By Joseph Wong

When it comes to securing real estate loans, much has been said about maximising a borrower’s chances of success. On one hand, success depends heavily on the borrower’s willingness to provide the necessary information and documentation. On the other hand, the underwriter's ability to compile all relevant documents and make a solid recommendation for loan approval plays a crucial role.

The cumulative mortgage loan applications for the first nine months of 2023 totaled RM337bil, marking a 3.2% year-on-year decline but remaining above pre-pandemic levels. While mortgage loan applications grew by 1.3% quarter-on-quarter in Q3 2023, driven by strong numbers in July and August, they dropped by 11.4% month-on-month in September and remained nearly flat year-on-year with a 0.1% decrease.

While many banks insist on standardised procedures, there is an undeniable skill involved in underwriting property loans. After all, why do some borrowers find their applications rejected by one branch of a bank, yet accepted by another branch of the same institution? This discrepancy points to the nuanced art of loan underwriting, which goes beyond merely following standard procedures.

A mortgage underwriter is tasked with applying the bank’s credit criteria to determine whether a mortgage loan should be approved and granted to the borrower. But while it is tempting to attribute loan rejection or approval to the underwriter's skill, the reality is more complex.

“An underwriter should ideally be balanced, considering both risk and reward. The loan approval process generally follows two tracks,” said a seasoned underwriter. Track 1 involves assessing the borrower's creditworthiness, including document vetting, credit scoring, debt service ratio (DSR) checks, and other verifications. Track 2 focuses on the property itself, covering valuation, location analysis, property type and title search.

Experience is key

Although underwriting typically happens behind the scenes, it is a vital aspect of loan approvals. Experience matters. In a case where a potential borrower's loan application was initially rejected despite having all the necessary documents and sufficient finances, reorganising the documentation and resubmitting it to a different branch with a more experienced mortgage 

This experience highlights the importance of an underwriter's skill in the approval process. A seasoned underwriter can recognise potential issues with an application and take proactive steps to address them, improving the chances of approval. However, not all rejections are due to underwriter inexperience. Other factors, such as the borrower's reluctance to provide additional documents, can also play a role.

The difference in approval decisions often stems from varying credit policies and risk appetites between banks. For instance, one bank may be more conservative and reject investors with multiple properties, while another may favour such investors if they meet specific criteria, such as having priority banking status.

Underwriters operate within a set of guidelines for loan approval, often referred to as the standard operating procedure. If a borrower meets these guidelines, the loan is likely to be approved. However, in cases where there are grey areas, a more experienced underwriter is better equipped to navigate these complexities and secure approval.

Despite the increasing automation in mortgage processing, experience remains a critical factor. Banks should address structural issues, such as underwriter Key Performance Indicators (KPIs) and key result areas. For most banks, underwriters are evaluated based on Net Credit Loss or Non-Performing Loan (NPL) numbers, which could lead to a conservative approach in approving loans.

More progressive banks tend to have more balanced KPIs, incorporating profitability indicators alongside credit loss assessments. This approach encourages underwriters to balance risk and reward, rather than adopting an overly cautious stance.

However, it is important that underwriters have a well-rounded perspective. “The most skilled underwriters I know tend to have business, product, or frontline experience. This experience allows them to see both sides of the coin and make more informed decisions,” said the underwriter. These underwriters can identify cases with high revenue potential that justify the associated risks.

Ultimately, the art of underwriting property loans lies in the ability to balance the bank's risk with the borrower's potential. Experienced underwriters, who understand both the technical and practical aspects of loan processing, are better equipped to make these critical decisions. Their skill in navigating the complexities of each application can make the difference between approval and rejection, ensuring that deserving borrowers secure the financing they need.

Maximising chances

Securing a property loan requires more than just submitting an application. According to experts, borrowers should first understand their credit standing and research banks with approval criteria that match their profile. Submitting the right documents, rather than overwhelming the bank with unnecessary information, can also improve approval chances.

Borrowers are also advised to manage their finances carefully, avoiding high gearing and unnecessary debt. By maintaining a progressive income and excelling in their careers, borrowers can position themselves more favourably in the eyes of lenders. Instead of gaming the system, the focus should be on sustainable financial growth and responsible borrowing.

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