Candor Technology’s Ed Kourany: The Advantages of Mortgage Underwriting Automation

One tool that has grown in importance and use in recent years is underwriting software. Candor Technology, Inc. is a leading provider of mortgage underwriting software solutions for the mortgage industry. MBA NewsLink recently sat down with Ed Kourany, Chief Business Officer at Candor, to discuss how this technology can help lenders today and into the future.

MBA NewsLink: Can you discuss how recent advances in mortgage underwriting technology have improved the efficiency of the underwriting process?

Ed Kourany: One huge benefit is that it increases productivity. Mortgage underwriting technology emulates how an underwriter thinks, and one of its greatest advantages is that it allows underwriters to underwrite more files a day. Without advanced technology, underwriters might underwrite 2.5 to 3 files per day. Automation tools help them nearly triple their usual productivity, allowing them to underwrite an average of eight files a day.

It also reduces errors and risk. Throughout the loan process, an underwriter typically “touches” a loan file more than five times. The more times a file is touched, the greater chance for a potential misstep. By utilizing technology, we’ve seen the number of times an underwriter needs to review a file decrease to around two times or even just once, greatly minimizing possible risk.

Finally, it makes for a better overall consumer experience. Underwriting technology allows lenders to communicate exactly what is needed from a particular borrower instead of pulling from a generic laundry list. In the ‘old days,’ it might have taken 3-4 weeks to preapprove someone after poring over the borrower checklist and dealing with arduous property search tasks. Now, because of the speed that artificial intelligence (AI) can process credit risk assessments, lenders can conceivably approve borrowers in minutes. AI tech takes these time-consuming tasks off lenders’ plates and gives underwriters exactly what they need to do their jobs. Unfortunately, there are still lenders underwriting loans the archaic way. And they’re quickly finding out that today’s consumers hate being asked for information or documentation that isn’t needed, or worse, being asked again for information that they already provided.

MBA NewsLink: What challenges do mortgage underwriters face in adopting these new technologies, and how are these challenges being addressed?

Ed Kourany: One trend that we’ve seen is the question of trust in technology. Underwriters are very risk-averse and detail-oriented. They want to be confident that said technology is accurate and error-free, especially if they are going to put their name on a file. When underwriters first begin using underwriting technology, we often see a pattern of file double-checking and re-underwriting. They are less concerned about personal financial benefit than they are about uncovering potential risk.

In that vein, underwriting technology has undoubtedly given rise to a change management question. Underwriters should know that the tech is not meant to replace them – tech is meant to enhance their toolkits. Instead of time spent on repetitive ‘busy work,’ technology allows them to work on more demanding tasks that require their unique expertise. Not only does this make them more truly productive, but it can also potentially lead to an increase in income, as most underwriters are generally paid a per-file commission.

MBA NewsLink: In what ways is technology assisting lenders in getting loans purchased faster by investors?

Ed Kourany: From what I’ve seen, most investors have yet to completely leverage these technologies to their benefit. Investors are re-underwriting many loans, which is an expensive – and often unnecessary – endeavor. In theory, files should only need underwriting once, with written proof that the file was underwritten properly to begin with. A good, automated underwriting system can provide that. Re-reviewing files, while it may bring more peace of mind, costs extra time and money and rarely provides different results.

There are only a few steps in the entire mortgage process where a file may need additional underwriting. With an automated underwriting system, a typical file would be underwritten once, with an attached certificate listing the specific details and bonafides. When it comes to your average loan, you probably wouldn’t need to underwrite again, unless there was an issue with the file down the road. It costs thousands of dollars to produce a typical loan and using automated underwriting systems can result in a huge savings in both money and time spent.

Now, if a lender is making use of non-delegated underwriting, they are essentially paying the loan investor to underwrite it, and that can be expensive. Other lenders go a slightly cheaper route by paying their own underwriters to underwrite the loan, but then must pay a funding fee to their investor(s), which includes an underwriting fee. They’re basically paying twice to have each file underwritten and that adds up fast. Automated underwriting technology can sidestep that whole part of the process.

MBA NewsLink: How can technology help lenders reduce the risk of repurchase demands due to underwriting errors?

Ed Kourany: The ultimate driver behind all this cutting-edge technology is risk reduction. Good, automated underwriting systems must follow a best-in-class approach on how they provide security against repurchase. For example, Candor has performed 2.7 million underwrites on over 500,000 funded loans and has experienced zero repurchases. Underwriting guidelines are hundreds of pages long. You are asking a person to memorize everything and never have a bad day, never be less than perfect. Automated underwriting technology doesn’t have bad days. It’s thorough, consistent, and always remembers it all.

The industry average when it comes to risk exposure is 10 basis points on repurchases. The average cost of a repurchase is significant, as there is cost to repurchase a loan and further cost to defend it. Most organizations have just built this expense into their models, but it doesn’t have to be that way. With automated underwriting, this risk can be reduced to virtually nil. Utilizing a proven automated underwriting system can dramatically reduce those costs for lenders. 

MBA NewsLink: How is technology changing the landscape of mortgage pre-qualification processes?

Ed Kourany: For one thing, customers don’t have to wait for a human underwriter to be available to review. True conditions are often available to the loan team within 90 seconds of providing application data, all without human intervention. Underwriting technology can practically deliver a borrower to a loan officer that is already pre-approved. And it can also analyze an application and pinpoint everything the consumer really needs to provide for their loan, instead of demanding a generic laundry list of unnecessary items from everyone. With underwriting technology, you can get granular on what is needed for specific borrowers, based on loan program and loan type.

The advantages of automated underwriting for the entire mortgage industry are vast – greater efficiency, increased accuracy, a sharply reduced risk of bias and fraud, customizable solutions, and even repurchase defense. Lenders that resist taking advantage of this powerful technology not only run the risk of falling behind competitors, they also risk a higher possibility of crucial errors, along with a less desirable customer experience. It is time to take advantage of these proven benefits today.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)