What you need to know about AUS

By
Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
https://activerain.com/droplet/5b8j

What you need to know about AUS

 

     AUS is simply the acronym for Automated Underwriting System.  Still with me?  More commonly known in the real estate world as "DU", AUS is the program that issues automated loan approvals or rejections when a borrower's personal information is input.

 

     All AUS systems use algorithms that analyze things like borrower's total credit profile, their income, debt to income ratio, job history, asset reserves, and more.  AUS comes in some different shapes and sizes - What is DU?

 

     DU, or desktop underwriter, is Fannie Maes version and by far the most commonly used.  DU is capable of underwriting conventional, FHA, and VA loan types, and also lets a lender know what documentation they'll need to ensure Fannie Mae accepts their loan package (if there are requests beyond what's on DU, these are the "overlays" you so commontly hear about)

 

     LP is Freddie Macs version of DU.  Freddie Mac has similar guidelines to Fannie Mae with some slight differences in the algorithms used to determine approvals.  For example, Freddie Mac allows asset reserves to compensate for more shortcomings than DU, and there's no hard stop for derogatory credit events (it's possible to get an approval with Freddie Mac with foreclosure, bankruptcy, etc, recently reporting, but notwithstanding the event, the file needs to be extremely strong).

 

     GUS is the USDA version of AUS.  GUS determines if borrowers are eligible for guidelines under the agricultural/rural development loan program.  

 

     If a loan fits within agency guidelines and does NOT get an approval through AUS, it doesn't necessarily mean the loan can't be done.  Conventional AND government loans can be 'manually' underwritten.  Each year, many loans are declined in AUS and still approved through manual underwriting, but unfortunately, many lenders don't offer manual underwriting (we do manual underwriting on government products - FHA, VA, USDA).  If you're a real estate agent, you should ensure you have a lender on your team that does manual underwriting - it can net you an extra buyer or 2 each year.

 

Why should an agent ask a lender if AUS was run?

 

     Just last week a borrower was referred to me after being pre-approved by another lender.  They didn't meet the manual underwriting requirements, and AUS was declining the loan.  I informed the referring agent and had her ask the other lender if they ran AUS.  Of course they didn't!  Had she not asked, there would have been a lot of wasted time looking at homes, putting in offers, and placing deposits (or worse, spending money on inspections/appraisal), only to be denied once the loan hit underwriting.  That's bad business - for buyers, for sellers, and for their agents.

 

     It's important to know not every lender runs AUS before issuing a preapproval!  They all should!  But they don't.  Just like they don't all look at income documents and asset statements, even though they should.

 

Why SHOULDN'T an agent ask for a copy of AUS/DU?

 

     2 reasons - for one, most AUS systems, in their fine print contract agreements, prohibit a lender from sharing the findings.  Most lenders don't realize this and blindly send over the findings to any listing agent asking.  They don't realize they're jeopardizing their ability to have access to AUS by doing this.

 

     And more importantly, it's a garbage-in, garbage-out system.  What that means is if you want an approval, I can give you an AUS approval.  All I have to do is fudge a few numbers, input something incorrectly, or put income in the wrong box in my origination software, and VOILA!  Approved!  

 

     An agent won't know any better, not because they're dumb, but because the system is designed for lenders - more specifically, lenders that know the guidelines, any overlays, etc.  So just by seeing an AUS approval, you don't know if the loan is going to close or not.  Seeing an AUS denial also doesn't mean the borrower isn't qualified and couldn't get a loan quickly and with no stress.  For example, I've had manually underwritten FHA loans FLY through the system and close in 2 weeks, and I've had super clean looking (on the surface) loans with AUS approvals run into snags along the way.  AUS is not indicative of the strength of a borrower.  It's a lender tool to determine how to underwrite a file - no more, no less.  

 

 

Want a lender on your team that knows the ins and outs of AUS, the manual underwriting guidelines, and doesn't have overlays on conventional, FHA, VA, or USDA loans?   Best of all, a lender that gives buyers a preapproval that really means something? If you're in CA, CO, DE, FL, GA, MD, NC, NJ, PA, TN, TX, or VA, give me a call at 484.680.4852 or email jmeussner@masonmac.com.  I'd love to talk with you.

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Debbie Reynolds 03/11/2018 12:00 PM
  2. Roy Kelley 05/16/2018 01:00 AM
  3. Gabe Sanders 03/17/2018 11:00 PM
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Rainmaker
1,250,453
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Great explanation of each automated underwriting system, John Meussner ... and the benefit of utilizing them early and proactively in the process.  As an LO, it's wise to be equipped with as much info as possible.  This is definitely one more tool in the toolbelt that helps you provide better service to your clients and referral partners ...

