This guide covers how an automated underwriting system works, its benefits, and how you can implement one in your organization.
Too many lenders have failed consumers by not meeting expectations for simplified processes and personalized customer service.
Inefficiencies in the lending systems — straddled with manual error-prone workflows, paper-based loan approval procedures, poor data quality, and slower decision times — have complicated the entire process.
One of the areas where breakdowns happen is during the underwriting process.
Fortunately, 81% of lenders are implementing automated underwriting systems in their loan procedures to speed up application processing, reap significant time and cost savings, and improve the customer experience.
This guide covers how an automated underwriting system works, its benefits, and how you can implement one in your organization.
An automated underwriting system (AUS) is a sophisticated, technology-driven computer program that assesses information borrowers provide on their loan applications to determine whether to pre-approve a loan.
Unlike a human underwriter who sifts through piles of paperwork and data (which can take days or weeks) an AUS can analyze each application based on a lender’s underwriting criteria, then accurately decides within minutes whether to approve or not.
The AUS evaluates information the borrower provides plus public information about them, assessing their:
Based on this evaluation, the AUS will give each application a score based on the borrower’s risk level, helping lenders make timely loan decisions.
An automated underwriting system is designed to automate the credit risk evaluation process for loans to speed up approval for borrowers. The system uses built-in rules and a scorecard to automatically approve or deny potential borrowers’ loans for underwriting.
Specifically, an AUS judges each application based on:
Once the loan officer receives a borrower’s application, they’ll enter the details provided into the AUS, and additional information on the applicant from credit reporting agencies.
The AUS weighs the information to determine the borrower’s likelihood of repaying the loan based on their credit history and past behavior or performance. This loan risk assessment process is based on a comprehensive analysis of the borrower’s application and applies uniform standards of creditworthiness in line with the lender’s procedures.
An AUS uses a scientific scoring method of measuring the relative amount of risk that gives all borrowers the same objective treatment. This helps lenders:
The exception is when a borrower has an unusual situation that makes automated underwriting difficult, in which case lenders use manual underwriters.
When a potential borrower applies for a loan, the loan officer will run the application through the AUS. The system reviews the details on the application and probably pulls additional information, such as the applicant’s credit report.
After the AUS review, a human underwriter will also review the application to guide their approval decision-making or rubber stamp the system’s decision. Occasionally though, no human underwriter will review the application, meaning the AUS’s decision is final.
Based on the applicant’s assessed risk and underwriting potential, the AUS will render five types of recommendations:
AUS recommendations are only as good as the information fed into the system, so its findings aren’t final. An experienced loan officer can tweak a borrower’s application to get approval depending on the situation at hand.
For example, if the AUS rendered an ineligible finding, the loan officer can analyze the situation and tweak the down payment amount, add reserves, or switch from Freddie Mac LP AUS to Fannie Mae DU AUS (and vice versa).
An AUS benefits both the lenders that deploy it and potential borrowers. Let’s take a closer look at some of the key benefits of implementing automated underwriting solutions in your financial institution.
Automated underwriting systems are poised to sweep through lending institutions. Implementing an AUS in your lending organization can speed up your loan decision-making processes and immediately greenlight eligible applicants.
Not sure how to get started? Let Inscribe help.
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Get in touch with an expert to find out how Inscribe can help you automate your loan origination and underwriting process to make it fast and efficient.
Check out our other guides on loan underwriting: