Risk Assessment Tools: DU and LP Automated Underwriting Definitions

In today’s market, the need for an automated underwriting approval prior to submitting an offer has become common practice. To be competitive the Listing agent or the bank that owns the property would like to know that you have been ran through our automated underwriting engines. Yes, they are computer programs that assess the risk of the file and determine the viability of the loan. It is only as good as the inputter and that is why in most cases brokers and loan officers are asking that you provide a backpack of information. In continuing our trend of Mortgage Definition Monday I have defined these terms below:

Hud has defined Automated Underwriting in their terms and glossary section as follows.

Automated Underwriting - loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.

Additionally, I will add that the computer is assessing the total credit risk of the buyer. The loan can still be declined even if it receives an automated approval for multiple reasons. Some of which may include but are not limited to: unacceptable collateral, unacceptable income documentation, drop in the borrowers credit, unacceptable asset documentation and wholesaler overlays that would override the automated approval for the specific wholesaler.

Automated Underwriting Systems has been defined well on Mortgage Professor’s website.

This definition is as follows:

Automated Underwriting Systems -A particular computerized system for doing automated underwriting.  Mortgage insurers and some large lenders have developed such systems, but the most widely used are Fannie Mae’s “Desktop Underwriter” and Freddie Mac’s “Loan Prospector”.

I will add that the systems are very accurate however again each of the approvals will be reevaluated manually by an underwriter to determine the completeness of the documentation. The underwriting systems are constantly being tweaked to include the newest guidelines however it would be appropriate to double check prior to issuing an approval letter. DU Refi Plus is one of the new programs that took a minute before it was available in the system. When this is the case you make get feedback that is not consistent.

I will continue to bring Mortgage Definitions to you each and every Monday. Until then have a great week.

God Bless,

Matt Freeman

Definitions taken from the HUD glossary and Mortgage Professor glossary. I have added to these definitons and included links to their sites for further verifications.