Automated Underwriting: Tower of Techno-Babel? (1995)

The Book of Genesis tells the story of the ancient race of men, which, aspiring, built the Tower of Babel so as to reach Heaven. The Almighty, the Bible says, punished this presumption by confounding men's language, they may not understand one another's speech. Talk to enough folks in the mortgage-banking world and the aftermath of the building of that fateful tower frequently comes to mind. The quest to automate the most essential facet of mortgage lending--underwriting--has produced differing products with differing agendas that share no common language. The good news is that this Babelish situation is already showing some signs of changing, while automated underwriting techniques continue to improve. But that's getting ahead of our story. Customers expect quick turnaround Among mortgage lenders of all stripes, there's a tremendous focus today on automation on the end, says James Jones, president, First Wellesley Consulting Group, Inc., Wellesley, Mass. In addition to automated underwriting, Jones says, the front includes such considerations as origination systems, including those that can work well with laptop computers taken into the field; value-added computer networks; and electronic data interchange standards. (All of these be treated with in the course of ABA BJ's series.) Among the reasons why automated underwriting captures lenders' attention, are the need to increase writing's speed, reduce its costs and human involvement, and improve its consistency--an especially important factor in an age when lenders are still accused of bringing personal biases to the loan decision. Lenders who don't get on will get locked predicts consultant Jones, the standard--how quickly a lender can get to a closing--will change. Mortgage lending is catching up to technology, rather than leading it. We look at automated underwriting as key to the reengineering process, says Daniel Scheuble, executive vice-president, technology and production operations, BancBoston Mortgage Corp., Jacksonville, Fla. No rejections Regarding fair-lending concerns, Scheuble notes that automated underwriting packages approve many applicants-but they don't reject anyone. