Instant, automatic and binding mortgage decisions have become a feature of the mortgage market and are increasingly available in most, if not all of the various sectors.
In the first instance, the basic advantage they bring is speed. Brokers and clients know where they stand and the whole application process can get underway more quickly if an application is accepted in a matter of minutes.
However, if automatic offers generated by lender systems are going to be effective, then it is not possible for every client to receive one and certainly this is true in the non-conforming market where there may be a number of unusual, complicated or awkward factors to rate.
As such, lenders may look to put every offer submitted through the automatic offer system, but just because a case is spat back out for manual underwriting, does not mean it will be declined.
Simply it means that lenders have to educate brokers that there is a two tier service where manually underwritten cases may take a number of days, while those fitting the required criteria for automatic underwriting come back in minutes.
Understanding is crucial
The broker’s understanding and confidence in the automatic offer process is crucial. Although it is perhaps not prudent for lenders to detail the exact criteria they use to rate a case, they can educate brokers as to what they are looking for and give examples of the kind of cases that will sail through and those that will struggle.
By introducing automatic underwriting like this it is possible to create a guaranteed level of service and consistency for the top tier of cases and as IT systems develop, lenders will be able to apply that consistency to an increasing amount of their business.
It is also important that lenders educate mortgage intermediaries that this sort of underwriting is not about taking control away from them and trying to get business on the books as quickly as possible.
How to handle each client is where brokers’ expertise lies and it is up to them to use the system to their advantage, rather than feeling it is controlling the way they work. Lenders need to acknowledge that brokers’ internal processes are not necessarily aligned to the supply of decisions in minutes. There needs to be enough flexibility within the system for brokers to feel in control and supported,
Keeping investors happy
In addition for lenders who already operate automatic offer systems, it is important they keep not only their brokers happy at the front end, but also their investors at the back end.
Issues in the credit market are well publicised and for any lender that does not keep its loans on the balance sheet, making sure they are attractive to future investors is essential.
Lenders need to work incredibly closely with investors to ensure they understand exactly how the automatic system works, exactly the criteria that will be required for applications to go down this path and the safeguards and checks that are in place to check the quality of business coming through.
Working closely with investors and getting them to agree, accept and welcome automatic offers as a genuine improvement, will make selling the book of business much easier at a later date.
Investors are cautious at the moment and so the last thing they want are surprises. If they are unsure, they will not risk their capital at a time when significant challenges remain in the market.
Therefore while some may feel that the current environment is not the best time to introduce automatic offers, it is the perfect way in which to open up the business to investors and give them an excellent insight into what is happening and how the portfolio is generated. As such, it puts them on a sure footing when it comes to making up their mind whether to buy into the portfolio. This has to be a good thing both in the present and the future.
Speed of certainty
There has been a lot of noise made about instant offers and automatic underwriting and brokers will have made up their mind over those systems already in the market. Speed is obviously a factor, but it is essential the decisions given are final, that no further information is required thereafter, that brokers retain control of the sales process, that decisions are consistent, and that investors buy into the model being used. Speed of certainty is the goal.
Not all lenders have cracked each and every one of these nuts and until they do, their systems will create frustration and potential problems.
Over the last three years things have developed incredibly quickly in this area. Over the next three the fine-tuning will be completed and put non-conforming lenders in a better position than they have ever been to underwrite business, quickly and consistently.
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