“If you want a positive relationship with a broker, it needs to be based on openness and trust. Brokers will lose trust and won’t use you again if you can’t explain why you’ve made a decision, so every effort has to be made to engage openly with the people that are at the very centre of your proposition.
Roy Armitage, Head of Credit at LendInvest, is clear that for a specialist lender a good working dialogue between the underwriters and the brokers placing the business is crucial.
“It’s so short-sighted if underwriters are reluctant or ‘unavailable’ to speak to brokers. Underwriters can explain to brokers precisely what the problem is and what they need, without having to go through a ‘middle’ person. You can ask case administration managers to try and cover this but they’ll be asked a host of questions by the broker and then have to go back to the underwriter anyway who will then ask the next question… And brokers love speaking to the decision maker, so why not engage like that?”
Armitage is a veteran in financial services, having first started working for Halifax at the age of 17 in the late 1970s, spending more than two decades with the firm in a range of roles. Following a spell with JP Morgan, he moved into the world of specialist lending with Kensington and Investec where he spent 14 years overseeing the firm’s risk and latterly compliance functions.
As a result, he has seen just how underwriting has changed and how standards have been pushed higher in recent years particularly following regulatory intervention.
He explains: “When I started, underwriting was very traditional and thorough. You verified everything, met the customer face to face and built a personal relationship. Over the years as funding became much less restrained underwriting became more tickbox and volume/market share driven, and as a result standards dropped, the consequences of which later coincided with the serious economic recession in the early 1990s. In more recent times the 2008 banking crisis and related recession again highlighted the cataclysmic impact of poor risk management, weak market liquidity and superficial underwriting, Thankfully the lending industry now recognises that what happened in 2008 cannot be repeated and that poor underwriting doesn’t get you anywhere.
“Standards have increased since then through a combination of fundamental changes to Conduct of Business rules for regulated loans and more recently PRA driven buy-to-let underwriting requirements. There’s a commercial benefit to underwriting properly, and while some lenders may have some gripes about certain aspects of the new regulations that have been brought in, looking at the broad picture it’s generally been very positive for the mortgage market as a whole.”
Armitage joined LendInvest in 2015 as its first Head of Credit, and he has overseen the development of LendInvest’s risk infrastructure.
Since then he has set about building a professionalised underwriting team focused on high standards and service delivery.
“There were two underwriters here when I joined. We have now two teams – there are six underwriters on the short term lending and development finance side and then seven in the buy-to-let team, supported by case managers and a completions team. We’ve grown enormously – we are doing more business, but we need to underwrite it thoroughly to retain the confidence of our investors and funders. LendInvest is a specialist lender and as such there is only a degree to which you can automate so we rely on a great team to maximise automation where it adds true value but final decisions are always made by experienced underwriters.”
Key to the effectiveness of the underwriting team has been embracing the chance to discuss cases directly with brokers.
He says: “It’s an underwriting-centric operation – you have to be willing to speak to intermediaries in clear terms. It’s particularly useful in specialist lending, where cases are all a bit different.”
Armitage has been involved with the CML for many years and now attends the UK Finance’s buy-to-let panel, contributing to how the trade body responds to the government’s and other influences on the buy to let market.
So what makes a good underwriter? It takes a particular type of person, according to Armitage. An inquisitive mind and an attention to detail are crucial, but so too is understanding the need to be commercial and applying sound judgements in the context of a clear lending policy and risk appetite.
He adds: “Underwriting is only partly coached, a lot comes from experience too. When you see different scenarios and cases, the more you see, the more you’re armed for the future. Some people on the team need to bring that experience, and they can then act as a guiding influence on the less experienced staff.”
Underwriting isn’t just important in terms of making the right decisions on individual cases, but it also plays a key role in attracting new and lower cost funding to the business, according to Armitage. “With the major banks for example, they will expect a certain degree of knowledge and experience if they are going to invest in a business like LendInvest and we are delighted we have partnered with banks that share our passion for quality underwriting and service delivery.”