The Role of Automated Underwriting Systems in Credit Evaluation


The Role of Automated Underwriting Systems in Credit Evaluation

February 1, 2024
Certified Credit

In today’s mortgage market, competition is steep. Winning over borrowers’ limited supply of business often requires you to optimize your operations.

According to a survey of over 1,200 mortgage applicants, fast service is one of the qualities that separate leading mortgage lenders from the rest. You can expedite your lending decisions with the help of automated underwriting systems.

So, what are automated underwriting systems? And how can they enhance the credit evaluation process? Below, we’ll explain how automated underwriting systems work and review ten of their impressive benefits.

What Are Automated Underwriting Systems? 

Automated underwriting systems are advanced computer programs that generate lending decisions. They evaluate how an applicant’s information compares to a lender’s or secondary market investor’s pre-set eligibility criteria. 

Automated underwriting systems can factor in the following data points about a borrower:

  • Income
  • Employment history
  • Debt-to-income ratio (DTI)
  • Credit history
  • Credit score
  • Public records
  • Cash reserves
  • Other assets

These systems can analyze this information much faster than a manual underwriter—they often generate lending decisions in a matter of minutes. As a result, automated underwriting systems can facilitate much speedier pre-approvals.Automated Underwriting System Examples

Automated underwriting systems entered the mortgage lending scene during the early 2000s. Back then, Fannie Mae and Freddie Mac introduced their innovative automated underwriting systems, Desktop Underwriter and Loan Product Advisor, respectively. 

Mortgage lenders have since been required to run their applicants through these systems before selling their conventional loans to Fannie Mae or Freddie Mac. Other loan programs have similar automated underwriting system requirements. 

How Do Automated Underwriting Systems Work? 

Automated underwriting systems use built-in rules and scorecards to assess applicants’ creditworthiness. All mortgage lenders have to do is feed their applicants’ information into the system. In many cases, the data entry process can be completed automatically, reducing the potential for human error.

The automated underwriting system can then assess borrowers’ creditworthiness and likelihood of repaying their loans by comparing their data to borrowers with similar characteristics. After that, it can score applicants’ level of risk.

The automated underwriting system will then suggest one of the following lending decisions:

  • Eligible – If an applicant meets all relevant regulatory requirements and eligibility criteria, the system will recommend that you accept the applicant. At this point, more verifications will be needed before you can administer an official approval, such as verifications of income and employment (VOE). 
  • Refer – Sometimes, an applicant’s eligibility isn’t so clear-cut. In this case, the automated underwriting system may suggest referring the applicant to a human underwriter.

  • Ineligible – If the applicant fails to meet certain core eligibility requirements, the automated underwriting system will reject the applicant, allowing you to pause the underwriting process there. 

  • Unscorable – On occasion, automated underwriting systems may be unable to provide recommendations for certain applicants. These unscorable applicants should be sent to a human underwriter for manual review. 

What Are the Benefits of Automated Underwriting Systems? 

Currently, over 80% of lenders are implementing automated underwriting systems in their lending workflows. The reason? These systems boast numerous benefits. 

Here are ten advantages of using automated underwriting systems:

  1. Faster lending decisions – Manual underwriting can take a lot of time—several days or weeks, on average. Automated underwriting, on the other hand, can often deliver loan decisions on the same day, enabling you to offer your borrowers efficient service.

  2. Greater productivity – With automation handling the underwriting process, your team can focus on more valuable activities, such as attending to applicants’ inquiries and producing educational materials. These activities are more likely to bolster your company’s customer service and hone its competitive advantage.

  3. Superior customer service – With underwriting requiring less time and attention, you can focus more on borrowers who are on the borderline of meeting your eligibility requirements. For example, you can help raise applicants’ on-the-cusp credit scores using Certified Credit’s customized credit score improvement tools.

  4. Streamlined costs – Due to the time and labor involved, manual underwriting can be quite expensive when compared to automated underwriting. By automating this process, lenders can lower their origination expenses and generate more loans in a shorter amount of time. 
  5. Better borrower experience – By reducing your origination expenses and delivering same-day lending decisions, you can provide your borrowers with an excellent experience and earn your reputation as a star lender. In turn, you can attract more business and boost your borrower retention rate. 
  6. Fewer errors – Human underwriters may possess exceptional analytical skills, but they’re still prone to making mistakes from time to time. Even the smallest of data entry errors can result in subpar lending decisions. Fortunately, automated underwriting systems can automate the majority of steps in the underwriting process, reducing the potential for human error.

