Perhaps I can shed some light on James Lindon-Travers’ star letter entitled ’Lack of underwriting expertise results in applications being denied by lenders’ in the February 21 issue of Mortgage Strategy.
He commented on the fact that one lender said 75% of its underwriters had been in their post for less than a year. What has happened is that in recent years, lenders have largely dispensed with underwriters and relied on credit scoring instead.
In my role as a mortgage analyst, I explain to investment analysts and ratings agencies not only why credit scoring didn’t work, and why it can’t work, but why it makes a lender’s risk profile worse.
So lenders now have to recruit underwriters again and train them. While Lindon-Travers didn’t name the lender in question, the implication is that it recognised this at least a year ago and has taken action. This actually puts it ahead of the game compared with some other lenders I could mention.
The profile of the underwriters in question is worrying, though. Good underwriters are invaluable but not cheap.
It seems the lender in question is treating these as clerical positions, which they are not. They need the training, knowledge, experience and confidence to make decisions. Without that, saying no will always be considered to be the safe option.
Lenders have needed to fundamentally review their understanding of risk as they clearly got it hopelessly wrong.
It’s possible to devise a scoring system that does work but it’s nothing like credit scoring. Even with a sensible scoring system, there’s clearly a greater role for underwriters than in the past.
The next step is to get the underwriters right – and that’s where this particular lender seems to be falling down.
But, as Lindon-Travers rightly says, lenders’ lack of experience might present an opportunity for good mortgage brokers.