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Don’t let the crunch take us back to the bad old days

My old friend Colin Snowdon, chief executive officer of Wave, has been running an interesting series of advertorials in the trade press recently, provoking debate on a range of mortgage-related issues.

Until recently I have agreed with virtually every word he has written but his latest piece entitled ‘The truth about credit quality’ (Mortgage Strategy February 25) regrettably breaks that sequence.

What Snowdon presents as the truth regarding automated versus manual underwriting has no facts to back it up. Without corroboration, his words seem more like a sales pitch by a lender without technology than an exposition of the truth.

In 2004, when I was chairman of GMAC-RFC, we introduced automated underwriting after a 14-month pilot.

We tracked arrears against three indices – the Council of Mortgage Len-ders’ arrears statistics for the market, the Fitch Ratings index of arrears on sub-prime residential mortgage-backed securities and the arrears experience of the lenders that purchased our portfolios – at the time, a largely manually underwritten pool.

In every instance, the loans underwritten by the automated process performed better and in some cases were substantially better.

At a stroke, we had eliminated error (10 underwriters looking at the same case will result in at least three conclusions), influence (‘Please look at this case in this way’) and leverage (‘You won’t get next week’s good cases if you don’t agree this one’).

Instead, the system focussed on the things that matter in underwriting – attitude to credit and ability to manage debt, both of which can be profiled from information accessed in an automated way.

At the same time, our service im-proved dramatically, applicants had immediate decisions, brokers had less chasing to do and administration problems were largely eliminated.

Only lenders that rely on manual processes subject brokers to administration problems, which is something I think should be punished by the authorities.

The idea that wizened old mortgage underwriters are sniffing out fraud and reasonability on any material scale is a fantasy.

Most underwriters in our industry are under 30 and applying rules laid down by bosses steeped in paper-gathering history.

We must not allow the liquidity freeze to transport us back to the comfort zone of paper and delays. That would be bad for everyone in the mortgage chain.

Stephen Knight
Executive chairman
Checkmate Mortgages
By email

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