It is a seemingly age-old scenario, and one familiar to everyone in the industry: a client wants a mortgage and the race is on to obtain a decision in principle, once an appropriate product has been selected. Using sourcing tools, brokers match their client to the published lender criteria to get a swift DIP that ensures the client does not go elsewhere, or their lead goes cold.

In essence, this results in a rushed and far-from-ideal process.

The client may have been less than totally transparent about their circumstances at the outset; so, when the paperwork is finally in, and the manual underwriters get to work on the application, the product may not fit after all.

Another product has to be found and the process starts again and, if that replacement product also does not work, the whole effort proves to be a waste of the broker’s (and lender’s) time.

The nature of decisions made in this way means that, by necessity, they are pretty generic, de-personalised and non-binding.  They give the borrower only the illusion of a proper decision.

Fax machines

A decade ago, this was the way it was because technology would support nothing else. We were living in a world of fax machines and emails. However, we now live in an environment where there is widespread availability of real-time data on most things you care to mention, and we all know we have instant access to real-time bank transaction data via Open Banking. This should have made the time-consuming process I have outlined above obsolete.

But it hasn’t. Among too many lenders the familiar and outdated process is still there in the background; a legacy system that will just not go away.

Admittedly, there have been some lenders that have moved forward on this – Skipton announced it was using Open Banking earlier in the year – but not many.

The problem with this slow level of take-up is that it is leaving the industry ill prepared to deal with the increasing flow of traffic coming from the internet portals used by brokers and consumers. Realistically, lenders can participate on these sites only if they can give instant and accurate decisions. The model does not work well if the decisions are slow to arrive and initially only estimates.

Apart from the question of accuracy, there is the matter of application turnaround times. How can a lender hope to handle the volume of enquiries that can flow from such portals if it is reliant on old technology?

Automated underwriting

Compare this to automated underwriting platforms such as ADP that can comfortably handle tens of thousands of applications from such portals in a short timeframe. Real-time and comprehensive assessments of all areas of a prospect’s finances can be tapped so that a personalised and accurate decision is provided –instantly. Every decision will be in line with credit policy (even a proprietary scorecard), there will be no manual mistakes, and indications of fraud will be better detected by the technology.

Instead of having to plough through a pipeline of variable-quality leads, lenders can dip into the applicant stream and, in milliseconds, pull out only those likely to meet their scorecard criteria.

The potential for automated technology to make millions of quick  decisions means that sampling the ‘waterfall’ of applications and making initial screening decisions are both possible and practically cost free. Lenders can make a rapid, automated ‘No’ decision much earlier in the process based on in-depth transaction data.

In addition, this approach dramatically reduces the ‘refer’ scenarios. Instead, the applicant has an accurate and instant ‘Yes’ or ‘No’ decision.

No one can afford to allow prospects to drop out of a process, given the amount of time and money spent to attract them in the first place. Lenders need to appreciate that, if they are to truly thrive in the very competitive and changing lending environment that we now have, they will have to move faster and more decisively in this area.

David Wylie is director of LendingMetrics