Automated underwriting proves to be one of the biggest changes that has come to the mortgage lending business in the last several years. The process uses computers to handle the process of underwriting mortgage loans. There are numerous benefits to the concept. Among them are lower closing costs, quicker loan approvals, fewer requirements for documentation, and approval for applications which human underwriters denied in the past.
Underwriting itself is the means whereby the underwriters approve or deny mortgage loans. They do this by considering the property, the ability to pay back the loan, and the credit worthiness of the individuals applying. For most of mortgage loan history, people exclusively handled these activities. In recent years, programs have demonstrated that computers are able to perform these jobs quicker, with greater accuracy, and generally better.
There are now automated underwriting systems that handle much of this work load. Both Freddie Mac and Fannie Mae have created their own such systems to evaluate mortgage loans. They are the two biggest investors in mortgages within the United States. Freddie Mac has a system called Loan Prospector. Fannie Mae developed Desktop Underwriter to perform these same functions. Both computer systems display their abilities via a predictive model. They take the specific mortgage applications and compute a quantitative risk factor for them.
Automated underwriting systems are easy to apply through. The lender or mortgage broker queries the applicant for information. He or she enters this data into the underwriting system. The system pulls a credit report to accompany it. The system next creates a Findings Report using the credit report and application information. The Findings Report reveals the determination on the loan application approval. It provides the list of documents that will be required in order to verify the data of the application.
Consumers benefit from these systems. The approvals they issue represent binding commitments from either Freddie Mac or Fannie Mae. If the information put in is correct and can be documented, then the consumers can enjoy the confidence of knowing that their loan will be issued.
Borrowers no longer have to come up with voluminous amounts of application documents and complete major paperwork thanks to these systems. The new automated underwriting systems commonly only require a single pay stub instead of the two months that human underwriters typically wanted.
Approval time spans are significantly shorter now with these computers. The Findings Report appears in only minutes after the lender enters the information into the system. Less documentation also means that the time frames are reduced.
The greatest single benefit of the new systems is that with automated underwriting, consumers who used to be refused loans are many times approved now. Consumers with excellent credit but fewer down payment resources especially benefit from this system. In the past they would not have been approved, but the system model assigns less importance to the full down payment amount that human underwriters did.
One helpful characteristic of these automated underwriting systems revolves around property identification. Human underwriters often required the property for which they were applying for a mortgage to be stated on the application. The new systems do not have such a requirement. This benefits consumers who are still shopping for a house. Once they are approved by the system, they gain a powerful tool for negotiating deals with the sellers of properties.