"Manual underwriting" can mean a couple things. Everyone's file gets looked over by the bank, but, then FHA and USDA have different underwriting. I'm not sure what FHA's is as it's been awhile since I've had any dealings with FHA, but, USDA has the GUS system. The way I understand it, an underwriter can send in the file and then it will got one of three possible responses; approve, refer, or refer with caution.
"approve" used to mean this file is good to go, but, a file can still be turned down after getting a USDA approval. My husbands mortgage was shut down at our last lender AFTER the USDA GUS system approved him.
I know that FHA has an automated underwriting system, AUS, but I think they are just approve or decline and decline results in manual underwriting.
Please note however, I'm not a mortgage broker, just someone who keeps having to deal with mortgage brokers.. lol
I would be interested in input on this as well. From what I understand - how it has been explained to me is if you receive an "automated loan approval" then an underwriter will review your file just to be sure that everything matches the information that was entered to get the "automated loan approval". If you do not get the approval than you go to manual underwriting - where the underwriter basically goes over your file with a fine tooth comb. This may be wrong or be a very over simplified way of putting it .. as I said I would love to hear other (more informed) answers 