How to Think Like an Underwriter
November 9, 2011
In recent years UK mortgage lending has returned to the standards that I was taught in my first mortgage based post as an underwriter, after leaving University.
I worked for a traditional building society with one branch in Surrey. I was taught how to underwrite mortgages using pen, paper and an understanding of the client – as opposed to inputting information into a computer and awaiting for a yes or no answer generated by an unfathomable algorithm.
This understanding of traditional processes helped me to secure a deeper knowledge of why lenders act in a certain way and request certain documentation and information. It also helps me to explain to a somewhat frustrated client, who has been asked to provide yet another bank statement or payslip, why the additional information has been requested.
I started brokering mortgages 3 years later and by this time lenders were stream-lining their websites with on-line applications and electronic checks. With this increased flexibility from lenders, I sometimes felt that the years spent underwriting and building knowledge was going to waste. It didn’t make me feel any more credible than a one man broker sitting in his bedroom making things ‘fit’ the lenders criteria through the electronic applications they churned out.
It was amazing how many people I interviewed and suggested that they couldn’t and shouldn’t afford a particular mortgage. These were applicants who didn’t fit the ‘fast track’ ‘non verification’ criteria, and I later discovered that these applicants went via the unscrupulous broker route – those brokers who were keen to collect their next commission.
Following the financial crisis of the past few years, which has resulted in dwindling mortgage applications and approvals, there has been a mass exodus of mortgage brokers from the market. We are now back to pre-2002 lending criteria which is where I believe we should be – I do not believe it to be a bad thing that people are having to jump through hoops to prove that they can afford to borrow large sums of money. Borrowing money in the past 9 years was far too easy, and while the current tightening and scrutiny creates moans and groans from some clients I hope it is slowly becoming accepted and will be the norm once again.
Brokers are being expected to act and think more like underwriters when putting a case forward to a lender, just as I would have done as an underwriter to the Executive of Lending within my old building society. We are (and should always have been) expected to assess affordability, make the appropriate checks and to consider whether a case is a good lending prospect. Only once all the documents are in and verified do we move forward to the final full application submission . Instead of rushed applications, we are placing good considered business with lenders which is well assessed.
This was after all the original concept of lenders using brokers in the first place. Check back next week when I will let you know some specific underwriter pointers, but one of the most important things to remember is that if you have nothing to hide, produce the paper work requested.