Manual Loans vs. AUS Underwriting

Written By: Glenn Michaels, Op-Ed Contributor

Today, virtually every FHA loan is put through an AUS underwriting system with TOTAL Scorecard for an automated underwriting decision.

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There are certain functions that an AUS will not perform and all underwriters will have to perform even though the loan file was underwritten by an AUS system. The functions are:
• Review of the appraisal report and related documents
• Review for property eligibility and determine market value of the subject property
• Reject loan applications (a Refer is not a Reject)
• Compute the debt to income ratios
• Compute the Loan to Value (LTV) ratio
• Review the loan file for compliance (i.e. proper disclosures, timely disclosures and more)
• Determine the maximum allowable mortgage amount based on the sales price, appraised value and maximum mortgage limit

AUS System Overrides and Review Rules – FHA Loans
• Excessive qualifying ratios
• A previous mortgage foreclosure within 3 years and the extenuating circumstance (back to work) that allows a one year wait with HUD Counseling
• A bankruptcy discharge within 2 years (one year with “back to work, extenuating circumstances)
• Late mortgage payments
• Any mortgage trade line during the most recent 12 months that has:
- 3 or more late payments greater than 30 days; or
- 1 or more late payments of 60 days plus 1 or more 30 day late; or
- 1 payment greater than 90 days late

Primary Causes of Manual Downgrades
1. Eligibility issues
A. The borrower (as reported by public records, credit information or on CAIVRS)
B. The borrower is suspended, debarred or excluded from federal programs (LDP/GSA)
2. Inaccuracies in credit reporting
A. Numerous disputed items with zero balances
B. Disputed account(s) marked “paid in full” or resolved
C. Disputed accounts are less than $500 and more than 24 months old
3. Failure of the TOTAL and/or AUS to recognize a derogatory credit reference
A. Charge offs and disputed items
B. Collection accounts with an aggregate amount of $2,000 or more
4. Borrowers without credit scores requiring nontraditional credit
5. All FHA streamline refinance transactions

Remember when underwriting a mortgage application manually or via an AUS system the four “C” of credit must be taken into play:
- Credit history
- Capacity to repay (income capacity)
- Cash assets available to close the mortgage, and
- Collateral

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A borrower must satisfactorily pass all of the “C’s” of credit to obtain a mortgage.

About The Author

Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter ( As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 


Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.