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Complex prime is not sub-prime

Complex Prime – two words being used much more (again) in recent times and ones which I suspect will be used a lot more moving forward.

So, first and foremost let’s nail the myth. Complex prime is not sub-prime. It is what it says on the tin – complex and prime.

What do I mean by complex?

Take a client whose income is made up of a number of differing strands and which might include employed PAYE, trust income, a second job and, perhaps, investment income too.

That’s complex! 

Or, a customer who needs a cross collateral charge on another property and parental support. That’s complex! 

Or, a customer who, on an income stretch, is willing to deposit two years mortgage payments up-front to the lender to give them comfort. That’s complex! The list goes on and, basically, whatever the requirement, if it is a good sound case, and you can prove affordability, it may well fit the Complex part.

What do I mean by Prime? Well this part is simple. It is an applicant who, on their credit file, has not missed a heartbeat!  

Complex Prime is not a new phenomenon. 

Back in the 90’s, before the advent of current credit scoring mentality, this was a thriving business model. Think back to the good old days and imagine a lenders underwriter studying the whole picture, warts and all, and then deciding whether to lend or not? More importantly, once their decision was made, they stuck to it and did not keep changing the goalposts. Those were heady days….

In reality though, we have simply gone full circle. If you have read ‘Catch 22’ then you already have the picture.

Lenders have this wonderful credit scoring system, designed to ensure that they capture the best mortgage applicants.

Yet, experience shows that this black box mentality regularly turns away the very customers they should be lending to! The asset rich, who often have no credit liabilities are being declined due to lack of current no credit, or because they don’t appear on the voters role, or because we cannot combine their various income streams.

The list is endless and these are the people who would benefit from manual underwriting where humans look at, feel and touch the application making sensible judgements based upon the facts and not computer logic.

Of course, human nature dictates that the underwriter may still decline a case due to a headache from the night before, or because they don’t like the colour of the ink used on the application form, but at least you can then make a call and discuss the case and not be told ‘sorry, computer says no!’

There are an increasing number of lenders out there who are starting to recognise the value of a ‘back to basics’ approach and these are the ones who are beginning to thrive again. 

So, to summarise, Complex Prime is not the new Sub Prime. You may get the odd missed payment or extremely historic and very minor adverse case reviewed.  But anything more would be Complex Sub Prime (…you heard it here first!) and maybe that is the next market to re-open in due time.

Finally, and to dispel any misapprehensions, Complex Prime is usually at a maximum of 75% loan to value. It is for clean credit applicants and it is for those who can absolutely prove their ability to afford the mortgage beyond any reasonable doubt.

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  • peter 28th April 2010 at 6:32 pm

    I have read your post with mild amusement, please don’t mis-understand me I am all to willing to accept that due to the depth of the recession, a form of light sub prime and self dec is going to be needed to re-ignite the mortgage market! Should I be a lender writing a mortgage at 70% ltv where the client has a couple of defaults and ccj’s from 2 yrs ago, it would be far more preferable than a 1st time buyer at 85%!
    Someone with poor accounts for the last 2 yrs but 6 mths bank statements showing much improved income. A new business with 9mths bank statements for say electricians,plumbers,carpenters, doctors etc with proven trade recognition,should be considered good lending at 70-75%ltv.

    However, the list of complex prime you have just mentioned, sounds like a bunch of people who (as in the first case)could get a mortgage from normal high st sources or, just can’t afford it!!

    If a client needs parental support, THEY JUST CAN’T AFFORD A MORTGAGE!!

    Deposit 2 yrs payments to get an income stretch,sounds like a bribe to me!! THEY CAN’T AFFORD IT!!How is that going to help future payments?

    Sub prime didn’t fail because of clients with plenty of equity,provable income with some minor adverse,it failed due to unaffordable mortgages being sold to far too many people who lived with manyana in their minds and brokers who didn’t care once the deal was completed!!

