As a result, the need for manual underwriting has never been more relevant than it is today.
The Covid-19 pandemic and the associated restrictions and economic impacts have created credit issues for some customers.
This can mean that a loan application may fail if a credit score system is used during the review process.
Some lenders offer what they call manual underwriting, where a mortgage application is underwritten without the use of a credit score system.
However, while they may say that they will manually underwrite a case, they still refer to a checklist, in essence a credit score process, that will guide them as to whether or not to approve a loan.
Underwriting discretion
Manual underwriting should mean precisely that.
Each application being reviewed by an underwriter who has the discretion to authorise a loan without referring to a credit committee, subject to maximum lending and loan-to-value (LTV) limits.
The underwriter will carry out a credit search but will not use a credit score to determine loan eligibility.
This means that there will be no automatic computer decision to deny an application due to an applicant’s low credit score.
Instead, the underwriter retains the ability to identify mitigating factors and positive aspects of an individual’s circumstances which might affect the overall risk and permit a loan application to go forward.
Life happens
Affordability rather than a simple credit score is the key metric that Buckinghamshire Building Society uses when it comes to manual underwriting.
An underwriter will use bank statements to compare and determine expenditure.
Ultimately, it is the underwriter who will use their experience and personal understanding of a customer’s situation to make a decision on a loan request.
In this way, a loan request is reviewed by an underwriter who understands that sometimes life happens, and having weighed up all the factors, can make a judgement call rather than leave the outcome to an impersonal computer program or affordability calculator.
