In the early to middle part of the 1990’s, the mortgage industry had the power to accurately and effectively evaluate a borrower’s ability to repay.
Numerous tests were done by the 3 major credit institutions, Fannie Mae, Freddie Mac and Ginnie Mae’s, that trusted the approval process in conjunction with the underwriter’s manual for determining loan approval. Shortly after that, additional systems came about such as automated underwriting (AUS) which further accelerated the process and due to high demand for mortgages by mortgage brokers and lenders. In today’s world, a loan officer only had to enter a prospective borrower’s sensitive information into the engine s automatic analysis, such as their credit score, income, the loan amount, liquid reserves otherwise known as cash assets, and job history and the subject property’s value.
The time it takes can range from 15 minutes to a few hours to finally get an approval depending on the loan program requested or sought by the prospective borrower. If your loan continually gets a denial from the AUS, it is not over by any means. A live person will handle it by manually processing or underwriting the file. In certain circumstances, not everything can be automatic.
Now a call to action occurs and the processor or underwriter tells the loan officer what is necessary to get their loan approved. The borrower may be missing a revolving credit account. Maybe they can use alternative credit such as a utility bill. Maybe the borrower has other accounts that do not show up on the credit report but they have kept a history of those payments to validate their credit worthiness. We are talking about bills such as ongoing medical payments, cell phone, landscaping or contractor bills, and cable bills that have been paid current for two years. These would be considered non-traditional credit accounts but do help when it is manually underwritten.
There are all types of nuances that can change a loan denial into an approval. These alternative methods are not necessarily bad or what has caused a housing crisis. That is more so on the shoulders of the borrowers and small percentage of loan consultants, typically unlicensed, who do whatever it takes to close a loan. In any case let’s say
The loan officer tells his client what they need to get approved and “presto” you are approved. It is not only the loan officer and underwriter, many department heads sign off these deals.
The reason most typical see that a file presented to us for manual underwriting is for possible errors reported on the borrower’s credit report like a collection, judgments, etc. These errors may not even be theirs especially so if they have a common name like “John Smith”. Credit collecting agencies go after the culprit anyway they can even if it is mistakenly put on a different John Smith’s history. Unfortunately, you must prove that it is in fact not yours and the burden is also placed on the collection agency so people everywhere do not have to deal with unscrupulous companies. All in all, as you can see there are valid methods to get you into a home Perhaps, the methods in the mid-1990’s were best when alternative credit is not a consideration.
