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Automated Underwriting System Findings
Major advantage of the MLO subscribing to ARIVE is because ARIVE is a central portal where the MLO can pull tri-merger credit, run the Automated Underwriting System, and issue the pre-approval letter with a touch of a button in a matter of a few minutes. Tasks that takes 30 minutes to over an hour is accomplished in a matter of seconds with ARIVE. This thread covers a comprehensive overview about the Automated Underwriting System (AUS). Please do ot hesitate to ask questions on the comment section below. All questions will be answered in a timely fashion.
How The Automated Underwriting System Works In The Mortgage Process
The Automated Underwriting System (AUS) is an essential tool that mortgage loan originators use to help approve loans.
AUS is a digital platform that reviews a borrower’s credit, income, assets, debts, property details, and loan structure. It then gives a recommendation about whether the loan is likely to qualify for the selected mortgage program.
For conventional loans, the two main AUS engines are Fannie Mae Desktop Underwriter (DU) and Freddie Mac Loan Product Advisor (LPA).
Fannie Mae describes DU as its automated mortgage underwriting system that assesses credit risk and loan eligibility. Freddie Mac describes LPA as its AUS used to assess eligibility for purchase by Freddie Mac and provide a feedback certificate.
For FHA loans, lenders use an AUS that connects with FHA’s TOTAL Mortgage Scorecard. HUD is very clear that TOTAL is not the AUS itself. TOTAL is FHA’s scoring algorithm accessed through an AUS. HUD states that most FHA forward mortgage transactions must be scored through TOTAL, except certain loan types such as streamline refinances and assumptions.
For USDA loans, lenders use GUS, which stands for Guaranteed Underwriting System. USDA describes GUS as a system that allows approved USDA lenders to electronically enter, process, and submit applications for a USDA loan note guarantee.
<hr>What AUS Does In Plain English
- The borrower is not approved solely by AUS.
- AUS provides the lender with an underwriting recommendation based on the entered loan data.
- The underwriter reviews the file, verifies documents, checks data accuracy, and ensures loan requirements are met.
- You can think of AUS as the main checkpoint in the mortgage process.
It Answers Questions Such As:
- Does the borrower appear to meet the selected loan program guidelines?
- Is the credit profile acceptable?
- Is the debt-to-income ratio acceptable?
- Are the assets sufficient?
- Does the file need manual underwriting?
- Does the loan need additional documentation?
- Is the loan eligible for Fannie Mae, Freddie Mac, FHA, VA, or USDA guidelines?
- Are there specific conditions the underwriter must verify?
<hr>When Is AUS Initiated By The Loan Originator?
The AUS is usually initiated after the loan originator has enough information to complete a meaningful loan application.
This can happen during:
- Pre-qualification
- Pre-approval
- After a full mortgage application
- After the credit is pulled
- After the income and asset information is entered
- After the borrower has a property address
- After the purchase contract is received
- During processing, if the file changes
- Before final underwriting approval
To give a strong pre-approval, the loan originator needs to collect and enter verified details, not just rely on what the borrower says.
<hr>Step-By-Step: How AUS Is Started In The Mortgage ProcessStep 1: The Borrower Contacts The Loan Originator
The process begins when the borrower reaches out or applies to the loan originator. This is the initial contact in which the mortgage loan originator (MLO) begins collecting information.
The MLO Gathers Basic Information Such As:
- Borrower name
- Social Security number
- Date of birth
- Current address
- Employment history
- Income type
- Monthly debts
- Assets
- Credit history
- Desired loan amount
- Down payment
- Property type
- Occupancy type
- Loan purpose
The MLO should ask thorough questions at the start to make sure all the information is accurate and complete.
<hr>Step 2: The MLO Pulls Credit
The credit report is a pivotal component of the AUS decision.
The Credit Report Shows:
- Mortgage scores
- Tradeline history
- Credit card balances
- Installment loans
- Auto loans
- Student loans
- Collections
- Charge-offs
- Bankruptcies
- Foreclosures
- Late payments
- Public records, if reported
- Monthly debt obligations
AUS interprets the credit report and incorporates liabilities into the debt-to-income calculation.
Still, the MLO needs to carefully review the credit report, since AUS can sometimes misunderstand certain debts.
<hr>Step 3: The MLO Completes The Loan Application
Next, the MLO enters all required information into the loan origination system (LOS), outlining applicant details for AUS analysis.
