OK, OK I am on a Shakespeare kick, but it goes to the heart of what I am writing about. It is not unusual to hear the people in my office who have been involved in underwriting for years to say “that is not how it was in the old world”. What they mean by that is how underwriting was done before “Automated Underwriting Systems” like Fannie Mae’s (DU) and Freddy Mac’s (LP). These Automated Underwriting Systems have turned the way underwriting is done upside down. I am not going to go over all the things that have brought this about but I will cover three of them.
First, very few loans are manually underwritten any more. Once a Loan Officer submits a loan through DU or LP and gets an Approved/Eligible or Accept, the loan is basically approved. At that point all the Underwriter needs to do is verify the information on the application, make sure that every thing on the Automated Systems Feedback was followed, and that the house appraised. If all this checks out the loan is done and a Loan Commitment is issued. Underwriters had a real hard time with this new concept, because they were used to certain documentation being provided, that the Automated Systems don't always ask for. Example, DU and LP some times does not require that an appraisal be done on purchase or refi’s, they waive it. These changes were not well received in their world. A lot of Underwriters would still request the documentations, this created a little bit of turmoil between them and the Loan Officers, because now the Automated Underwriting Systems Feedback controlled a major part of the Loan.
The second major change is the “Ratios”. This leads to the title of my blog. Where are the ratios, they are through the roof. Underwriters used to follow a hard set rule that ratios would be no more than 28/36. Today if a Borrower has good credit scores, I said good, not great, but good credit scores I can get a conventional loan approved with a 65% total debt ratio. That is not just a little jump, it is a huge jump in the ratios. Even government loans like FHA can get approved with 41/50 ratio. This blew Underwriters minds, and it was very hard for them to accept this.
The third major change is the ability of a Loan Officer to give a Pre-Approval Letter with a very high degree of certainty that the Realtor has a qualified Borrower. I do not give any Pre-Approval Letters without first taking a full application, once I do that I run the information through DU or LP, if I get a response with an Approved/Eligible or Accept, I have a qualified Borrower if he or she has told me the truth.
It looks like “Automated Underwriting” is here to stay, and a computer has a major say in whether a loan gets approved or not. There are other changes that “Automated Underwriting” has brought about in the Lending Industries, but these standout the most to me. I hope it helps some of the Realtors on here understand the procedure today a little bit better, especially the ones that can remember the days of the 28/36 “Ratios”
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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