Automated Underwriting System Used By Mortgage Lenders

The Automated Underwriting System is a computerized mortgage underwriting system that analyzes a potential mortgage borrower’s application for a home loan and uses its parameters to automatically give an approval or denial.

How Does The Automated Underwriting System (AUS) Work?

The Automated Underwriting System or AUS for short is set up with certain criteria to abide
The Automated Underwriting System or AUS for short is set up with certain criteria to abide by such as the following:

  • credit scores
  • borrower’s credit
  • payment history
  • credit tradelines
  • delinquent accounts
  • borrower’s public records or judgments
  • bankruptcies, foreclosures, short sales
  • deed in lieu of foreclosure
  • tax liens
  • charge-off or collection accounts
  • borrower’s income, borrower’s assets
  • and every line the borrower has stated on their Form 1003 Application including the declaration page.

Mortgage Loan Application Process

The declaration page on 1003:
Application has questions such as whether the borrower has owned a home previously, has declared bankruptcy or lost a home to foreclosure, has any civil adjustments, or if the borrower has any pending lawsuits.  Since this is a computer-generated system, within a minute or two of entering this information into the Automated Underwriting System, the AUS will give its finding of the credit profile put into the system which will be: Approve Eligible, Refer Eligible, or Refer Ineligibly.

Automated Underwriting System (AUS) Findings

When your data goes through the Automated Underwriting System and you are returned with an Approve/Eligible response means that the borrower/application meets all of the lending guidelines for the loan program which they applied for the following mortgage loan program:

There are three types of findings the automated underwriting system will render. We will go over each of the three different types of automated findings of the AUS.

Approve/Eligible per Automated Underwriting System Means Automated Approval

The Approve/Eligible means the Automated Underwriting System reviewed the credit profile and financial information and approved the application. However, a list of items will be returned from the AUS that need to be supplied in order for borrowers’ loans to be processed.  These items can include reserves, additional paperwork, verification of rent, collections accounts, etc.

Agency Guidelines Versus Lender Overlays

AUS approval means you meet all the automated underwriting system agency guidelines.

AUS approval means you meet all the automated underwriting system agency guidelines. Lenders like Loan Consultants do not have any lender overlays so you are set to go with the mortgage process. However, most lenders have lender overl

ays on government and conventional loans. What this means is even though you got an approve/eligible per AUS, the individual mortgage lender may have additional lending requirements that are above and beyond the agency guidelines.

Examples of Overlays By Mortgage Lenders

For example, the minimum credit score requirement for a 3.5% down payment FHA home purchase loan is 580 FICO. However, a lender may require a 620 or even higher for a 3.5% down payment FHA loan approval even though the minimum HUD guidelines only require a 580 FICO. This higher credit score requirement is called a lender overlays on credit scores by the lender. Lenders can have lender overlays on just about anything.

Automated Underwriting System Refer/Eligible Findings

The final response about a borrower’s application with the Automated Underwriting System is Refer/Eligible.  A Refer/Eligible is sort of a gray area in the fact that normally this means that the Automated Underwriting System approved the file but only with a manual underwrite.  If you are looking to get approved under a loan program that doesn’t allow for a manual underwrite, your loan officer can assist you in referring some items to change such as reserves on hand, down payment, or even waiting for a higher credit score. There are instances where an approve/eligible per AUS file can get downgraded to manual underwriting. This often happens if a mortgage underwriter uses underwriter discretion to downgrade the file to manual underwriting due to risk. Examples when the underwriter uses underwriter discretion to downgrade to manual underwrite is cases where there is too many outstanding collections and/or charged off accounts, high debt to income ratios, declining income, multiple gaps in employments, and other risk factors.

Automated Underwriting System Refer With Caution Findings

When the Automated Underwriting System returns with a refer with caution means that a borrower does not qualify for the particular loan program.  The refer with caution can be returned for many reasons which may include the following reasons for the caution:

  • The waiting period after bankruptcy has not been met
  • The waiting period after the foreclosure has not been satisfied
  • The short sale waiting period does not meet the agency guidelines
  • The borrower does not meet the minimum credit score requirements
  • The debt to income ratio exceeds the maximum allowed per AUS
  • One or more factors do not meet the agency mortgage guidelines
  • Multiple late payments in the past 12 months

The most popular reason for a refer with caution is due to derogatory items on the borrower’s credit history that reflect the borrower does not meet the minimum agency mortgage guidelines on the loan program applied such as not meeting the mandatory waiting period requirements after bankruptcy and/or a housing event.

Automated Underwriting System: Conclusion

Automated Underwriting System: Conclusion
As you can see, the Automated Underwriting System does help with mortgage files since the loan program qualification criteria are already built-in so that it prevents a manual underwrite right away.  A lot of mortgage lenders will rely on the Automated Underwriting System so that they won’t have to do manual underwrites.  However, you may need a manual underwrite or a mortgage lender that doesn’t have lender overlays and if you are reading this article, you are in the right place!  If the mortgage lender doesn’t have lender overlays, then the loan can be done with the Approve/Eligible finding.

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