Why Mortgage Software should Integrate Automated Underwriting

Learn How Mortgage Software Solutions should Leverage on Fannie Mae DU, Freddie Mac LP and FHA TOTAL Scorecard

Online-only, pure-play mortgage lenders have automated the lending process with unprecedented efficiency. Mass marketing, lead generation, online origination, pre-approval, approval, appraisal, underwriting, and closure—all happen online. And the entire process finishes in almost half the time that traditional methods consumed.

Much of that became possible back in 1998, when Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) implemented automated underwriting systems. They streamlined and simplified mortgage processes. Fannie Mae came up with Desktop Underwriter (DU) while Freddie Mac implemented Loan Prospector (LP). Shortly after that, the Federal Housing Administration (FHA) came up with TOTAL Mortgage Scorecard. Other portfolio and subprime lenders have developed equivalent systems with their own trade names.

Leading software solution providers like Tavant integrate mortgage origination systems with DU, LP, and TOTAL Scorecard providers in this decade. This is very essential to speed up the process and to ensure that the mortgages comply with Fannie Mae, Freddie Mac, and FHA. These and other Automated Underwriting Systems (AUS) verify loan applications for eligibility and compliance. Their report is one major criterion based on which the lender decides whether to grant a loan or not. Early adopters among lenders have shared the advantage of AUS.

By integrating their mortgage servicing solutions with those of the DU/LP/TOTAL Scorecard providers, lenders can easily and quickly get reports on three major decision components:

  • The credit risk
  • The eligibility
  • Suggestions to customize the loan to meet compliance needs

Credit risk is assessed using a scoring model. If the report says “accept”, the lender can confidently approve and grant the loan. If the report says “referred”, the lender will have to verify further and perform manual underwriting, and at times, reject the application if found to be too risky. However, the automated system clears the way for most applicants, thus saving a lot of time and money. Eligibility decisions and suggestions to customize the loan are made using rules-based engines working on Boolean logical operators like IF-THEN.

Loan Prospector is a risk assessment tool that assesses loan applications to Freddie Mac’s credit and pricing terms. This reliable and innovative automated underwriting technology brings efficiencies to your process, as it syncs with the way you work. Loan Prospector helps you provide more borrowers with the lowest-cost financing available. Using statistical models, credit data from the national credit repositories and the loan application data details, Loan Prospector assesses the Credit Reputation, Capacity, and Collateral of the borrower. LP analyses the layers of risk in the originator’s determination of a borrower’s creditworthiness and the acceptability of the loan application.

Third-Party Originators (TPOs) can work with hundreds of wholesale lenders by first submitting each loan for a Loan Prospector assessment and then assigning it to the appropriate lender. TPOs can choose from about 700 wholesale lenders. Mortgage Wholesale Lenders can use LoanProspector.com for both, retail and wholesale channels. LP is flexible and helps to work more efficiently with over 20,000 brokers.

FHA created a complete Automated Underwriting System (AUS) using Fannie Mae’s DU and Freddie Mac’s LP systems. This AUS can be used by lenders to retrieve decisions on credit risk and eligibility for FHA-insured loans. By paying a comparatively small fee to the DU/LP service provider, lenders can get reports much faster and easier than in the traditional underwriting processes. There are alternate service providers, who give similar services for lower costs—sometimes as low as one-fifth.

Mortgage software solutions that help integrating the whole underwriting process with the major GSEs (Government Sponsored Enterprises) can save huge costs to the lenders. They enable faster processing and foolproof assessment of applications.

Author Bio:

Preethi vagadia is a business architect worked in Mortgage and Finance software department with top notch companies and has over 8 years of experience in Mortgage Lending Technology, Mortgage Technology Software, mortgage management software,Mortgage technology solution software etc.  She has also worked in several process improvement projects involving multi-national teams for global customers in warranty management and mortgage.

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