Technology Moves Underwriting Forward to a New Frontier

With today's bull market for residential real estate loans, lenders need all the help they can get making quick, accurate underwriting decisions. A number of mortgage originators are now getting just this sort of help from PMI Mortgage Insurance Co.'s PC-based automated underwriting decision support tools, the pmiAURA System and pmiTERRA System.

By combining artificial intelligence and predictive statistical models PMI has developed a proprietary underwriting decision support system that enhances customer service, improves the quality and consistency of risk-based decisions, and increases underwriter productivity. By processing the more clear cut decisions automatically, underwriters can focus on those loans that require their expertise.

PMI presently licenses this technology to a wide spectrum of mortgage banking customers, from start-up operations to established companies; from small, localized lenders to large national originators. The Systems can be deployed on a network server or stand-alone personal computer. Minimum operating requirements include a PC with a 386 processor and a Local Area Network (LAN) running Novell 3.1 software.

Decision Modules

The underwriting decision support system that PMI currently licenses is a personal computer-based application. It consists of three components: the pmiAURA System, the pmiTERRA System and a rules-based decision support module tailored to meet a mortgage originator's or investor's specific underwriting requirements.

The pmiAURA System uses two interactive statistical models to evaluate loan applications. The models are based on the experience of several hundred thousand loans, spanning a decade. These models use borrower and credit profiles to analyze factors associated with a mortgage loan, and provide underwriters with a risk-predictive score from 1 to 100. The score predicts the statistical likelihood of default by the mortgage borrower. The higher the score, the more likely the occurrence of default.

The pmiTERRA System emulates underwriter expertise in evaluating a subject property appraisal. If the appraisal does not appear to support the loan request due to local market trends, or varies from standard appraisal guidelines, the system refers the loan to an underwriter, with reasons for the referral.

The rules-based decision module is designed so that it can be customized to meet a lender's specific criteria and work in conjunction with the pmiAURA and pmiTERRA Systems. Underwriting guidelines can be customized by the lender at multiple levels based on investor requirements, regional influences, and originator or broker eligibility.

The rule tables allow the customer to set the risk thresholds for both the pmiAURA System and the pmiTERRA System. The rule tables act as filters through which loans are passed. If a loan does not meet specified underwriting guidelines, it is referred with a worksheet indicating possible areas of risk. Once guidelines are set-up, they can be easily modified by the customer, as needed.

Realizing System Benefits

The benefits to be realized from this technology are significant. There is the flexibility that comes with being able to customize the rules-based module to reflect specific risk tolerances and underwriting philosophies. There is also the improvement in underwriting quality that results from the consistency inherent in the decision support tools.

Another important benefit is the enhanced productivity and improved workflow that come from making underwriting expertise available to more junior level staff. And finally, the pmiAURA System's predictive score serves as a valuable management tool for measuring portfolio risk.

How to Implement It

To help customers maximize the benefits of this technology, PMI has a Customer Support group to assist with the transition to an automated underwriting system. System consultants work closely with a customer's implementation project team as they integrate the pmiAURAand pmiTERRA Systems into their operating environments.

System consultants and account managers help clients analyze their existing workflow processes and show them where and how automated underwriting can enhance their current operations. This reengineering work allows productivity gains to be realized.

The implementation project team takes further advantage of PMI's knowledge and expertise at user orientation sessions held regularly in San Francisco. Sessions are kept small to ensure individual attention and allow enough time to focus on concerns unique to each customer's operations. Agendas are kept flexible so that particular needs can be addressed through both one-on-one and group interaction.

Discussions during these sessions cover analysis of current and anticipated workflow patterns, issues surrounding the change to automated underwriting, the design and entry of underwriting guidelines into the system, the development of a project plan for integrating the system into the client's operations, and procedures for data import and export.

System Testing

To provide an additional level of evaluation after the installation, each license agreement provides for a one month test period during which no transaction fees are charged. This time allows the customer's underwriters to become familiar with the system and its results as they parallel underwrite files with the support tools. During this period, a lender's underwriting guidelines become more fully defined and the system is fine-tuned to maximize productivity gains.

By offering the combination of proven, effective products and consulting services, PMI not only places this technology in your hands, but also helps you integrate it into your operations.

Copyright 1993 PMI Mortgage Insurance Co.