The process the lender uses to evaluate the
risk you pose as a borrower is called
underwriting.
Some lenders
give your application and verification documents to an underwriter,
a person who calculates the likelihood that you’ll repay
the loan. Other lenders use an automated underwriting program
to evaluate your data. For example, both
Freddie
Mac
and
Fannie
Mae
have computerized programs that their approved lenders
may use. Advocates of the automated programs claim that they help
eliminate discrimination based on race or ethnicity.
Ranking Applicants
If you’re offered a
mortgage
at a higher rate than the current norm, your lender may have classified you as a subprime borrower, or someone who doesn’t qualify for the best rates. While you may be under pressure to secure lending or embarrassed about protesting, you may want to look for another lender or work with a mortgage broker.
The underwriter makes a decision based on
information related to your
credit
report,
income, the type of loan you want, and the type
of home you are buying. It compares your criteria to the past
performance of a large number of borrowers — usually over
two million — and draws conclusions as to how likely you
are to meet your mortgage payments.
If you don’t meet the credit risk standards,
the underwriter tells your lender the areas where you fell short.
That assessment alone doesn’t determine the outcome of your
application — the lender uses its own judgment to approve
or reject your loan.
Dwight
P. Robinson, Senior Vice President, Corporate Relations,
Freddie Mac
Dwight P. Robinson of Freddie Mac talks about the benefits of automated underwriting.
Automated mortgage underwriting has streamlined the mortgage process and cut the cost of borrowing. And it has made lending more inclusive. It’s colorblind. And because it compares an applicant to millions of people with similar profiles, it’s more tolerant of individual factors that in the past might have ruled out a loan.
Dwight
P. Robinson, Senior Vice President, Corporate Relations, 