  7. Less discrimination – Like all people, underwriters are vulnerable to unconscious bias. Unconscious bias can lead well-meaning people to discriminate against certain groups without having any conscious awareness of doing so. For example, an underwriter may unfairly reject certain demographics of mortgage applicants at a higher rate. By automating your underwriting process, you can make it more objective and fortify the fairness and equity of your lending decisions.

  8. Enhanced fraud detection – Catching mortgage fraud early on can save you a lot of money. Luckily, automated underwriting systems can identify inconsistencies in your borrowers’ applications and flag fraud during the early stages of underwriting.

  9. Improved loan quality – With less error-prone information and fine-tuned fraud protection, automated underwriting systems can improve the quality of loans you sell to the GSEs and secondary market investors, freeing up your cash flow and reducing your rate of repurchase demands.

  10. Stronger compliance – As we mentioned earlier, many loan programs require lenders to run their applicants through specific automated underwriting systems before they can sell their mortgages. If you adopt your own automated underwriting system, you can customize its settings to ensure your loans meet all relevant regulatory requirements. 

The Limitations of Automated Underwriting Systems

While automated underwriting systems boast impressive benefits, they also have some limitations. Most notably, their recommendations are only as good as the information you feed them. Thus, it’s imperative to provide them with the most accurate, up-to-date data possible. 

Automation’s Applications Beyond Underwriting

Underwriting isn’t the only mortgage lending process that can benefit from automation. Some others include:

  • Lead generationCascade Alerts is an automated lead generation tool that can help you mine your client database for repeat business. It does so by monitoring your past and present borrowers’ credit reports for credit inquiries that suggest they may be shopping around for a new home loan product.

    Once Cascade Alerts is set up, it can send you daily lead lists via text/SMS or email that are automatically filtered according to your custom qualification criteria and GSE pass/fail requirements. The best part? There’s no firm offer of credit required.

  • Prequalification – While many mortgage applicants want to get pre-approved before starting their home search, this process can ding their credit score temporarily. In contrast, getting prequalified keeps their credit score intact while they compare lenders.
    Better yet, prequalification won’t initiate competitors’ trigger leads, giving you more time to win over your applicants’ loyalty. 

You can provide prospective applicants with easy, online prequalification using Cascade Prequal. This automated solution can instantly compare applicants’ submission data with your pre-set eligibility requirements and send them swift prequalification responses.

  • VOE – Verifying your applicants’ income and employment is a vital step in the underwriting process. Cascade VOE can help you complete this step in a more time-efficient and cost-effective manner. All you have to do is customize your cascade of third-party verification vendors.

    Once you’ve arranged your chosen vendors in your preferred order, Cascade VOE can cycle through them one by one until it receives a hit. After that, it can alert you via text/SMS or email when the VOE process is complete. If Cascade VOE can’t verify a specific applicant, Certified Credit’s manual VOE team will do so for you manually.

  • Undisclosed debt monitoring (UDM) – After a rigorous underwriting process, the last thing you want is for a loan to fall out at the last minute. This can take place if an applicant incurs debt, misses payments, or applies for new credit accounts before closing.

    Luckily, Cascade UDM can prevent untimely surprises by monitoring your active applicants’ credit reports 24/7. It will notify you of any noteworthy tradeline updates right away, enabling you to repair your applicants’ creditworthiness before it’s too late. 

Experience the Advantages of Automation With Certified Credit 

In summary, automated underwriting systems have revolutionized the lending industry. By leveraging them in your mortgage lending business, you can enjoy a wide range of benefits, from streamlined decision turnaround times to superior customer service. 

If you want to automate additional areas of your origination process, reach out to Certified Credit. Our suite of automated Cascade solutions can help you employ automation easily and affordably. In addition to these solutions, we also offer the following products and services:

  • Automated credit supplements
  • Affordable credit reports 
  • Property and valuation support
  • Fraud and risk mitigation
  • Flood zone determinations
  • Underwriting compliance
  • Settlement services


To learn more about our offerings, schedule a credit consultation with the Certified Credit team today.