According to HUD; “The FHA TOTAL Scorecard was developed by HUD to evaluate the credit risk of FHA loans that are submitted to an automated underwriting system. To underwrite an FHA loan electronically, a mortgagee must process the request through an automated underwriting system.”
Well, this sounds all well and good but speaking from first hand experience there is a lot that can go wrong with this system. Part of the problem is that this system removes the human element out of the equation. It is completely computer/internet based and if there are computer and/or internet problems so too are there problems with your application.
The one and only advantage to this system is that if you are a perfect borrower you can obtain an immediate “accept/approve” from this system meaning that your mortgage is approved and will require “minimum” documentation. Well not so fast. You see, the decision is made by a computer and is based on the information that is imputed into the system by the mortgage lender. If there is a conflict upon review, between what is in the system and what is in the paper file, you could wind up loosing your mortgage approval. Imagine the nightmare of having an approval and thinking you are getting your home only to find out that there was a “typo” that grossly overstated your debt to income ratio and now you find out that you are denied. Speaking from experience; not good!
You see, speaking from experience, there is something to be said about removing the human element form the equation. In my humble opinion I believe that it was the removal of the human element from the equation that is partially responsible for the real estate market failure. In an attempt to “speed up” the process the mortgage industry created opportunities to manipulate and cheat the system. Just look at the results we are facing today. A large portion of this could have been avoided by getting back to the basics and having that human interaction between underwriters and loan officers and making sure that there is a complete file. One of the absolute worst things that happened in the hay-day of mortgage lending was the “reduced documentation” loans.
Given that most loan officers take an automated underwriting decision as gospel here are a couple of things you should know if you are applying for an FHA mortgage and your lender is using the “TOTAL” scorecard system;
- – Double check everything. Don’t rely on your loan officer completely. As Ronald Regan used to say; “Trust but verify.” One small typo can cost you your loan. Pay particularly close attention to page 2 of the 1003 where you input your assets and liabilities. Accidentally putting in an extra zero where it does not belong can make all the difference in the world.
- – Just because your loan officer tells you “no” does not mean that your loan can not get done. Here are the salient points:
- o TOTAL is supposed to ensure that no borrower is to be denied an FHA backed mortgage based only on the fact that the loan package received a “refer” classification. If this happens and you are told that you are not approved; fight it!
- o All that “refer” means is that it must go through manual underwriting! Most of the time loan officers don’t want to do the work and will simply tell you that you don’t’ qualify. Make them do their work. That is what they get paid for.
FHA loans are a great option for many home buyers. Don’t let a simple mistake cost you the opportunity to use this program or a lazy loan officer. Ask questions and make sure you don’t take “no” for an answer.
More from this contributor;
First Person; Protecting your assets against a falling dollar
http://www.associatedcontent.com/article/6156150/first_person_protecting_your_assets.html?cat=3
Buying gold: Is it a good idea?
http://www.associatedcontent.com/article/6119086/buying_gold_is_it_a_good_idea.html?cat=3
Should I get an annuity?
http://www.associatedcontent.com/article/6184036/should_i_get_an_annuity.html?cat=3
