Understanding Automated Underwriting Process

[veracious]

I read the information found in the Announcements section of the board.

Out of curiosity, I would like to know if  an underwriting system generates a "score" that a prospective lending source

requires for  approval before a manual review is done.  If so, what is the normal score range ?

Thanks

[ShanetheMortgageMan]

Automated underwriting system requires credit scores, but it doesn't generate any score.  It generates a decision - Approve (or Accept) or Refer, or some variation between called Expanded Approvals (which are higher rates than someone with an Approve would get, but aren't offered by lenders these days).

[ShanetheMortgageMan]

But if you are asking this question - you must be wondering if it generates a score for a particular reason, and what the range is for a particular reason.  Were you thinking that automated underwriting creates a "risk assessment score" of some sort, and if so, wanted to know how to improve yours?  Because even though there is no "score" per se, there algorithm's that the automated underwriting system uses have thresholds on what would get an Approve and what would get a Refer, plus the underwriters also use some sort of internal risk assessment in their own head, so there is still a need to make sure you are as well qualified as possible.

[veracious]

Thank you, Shane for  your quick response.

I was asking because  as you stated, there are two possible results from automated underwriting.

My concern is if a loan officer would ever tell a client that they were not instantly approved, would they be able  to fabricate the denial?

If credit scores were used in the underwriting process a loan officer would have to provide a reason or score to prove that he /she

needed to do a manual review.   Another question I have is, given the above scenario would/could a loan officer have an incentive

to do a manual review?   Is there a cost incentive to the loan officer in such a case?

---

 eta: inquiring about conventional as opposed to FHA

Thanks

[ShanetheMortgageMan]

If anything, there would be an incentive for the loan officer to thoroughly examine borrowers documents, put together a very thought out file/nothing is missing, and then the underwriter would have a very easy time reviewing a loan like that.  Putting together poor files, as in hijacking a loan to turn in into a manual review when it obviously could have been an automated approval (like if the loan officer omits assets to make it appear as if you do not have sufficient funds to purchase a home, etc.) they could be reprimanded, including up to being terminated.  There is plenty of work to do without loan officers trying to do something dumb like that.  Some lenders may even monetarily incentivize their loan officers for putting together loans that are very easy to underwrite/nothing was missing/minimal items are asked for after the initial review.

Back in the day, when sub-prime loans grew on trees, your concern would have been validated... as for a lot of loan officers, who didn't know anything but sub-prime mortgages (they were easy to underwrite, all guidelines were printed on a couple pages... vs. the better programs which guidelines are 100's of pages), would, out of their own ignorance, just put you in a loan program with terms much worse than you qualified for.  Also, due to the limitations that those programs did not have, they could make more money by charging obscene amounts of fees/points.

However today there are laws in place that prohibit the types of tactics that went hand-in-hand with those loan programs, and not primarily because of that, but that helped contribute to those sub-prime loan programs leaving the market.  The laws (namely one that went into effect in early April - and I explained to you in this post) alleviate the concern that there is a chance you'd would be steered into a higher cost loan program than you actually qualify for (and while there will certainly be loan officers who break the laws, by large those loan officers have left the industry).

You have very thought provoking questions.

[veracious]

Thanks, Shane. 

Once again you understand my language and intent, and answered my question perfectly.

As you have mentioned,  many, or most of the bad apples have left the industry , and are perhaps still

pursuing a way to fleece innocent people in some other occupation.

It's always a pleasant experience to do business with an honest and dedicated professional.

Your contributions to the board are appreciated by those who value your insider's information.