Peter Stimson, Managing Director of Landmark Quest, features in the March edition of industry publication, Mortgage Finance Gazette, discussing the topic of the importance of understanding environmental risks in making mortgage lending decisions.
Peter suggests that the use of environmental
data in the mortgage application process can be used in one of two definitive
ways to help lenders understand any potential risks: as a means of providing
some certainty to other checks lenders conduct, such as Automated Valuation
Models, in addition to providing surveyors with additional support and
direction in the valuation process:
"Those of you who have worked in the mortgage market like me, for a number of years, will have noticed how much things have changed over the last 20 years. Mortgages have gone from a local relationship with a branch where cases where manually underwritten to a large centralised administration unit, where the bulk of cases will barely be seen by an underwriter.
Whilst some may pine for the days of being able to talk through cases locally and get those ‘exception’ cases through, the stark reality is that, from a bank’s perspective, all the automation and centralisation has resulted in two clear outcomes.
Firstly, it needs less people and hence less money to process cases. Secondly, the standardisation of risk and criteria and the use of technology, in particular credit scoring, has had a dramatic output on default rates. Whilst an exception case may turn out to be an exception and perform well, they are generally never the rule.
In my view, the game changer in risk occurred in the early 1990s with the advent of credit reporting. Rather than relying on an applicant’s honesty (or otherwise) and a few paper checks, it becomes apparent (to some lenders much later than others…) that you could tell an awful lot about an applicant and particularly his propensity to repay simply by looking at his previous history.
Whilst the mortgage process has changed, one aspect however remains very much the same as it ever was: the property risk assessment. In over 95 per cent of instances there is still a reliance on a physical inspection and the same pressures on a surveyor to get it right or ultimately down the line, risk being sued.
This reliance on a surveyor does put pressure on the whole process and ultimately is often the reason why mortgage offers take as long as they do. Whilst surveyors are putting in place processes to address some of the issues that occurred in the market last year, particularly in and around London, the fact remains that a lot more could be done with the available data in the market, either to reduce surveyor pressure at peak times of demand or, to assist the surveyor in getting the job done right."
To read the full article - visit the Mortgage Finance Gazette website.