View more on these topics

It would be dangerous for lenders to return to manual underwriting

Countless letters on the same subject will be tedious for your readers. But I must respond to Nick Baxter (Mortgage Strategy Letters March 17) as he appears to be using expert witness experiences of a few cases to make general assertions about the quality output of good automated underwriting. This flies in the face of the facts.

I return to a point contained in my original letter that both Colin Snowdon and Nick Baxter ignored, presumably because it disarms their arguments. At GMAC-RFC, we piloted automated underwriting in 2003 and fully rolled it out in 2004.

We benchmarked our delinquency performance over nearly five years and many billions of pounds against Council of Mortgage Lenders and Fitch Ratings indices. And we asked our portfolio buyers to compare the performance of our loans with those they acquired or originated separately. In all instances, the automated approach produced higher quality delinquency performance at the portfolio level, in some cases by a margin of 50%.

If Baxter has come across a few instances where the automated approach has performed badly, then these might either be exceptions that do not invalidate the general trend or be the subject of poor automated underwriting systems.

Neither invalidates the fact that based on the above large sample, automated underwritten loans performed better. I feel that you need to have run a high volume mortgage lender that has undertaken both manual and automated underwriting to compare the two.

There are many reasons why the traditional paper-based manual underwriting approach produces poorer de- linquency performance.

For a start, there are several websites available where applicants and their brokers can produce high quality references, payslips and IDs that are completely undetectable and utterly false. Presumably, if Baxter came across a file with that documentation he might take comfort, as do the rating agencies and the regulator, amazingly.

But this is 2008. The frauds I have experienced in recent times have involved paper or human beings. In addition, every day of every week, underwriters are subject to broker leverage, influence and error, which produces inconsistent decision-making. By contrast, a good automated underwriting approach will analyse consumers’ attitude to credit and ability to manage debt, which are far more important than arbitrary paper-based income assessments in any event torn to shreds by subsequent interest rate rises.

If there is insufficient existing credit to analyse then applications are rejected. My concern is that those without direct experience of both underwriting approaches might, with the best of intentions, use the current liquidity crisis to take us back to a cautious manual approach. They may think it’s a comfort zone but I know from experience it’s a danger zone.

Stephen Knight
Executive chairman
Checkmate Mortgages
By email


Bridge building

The bridging sector has left behind its unsavoury image to emerge as a vital aid for borrowers and an attractive proposition for brokers, says Nick Reeves

Mform says remortgage fears overblown

Consumer finance site says remortgaging fears are overblown as a result of the liquidity crisis.The company says remortgage deals are still available to consumers. Its analysis shows average loans-to-value for borrowers buying in the past three years range from around 58% to 68% putting customers who are remortgaging this year in a stronger position […]

AToM unveils Remo Package

All Types of Mortgages is launching the Remo Package, a deal that combines valuation and legal costs in one discounted application fee.The Remo Package combines lenders’ valuation costs and standard legal remortgage charges, which AToM says will deliver substantial savings of as much as £749 off high street prices.Richard Hearn, managing director of AToM, says: […]

Rob Jupp

I have read with interest the article regarding the research data about customer retention. It indicated that only 40% of clients who go back to the same lender will use their original broker to secure the deal. I really hope that the statistics for clients remortgaging with another lender or purchasing another property are not […]

How to balance bottom-up with top-down research in constructing multi-asset credit portfolios

In this short video, Azhar Hussain, head of global high yield at Royal London Asset Management, explains how his team balance bottom-up with top-down research in constructing multi-asset credit portfolios. Watch the video in full The value of investments and the income from them is not guaranteed and may go down as well as up […]


News and expert analysis straight to your inbox

Sign up