Why one brokerage made in-house underwriting central to its business model

When Malik Yacoubi launched the digital brokerage platform Nesto in 2018, his experience in the mortgage space was limited. A tech entrepreneur, Yacoubi cut his teeth in mobile payment and mobile marketing, but one thing he knew about mortgages was that success hinges on creating and managing solid relationships with lenders.

“Having good relationships with partners was my main focus,” Yacoubi says. “And one thing we discovered very early on is that lenders or mortgage financing companies value the brokers that will send them files they’ll end up funding. It was really clear that the quality of the files we send to these lenders will impact the way they see Nesto going forward.”

To ensure that Nesto’s lending partners were receiving the cleanest, easiest to evaluate customer files possible, the company decided to hire its own underwriters, including former bank employees. About 18 months into the initiative, Nesto has what Yacoubi says is one of the highest funding ratios in the country.

The process takes place almost entirely online, saving both broker and client time. Rather than be stuck on the phone answering a broker’s questions, potential borrowers can provide all the required information through the Nesto portal, where it can then be thoroughly vetted.

“Clients don’t want to be on the phone for two hours,” Yacoubi says. “They want to do it when they’re on the train with their mobile phone or on their computer at night. When they’re ready to talk with someone, the conversation is way more valuable to them – and the broker as well.” 

Nesto’s platform also contains a risk-matching profile that pairs customers with specific loan products, allowing the company to send files to lenders based on the kinds of borrowers they currently prefer to lend to.  

“We know that this lender is looking for this kind of customer,” Yacoubi says, “and then we validate all the information prior to sending it to them.”

Thanks to the company’s impressive underwriting performance so far – the high funding ratio, its direct connection to CMHC, its ability to provide letters of approval on the behalf of lenders directly to borrowers – Nesto has attracted the attention of its lenders. The company has been in talks with several about becoming their third-party underwriting solution. A pilot project with a lender in the Ottawa area is currently underway, as are negotiations with other firms.

The company’s approach to underwriting has also been a hit with borrowers, as evidenced by its Net Promoter Score of 80. In-house underwriting has meant shorter turnaround times and a greater amount of transparency in the broker-client relationship.

“We underwrite the file, so we can tell you if you’ll get [approved] or not. And we will go into the details so there will be no surprises,” Yacoubi says, adding that in-house underwriters can eliminate the frustrating back-and-forth that often results between clients, lenders and brokers when an underwriting mistake is made – the kind of thing Nesto’s research has found is the biggest complaint most clients have about the mortgage process.

“The way we look at it is, how can we make [lenders] more efficient? How can we get our clients a better experience?” Yacoubi says.

“And at the same time, we’d like to make a little money doing so.”