We have noticed an increasing number of articles in the trade press aimed at persuading lenders to move away from ‘tick box’ underwriting to a more personalised approach to assessing loans.
The general concern seems to focus on the issue of a number of loans being turned down for being slightly outside the lender’s usual criteria. One director of a mortgage intermediary wrote, “No-one is suggesting lenders return to the dark days of free and easy credit or start considering borrowers with poor credit histories, but many of our members would like to see a more common sense approach in cases where borrowers can justify their scenarios.” He continued, “If the lending market is to really kick into gear again, then a personalised underwriting approach is just as important as attractive headline rates and innovative products at low LTV levels.”
It is interesting to note that ‘tick box’ underwriting practices are now deemed to be holding back lending, whereas other commentators suggest that it was ‘tick box’ underwriting that was partly to blame for the explosion of reckless lending during the period from 2004 to 2007.
Anyone involved in any part of the mortgage industry will be acutely aware of the volume of lending litigation today, both in the civil and criminal courts. Clearly, courts are not comfortable in criticising business models that are widely adopted across an industry. However, in lending litigation, especially where allegations of contributory negligence are made, courts do need to assess whether the ‘tick box’ mentality contributed to an egregious lending decision in any particular case. Putting it simply, did the ‘tick box’ approach adopted by an underwriter contribute to a loss because the underwriter did not fully understand or investigate the circumstances of the applicant?
So it seems that ‘tick box’ underwriting has not served our industry well. In the last decade, too many poor cases slipped through the process and now too many good cases are being blocked. Ticking boxes and automated processes clearly play an important part in any underwriting system, can help deal with large volumes and assist in mundane but necessary tasks. However, we feel there is a balance needed – there is no substitute for the final assessment being made by a well-trained underwriter who is given time to assess all the facts.