In the mortgage industry, loans can either be evaluated using an Automated Underwriting System (AUS) or through manual underwriting. An AUS, or mortgage automation software, makes is easy for lenders to process thousands of applications while ensuring that each loan meets the guidelines set forth by regulators and investors. In contrast, manual underwriting assigns staff to meticulously review the applications and other supporting documentation to critically evaluate a borrower’s ability to repay the loan. So, which one is better? It honestly depends on the situation.
In-depth vs. Simple Underwriting Assessments
Lenders usually start off the underwriting process by processing the loan application using an AUS. The AUS is simple because it is rule-based and objective in its assessment as to whether the borrower meets the basic guidelines or not. If the borrower’s application is rejected or more complex in nature, it is sent off for manual underwriting. Manual underwriting takes into consideration unique exceptions or issues outside the standard underwriting guidelines. Such situations include no credit history, a high debt-to-income ratio, extenuating circumstances like a critical illness, a sudden change in employment, or derogatory credit. Figuring out which underwriting process is better involves evaluating whether the borrower’s application is simple or complex in nature.
Rapid vs. Meticulous Underwriting Analysis
Mortgage automation is important as it streamlines the entire underwriting process and takes less time for an application to be thoroughly evaluated. It also involves less paperwork given how simple the underwriting requirements are. Manual underwriting, however, is much more time and labour intensive because all exceptions and letters of explanation for every blemish on the borrower’s profile needs to be critically assessed. Manual underwriting also requires more supporting documentation to come to a well-informed credit decision. Often times, one aspect of the application can offset other aspects. For example, having significant financial reserves can make up for a low credit score, which is something that an AUS cannot properly calculate.
Rule-based vs. Subjective Underwriting Evaluations
Manual underwriting is a people-driven process while mortgage automation is primarily a rules-driven and technology focused process. Since every mortgage application is unique, manual underwriters will have to assess each application on a case-by-case basis. With mortgage automation, an application either meets the specified criteria or requirements or does not and so is rejected. Because manual underwriting takes into consideration all the different facets that influence a borrower’s ability to take on a mortgage loan, it becomes comparatively comprehensive and subjective in its assessment. This is simply because quantitative and qualitative measures need to be taken into consideration before arriving at an accurate conclusion.
Underwriting using mortgage automation is good for borrowers that do not have any exceptions or extenuating circumstances that need to be considered along with their application. It is especially useful for lenders who are looking to process mortgage applications rapidly to save on resources, cost, and time. Mortgage automation software can also be more accurate in coming to a credit decision in some ways as each aspect of the borrower’s financial history either meets the lending guidelines or does not. Mortgage automation can be considered better than manual underwriting in terms of the amount of time it takes to come to a decision and the accuracy of the decision itself. However, manual underwriting is important when a borrower’s application has a lot of grey areas that are difficult to measure quantitatively like illnesses or a sudden change in income or employment. Figuring out which type of underwriting is superior depends on the nature of the application and the borrower’s unique circumstances.