Automated Mortgage Underwriting Systems for Lenders Explained


  • Expediting the mortgage loan application and approval process for future homeowners is top of mind for both incumbents and startups.
  • Automated mortgage underwriting can help streamline this process — saving both the lender and the client time and money.
  • In addition to mortgage underwriting coverage, Insider Intelligence publishes thousands of research reports, charts, and forecasts on the Fintech industry. You can learn more about becoming a client here.

Expediting the mortgage loan application and approval process for future homeowners is top of mind for incumbents, who are fighting to retain market share against nonbanks and alternative lending startups.

digital mortgage lending ecosystem

Digital companies are streamlining the traditional process of applying for a mortgage.

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These new, digital companies are streamlining the traditional process of applying for a mortgage by using automated underwriting to enable more efficient and  secure applications and approvals. How much time can automated underwriting save? How are lenders benefitting from underwriting automation? Below, we tackle these questions and take a look at what the future of automated mortgage underwriting may look like.

What is automated mortgage underwriting?

Automated mortgage underwriting is the process where advanced artificial intelligence (AI) technology electronically undertakes the decision making process for granting mortgage loans. Through robotic process automation (RPA) and machine learning (ML), the underwriting software takes clients’ information, analyzes it, and generates recommended conditions the client needs to meet in order to achieve a loan approval.  

Automated underwriting helps mortgage loan providers profit from cost cuts in manual underwriting labor and enhance customer satisfaction due to the software’s efficiency when calculating potential risk.

Automated underwriting vs manual underwriting

In 2015, Quicken Loans launched Rocket Mortgage — a solution that would completely upend the mortgage underwriting system. Quicken Loans developed a way for clients to submit information directly into their underwiring system, without needing to provide pay stubs or bank statements. While manual underwriting previously took mortgage lenders days to configure, Rocket Mortgage could analyze an application in about 10 minutes — a huge draw for both lenders and applicants.

digital mortgage journey

Mortgage companies are adopting automated underwriting software.

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Since then, other mortgage lending companies have followed Quicken Loans’ lead and adopted automated underwriting software. Automated underwriting systems (AUS) analyze a client’s financial information (such as credit score and income) in addition to the overall value of the property they are looking to purchase (usually determined by an appraiser). From there, the system decides whether or not to approve a customer’s mortgage application or refer them to a manual underwriter. 

This way, clients who are approved can move on to the next stage of the mortgage loan process, and only select clients — perhaps those who are new to building credit or have had previous financial troubles — need to meet with a human to complete the underwriting system manually. 

Manual mortgage underwriting is impeded by long wait times and branch visits, where applicants have to either physically go to a branch or talk to a loan officer on the phone. Through manual underwriting, financial information provided by the applicant via supporting documents, like pay stubs and tax returns, are analyzed after being confirmed with third parties, such as employers and banks. Additionally, with mortgage loans, both the lender and the applicant need to wait for an appraisal to be scheduled and processed — only further increasing the cycle time.

Thus, automated mortgage underwriting can save applicants and mortgage lending companies money, time, and hassle.

Automated mortgage underwriting benefits 

Alternative mortgage lending companies that use automated underwriting processes are able to reduce loan processing times and cut interest rates, according to Insider Intelligence’s Online Mortgage Lending Report. 

How consumers reach out to mortgage lenders

Consumers look for lending companies that are able to reduce loan processing times and cut interest rates.

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By enabling a fully automated mortgage underwriting process, financial institutions can:

  • Extract data efficiently and allow underwriters to easily verify information, while the software processes documents and flags any inconsistencies 
  • Compare borrower information against employment databases 
  • Generate property valuations without the need for official appraisals
  • Reduce fraud incidents

As a result, major banks are looking to unlock the benefits of adopting mortgage lending tech to combat the rising threat from insurtechs and nonbanks; however, they’ll likely hit more roadblocks than their alternative mortgage lending competitors. 

Beyond being able to digitize mortgage applications, some banks aren’t ready to automate the underwriting process due to continued fallout from the 2008 financial crisis, which left the door wide open for alternative lenders to grab some of the market share.

And while some major US banks, like Bank of America, JPMorgan, and Wells Fargo, have established digital solutions and automated software, they’ve had to take additional steps in order to do so — like partnering with a fintech.

FHA automated underwriting

The Federal Housing Administration (FHA), part of the US Department of Housing, helps potential homeowners more easily obtain a mortgage by insuring their loan. Because the FHA insures the loan, applicants are more likely to be approved for a mortgage and may also be given lower down-payment requirements.

US housing market

The FHA helps potential homeowners more easily obtain a mortgage by insuring their loan.

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With FHA underwriting,clients must meet the criteria laid out by both the Department of Housing and Urban Development (HUD) and the lending company. As with traditional automated mortgage underwriting, FHA automated underwriting can quickly assess an applicant’s financial history and determine whether or not they qualify for an FHA insured loan.

The HUD developed an advanced algorithm, known as The FHA TOTAL (Technology Open To Approved Lenders) Mortgage Scorecard, that evaluates whether or not an applicant is qualified for an FHA insured loan. FHA TOTAL is accessed through an automated underwriting system, and it ensures that FHA loan applicants are evaluated by the same scoring process and enhances FHA’s ability to assess and manage risk.

The FHA TOTAL Mortgage Scorecard is attractive to mortgage lenders because it allows them to easily see if their clients qualify FHA mortgage insurance, thus decreasing their overall risk in providing them a loan.

Want to learn more? 

In addition to automated mortgage underwriting, Insider Intelligence publishes a wealth of research reports, charts, forecasts, and analysis of the financial services industry. You can learn more about accessing all of this content here.

And is a related Fintech report that might interest you:

The Online Mortgage Lending Report: Insider Intelligence examines the current state of the mortgage lending landscape and how technology has enabled alt lenders to transform the home loan process from application to closing. 



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