This Includes:
- Borrower information
- Employment history
- Income
- Assets
- Real estate owned
- Liabilities
- Declarations
- Loan amount
- Sales price
- Down payment
- Property taxes
- Homeowners insurance
- HOA dues
- Loan program
- Occupancy
- Property type
AUS results are only as accurate as the information entered.
If you enter incorrect data, the AUS findings will not be reliable.
<hr>Step 4: The MLO Selects The Loan Program
The MLO selects the loan program as a key step before executing AUS.
Examples Include:
- Conventional loan through Fannie Mae DU
- Conventional loan through Freddie Mac LPA
- FHA loan through an AUS using the FHA TOTAL Scorecard
- VA loan through an AUS, depending on the lender platform
- USDA loan through GUS
- Jumbo loan, if the investor allows AUS or has separate guidelines
- Non-QM loan, usually not based on agency AUS.
The AUS result depends on which loan type you choose.
A borrower might be denied for one program but approved for another.
<hr>Step 5: The MLO Runs AUS
Once the file contains all required information, the MLO submits the loan to AUS.
The AUS evaluates the file and issues findings.
The Findings Usually Include:
- Recommendation
- Documentation requirements
- Income conditions
- Asset conditions
- Credit conditions
- Property conditions
- Ratio analysis
- Reserve requirements
- Messages about disputed accounts
- Messages about bankruptcies, foreclosures, or short sales
- Eligibility warnings
- Required verifications
For Freddie Mac LPA, Freddie Mac states that the system provides a feedback certificate with actionable insights.
<hr>Common AUS Findings And What They MeanApprove/Eligible Or Accept/Eligible
This is the strongest type of AUS result.
This indicates that the file meets the selected agency guidelines.
- The borrower may proceed with standard underwriting.
- The underwriter must verify the data.
- The lender must still apply any lender overlays.
- The file is not fully approved until underwriting signs off.
For Fannie Mae, the common terms are Approve/Eligible.
For Freddie Mac, the common terms are Accept/Eligible.
<hr>Refer/Eligible
This result means AUS withheld automated approval, but manual underwriting may be possible if permitted by the loan program and lender.
This Is Common With:
- Lower credit scores
- Thin credit history
- High debt-to-income ratios
- Recent derogatory credit
- Complicated income
- Limited reserves
- Higher-risk layering
For FHA, VA, and sometimes USDA files, a Refer finding may allow manual underwriting if the lender permits it.
This is where lender overlays matter. Some lenders do not manually underwrite loans even when the agency allows it.
<hr>Refer With Caution Or Caution
This is a stronger cautionary warning.
It generally signals that the file is unacceptable as presented to AUS.
Possible Reasons Include:
- Serious credit risk
- Recent major derogatory credit
- Excessive DTI
- Insufficient income
- Insufficient assets
- Ineligible loan structure
- Data issues
- Program guideline failure
Don’t see caution findings as the end of the road. Check for mistakes in the data, missing assets, incorrect debts, or the wrong loan program.
<hr>Ineligible
This means the file does not meet one or more eligibility requirements for that loan program.
Examples May Include:
- Loan amount too high
- Property type not eligible
- Occupancy not eligible
- Insufficient down payment
- DTI outside tolerance
- Waiting period not met.
- Mortgage insurance issue
- Program rule not satisfied
An ineligible finding may be correctable if the MLO identifies the issue and restructures the file appropriately.
<hr>What AUS AnalyzesCredit RiskAUS Reviews The Borrower’s Credit Profile, Including:
- Credit scores
- Payment history
- Length of credit history
- Number of accounts
- Recent late payments
- Revolving credit usage
- Installment debt
- Mortgage history
- Collections
- Charge-offs
- Bankruptcies
- Foreclosures
- Disputed accounts
The MLO should not rely only on the credit score.
A borrower with a 680 score and recent late payments may be riskier than one with a 620 score and a clean recent history.
<hr>Income
AUS evaluates the income entered by the MLO, but it does not automatically verify that the income was calculated correctly.
The MLO And Underwriter Must Still Verify:
- W-2 income
- Overtime
- Bonus income
- Commission income
- Self-employment income
- 1099 income
- Rental income
- Social Security income
- Pension income
- Child support or alimony, if used
- Part-time income
- Second-job income
One of the biggest MLO mistakes is entering income before properly calculating it.
If the income is entered incorrectly, the AUS approval does not mean much.
<hr>Debt-To-Income Ratio
AUS calculates the borrower’s DTI using the income and liabilities entered into the file.
