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.

Breaking News: Fannie Mae and Freddie Mac to the Rescue?

This week in response to the Homeowner Affordability and Stability Plan (HARP) both Fannie Mae and Freddie Mac have released their own versions of Refinance programs. Fannie Mae’s DU Refi Plus and Freddie Mac’s Relief Refinance Mortgage. The programs are geared to help homeowners that are underwater on their house refinance. This will allow consumers to capitalize on the low rates that are available today.

The Program – Both programs will allow consumers to refinance their first mortgage up to 105% of the value of their home currently. Any second lien holder can be subordinated to an unlimited CLTV. The program is not restricted to a primary residence.  If your current loan does not have Mortgage Insurance it will not be required on the new loan. If you have Mortgage Insurance currently your Mortgage Insurance provider will have to agree to modify which they may not be willing to do. There are no minimum credit scores but there are adjustments for the lower scores on the Fannie Mae Program. So far each wholesaler is a little different in their offering of the product. This is due to their own internal risk tolerance. Some will offer the High Balance temporary loan limits and others have restricted it to 417K.

The Catch – Your loan has to be owned or serviced by Fannie Mae or Freddie Mac. To determine if you are eligible for the program you have to visit:

Freddie Mac at http://www.freddiemac.com/avoidforeclosure/ and click on “Does Freddie Mac Own Your Mortgage?”

Fannie Mae at http://www.fanniemae.com/index.jhtml and click on “does Fannie Mae own your Mortgage?”

With limited information they will tell you if they own or service your Mortgage. If they do then you have the first major step done on your journey.

The program itself is not very complicated but due to the fact that every institution will have their own overlays on the product it will be best to consult your Mortgage Professional for your individual situation.

All information in this post has been taken from a variety of my sources and from a variety of wholesale channels. Please keep in mind that this is a very new program and with that patience will be an extreme virtue.

As always I thank you for reading,

“You will always get the facts here!”