How Automated Underwriting May Hurt You

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HOW AUTOMATED UNDERWRITING MAY HURT YOU BLOWNMORTGAGE.COM

Transcript of How Automated Underwriting May Hurt You

Page 1: How Automated Underwriting May Hurt You

HOW AUTOMATED UNDERWRITINGMAY HURT YOU

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Technology can be a wonderful thing, except whenyou are denied a mortgage because a computer willnot approve your application. This is the case for manyborrowers that have been turned down by Fannie Maeand Freddie Mac’s automated underwriting system.Because these two mortgage giants back a largemajority of the loans underwritten in the United States,most lenders abide by their automated system. Ofcourse there is still the chance of a second passthrough underwriting with a manual underwriter, butsome lenders do not do that, leaving borrowers out inthe cold.

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No Room for Excuses

The biggest hang up with automated underwriting iseverything is black and white; there is no room forexplanations or excuses. If your credit score does notmeet the requirements, it does not get approved. It doesnot matter to the computer that you lost your job or hada sudden illness that put you behind for a few monthsbut now you are back on your feet. There is no box toexplain these matters; the decision is simply derivedbased on a formula that says “yes” or “no.”

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Compensating Factors Do Not Exist

Oftentimes lenders will allow compensating factors, such as alarge bank account or incredible job stability, to make up forsomething negative on a borrower’s application. These factorsrequire an explanation and an understanding of thoseexplanations, something the computer does not have. If theprimary factors do not meet the requirements set forth byFannie Mae and Freddie Mac, the loan is considered declined.In the real world, these compensating factors can make up forsome of the wrong showing up on the file, making the borrowerseem less risky and able to keep up with payments.

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A New Start in Life

If you are just starting out in the “real world” with a job and yourfirst few debts, you may not have adequate credit to be sufficientenough for the underwriting system. Even if you have a lowdebt-to-income ratio and subsequent assets available, thecomputer will turn you down for a lack of credit. This does notgive new borrowers a chance to prove themselves. With amanual underwrite, the lender can use alternative methods toverify your credit, such as rent history or even utility billpayment. Anything that can show consistency and responsibilitycan often be used to determine your ability to get a mortgage.

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Making a New LifeMany people are also facing denial of their loanapplication from the automated underwriting systemwhen they have experienced a bankruptcy or foreclosurein their past. This includes a large portion of theeconomy as many people struggled in the last few years.Even if these people have made their lives better, gottena new job and paid their bills on time, their credit reportmight not be reflecting as well as it needs to for theautomated system. If the computer does not see thenumbers it needs, the loan will be declined no matterhow well built up it may be.

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Automated underwriting is powerful and positive formany situations, but can hurt many others. If you donot have a straightforward mortgage application, youmay find yourself denied for a loan when you leastexpect it. If you think this may be the case for you, talkto your loan officer about the possibility of getting itmanual underwritten. Not every lender offers them,but you can shop around to find one that does. This willgive you the best opportunity to obtain the loan youwant despite not having a textbook mortgageapplication.

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INFORMATION PROVIDED BY:

Justin McHood

Mortgage Commentator

Information Originally Published: 4/8/15

Justin McHood is Americas Mortgage Commentator and hasbeen providing Mortgage commentary for over 10 years.

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