AUS Considers:
- Housing payment
- Principal and interest
- Property taxes
- Homeowners insurance
- Mortgage insurance
- HOA dues
- Credit cards
- Auto loans
- Student loans
- Personal loans
- Child support
- Alimony
- Other required monthly obligations
AUS might approve borrowers with higher debt-to-income ratios if they have strong compensating factors. This depends on the loan program, credit, reserves, and overall risk.
AUS reviews the assets entered into the file.
Assets May Be Needed For:
- Down payment
- Closing costs
- Prepaids
- Reserves
- Cash to close
- Large deposit review
- Gift funds
- Earnest money deposit verification
The AUS findings will usually state whether reserves are required.
Having reserves can make a loan file much stronger.
<hr>Loan-To-Value And Down Payment
AUS Analyzes The Relationship Between:
- Sales price
- Appraised value
- Loan amount
- Down payment
- Loan-to-value ratio
- Combined loan-to-value ratio
Even a small change in the down payment can affect the AUS result.
For example, increasing the down payment or lowering the loan amount may turn a weak file into an approval.
<hr>Property And Occupancy
AUS reviews the property information entered.
Important Fields Include:
- Primary residence
- Second home
- Investment property
- Single-family home
- Condo
- Two-to-four-unit property
- Manufactured home
- Planned unit development
- Purchase price
- Appraised value
- Property taxes
- HOA dues
The type of property and how it will be used can have a big impact on the AUS decision.
<hr>How The MLO Should Analyze AUS FindingsStep 1: Read The Recommendation FirstThe MLO Should First Identify The AUS Result:
- Approve/Eligible
- Accept/Eligible
- Refer/Eligible
- Caution
- Ineligible
This tells the MLO whether the file is likely moving forward, needs restructuring, or requires manual underwriting.
<hr>Step 2: Review The Conditions Line By Line
The AUS findings are not just a yes-or-no answer.
The MLO should read every message.
Look For:
- Income documentation requirements
- Asset documentation requirements
- Reserve requirements
- Credit explanations
- Disputed account messages
- Bankruptcy or foreclosure messages
- Student loan payment messages
- Gift fund requirements
- Appraisal waiver or appraisal requirement
- Mortgage insurance messages
- Property eligibility issues
New MLOs sometimes see “Approve/Eligible” and skip reading the rest of the findings.
This can be risky.
The approval is valid only if the conditions are met.
<hr>Step 3: Compare AUS Findings To Actual Documents
The MLO should compare the AUS data to the borrower’s real documents.
Check:
- Pay stubs
- W-2s
- Tax returns
- Bank statements
- Credit report
- Divorce decree
- Bankruptcy papers
- Student loan documentation
- Purchase contract
- Homeowners insurance quote
- Property tax end the documents do not match the data entered into AUS, the loan could fall through later.
<hr>Step 4: Look For Red FlagsCommon AUS Red Flags Include:
- Income entered too high.
- Over time, it has been used without a history.
- Bonus income used without a history
- Self-employment income not properly averaged
- Student loan payment entered incorrectly.
- Credit card debt omitted.
- Undisclosed debt
- HOA dues missing
- Property taxes underestimated
- Assets entered but not verified.
- Gift funds not documented.
- Borrower added or removed after AUS.
- Disputed accounts not addressed.
- Recent late payments have been ignored.
A good MLO does more than just run AUS.
A good MLO also checks if the AUS approval is truly valid.
<hr>Step 5: Check For Lender Overlays
This is one of the most important training points for new MLOs.
AUS may say the loan is eligible under agency guidelines, but the lender may have stricter rules.
Those stricter rules are called lender overlays.
Examples of Overlays Include:
- Higher minimum credit score
- Lower maximum DTI
- No manual underwriting
- Extra reserve requirements
- Restrictions on recent late payments
- Restrictions on collections
- Restrictions on gift funds
- Restrictions on property type
- Restrictions on non-occupant co-borrowers
- Restrictions on manufactured homes
- Restrictions on high-balance loans
This is why one lender might deny a file while another lender approves the same borrower under agency rules.
<hr>When AUS Must Be Re-Run
AUS should be re-run when material information changes.
Common Reasons Include:
- Loan amount changes
- Sales price changes
- Appraised value changes
- Interest rate changes
- Property taxes change
- Homeowners insurance changes
- HOA dues are added
- Borrower income changes
- Borrower changes jobs
- New debt appears
- Credit is refreshed
- Borrower pays off debt.
