Some people would have you believe that lenders that use scorecards are making life difficult for brokers by inferring that scorecards decline good borrowers who would otherwise be accepted.
While this may be a convenient marketing story, it is not actually the case. I have worked for lenders that use scorecards and ones that do not and my view is that they both have their pros and cons.
A properly functioning mortgage market should offer brokers and borrowers choice. Scorecards are designed to underwrite cases be it mortgages, credit cards or insurance policies.
They use empirical data built on the behaviour of thousands of borrowers and assess the willingness of a borrower to repay their debts. A good quality mortgage borrower is just as likely to be accepted by a scorecard as it is by an underwriter.
In fact, a scorecard does exactly the same job as an underwriter, just in a different way.
One reason why brokers would welcome scorecards is that you get consistency of decision. Scorecards don’t have bad days, they do not get distracted, they do not change companies – they just do their job.
On the flip side, an underwriter can take a view on a case if it is below the credit quality the lender would normally accept.
Complexity of income has nothing to do with scorecards as this is based on the lender’s lending policy. Next week, this column will attempt to explain how lending policy and scorecards interact.