  • Julian Wells 28th April 2010 at 5:52 pm

    What’s in a name? The fact of the matter is that there are cases that common sense says are going to be ok. In the current environment of low LTV low risk products, there’s loads of demand built up and lenders can meet it whilst being picky and charging a premium, and that will fuel supply. I don’t buy into the idea that a perfect credit record is a prerequisite. Just because someone has some adverse credit doesn’t mean they can’t be a better prospect to lend to than someone with irregular income. Complex prime, sub prime… whatever it’s going to be called – it’s non-standard lending and it will be a growth area in the coming months and years.

  • michael white CEO emailmortgages 28th April 2010 at 12:28 pm

    ‘Greyhair’ notwithstanding, there are a lot of individuals with the title of Underwriter who are simply not fit for purpose. Accordingly, in the current market the role is predominantly one of looking for a reason to decline rather then true risk assessment.

    Of course, even within Abbey, Halifax and the large banks some good people exist but they are difficult to reach for commonsense discussion due to the layers of incompetence one has to fight through to gain an audience. A percentage of high and low override should be in effect to ensure the lenders are not denying themselves good business due to a computer system which cannot cope with the vagaries of some applicants; particularly those entrepreneurial types emerging from the recession attempting to rebuild their livelihoods and assist the economy in the process.

    As I have previously written, not all borrowers are squeaky clean but many are very far from high risk and should be able to find a mortgage product and lender that suits. We just need more simple risk assessment by a person with the title of underwriter rather then the computer saying ‘no’. The re-emergence of sensible lending criteria and underwriting methodology cannot come soon enough.

  • Paul 28th April 2010 at 11:50 am

    Of course ‘complex prime’ is the new ‘sub prime’. Maybe not in the form we knew it before but however you dress it up this is lending for people who fall outside of ‘prime’ therfore they must be classed as ‘sub prime’. FSA directives as to what constitutes ‘sub prime’ are vague at best so for now we have no real definition of exactly where ‘sub prime’ begins. The boundaries of ‘complex prime’ will continue to be pushed until such time as we are back to ‘Light Adverse’, which in the old days was a band of ‘sub prime’, and possibly further. The problem the industry faces now is that the phrase ‘sub prime’ is forever tarnished as a toxic debt and should be avoided like the plague. However ‘Complex Prime’ is good, therefore can be seen as good lending and eventually securitised. The classification of this lending is totally irrelevant. The fact is that there are hundreds of thousands of people who are not considered ‘prime’ meaning an alternative is needed. ‘Sub prime’, ‘Near Prime’, ‘Almost Prime’, ‘Complex Prime’, ‘Used to be Prime’, ‘Wish you were Prime’, call it what you like, the market needs common sense lending, but to say it is not ‘sub prime’ is completely wrong. It must be as it cannot be considered ‘prime’ the phrase is tainted, not ALL of the clients who fit it. I for one welcome any form of specialist lending, regardless of what we choose to call it.

  • Grey Haired Underwriter 28th April 2010 at 11:44 am

    Ohh Mark ..ye of little faith. This sort of lending has never gone out of fashion and most small Building Society models thrive on manual underwriting. The problem is that many brokers considered that quality service was represented by speed and this panders to a computer based model. The thing that went out of fashion was the manual assessment of deals and this was driven by demand from broker customers. I also like your comment that lenders should look to lend rather than not do so and this raises a few questions.

    1) Why should they look to lend. If the end deal is not the one that was submitted then you have to expect a ‘no’.
    2) Do you really think that we put time and effort into an application just for the ‘fun’ of saying no. It is important for you to realise that lending consititutes our livelihoods as well as yours. No company pays for unneeded staff so without mortgage business I would be superfluous to requirements.

    The thing that has to be accepted is that the stupid lending of the decade leading up to the Credit Crunch has fone. There are few easy applications and proc fees don’t grow on trees. You may all yearn for the return of GMAC, Preferred, SPML, and rooftop but the fact is that you are going to have to wait a fair few years. In the meantime I wish some of you would lose your obsessions with the Abbey, the Halifax and the other large banks and look elsewhere to place your business. Best advice is not just about rate.

  • Mark Draper 28th April 2010 at 11:22 am

    This, so called simple lending, should have never “gone out of fashion” Lernders should always look to lend rather, than at present,not lend.