You can't be sure of what mortgage banking program your lender will use unless you specifically ask when submitting your application. You may be surprised to find that some of the mortgage consultants don't even know the answer to this question, depending on how large a corporation you apply through.
Automated Mortgage Banking Program
The vast majority of lenders use automated mortgage banking programs. This means that your information is run through a computer program and it is the computer - not an actual person - who makes that decision whether your mortgage loan application is approved or denied.
This practice is relatively standard among most mortgage lenders. It is simply more cost effective for lenders to buy an automated mortgage banking program than it is to pay people to take the time to manually review every application. When you consider the massive amount of mortgage applications that go through large lenders, especially when interest rates take a dip lower, it becomes obvious that automated programs make a lot of sense. Without automated programs, lenders who usually have a 24 hour turnaround for mortgage loan applications would probably need to take at least three times the amount of time to come to a decision of whether to approve or deny an application.
Avoiding Human Error
Automated lending programs virtually eliminate human error when processing mortgage loan applications. This is not to say that computers are infallible; indeed, many computer programs have flaws and can cause quite a few problems. Removing people from the credit decision process, however, allows lenders to make the claim that all applications are decided upon using nothing more than credit histories and other acceptable factors. In other words, if a computer decides the fate of you application you cannot claim that you were discriminated against based on your physical appearance or some other factor.
Automated mortgage banking programs not only review the information on applications, but they also have the capability of pulling a credit report and factoring that information into the information contained within the application. Factors considered by a computer program before approving or denying an application include:
- Credit score of the applicant
- Credit history of the applicant
- Net worth of the applicant
- Amount of the down payment
- Source of the down payment
- Debt to income ratio
- Job history
- Any other factors which influence the applicant's ability to repay the mortgage loan
Some red flags may cause computer programs to automatically deny a mortgage loan, depending upon the regulations of the lender. Common samples of these red flags may include:
- Current or recent enrollment in a Consumer Credit Counseling Service
- No source for the down payment
- A credit score below acceptable level
- A recent foreclosure
Every lender sets its own limits, so the red flags that result in automatic denial of an application depend on the way the lender sets the computer system up.
Special Mortgage Programs
Sometimes a mortgage application needs a little extra explanation, such as in the instance of a divorce resulting in incorrect information listed on a credit report. Applicants who find their loan requests turned down - yet who know they can prove that something is in error through documentation - should ask about the process behind requesting a human underwriter.
A human underwriter can take things into consideration that an automated lending system cannot. Most mortgage lenders have underwriters on staff who are highly trained to process applications which were not approved through the automated program. Not every denied application is reviewed by underwriters and some lenders charge extra fees for applications to go through an underwriter. It's worth it, however, if you know that the reason you're denied is because of an error on your credit report or some other issue that you can disprove with documentation.
Don't send your application to manual underwriting if you simply "feel" as though you should be approved. An underwriter is not a magical benefactor. If you do not qualify for a mortgage loan based on true factors, an underwriter is probably not going to approve your loan.