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Putting the wheels in motion

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  • 26/02/2002
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Understanding the underwriting process can ensure more non-standard applications are accepted with minimum fuss and delay

As a mortgage intermediary your objective is to secure your client the most suitable mortgage as quickly as possible and with the minimum of fuss.

However, in the real world that does not always happen and in the non-standard mortgage market there is often a greater need to have the case approved as fast as possible because it has often already been rejected by other lenders.

However, there are steps mortgage intermediaries can take to ensure a non-standard mortgage case can go through to offer as quickly as possible.

To begin we must clarify what we mean by non-standard. For the purposes of this article we will consider:

• Buy to let.

• Self-certification.

• Other complex cases that require a flexible and personal approach to underwriting (but not sub-prime).

With mainstream mortgage cases, the underwriting risk to a lender tends to be relatively low and this is why computerised credit-scoring systems are used to screen out anything that does not fit standard criteria.

A higher risk

In the non-standard market lenders tend to operate in a slightly higher risk environment. Subsequently lenders need to be able to examine each case on its own merits to determine the actual risk. This is where the intermediary plays an important role in providing all the necessary information, so that a positive outcome can be achieved.

However, each of the product areas described is quite different from the other and the information a lender will require will therefore vary. For example, the details you would need to supply for a case where your client wishes to remortgage an existing portfolio of 54 properties in order to raise capital to buy a further two properties, will be distinctly different to a self-employed client wishing to self-certify their income.

Some lenders also vary the level of information required according to the loan to value (LTV). Mortgage Express, for example, allows clients to apply for a buy-to-let mortgage on a non-status basis up to 70% LTV, but if a higher LTV is required then proof of income will be necessary.

Another example is The Mortgage Business, which allows self-employed clients to have been trading for just 12 months if there is a 20% deposit, but for higher LTV a minimum of two years’ trading is required.

For employed clients wishing to self- certify, some lenders will require that they have been with their current employer for just three months and others a year. Some lenders ask for previous lender and bank statements, others do not; there are other lenders who say such statements are not usually required, but might be.

Trying to remember all the permutations can be an onerous task for intermediaries and it is no surprise lenders can receive applications with insufficient details and supporting documentation ‘ especially if the intermediary does not use that lender very often.

With so much to remember, how can an intermediary ensure that they will get the application accepted in a short a time as possible? Here are a few tips:

• Know the lender and its lending criteria as well as possible.

• Speak to an underwriter (if possible).

• Get a decision in principle.

• Provide all the relevant background details with the application.

• Submit the application form ‘ fully completed and signed.

If you place a large proportion of business to a lender then you are more likely to be familiar with their lending criteria. Yet with so many lenders offering increasingly more competitive products and regulation on its way, it seems inevitable that you will use more lenders than you might do at present.

The application

Once you have chosen the best lender for your client, based on rate, fees and specific product criteria that may be required ‘ for example flexible payments ‘ you should ensure your client’s application meets the chosen lender’s application criteria.

Obtaining lending criteria and product details from lenders should be easy. They want to make it clear what their lending criteria is to ensure they do not receive too many applications they have to decline as ultimately it costs them money.

The lender’s product literature should clearly set out their lending terms. If you do not have a copy of this then the internet can be a great source of information. Many lenders now have web sites that are specifically tailored to the needs of the intermediary where you can obtain all the necessary details.

Some lenders allow direct access to an underwriter. This means you can discuss more complex cases with the decision-maker prior to submission. By doing this you can establish an in principle agreement and if it does not fit, the underwriter can offer ways in which the case can fit.

For example, there may be additional security to be considered, or other income sources. Sometimes you may not know the answers, which is why it can save time by knowing as much about your client as possible.

Obtaining a decision (or agreement) in principle from the lender, rather than actually submitting an application straightaway can save time in the long run. Most lenders offer such a service for intermediaries, where a form is completed setting out the main details of the case which is then returned to the lender by post, fax or email. Different lenders have different ways of structuring the process of dealing with such enquiries, but you might be routed to an underwriter or to a central sales team who can provide an answer within a specified period of time. This can range from five minutes to 24 hours.

Some lenders, such as UCB, also provide an online decision in principle on their websites. While it can take time to complete a decision in principle form, or make a telephone call, in the long run it can save you much more time.

To put this into perspective, last year we agreed a case that had previously been turned down by several other lenders (including the existing lender) because the primary income source was a pension. By the time it reached us, both the intermediary and the client were frustrated. But had decision in principles been obtained at the outset, then a considerable amount of time would have been saved.

It should be mentioned that decisions in principle are simply that ‘ they are in principle. This is because other details may come to light once the application is being processed which may not have been known before. It is important to disclose all information pertinent to the case. There is no point hiding information hoping the lender will not find out, because that does not happen. If the information is disclosed at outset it may not be a problem, but if not then the chances of an offer decrease because it places doubt in the underwriter’s mind as they become sceptical that other information may not have been disclosed. Honesty is the best policy, because if the answer is ‘no’ you need to know today.

Quite often the more information you provide the better, as it helps complete the whole picture.This helps the underwriter make a balanced decision on the case, rather than one that has to be withdrawn at a later stage.

If the client is remortgaging for debt consolidation purposes, then it will be useful to list all those debts to be consolidated. If possible, illustrate that these debts have been serviced satisfactorily over a period of time, as this will help reassure the underwriter.

When it comes to submitting the application form, it is important to provide all the documents the lender asks for. If your client is remortgaging a portfolio of 54 buy-to-let properties, if the lender asks for tenancy agreements on all these properties it is no good sending in documents for only 47 of these hoping they will suffice. In some circumstances a copy of the previous valuation report might be useful to give the underwriter an idea how much the property has increased in value.

If your client is self certifying their income it does not mean an artificially high income can be stated in order to obtain a higher mortgage. Not only may the client be unable to afford the loan, but underwriters undertake appropriateness checks and will question certified income levels that do not correspond to either occupation type or location. Any such query from an underwriter can delay the application.

The signature

Finally, it is important to ensure the application is properly signed. While this is a strikingly obvious statement, it has been known for applications to be received on this basis.

It is essential mortgage intermediaries appreciate the importance of your role within the non-standard market. Coupling knowledge of a product with your client’s circumstances comes power, which will enable you to work with lenders to ensure they achieve their goal ‘ of securing a mortgage for your client, both quickly and with minimum fuss.

Jeff Knight is residen- tial mortgage marketing manager at Sun Bank

sales points

Contacting the underwriter to obtain a decision in principle can prevent wasted applications.

All the necessary information should be provided up front ‘ any non-disclosures will emerge in the underwriting process.

Always check the application form is signed ‘ it may sound obvious, but it is often forgotten.

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