The Benefits of Automated Underwriting for Mortgages

Automated underwriting graphicIn the financial sector, automated underwriting has grown in importance recently. Automated underwriting is a procedure that evaluates the risk attached to a loan or insurance policy fast using computer algorithms and other technologies. Lenders can expedite prospective consumers' application and approval procedures by automating this process. This has reduced expenses related to manual processing while also allowing lenders to provide better customer service.

What is the Automated Underwriting Process?

Mortgage underwriting verifies a borrower's financial status and credit history to determine whether to issue a loan. Traditionally, this process has been done manually, but there is a growing trend toward automating the underwriting process with computer programs. Automated underwriting systems (AUS) are software programs that analyze borrowers' financial information and credit scores to determine whether they are likely to repay their loans.

AUSs have several advantages over traditional manual underwriting. First, they can speed up the mortgage approval process by automating the evaluation of borrowers' financial information. 

This can be especially helpful in cases where the borrower's credit history needs to be clarified or when there are many applications to review. After the computer has concluded, your lender will double-check the outcome and make a decision. Lenders use automated underwriting because it is much quicker and less expensive than human underwriting.

How Does Automated Underwriting Work?

Credit judgments may be made electronically using automated underwriting based on data and algorithms. To determine your eligibility, this technology examines the data on your application, such as your name, address, and Social Security number.

Programming a computer to examine specific data to assess the possibility that a loan will be repaid is known as automated underwriting (AU). It is feasible to tell a computer software to consider a vast number of different factors while reaching a decision.
AU may consider a range of elements, including but not limited to the following:
your employment history,
length of current employment,
past employment history,
type of job you have,
length of time at present work,
reason for leaving the last position,
education level,
amount of debt,
credit history,
existing financial obligations,
assets, and
other information.

Automated Underwriting Vs. Manual Underwriting

Automated underwriting systems (AUS) look at a client's finances, such as their credit score and income, and the overall value of the property they want to buy (usually determined by an appraiser).

From there, the system decides whether a customer's mortgage application should be approved or sent to a human underwriter. So, approved clients can move on to the next step of the mortgage loan process.

Only a few clients, like those who are just starting to build credit or have had money problems, need to meet with a person to complete the loan application.

Manual mortgage underwriting is complex since applicants must wait a long time and visit a branch or call a loan officer. Manual underwriting involves checking the applicant's financial information, such as pay stubs and tax returns, with third parties, such as employers and banks.
Also, both the lender and the person who wants a mortgage loan must wait for an appraisal to be set up and done, and this slows down the process even more. So, applicants and mortgage lending companies can save money, time, and trouble by using automated mortgage underwriting to determine if someone is eligible for mortgage insurance.

Pros of Automated Underwriting Systems

Currently, there are two reasons why automated underwriting is a valuable and effective tool for loan approval.

First, the process expedites the application process with automation.
Second, it is more objective than manual underwriting, so there is less chance of bias or human error.

More consistent decisions: AU makes more consistent decisions for all types of loans, including credit cards.
More accurate decisions: AU makes more accurate decisions, especially for first-time and non-prime borrowers.
Even the playing field: Because of AU, lenders, and borrowers will have a more level playing field.
It can be used with FHA loans and conventional loans (Freddie Mac and Fannie Mae)

Cons of Automated Underwriting Systems

Only some people should choose this path. You may not be approved if you have a low credit score, no credit history, a recent negative change on your credit report, or any other credit problem you are trying to fix.

 You may also not be approved if your finances have changed significantly, like if your income or expenses have gone up or down a lot.

Automated underwriters usually analyze data points such as credit scores too quickly.

Automated underwriting is devoid of a human element. Computerized underwriting cannot comprehend that your husband lost his job due to a medical condition or that your child is ill. Computers are excellent if there are no problems, but if there are, the loan must be evaluated by an underwriter.

It's possible to get creditworthiness wrong: Automated systems don't always make the right choice, which is different from humans. They can sometimes miss important details that make you look worse than you are.

For example, even if your score is high, an AU system might not be able to tell that you are a great candidate for a particular loan product. The system doesn't consider that you've had a steady job, taken on reasonable debt, saved up a good down payment, and paid your bills on time for 20 years.

Lenders have less reason to think about giving you a loan: AU systems have a different motivation to provide you with a loan than humans. When a person decides they want to provide you with a loan because if you pay it back, they will get paid.

The manual process of making decisions needs to be clarified: When it comes to AU, it needs to be clarified. You may not be notified how the system arrived at its judgments or why you were denied a loan.

The popularity of automated underwriting systems has led to an increase in the use of approval systems. These systems help financial institutions make quick and accurate decisions about approving or denying a mortgage loan application.


Desktop underwriter systems are standard tools mortgage lenders use to review loan applications. These systems help lenders quickly determine whether a borrower is eligible for a loan and whether the requested loan amount is appropriate. Fannie Mae and Freddie Mac use automated underwriting systems to approve or deny mortgage loans.

These systems use machine learning to make underwriting decisions. This technology helps lenders make quicker and more accurate decisions about approving or denying a loan application. Automatic underwriting systems can help make underwriting decisions. However, these systems are flexible and can sometimes make incorrect decisions. To make the best customer decisions, lenders should use these systems with human underwriting.

SOURCE: Automated Underwriting System (Aus)

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