Giving responsible advice to applicants, underpinned by the thorough knowledge that mortgage qualifications will help to ensure, is a vital first step in the mortgage introducing process, but it is not an end in itself. The real aim of mortgage advisers is to secure the best, most appropriate loans for their clients as quickly as they can with minimum trouble.
To accomplish this, the successful mortgage adviser needs to use the knowledge gained from studying for the exams ‘ keeping, of course, within the regulatory parameters ‘ to screen applicants carefully and ensure that every application is submitted with the best possible chance of success.
For mainstream applicants with well-documented earnings and exemplary credit histories, this process is relatively simple. The adviser needs to ensure all the boxes on the form are completed and the necessary cheques and documentation are included. After that, the credit scoring process swings into action and either accepts or declines the applicant.
Every lender that uses credit scoring has built up a unique profile of the sort of applicant it is willing to lend to, on its own individually tailored system. This performs the initial filtering process. Although the criteria used for credit scoring may sometimes seem bizarre or irrelevant, they make good business sense to the lenders operating them and are generally accepted by applicants.
For those applicants that fall outside the mainstream, the process of accepting or declining an application on credit grounds is, in the majority of cases, entirely different, with each application being scrutinised by an underwriter. It is in this virtually 100% underwritten sector of the market that mortgage intermediaries can use their knowledge and experience to the greatest effect, by taking the applicant through the underwriting process to make sure the lender gets enough information to grant the loan.
The term ‘underwriting’ refers historically to a practice which originated in marine insurance. A merchant would literally write their name under the amount and details of the risk they had agreed to cover, and the term is still widely used throughout the insurance world.
Taking a risk
In mortgage lending, underwriting retains the original sense of assessing and approving something that involves a financial risk. Mainstream lending tends to be a relatively low risk and that is why an automated credit-scoring system is sufficient to screen out unsuitable cases. On the other hand, the specialist and sub-prime sector operates in a higher risk environment so lenders must have the ability to examine each application on an individual basis and decide whether they are prepared to ‘take the risk’ of lending to each applicant. This is where the introducer/packager plays the crucial role of gathering together all the information that the lender’s underwriter will need to assess the case.
Having said that each case is individual, it must be stressed that the process of underwriting specialist and sub-prime mortgages is not something shrouded in mystery.
Every lender’s portfolio of products is carefully put together and reflects that lender’s own lending ‘personality.’ For example, lenders confident about their underwriting skills in the self-certification field will be much happier about offering this option than those who do not have experience in this sector. Similarly, lenders with experience in lending to borrowers with credit problems will have the confidence to create mortgage products to suit this market. Thus, each product is carefully constructed to reflect the risks the lender is prepared to underwrite, and will specify the proof the lender needs to receive with the application.
So, mortgage advisers working with applicants who do not fit mainstream criteria need to become experts in giving the lenders everything they ask for, if they want to increase their chances of getting the loan accepted. But it must be stressed this is quite a simple thing to do, and it all boils down to three common sense rules.
First, read the product criteria carefully. Next, supply everything that is asked for ‘ no more and no less. Finally, ensure the documentary proof you supply actually backs up the relevant part of the application.
Expanding on these points will illustrate that preparing a case for submission is not a case of crossing one’s fingers and hoping for the best, but a process of carefully and thoroughly gathering together all the elements that will show the lender the applicant falls within the defined framework of the product applied for. Once this is done, the lender will be willing to underwrite the loan and make an offer.
Getting full knowledge of the product criteria should be easy. After all, lenders are in business to issue loans, not refuse them, and so criteria will always be clearly stated on the product literature.
For example, where proof of income is required it will state how many months payslips and/or a P60 are required ‘ or whether an employer’s reference can be substituted. If self-certification of income is accepted, this is not a licence to invent a conveniently high income, as underwriters will always query any income that does not correspond with the occupation and location of the applicant. Bearing this in mind, it is good practice for advisers to get into the habit of questioning any information from applicants that seems surprising, or appears not to fit with their lifestyle.
When an applicant has an element of past credit difficulties, it is important to include a short note of the circumstances in which mortgage payments were missed or a county court judgment (CCJ) was registered. If, for example, a CCJ was registered without the applicant’s knowledge, or for a debt that was in dispute, but the necessary defence was not filed at the court in time, this will denote an applicant who represents a smaller credit risk than one who has a record of repeated inability to manage their finances. The lender’s underwriter needs to know these circumstances to gain a full picture of the applicant.
Another common error in documentation is the introducer/packager sending either too little or too much evidence. For example, if the product criteria requires landlord references for the past year, it is no good submitting a reference for the past six months and hoping the underwriter will let it slip though. Similarly, if six months’ worth of bank statements are required, there is no value in submitting 12 months’ statements in the hope of gaining leniency in another area where the application is weak.
Regarding standard back-up documentation such as credit searches and valuation reports, mortgage advisers need to assess the information sensibly rather than just tick the box on the form and hope for the best. For example, if the applicant needs a self-certification mortgage and is claiming a clear credit history, it is no use submitting a credit reference that includes adverse elements. In these circumstances, the adviser who is doing the job properly needs to steer the applicant towards a product that is more in line with their credit profile. Likewise, it is pointless including a valuation report showing the property is not worth enough to comply with the LTV being applied for.
In the non-conforming and sub-prime mortgage market, applicants are often in a hurry to get an answer from the lender. They may have already been declined a loan from a high street lender, putting their buying/selling chain in jeopardy. If remortgaging to raise capital for a specific purpose, this need has also often reached a crucial stage as the applicant may have already waited several weeks to be declined by a mainstream lender.
It is, therefore, essential that mortgage advisers working in the sub-prime sector acknowledge their own role in giving applicants the level of service they need, and for them to become experts in providing the lender with everything it needs to deal with the application quickly and effectively.
An understanding of the lender’s requirements will increase the chances of a successful application.
In specialist lending, each application will be assessed individually.
Underwriters must be supplied with the relevant information to assess non-standard cases effectively.