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   ARTICLE   |   From Scotsman Guide Residential Edition   |   May 2017

The Dream Team

Automatic underwriting systems help originators and underwriters approve loans quickly

When it comes to reviewing a loan application, nothing short of exceptional teamwork can ensure prompt turnaround times. For many underwriters, this means they must maintain a strong, transparent and positive working relationship with their loan-originator partners.

This cohesive relationship can be enhanced by the addition of an automated underwriting system, or AUS. To create the most efficient underwriting process possible, however, loan originators and underwriters must understand the role and purpose of the AUS. It is a supplementary tool, not a “be-all and end-all” technology solution for automatically approving or denying loan files.

With a proper understanding of the role of an AUS, underwriters and loan originators can optimize the effectiveness of their unique responsibilities so that loans close on time and everyone meets their ultimate goal of providing the best possible experience for homebuyers.

The role of the AUS

It’s important to remember that an AUS is only as good as the information entered into it. All of the data compiled in the AUS must still be manually verified and validated by an experienced underwriter. For those unfamiliar with how an AUS operates, it can sometimes be misconstrued as the “final answer” for a loan file, when in fact a manual underwriting component generally follows every AUS decision.

The AUS is incredibly valuable for credit approvals, but there is a human element to underwriting that an AUS will probably never be able to fulfill. A few of the nuances on a loan application that an AUS may not pick up include erroneous credit reporting or possible foreclosures for mortgages that do not appear on the credit report.

In addition, it takes some investigation and human follow-up to verify or disprove the findings of the AUS. Because an AUS only gives you one piece of the financial “puzzle,” it is crucial for loan originators and underwriters to work together, communicate effectively and create a streamlined process.

The AUS post-approval process

After the AUS approves a loan, the manual process begins. An appraisal of the property is the first piece of the puzzle. Again, this is a part of the loan-approval process that will always need a human element. The appraisal team will view photos of the property and compare the design, style, size and appeal to other properties in the immediate vicinity.

Next, the underwriter will look at the borrower’s income and assets. If those aspects are approved, the credit report will be manually reviewed — even if it was initially approved by the AUS. A technology system won’t always pick up on some of the intricacies of a credit report, such as disputed accounts or missing information on mortgage histories.

In a nutshell, credit, capacity and collateral all need to be taken into consideration when determining whether a loan will get approved or denied. The details of each of these areas require careful and thorough consideration — and accurate information — for the underwriter to make an informed and wise decision.

The big picture

To create a smooth and easy underwriting process, it’s helpful if loan originators ensure the completeness of files before submitting them for review. A couple of details important to underwriters that loan originators should keep in mind are:

  • Longevity and variety of credit. At first glance, a potential borrower may appear to have a good credit score. Looking deeper, an originator may notice that the borrower only has two trade lines (credit cards) and no major expenses or monthly payments. In this case, the potential borrower’s credit may not be at the level needed to qualify for a mortgage.
  • Historical data. Information on mortgage histories, auto loans and other significant expenses can be very revealing. If a borrower has so-so credit, but has demonstrated an extensive history of making mortgage and auto-loan payments on time, that borrower may be more qualified for a home loan than someone with an exceptional credit score who has no history of paying off major expenses.

Overall, it’s vital to consider every facet of a potential borrower’s financial picture to determine if a file will be approved. Of course, this process starts with the loan originator and is passed on to the underwriter. When both parties are on the same page, the process will be smoother and quicker.

The bottom line

So, what can loan originators do to ensure their loan files are closed on time? The single most important step to take is to make sure underwriters have full disclosure on the borrower at the beginning of the loan process. Originators who can provide complete and accurate information to underwriters, as well as disclose any red flags that may arise during the approval process, should have no problem making sure loans close on time.

The bottom line is that although an AUS is an ideal solution for the loan-file approval process, it is not a complete solution. When proficient loan originators and underwriters team up — and communicate effectively — the loan process can become truly seamless.

This more collaborative process benefits the borrowers, who are more likely to be pleased with their overall experience and are then more likely to become “clients for life.” A happy borrower also is more willing to recommend the services of their originators to others, which is the most valuable marketing source anyone could ever ask for. 


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