If You're Declined by an AUS, Your Loan Officer Can "Tweak" Your Application in an Attempt to Get You Approved.
What's tweaking? It's simply adjusting your application in order to receive a favorable decision. Tweaking isn't lying. It's not making things up on your application just to get an approval. Tweaking means adjusting certain elements on your application so that you get your approval.
Tweaking would never have been an option using the historical loan submission guidelines, where the loan application and every bit of documentation would have been collected, then sent to a human underwriter for an approval.
In the "old" days, an underwriter looked at what was presented to him to see whether the loan conformed to the guidelines appropriate for that particular loan program. For instance, suppose you wanted a 15-year fixed-rate loan. Your loan officer and loan processor would compile all the documentation needed to submit the loan.
An appraisal was completed; title work was done; tax returns, paycheck stubs, and bank statements were in the file. This documentation process would typically take two to three weeks. After everything was documented, the file was ultimately sent to the underwriter for an approval. If your loan officer had done her job right, there wouldn't be any problems. But what if the 15-year loan that you wanted also pushed your debt ratios higher than the lending guidelines asked for?
Let's say the standard debt ratio for a 15-year fixed-rate loan was 33 percent with 5 percent down, and your debt ratio was 40 percent. A human underwriter might have turned down the loan because of the high ratio. If the loan eventually went bad, the original lender would probably have been forced to buy the loan back from whomever the lender had sold it to. Further, the underwriter would have had to explain why he approved a loan that didn't conform to the accepted debt ratio guidelines; if he couldn't, he'd probably be fired. If he did this too many times, the underwriter would certainly have been fired. But what the underwriter wouldn't have done is rework the loan application to reflect a lower-payment, 30-year fixed-rate loan that would reduce your debt ratio.
That's not the underwriter's job. The underwriter makes sure that what is presented is within the guidelines established by the loan program you're trying to qualify for. If the underwriter declined your loan because of your high debt ratio, your entire file would be sent back to your loan officer.
You'd start all over, rework the file for a 30-year fixed-rate loan, and resubmit it. This would add several days to your loan approval. Perhaps the 30-year fixed-rate loan dropped your ratios only from 40 to 36 percent, still higher than the program asked for. The underwriter could approve the loan based upon other strengths in the file, or again decline the loan and send it back to the loan officer.
Okay, what about an adjustable-rate mortgage to reduce the ratios further? Or maybe we borrow less? Maybe a co-borrower on the loan will help. Tweaking various parts of the loan application to get an approval the standard way would probably do nothing more than make the underwriter mad at your loan officer for repeatedly submitting a loan application that didn't fit the guidelines.
But with an AUS, changing loan scenarios can be done in a matter of minutes. Want to change to a 30-year fixed? No problem. Hey, what about a 40-year? Got a second? Let me check.
An AUS allows a loan officer to change part of the loan application, hit a key on the computer keyboard, and wait a few seconds—the typical time it takes for an AUS to reach a decision. Forget having to rework the file and resubmit it. The loan officer can make certain changes on the application and send the loan to the AUS for a decision.
When a loan officer gets an approval from an AUS, all the underwriter has to do is make sure that what you've provided in the file is what the AUS asked for. Does the AUS ask for three months of statements, and you provided them? Check. The two most recent pay stubs? Check.
Underwriters don't have to worry about debt ratios or assets in the bank. All the underwriter now does is verify that what is being asked for is present in the loan file. There is no declining and resubmitting. Instead, the loan officer finds the right loan using the AUS and fashions the application around that approval. This is totally opposite of the way loans were approved as recently as the early 2000s.
When an AUS doesn't issue an approval, it lists the reasons why, in order of the significance of the issue. If the number one reason for the nonapproval is high debt ratios, the loan officer can find a lower rate, find a longer amortization period that lowers the payment, or lower the loan amount by putting more money down or buying a smaller house.
The loan officer then changes the application, pushes the "send" button, and waits for a few minutes? No approval? Okay, let's change this. Still no approval? Okay, let's do this and do this. Approval? Yea! Now let's document the file based on how we changed the loan application and send it to the underwriter for sign-off.
Major tweaking will be required when the borrowers simply must borrow less, get a raise at work, or put more money down. If tweaking a loan application results in loan approval conditions that the borrower can't meet, then some decisions have to be made.
If you can't get your approval with your current income and you don't want to buy a smaller house, you simply need to wait until you get a raise or otherwise find more income. The neat thing about tweaking is that it gives borrowers a bona fide roadmap for getting where they eventually want to be. Historically, it would have been, "Hey, make a little more money or try to buy something in the $300,000 range and call me in six months."
With an AUS, it's more specific. "If you can get your income to $5,500 per month, get a 30-year fixed rate at 6.00 percent, and keep your credit where it is now or better, then we can do this deal."