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Is electronic underwriting the way forward for lenders?

Automation brings speed to the underwriting process but brokers still value the flexibility of human contact, say our experts

Jeff Knight is director of marketing at GMAC-RFC

Using technology to make more informed lending decisions is the way forward for many lenders, as we have seen over the past couple of years. The electronic way removes uncertainties and makes the process easier and faster. Brokers and packagers can obtain mortgage offers 20 minutes after they have turned on their PCs.

Technology also fits well with responsible lending. The old-fashioned approach is to ask a borrower to declare an income and then, after weeks of waiting around while employment references are chased, they may get an offer for the amount they requested. But does this mean they can afford to pay it back?

With a sophisticated affordability calculation system lenders can provide a service to borrowers that enables them to have mortgages they can afford. This works by determining borrowers’ attitude to credit and ability to manage debt. Linking to credit bureaux and sharing data on borrowers’ loans, credit card and mortgage accounts allows lenders to profile customers and their ability to pay.

Credit scorecards have evolved to take over manual underwriting ensuring that everyone is treated fairly. Prudent lenders have also been able to introduce various automated affordability tests on likely income range. And electronic identification has greatly reduced the ability to instigate paper identity fraud, while quality checks have improved the quality of mortgage books.

Removing the human element of underwriting has taken away many wrong decisions that were based on instinct, not facts. There are twice as many examples of human error producing wrong decisions to customers’ detriment.

Is electronic underwriting the future for all lenders? I don’t think so. But I will leave it to them to find out what they are missing out on.

Roger Taylor is director of sales and marketing a Preferred

Technology offers advantages but it should not be introduced at the expense of personal service.

Automated underwriting reduces lenders’ overheads by increasing efficiency in the short term and speeding up the process. But no technology is infallible and these advantages can also be disadvantages. When automated services fail it is intermediaries who feel most impact.

Technology is essential in today’s market but it should never replace people. Brokers value personal contact with lenders’ underwriting and sales staff. Rather than relying entirely on the verdicts of computers, they like to pick up the phone and talk to human beings.

This is particularly important when processing an application that falls just outside a lender’s standard criteria. The big downside of automated underwriting is that it lacks flexibility which can mean that borderline applications may be declined.

The obvious benefit of the more traditional approach to underwriting is that, unlike a computer, an underwriter has the ability, knowledge and experience to make decisions outside of set criteria.

A personal, flexible approach is not possible if systems alone hold the key to a lender’s relationships with intermediaries. Relationships that are built up through underwriters may be beneficial to both sides. More business can be processed through regular contact and this is attributable to the increased understanding of both brokers’ and lenders’ needs. With better relationships, both parties are likely to go the extra mile.

Furthermore, personal contact offers lenders a channel for feedback that can help them provide a service that better meets market needs. This again strengthens their relationships with brokers.


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