- Borrower adds or removes a co-borrower
- Assets change
- Gift funds are added.
- Loan program changes
- Occupancy changes
- Property type changes
The final AUS findings need to match the final loan file.
An underwriter cannot approve a loan using old AUS findings if the file has changed in important ways.
<hr>AUS Is Not A Substitute For Underwriting
This is a key lesson for new loan originators.
AUS is a tool.
It is not the final underwriter.
The Underwriter Still Must Verify:
- The borrower’s income is stable and likely to continue.
- The assets are properly documented.
- The credit report is accurate.
- The property meets guidelines.
- The loan meets agency rules.
- The loan meets investor rules.
- The loan meets lender overlays.
- The file matches the AUS submission.
AUS can issue an approval, but the loan can still be denied if the documents do not back up the information entered applies for an FHA loan.
The MLO Enters:
- 620 credit score
- $6,000 monthly income
- $2,900 total monthly debt
- 3.5% down payment
- Primary residence
- One-unit property
- Stable two-year employment history
The MLO runs AUS through the lender’s system, which is connected to the FHA TOTAL Scorecard.
The AUS returns Approve/Eligible.
That Sounds Good, But The MLO Still Needs To Verify:
- Is the $6,000 income correctly calculated?
- Are the pay stubs consistent?
- Are there unreimbursed expenses or variable income issues?
- Are all debts included?
- Are student loans calculated correctly?
- Are there disputed accounts?
- Is the borrower’s cash-to-close verified?
- Are gift funds documented?
- Does the lender allow the credit score and DTI?
- Does the property meet FHA requirements?
If everything checks out, the file can move forward.
If the income is actually only $5,200 after underwriting review, the AUS approval may disappear when the file is corrected and re-run.
<hr>Common Mistakes New Loan Originators Make With AUSNew MLOs Should Avoid These Mistakes:
- Running AUS with incomplete information
- Treating AUS approval as a final loan approval
- Not reading the full findings.
- Entering income without calculating it correctly
- Forgetting HOA dues
- Underestimating property taxes or insurance
- Ignoring student loan guidelines
- Ignoring disputed account messages
- Not checking reserves
- Not checking lender overlays.
- Failing to re-run AUS after file changes
- Issuing a pre-approval letter too early
- Not documenting compensating factors.
- Assuming one AUS result applies to every loan program
<hr>Best Practices For MLOs When Using AUSA Good MLO Should:
- Collect accurate information upfront.
- Pull and review credit carefully.
- Calculate income before submitting AUS.
- Verify assets early
- Choose the correct loan program.
- Run AUS before issuing a strong pre-approval
- Read the entire AUS findings.
- Save the findings in the loan file.
- Explain conditions to the borrower clearly.
- Re-run AUS when material changes happen
- Know the difference between agency guidelines and lender overlays.
- Ask an experienced underwriter or manager for help on complex files.
<hr>Why AUS Matters For BorrowersAUS Helps Borrowers Because It Can:
- Speed up the pre-approval process.
- Identify problems early
- Show what documents are needed.
- Help determine the best loan program.
- Reduce surprises during underwriting.
- Help borrowers with strong compensating factors.
- Give lenders a clearer risk picture.
However, borrowers should understand that AUS findings are only as good as the information entered.
If AUS approval is based on wrong income, missing debts, or assets that are not verified, it is not a real approval.
<hr>Final Training Takeaway For New MLOs
The Automated Underwriting System is one of the most powerful tools in the mortgage process, but it must be used correctly.
AUS helps the loan originator, processor, and underwriter determine whether a borrower appears eligible for a mortgage loan. It reviews credit, income, assets, debts, loan structure, property type, and program eligibility.
But AUS does not relieve the loan originator of their responsibility.
A Professional MLO Must Know How To:
- Enter accurate data
- Read the findings
- Spot red flags
- Understand conditions
- Recognize lender overlays
- Know when manual underwriting may be possible.
- Re-run AUS when the file changes
- Communicate clearly with the borrower.
The best loan originators do more than just run AUS.
They understand what AUS results mean, why they matter, and how to set up the loan so the borrower has the best chance to close.
Automated Underwriting Systems: Benefits & How They Work
gustancho.com
Automated Underwriting Systems: Benefits & How They Work
Learn how automated underwriting systems speed decisions, reduce risk and improve accuracy using AI and data automation for loans and insurance decisions.
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