While speaking with an executive at a leading home building lender, I was reminded how each of us has our own understating of “automated underwriting.”  When I asked if he had automated underwriting he was quick to reply, “Sure, I have DU and LP.”  But as the conversation continued, he convinced himself that this wasn’t enough.  No matter what he called “automated underwriting,” he needed something more.

As he described his use of Desktop Underwriter and Loan Prospector the executive described a GSE risk assessment and  purchase decision.  He didn’t describe any analysis of a borrower’s credit and capacity, pricing, suitability, optimization, collateral, and underwriting stipulations beyond the GSE’s requirements.  Most of these evaluations were still being done manually, by underwriters, with no productivity and analytic leverage from technology, save a 10-key and a good spreadsheet.

In our conversations we are hearing that lenders feel that they need more than a GSE risk decision.  This is especially, however surprisingly, true of lenders that are switching back to conforming loans.  The executive I was talking with acknowledged he was still doing manual underwriting either on certain parts of the loan, certain types of loans or specific channels, and for FHA loans he was underwriting everything more than twice.  This was in spite of his claim to be “automated.”

Originators are telling Overture that they need technology that reduces their need to continually recheck the underwriting of a loan.  They need to analyze more than just the FICO.  They need technology that deeply, trade-line-by-trade-line, does the basic arithmetic so the underwriters can concentrate on the meaning of applications not the grunt work.  And, they very much need to apply all of their own proprietary and investor’s policies at a loan level because the GSE decision only evaluates risk and the purchase decision as it relates to the GSE purchase, it doesn’t commit anyone other than the GSE to buy a loan.

Overture customers’ epiphany is that for all the claims of using AU it’s amazing how many steps, processes, specific products or segments take a manual path.  Desktop Underwriter and Loan Prospector loans are “safe” for the GSE, but they may not be best for the originator and lender.  Our customers demand robust automated, all inclusive, decisioning and that’s all to the good.

"It is a secret both in nature and state, that it is safer to change many things than one."

- Francis Bacon, British philosopher (1561-1626)