Gene

Mar 02, 2018 01:24 PM #3
Rainmaker
4,676,943
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

John,

Great explanation of AUS.  I love it when people really explain things clearly and succintly.  And Carol Williams , i agree with Nina Hollander that this post should be part of 2nd Chance Saturdays.  Have a great weekend. A

Mar 02, 2018 03:05 PM #4
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

John any LO who does not run ALL their loans through an AUS when they are pre-qualifying a borrowers is playing Russian Roulette, and not someone I would want to send my Buyers to.

Mar 02, 2018 03:20 PM #5
Rainmaker
1,505,540
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

This is very interesting, and something I didn't know (although a lender did specifically tell me he had used an automated system of some sort). Thanks for sharing.

Mar 03, 2018 03:24 AM #6
Rainmaker
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Dorie Dillard CRS GRI ABR
Coldwell Banker United Realtors® ~ 512.750.6899 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good morning John Meussner ,

What what an informative post and full of information I was not aware of. I know many lenders have an automated system but never have heard how it really works!

Mar 03, 2018 06:14 AM #7
Rainmaker
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Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning John. Great brief explanation of AUS! Thanks. Enjoy your day 

Mar 03, 2018 08:02 AM #8
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Anna Banana Kruchten Broker/Owner, CRB, CRS
Phoenix Property Shoppe - Phoenix, AZ
602-380-4886

John really good information. We've got a top notch lender that does all he can for folks that don't qualify in AUS. Lots of ways to make things happen but only if folks are willing to put in extra time and effort.

Mar 03, 2018 10:10 AM #9
Rainmaker
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Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

a great post to share with us - we all need this information at our fingertips! 

Mar 03, 2018 10:53 AM #10
Rainmaker
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Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
Carolina Life RealEstate & Relocation 919-602-8489

John Meussner thank you for sharing this valuable information.

Mar 03, 2018 11:30 AM #11
Rainmaker
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Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

John, great information, and knew what DU was, had not heard of AUS.   Here in Denver we definitely want a pre-approval, and be sure that buyer can buy.

Mar 03, 2018 02:06 PM #12
Rainmaker
836,081
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Great explanation and from now on have a new question to ask lenders - have you run AUS....

Mar 04, 2018 08:03 AM #13
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Jeff Dowler, CRS
eXp Realty of California - Carlsbad, CA
The Southern California Relocation Dude

Hi John

Thanks for an excellent education for us all. I learned a few new things about AUS, which is always good!!

Enjoy your weekend!

Jeff

Mar 04, 2018 08:32 AM #14
Rainer
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Raymond Denton
Homesmart / Evergreen Realty - Dana Point, CA
Capo Beach Realtor® - www.CapistranoBeachHomes.com

I wish there was an AUS for the FHA-insured Reverse Mortgage program that's sponsored by HUD, John ... it'd sure make life a lot easier - especially with Purchases.

Mar 04, 2018 09:03 AM #15
Rainmaker
401,573
John Wiley
Fort Myers, FL
Lee County, FL, ECO Broker, GRI, SRES,GREEN,PSA

John, you just gave us a class on AUS.

This was so helpful and should help us know what to ask and look for when the buyer is getting a pre-approval.

Thanks

Mar 06, 2018 08:11 AM #16
Rainmaker
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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Anytime you can become automated, it becomes all that much easier. It’s a really good thing when it works super well!

Mar 09, 2018 11:52 PM #17
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Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent

My best friend was in the mortgage lending business and I remember when this came to be the practice. I learned so much about how it works and the knowledge has helped me do my job better.

Mar 10, 2018 05:04 PM #18
Rainmaker
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Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Thanks for this post, John.  Fascinating info, much of which is completely new to me though I probably should have known it.

Mar 12, 2018 04:52 AM #19
Rainmaker
5,617,575
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is excellent information to share with prospective mortgage borrowers and their agents.

Mar 12, 2018 06:22 AM #20
Rainmaker
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Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Real Estate Agents - Luxury - Divorce

Great information not only for agens...unfortunately....some lenders !

Mar 18, 2018 05:14 AM #21
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

Such a wonderful explanation, John! As you said, I am more familiar with the DUs and you're so right - this has GOT to be done to avoid time-sucking activities for buyers & their agents, especially in this market.

May 16, 2018 08:34 PM #22
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