Credit risk and income verification for lenders during the pandemic

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There’s nothing quite like an unprecedented global pandemic to expose the weakest links in your operation.

The move towards digital systems has been a trend for more than decade.

During this time we’ve seen lenders invest vast sums creating slick online gateways to the mortgage journey for borrowers and brokers.

Travel just a few steps down that path, however, and the use of technology all but vanishes giving way to a reliance on manpower to carry out manual checks and data entry. Despite the inefficiencies and errors that arise from manually cross-checking data against documents, people are considered the failsafe option.

But when rules were relaxed a few months into the pandemic, allowing the housing market to reopen, whole workforces remained at home while borrowers returned to the housing market with a ferocity no one had anticipated.

Disruption to lending during the early stages of the pandemic

Flooded with business from borrowers desperate to move house, some lenders pulled up the shutters. Reduced numbers of underwriters worked weekends to clear the backlog of cases waiting on payslips and accounts to be verified.

For the first time, manual income verification had become a threat to business continuity and the risks of not having a remote, resilient, and automated mortgage process were elevated to board level.

The disruption highlighted a clear need for lenders to make a wholesale shift away from using dozens of people, hundreds even, to carry out basic fact-checking functions.   

Switching to automated income and verification solutions seems the obvious choice.

The need for faster lending decisions

Aside from mitigating the risks of business disruption should future lockdown situations arise – automation offers customers faster and more reliable decisions while saving lenders time and money.

Time is certainly a precious commodity when mortgage lending is booming.

UK Finance has forecast that gross mortgage lending will peak at £316bn in 2021, up more than 30% on 2020 while transaction numbers have gone through the roof.

Predictions that 1.5 million housing transactions will take place by the end of year puts 2021 ahead of any year since before the global financial crisis.

Although a moderate dip in lending is expected in 2022 to £281bn, by 2023 lending is tipped to rise once more to £313bn. With demand for borrowing so high, mortgage lenders need to bring their A game to each application.

Competing on rate to win a healthy share of business is almost impossible. Mainstream mortgage deals are so closely priced there’s little room to gain an advantage.

But competing on service, speed of decision and accuracy, that’s where the real opportunity lies.

Enabling fully digital journeys for mortgage lenders and consumers

Imagine being able to offer a fully digital mortgage journey that has built in income and verification scanning solutions trained to read almost every payslip in the UK. A system that can accurately pick out information from documents such as SA302s and P60s and one that can learn to read unfamilar paperwork.

Credit Risk Hub, our income and verification solution, is certainly one way to gain that competitive edge.

Faster decision making and a consistently accurate assessment of income evidence will also increase lenders’ capacity to lend and reduce the number of cases that fall through when an underwriter discovers that earnings declared are outside lending policy.

Faster income verification for lenders

Instead of waiting between one and five days for income to be verified after an application has been submitted, borrowers could receive a decision minutes after uploading their payslips to a lender’s website even before they’ve left the broker’s office.

Now that’s service. It’s a big win for intermediaries too who are searching for a lender to deliver a quick and reliable decision for their client in today’s competitive housing market.

And after more than 18 months shopping, banking and socialising virtually, borrowers have got used to a receiving a slick digital service so they’ll expect it when they’re buying a house too.

Income verification and the wider housing market

Although next year’s housing market is expected to be less frantic, forecasts are that it will be no less competitive. Buyer demand is widely expected to outweigh supply keeping house prices high.

Even after the stamp duty holiday ended on 30 September, our House Price Index Report showed that buyer demand was still running 19% above the five-year average while the stock of homes for sale was 41% below the long-run average.

In a seller’s market, being able to offer a fully digital mortgage journey that can deliver a yes or no decision to borrowers in a faster time means they are less at risk of losing out to another buyer because their mortgage application faltered.

Automating mortgage checks and controls

But automating income verification isn’t just a big plus for borrowers, it’s a win for lenders’ internal operations too.

As well as cutting your human resources bill by replacing fact checkers with technology, there is an opportunity to automate straightforward applications and free up your experienced staff to focus their underwriting expertise on complex cases.

With powerful built-in control mechanisms automation can also prove that each application adheres to MCOB rules on income verification and fraud prevention delivering a huge conduct risk benefit.

Manual income verification has been exposed as the weak link in an otherwise digital journey, it’s time technology took over to fortify that gap.

Samantha Partington 24 February 2022
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