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Lenders’ underwriting teams overstretched and under qualified, says FSA

There are worrying weaknesses in some lenders’ underwriting processes and teams which expose them to risks of mortgage fraud, the Financial Services Authority has warned.

Edna Young, strategy specialist for financial crime and intelligence at the FSA, says that the regulator’s Mortgage Fraud Thematic Review found that some underwriters showed good understanding of risks, but others were unable to identify common warning signs of fraudulent applications, such as round figure salaries.

She says: “We found that some staff were overstretched and required to meet extremely tight process targets.

“Furthermore, a number of firms had chosen to employ less experienced underwriting staff who followed processes rather than assessing risk.”

Young also points out that at some lenders, sales staff were used to obtain underwriting information from borrowers, which is concerning as they are focused on sales targets rather than mortgage fraud risks.
       

 

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  • Grey Haired Underwriter 24th June 2011 at 11:30 am

    Not really any surprises here. The large lenders love a system that works 24/7 and which the Marketing dept can tweak as they like according to volume appetite. They can then employ an ‘underwriter’ who is supposed to take responsibility for a decision made by a machine. It will be interesting to see how these so called ‘underwriters’ will be able to cope when it comes to the manual intervention on income required by MMR. I suspect that most of the large lender underwriters have no idea of what a payslip can tell them and I am more than a little dubious as to how they will interpret a set of accounts.

    The simple fact is that there is no distinct qualification for an underwriter (CeMAP is rather irrelevant for risk assessment) and as such there is no relevant professional qualification. This is good for employers because they don’t have to pay higher salaries for professionals but the simple question is why would you would pay so much less for a skilled underwriter than a BDM when it is the underwriting that ensures the lender doesn’t make a loss on marginal business.

    The trouble is that Marketing and Sales still hold far too dominant a role in lending whereas Credit and Risk is more of an inconvenience. The strange thing about this is that underwriters are employed to approve good business and in the main they approve up to 90% of all business sent to them whereas Credit Scoring is designed to reject a far higher percentage. A good underwriter looks at the quality of the deal not the introductory source but most scoring systems actually have a built in bias towards direct business.

    It is time that sense returned to lending and lender CEO’s realised that all people are not the same and cannot simply be put into a matrix as though they all had the same financial habits. There are, however, fewer and fewer experienced underwriters still in the system and that means that there are progressively less experienced people to pass on their knowledge to the next generation. All I can say is thank the lord for the small Building Societies who still have, and still value, their experienced and proven underwriters. And then I wonder why so many brokers moan about the quality of underwriting service they get – perhaps the lower prices from the state subsidised big 6 is not always the only way to judge a deal and perhaps, therefore, getting advice on the cheapest product via a sourcing system is not a great way of getting broker business underwritten.

    Credit scoring is a useful tool but until it is still only as good as the data input. I would suggest that people under people better than a machine does and that perhaps a greater degree of human intervention is required throughout the process.

  • Barrie Brain 23rd June 2011 at 11:16 am

    As an experienced ex-underwriter I was looking to return to this area of work but was astonished to find banks and BS’s are now PAYING LESS than pre 2008 levels. So therefore in response to the criticisms of credit crunch underwriting the response has been to attract a lower calibre of staff.

  • Barrie Brain 23rd June 2011 at 11:15 am

    As an experienced ex-underwriter I was looking to return to this area of work but was astonished to find banks and BS’s are now PAYING LESS than pre 2008 levels. So therefore in response to the criticisms of credit crunch underwriting the response has been to attract a lower calibre of staff.

  • Gary Ould 23rd June 2011 at 12:07 am

    At last the FSA get something right! Although this cuts across some of the other stuff they say about brokers. As a broker who previously worked at a major bank including underwriting, I have spoken to current “underwriters” and everything they say confirms that there is little real underwriting experience all they are taught is how to complete a ticklist. The lack of competent underwriters is precisely why we do need strong brokers who can underwrite themselves, it is amazing how brokers seem to all be considered guilty until proven innocent in both lenders and FSA eye’s.

  • Gary Ould 23rd June 2011 at 12:07 am

    At last the FSA get something right! Although this cuts across some of the other stuff they say about brokers. As a broker who previously worked at a major bank including underwriting, I have spoken to current “underwriters” and everything they say confirms that there is little real underwriting experience all they are taught is how to complete a ticklist. The lack of competent underwriters is precisely why we do need strong brokers who can underwrite themselves, it is amazing how brokers seem to all be considered guilty until proven innocent in both lenders and FSA eye’s.

  • mylo holmes 22nd June 2011 at 4:34 pm

    Bring back common sense underwriting where a underwriter uses their experience and also technology to come to a just decision on a mortgage case

  • Paul Holmer 22nd June 2011 at 4:16 pm

    Having been mortgage a underwriter for a number of years I also concluded that lenders did not want to pay for experience they wanted people who could push a button and also meet the targets provided. This was always a path that would come back to haunt lenders as now all the experienced underwriters who were made redundant have found new careers outside the industry were companies appreciate their skills and knowledge

  • john 22nd June 2011 at 1:23 pm

    Lenders are becoming to reliant upon scoring systems. I recently went for an interview with a leading lender and it was very much we rely upon the scoring system and it works well. Yes it may do but from my previously employment I know that this lenders scoring system was accepting borrowers with adverse – ticking time bomb. Get back to basics and have appropriate controls in place – yes run with decision scoring systems but not at the cost of good manual underwriting

  • James Lindon-Travers 22nd June 2011 at 12:47 pm

    On the 21st February you printed my letter titled – ‘Lack of underwriting expertise results in applications being denied by lenders.’ – It is time the lenders took definitive action and beefed up their underwriting skills to deal with the low levels of post crisis business being submitted. Where have all the decent pre-crisis underwriters gone?

  • Jonathan 22nd June 2011 at 12:39 pm

    “Underqualified!Sounds like the FSA