Automated Underwriting Systems Explained

Written by Posted On Thursday, 03 June 2021 00:00

Automated underwriting systems, or AUS, have been around for a while now. For those not familiar with the term AUS, it might take a little explanation. Is it important to know? Well, maybe not critically so but for those who want to get some behind-the-scenes info on how mortgage loan applications are ultimately approved, this article will tell you how.

Underwriting is the activity that makes sure a submitted loan application meets all the guidelines for which the loan was submitted. Underwriting used to be a completely manual undertaking. Your loan officer would ask for pretty much everything an underwriter might ask for during the approval process. It’s the underwriter that makes the final determination. When a loan is so deemed, the loan is then eligible for resale. Selling a mortgage frees up credit lines needed in order to continue making mortgage loans. Many times, the complete file would be inches thick by the time it made it to the underwriter’s desk. 

It could take a couple of weeks before a loan would be ready to transfer over to the underwriter. Tax returns, P&L, paycheck stubs, bank statements, appraisals, title work and more would be stuffed into the final package. The underwriter would then take over to make sure the file compiled with secondary resale requirements. This entire process would take 30 days or even more due to the way loan files were submitted, processed and ultimately approved. It wasn’t uncommon for a loan to take from 45-60 days before funds were finally released. Today, most of that process is different.

Instead of packing a loan file with pretty much everything an underwriter might ask for, the process is basically reversed. The file is ‘approved’ first and then documented later. This approval is reached by submitting the digitized loan application through an AUS. The ‘findings’ or the results of a AUS submission arrive within moments, itemizing exactly what is needed. The loan processor and loan officer review these findings and then begin building the file. Nothing more and also nothing less. 

A loan file might only need the previous year’s W2 to verify income and employment. Or a full appraisal isn’t needed but a ‘drive by’ will suffice. A drive-by appraisal is exactly that. Instead of a full blown appraisal where the appraiser makes a full physical inspection of the home, going from room to room taking notes, the appraiser literally drives by the property and takes a picture.

Once the file has been documented it is then sent over to the underwriter at the mortgage company. The underwriter reviews the findings and makes sure that what the findings say and what was provided in the file match up. In this fashion, loan files were physically smaller. The AUS would only ask for the minimum amount of documentation needed. Less documentation means files that are much thinner compared to its ancestors. And the time it takes to get a loan from submission to final approval takes much less time.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending. 

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country. 

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