Saturday, October 25, 2008

Mortgage Loan Approval: Are you on pins and needles wondering if you might qualify for a loan?


Get Your Answer Automatically. In today’s market, your answer is often times automatic.

Automated underwriting (AU) systems are used to determine most mortgage lending decisions. AU systems have been around since the 1970s for different institutions such as auto dealers and credit card companies. The first AU system for mortgage banking was introduced by Freddie Mac in 1995. It was designed along the same credit tenements that manual traditional underwriting focused upon – credit, capacity (to repay) and collateral.

Today, whether you are Freddie Mac, a big bank, a mortgage lender or a mortgage insurer, all the major players use some type of AU system to mitigate risk and to evaluate the credit worthiness of applicants. These systems have different names like Zippy, Desktop Underwriter, Assetwise and Clout (all registered trademark names), to list a few. They basically are the same systems, but are “tweaked” to each investor’s guidelines. They are also branded by each investor with its own name (that’s where the funny names come in). What does that mean? Well, Fannie Mae may buy a loan over $1M, but perhaps a particular investor doesn’t want to buy loans over $1M. Thus, the investor would “tweak” their system to deny loans larger than that loan amount. So if you are a lender, and have a$1.2M loan, then you would have to find a different investor who would buy that loan or sell it directly to Fannie Mae. The end goal is to put all the loans into pools or buckets in order to package securities. Some lenders can bulk enough loans to sell directly to Fannie, Ginnie or Freddie, and some just sell to an investor who sells to the big guys.

How does an AU system work? When you speak with a lender, they listen and help you determine what financing options best suit your needs. The lender collects your relevant information by asking you the questions from a loan application. Basically, a lender inputs the loan application information with regard to where the applicant lives, how much money they make, what other properties they may own, what reserves they have, as well as some government mandated questions. The lender pulls a tri-merged credit report (credit from three reporting agencies), and combines all the information, in addition to loan specifics, together in the system. Then, the lender pushes a button and waits for an answer. The system analyzes the data input as well as mortgage loan data, such as loan to value ratios, property type and debt ratios. And, ta-da! You have pre-qualified for a loan. That’s why you can get a quick answer these days. Of course, more often than not, it’s never quite that simple. There are perfect applicants out there who have worked at the same job and lived in the same place for the last 20 years, who have $100K in the bank. But more often than not, an applicant’s situation has its own special nuances.

Which brings me to my next point. AU systems don’t remove the need for a real underwriter in the mortgage approval process. A real, live underwriter reviews all documentation and data to ensure its accuracy. And a good loan office will anticipate what the underwriter will require. Let’s face it, if I were personally lending someone $200,000, I wouldn’t want to leave that decision completely up to a computer. Would you?

It’s safe to say that AU systems have made the lending process more concise, efficient and effective. But regardless, underwriting approval these days is never cut and dried!

Let My Experience Work For You!

Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at http://www.kristinmortgage.com/ Home Loans Plain Talk.

9 comments:

K said...

Finding a good mortgage loan can be difficult. IT's good to get as much information as possible before making a decision on a lender.

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