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Daily Real Estate News  |  March 23, 2007  |   Are Computers to Blame for Bad Lending?
Automated underwriting software spurred the growth of subprime loans, but don’t blame computers, says Pat McCoy, a law professor at the University of Connecticut, who is an expert on real estate lending.

At fault for the subprime meltdown? Users whose lax controls and willingness to rely on shortcuts led them to approve borrowers that under a less-automated system would never have made the cut, McCoy says.

''Used properly, automated underwriting is a wonderful thing,'' McCoy says. The problem, she says, comes when lenders customize it to approve the wrong borrowers.

Subprime lenders like automated underwriting because it is cheap and fast. A 2001 Fannie Mae survey found that automated underwriting reduced the average cost to lenders of closing a loan by $916. The software aims to quickly weed out the very riskiest of applicants and automatically approve the rest.

Source: The New York Times, Lynnley Browning (03/23/07)

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