Is this something that most lenders can do on their own? For example, can they push this functionality out to management? Or do lenders usually need to go back to the vendor or developer to have adjustments made?
Thompson: It can be very easy, depending on what technology you use. For example, our firm has developed an AUS that could be adopted by multiple lenders, with a break-through user interface to a rules engine that enables lenders to easily author and maintain rules for their programs.
Cook: Whether it is easy for a lender to make changes to lending parameters or anything else depends on three things:. Does the system allow the lender to make changes on its own?
What is the ease of use of the system? The AUS provider can only control items 1 and 2. Either a system allows a lender to make changes itself, or it must ask the vendor to do it. If a system allows the lender to make changes, how easy is it to accomplish those changes? Are the controls and features highly technical and complicated, requiring extensive training or technical skills? Or are they simplified to the extent that a layperson could learn how to make changes? Are the features that are exposed to the end user robust enough to satisfy the needs of the lender?
On the other hand, if the vendor must make changes on behalf of the lender, how responsive is the vendor to make these change requests? Is there a cost to make changes?
How are disputes or errors handled? One method is not necessarily superior to the other, but there are cost considerations to make. Smaller, non-bank lenders do not have this luxury and must rely on a vendor to be competent and responsive with their technology and services. A third option, however, is for a lender, even a large correspondent, to leverage the agility of the hosted model and select a vendor that can satisfy its unique requirements; be as responsive as its own internal IT resources; enhance its marketing via partnerships to distribute its products via the vendor; and benefit from a lower total cost of ownership of the AUS engine.
Thompson: AUS are all different. No one is able to take a template from DU and LP. However, our firm provides libraries of rule sets that can be easily copied and modified, and these include Fannie and Freddie rule sets, which are easily adapted for prime jumbo lending programs. We can consistently apply lender overlays to agency programs, as well. Our library also includes non-agency rule sets that include rules to assign credit grade for subprime loans and determine other loan-level pricing adjustments.
Cook: I can only speak to our experience as a hosted vendor that builds and maintains loan program guidelines on behalf of our clients. In our business model, lenders come to us and select from a library of over 1, loan programs from 70 different investors and correspondents that we have already built and are actively maintaining.
Obviously this is an advantage for lenders from an opportunity cost standpoint because it eliminates the following steps from the licensing model:. In our model, lenders tell us which investors and products they want available in their systems, and then they provide us with any additional changes they want to make, such as adjusting or enhancing guidelines overlays to their own preferences. In effect, all of our loan programs are pre-made templates. Is that generally handled by the vendors via software updates, or is it mostly manual?
With the information from a DU and LP in hand, borrowers and loan officers get a better idea of whether or not a loan will be approved. That said, in reality, an experienced mortgage loan officer will know what documentation a borrower needs to provide in advance. Still, an automated underwriting system is a great way to double-check and avoid missing something before the loan goes to the underwriter. Monday — Friday a. Call us Ever asked your loan officer what a DU or LP is, only to get an answer that left you more confused?
Without Freddie and Fannie, lenders would quickly run out of funds with which to make loans. Examples of these guidelines include: Debt-to-income ratio.
The lending industry is broadly migrating to the use of new technology-driven loan underwriting platforms to improve the processing time for all types of loans. Automated underwriting is utilized in various capacities across the lending market. It is a factor that is increasing competition and specifically competition between emerging online lenders and traditional banks. At the same time, it is also creating greater opportunities for fintech partnerships that involve revolutionizing automated underwriting and lending services.
Automated underwriting can be used in all types of loans. It is primarily used with conventional loans that include a standard underwriting procedure and basic amortization schedule for installment payments. Many automated underwriting applications are available for personal loans through online lenders like LendingClub and Prosper however large banks are also integrating automated underwriting platforms as well.
In general, lenders can offer automated loan applications for credit cards, personal loans, auto loans, and mortgages. Automated underwriting has historically been relied on for credit card underwriting however it is becoming more popular with conventional loans. Loan applications can be structured to take basic application information including addresses, social security numbers, and income details.
Partnering with information vendors, automated underwriting platforms then use basic loan application information to retrieve relevant data, such as a borrower's credit history. Automated underwriting makes the first phase of the underwriting process much more efficient.
It has the capability to provide instant outputs that can generally take up to 60 days to complete with manual processing. It also has the capability to flag and refer applications to manual underwriting, for certain verifications in the final phases of the lending process. With conventional loans, human interaction is typically required to verify some inputs such as income and assets in order to close the deal. Loan operating systems in the lending market are also rapidly evolving to service all aspects of the loan process.
In addition to automated underwriting, loan operating systems can be built to generate amortization and installment payment schedules, provide an automated portal for online payments and provide servicing notifications to the lender on payment delinquencies.
The file needs to be downgraded to manual underwriting. Conventional Loans do not. However, before downgrading the file to manual underwriting, loan officers should do everything possible to get the file and approve-eligible per AUS.
If credit reports are inaccurate, then AUS will pick up the inaccurate report. Credit Disputes on credit reports are not allowed during the mortgage process. This is because credit disputes automatically discount the derogatory tradelines from the credit scoring model of credit bureaus. AUS does not recognize this. So any automated findings with credit disputes are not valid.
Same with public records. There are ways on how to get refer to approve-eligible per AUS. We will explain how to get refer to approve-eligible per AUS on this blog. This blog is intended for both borrowers and loan officers.
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