Automated Underwriting System (AUS) is utilized through either FHLMC's Loan Prospector (LP) or FNMA's Desktop Underwriter (DU) programs.
The more complete the application, the truer the underwriting decision.UNDERWRITING DECISIONS
1. DU will give Approve/Eligible,
Approve/Ineligible, Refer/Eligible, Refer/Ineligible, Refer/Caution or Out of Scope decisions. Approve/Eligible
means the loan is approvable to FNMA with supporting documentation. A Refer/Eligible
means the loan meets eligibility requirements, but an overall risk analysis needs to be given by the underwriter to determine if there are compensating factors that would warrant an approval. An
Approve/Ineligible or Refer/Ineligible
means that there is some type of eligibility issue that needs to be addressed and if it cannot be satisfactorily addressed (such as program type), the loan will not be saleable to FNMA. A
Refer/Caution
means the loan is generally not approvable with FNMA unless circumstances outside of DU can be documented (for instance, erroneously reported derogatory credit or bankruptcy without a discharge date on the credit report). This type of decision is difficult to overturn, and can only be done with supporting documentation and substantial justification by the underwriter. Generally, this loan decision means the loan will be denied.
Out of Scope means the loan requested is not one that DU can underwrite (such as a Jumbo loan).
FNMA estimates that 50-65% of the loans submitted to DU for purchase money
transactions will be approved by the system. For refinance transactions, the approval rate is in the 70-70% range.
Referred loans are loans for which the Desktop Underwriter
did not have sufficient information to make a decision and therefore require further analysis outside the system.
2. LP:
an Accept decision generally means the loan is approvable and acceptable to FHLMC. An Accept Plus decision also means the loan is generally approvable and acceptable to FHLMC with reduced documentation required. A Caution means that FHLMC has weighed the risks involved in the loan and determined that it is not acceptable to FHLMC.
DOCUMENTATION
AUS will determine what documentation is needed, based on risk. Prepare your customers by gathering complete information, even though it may
not be needed to complete the loan. If complete documentation is submitted and consequentially not required, the underwriter will only review the documentation required by the system.
INCOME
1. Stability of Income: Same requirements as a standard FNMA/FHLMC loan.
2. Secondary Income:
Same as standard FNMA/FHLMC loan.
3. Commission Income: If less than 25% of total income, AUS will request one pay stub or pay stub and W2. IF
exceeds 25% of income, AUS will require two years personal tax returns with all schedules (or less, depending on risk). Un-reimbursed business expenses will be averaged and subtracted form
income. NOTE: if AUS requests two years tax returns but borrower has only received commission for 12 months, must calculate monthly income based on a 24 month average (divide 12 month commission
by 24).
4. Overtime/Bonus/Tip Income: For overtime, bonus, and tip income, AUS requires the annualization of these types of income based on the most recent 30 day
YTD pay stub. For instance, a loan is submitted with the April 30 pay stub. AUS requires the overtime and bonus income form the pay stub to be divided by 12 to arrive at an
average. This is the figure that will be used for submission, however, the underwriter will consider the two year and four month average outside of AUS and as a compensating factor if
necessary.
5. Part-Time Income: There must be at least a 12 month history documented with pay stubs and W2 and AUS will use a 12 month average to
qualify. If part-time income is from self-employment, the income must have been received two years and AUS will request two years tax returns.
ASSETS
1. LP: All assets entered into the system must be verified.
2. DU: The system will require assets to be documented based on risk - usually the more verified
the lower the risk.
RATIOS
Ratios are not as stringent as a regular FNMA loan, depending on risk.
APPRAISAL FLEXIBILITIES
Through DU, one of the following types of appraisal will be requested:
- 2075
- requires an exterior only inspection of the subject property from the street; appraiser is required to comment on the conformity of the subject to zoning regulation, highest and best use, as well as any apparent adverse physical conditions observed. Required exhibits are a street map showing the location of the subject property and a photo that shows the front scene of the subject property. This is not an appraisal, just an inspection.
- 2065
- requires an exterior only inspection and the use of "Qualitative" Sales Comparison Analysis. The Qualitative Approach enables the appraiser to analyze market data and report the results without assigning traditional dollar adjustments by the line item. The appraiser simply reports a positive (+) or negative (-) relationship between the comparables and the subject property. Required exhibits are a street map that shows the location of the subject property and the location of the comparable sales and a photograph that shows the front scene of the subject property.
- 2055
- requires a Quantitative Sales Comparison Approach in which the appraiser assigns a dollar value for necessary adjustments. Required exhibits are a street map showing the location of the subject property and the locations of the comparables, exterior building sketch, photograph that shows the front, rear and street scene of the subject property, photos showing the front and each comparable certifications of completion and value. Requires an exterior and interior inspection or one of the other (DU will assess). Note: all new construction properties will require an Interior and Exterior inspection.
In summary, AUS takes many things into consideration and determines the risk of the particular loan. Several risk factors considered are ratios, payment shock, LTC, cash
reserves, credit history and employment. There are high ratio loans that have been approved but determined to be a low risk and there have been low ratio loans denied due to overall
risk. The decision is based on layers of risk, not just one factor.
