When and why lenders utilize automated mortgage underwriting systems.

When and why lenders utilize automated mortgage underwriting systems.
  • It’s a priority for both established leaders and start-ups to speed up the mortgage application and approval process for prospective homeowners.
  • Underwriting a mortgage using an automated system may save time and money for both the lender and the borrower.
  • Insider Intelligence distributes hundreds of research papers, infographics, and projections on the FinTech business. Find out more about how to become a customer here.

To keep up with nonbanks and alternative lending firms, incumbents focus on speeding up the mortgage loan application and approval process for prospective homebuyers.

Through automated underwriting, these new digital organizations are speeding up and securing the mortgage loan application process. Is there a time saving to be had through automated underwriting? What are the advantages of automated underwriting for lenders? Here, we’ll examine these issues and speculate on where automated manufacturing could be headed in the future.

What is an automated mortgage underwriting system, and how does it work?

The incumbents are focused on speeding up the mortgage loan application and approval procedure for prospective homebuyers. Images courtesy of mobile

Mortgage underwriting automation is a term for this process you can try Oak Park.

In the case of automated mortgage underwriting, powerful artificial intelligence (AI) technology is used to analyze a person’s credit record and judge whether or not to provide a mortgage loan.

By using RPA and ML, the underwriting program evaluates the information provided by customers and offers a list of criteria that must be met before a loan can be approved.

Automated underwriting may save mortgage lenders money while also improving client satisfaction by reducing the amount of time and money spent on manual underwriting.

The application and issuance procedure for lenders of different sorts of loans is also managed by loan origination systems Lenders, and applicants alike benefit from the program, which automates a substantial chunk of the loan procedure and simplifies the application.

Manual vs. Automated Underwriting

When Fannie Mae debuted Desktop Underwriter more than 25 years ago, the industry was exposed to computerized underwriting.

Quicken Loans unveiled a revolutionary new approach to mortgage underwriting in 2015 with the debut of Rocket Mortgage. When submitting information to Quicken Loans ‘ underwiring system, it is no longer necessary for customers to furnish pay stubs or bank statements.

Manual underwriting used to take a long time.

Lenders of mortgage loans

Rocket Mortgage, which took days to establish, could examine an application in approximately 10 minutes – a significant lure for lenders and applicants.

On the other hand, Quicken Loans isn’t the only mortgage lender to use automated underwriting tools.

Underwriting systems (AUS) assess a client’s finances (such as credit score and income) in addition to the property’s total worth that they are interested in purchasing (usually determined by an appraiser). At this point, the system chooses whether or not to accept or reject a customer’s mortgage application.

As a result, customers who have been pre-approved for a mortgage loan may go on to the next step of the loan procedure, and only those who have never built credit or have had past financial difficulties will need to meet with an underwriter in person.

Due to significant wait times and the need for borrowers to visit their local branch or telephone a loan officer, the process of manual mortgage underwriting is slow.

With manual underwriting, third parties such as employers and banks verify financial information given by the applicant through supporting papers such as pay stubs and tax returns. Both the lender and applicant must wait for an appraisal to be arranged and processed, which adds to the cycle time.

Mortgage insurance eligibility may be determined more quickly and cheaply using computerized underwriting.

Benefits of automated mortgage underwriting

Using automated underwriting procedures, alternative mortgage lenders can speed up loan processing and lower rates, according to the Online Mortgage Lending Report from Insider Intelligence.

Financial organizations can: 

  • Check the information on the borrower against the databases of employment.
  • Generate real estate values without the requirement for third-party assessments.
  • Cut down on fraud

Yet, large banks are attempting to exploit the advantages of mortgage lending technology to offset the mounting threat from insurtechs and non-bank lenders; however, they will likely encounter more significant barriers than their alternative mortgage lending rivals.

Part banks aren’t ready to automate the underwriting process because of the ongoing aftermath of the 2008 financial crisis, which has left the market open for alternative lenders to take some of the market shares.

As a result, large US banks, including Bank of America, JPMorgan Chase, and Wells Fargo, have had to make further efforts to implement digital solutions and automated software, such as working with fintechs, to do so.

Automatic underwriting in the FHA

FHA, part of the U.S. Housing and Urban Development (HUD) agency, helps people get a mortgage by guaranteeing their loan. Loan applicants are more likely to be accepted and given reduced down-payment requirements since the FHA insures the loan.

As part of the FHA’s upgrading of information technology, FHA Catalyst was established. Connecting technology, people, and data accelerates the loan lifecycle and helps consumers more efficiently and effectively.

To qualify for an FHA loan, a borrower must fulfill all the Department of Housing and Urban Development requirements and the lender. A borrower’s financial history may be promptly evaluated with FHA automated underwriting, just as with regular automated mortgage underwriting.

The FHA TOTAL (Technology Open To Approved Lenders) Mortgage Scorecard, produced by the HUD, determines whether or not an applicant is eligible for an FHA-insured loan based on their financial information. Automatic underwriting is used to access FHA TOTAL, and it helps FHA analyze and manage risk by ensuring that all FHA loan applicants get the same evaluation.

Lenders like the FHA TOTAL Mortgage Scorecard because it makes it easier to determine whether their customers are eligible for FHA mortgage insurance, which lowers their total risk in making a loan to them.

Sherry J. Basler