Skip Navigation
Login or register
About Us  Contact Us
Substance Abuse and Mental Health Services Administration
Add Comment
Subscribe
Share This
Print
No Recommendations Yet Click here to recommend.
Automated underwriting (AU) systems have become the tool of choice in mortgage lending decisions. Although these systems provide significant benefits to mortgage originators and investors, questions have been raised about their impact on underserved populations. The questions focus on the relative accuracy of AU compared with manual underwriting and whether AU has increased the flow of mortgage credit to underserved consumers.

Using information from Freddie Mac's Loan Prospector AU service, the article provides statistics useful in examining these issues. The data strongly supports the view that AU provides substantial benefits to consumers, particularly those at the margin of the underwriting decision. The article finds evidence that AU systems more accurately predict default than manual underwriters do. This increased accuracy is found to result in higher borrower approval rates, especially for underserved applicants. However, to further increase homeownership rates for the underserved, the authors identify four issues that need to be addressed: how to deal with "unbanked consumers," financial literacy, home-buyer education and the digital divide (Authors).
Journal
2002
Housing Policy Debate
13
2
369-392