Automated Underwriting Systems, or an AUS, has made home ownership easier, more convenient and less costly. That is from a lenders standpoint. Instead of documenting the file first, then sending it in for an Underwriters approval, the loan data is entered into a program, which pings usually a Fannie Mae or Freddie Mac application. Within a few moments, voila! Loan approval. Simply do what the approval from Fannie or Freddie tells you to and a lender has a sellable loan.
Only sometimes its not that smooth. Sometimes old habits clash versus new technology. Specifically, old underwriting habits.
In the olden days, when there was neither electricity nor running water, home mortgages were approved by human beings. These people were called underwriters. When people needed a home loan they would fill out paperwork about three feet high, give or take.
When the paperwork was completed, they then had to document the loan. Documentation was standard from one lender to the next, and it typically included two most recent pay stubs, two most recent W2s or two most recent Tax Returns, all schedules, if self- employed. If a person wasn't self-employed, but got more than ¼ of their income from commissions or bonuses they would not only have to provide two years tax returns, all schedules, but also a letter from their employer explaining how the employer handles employee business expenses. Also, they had to provide three months bank and investment statements. This was all before you had your coffee.
More stuff would be needed after the credit report was run.
But technology changed all that. Instead of documenting everything under the sun the consumer needed only to provide the items Fannie asked for upon an Automated Approval.
With Freddie Mac, it's only a tad bit different. Freddie issues "levels" of approvals called "Accept," "Streamline Accept," and "Accept Plus."
Accept Plus, the highest degree of approval, simply means that less documentation is required. Less documentation is generally a result of excellent credit, low debt ratios or greater down payment. Or any combination thereof. With a standard "Accept" a self-employed borrower would have to provide two years tax returns, all schedules, along with two most recent pay stubs. An Accept Plus would mean the lender would accept whatever the applicant put on their application as income, then page 1 and 2 of their tax returns from last year.
Whichever AUS was used, the exact documentation requirements are clearly spelled out. Sometimes though, your underwriter asks for more than is required. Why? Well, because they can.
If an AUS asks for only one pay stub then why would an underwriter ask for two pay stubs and last years W2? Habit. Habits die hard. During the days of no electricity it was automatic to ask for pay stubs and W2s. But if the AUS doesn't ask for it, it's not needed. I've seen this happen too many times, most often when someone's self-employed. Getting the first two pages of last year's tax returns is a lot less than two years, full schedules plus a year-to-date P&L. Underwriters aren't trying to make themselves work any harder, they just automatically ask for it.
Got good credit? Good down payment? Ratios in line but you think you're getting beaten up by underwriting? Odds are, you've got an underwriter who's been around the block a few times who hasn't gotten used to Automated Underwriting. I'll bet you a burger that's what's happening.
