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The Advent of the AUS Led to Stupid Loan Officers.

Before the widespread acceptance of AUSs, loan officers would essentially "preunderwrite" the loan. The loan officer would collect from the applicant the loan application and bank statements supporting the applicant's having enough funds to close, review past and current employment histories, and determine that the client's debt ratios were in line with program guidelines.

If a loan program's debt ratio limit was 41, the loan officer would take the applicant's gross monthly income and "work backward" to find the appropriate loan amount.

Gross monthly income = $6,000 X 0.41 = $2,460

The applicant could spend no more than $2,460 per month on total monthly debt using the 41 ratio. This amount must also include such things as automobile and student loan payments.

Available income $2,460

Automobile ($400)

Student loan ($60)

Available for housing $2,ooo/month

Less insurance ($75)/month

Less property taxes ($20o)/month

Principal and interest payment $1,72 5/month

The client has $1,725 that she can devote to the principal and interest payment. We're almost there, but we still have one final step to take: Enter the loan term and the rate that is currently available. If current interest rates on a 30-year fixed are at 6.00 percent, we can now calculate the qualifying loan amount. A 30-year fixed rate at 6.00 percent with a monthly payment of $1,725 works out to a loan amount of $287,715. The client is prequalified to borrow $287,715 with current rates and a debt ratio of 41.

The loan officer would then review other critical aspects of the file to see if the application would be likely to be approved by the underwriter.

As the AUS began to take hold, loan officers would still review the file, but they would also submit the loan for an automated approval. It was a real time saver for both the loan officer and the applicant. But the AUS did not replace the loan officer; the loan officer was still an integral part of the equation.

As new loan officers entered the market after the AUS was established, it became apparent that loan officers didn't have to understand the loan approval process any longer. The loan officer's main job was to find as many loans as possible and let the AUS do the heavy lifting regarding loan decisions. Debt ratio guidelines were often ignored, and credit wasn't reviewed. Automated decisions allowed for higher-than-normal debt ratios, and credit, while still important, was made less so. What was important was getting the AUS approval and documenting the file according to the decision. Loan officers never really had to learn how loans were approved; they simply had to know how to find loans and upload them into the system.

When loans were declined, these loan officers wouldn't know what to do. They'd simply try tweaking the loan a few more times to see "what sticks," without knowing what to tweak and what not to tweak.

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