae referred/eligible and/or Fannie Mae referred/caution to be reran into LP Freddie Mac Automated Underwriting System. However, they will allow you to run LP Freddie Mac AUS first and then run it through DU Fannie Mae AUS. Should I use Fannie Mae or Freddie Mac? Loan officers should carefully think on whether asking themselves the question should I use Fannie Mae or Freddie Mac? Follow your mortgage companies’ policy prior to running a borrower through the automated underwriting system, especially with files that are considered higher risks. Here are higher risk mortgage files that you should question should I use Fannie Mae or Freddie Mac AUS?

  • If you get a borrower that got turned down via DU FANNIE MAE FINDINGS, then review the file and see if you can run it Freddie Mac, LP AUS.
  • Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with lower credit scores.
  • Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with higher debt to income ratios.
  • Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with late payments after bankruptcy and foreclosure.
  • Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with late payments in past 12 months.
  • Freddie Mac LP Automated Underwriting System is much more aggressive with borrowers with 3 or less credit tradelines that has not been seasoned for a long time.

FHA Loans And Fannie Mae And Freddie Mac

Should I use Fannie Mae or Freddie Mac? Fannie Mae and Freddie Mac are both used with the automated approval process of FHA Loans. However, Fannie Mae and Freddie Mac each have their own way of analyzing and reading a borrower’s mortgage application data and credit reports so each of them may have their own way of rendering an automated approval. ¬†There are many times where one says no where the other will say yes to an approve/eligible per automated findings. If you are classified as a higher risk borrower and got turned down by a lender who told you that you do not qualify because you cannot get an approve/eligible per DU/LP FINDINGS and need a second opinion, please contact Gustan Cho at 262-716-8151. Please text me for faster response. I am available 7 days a week, evenings, weekends, and holidays. You can also email me at gcho@gustancho.com.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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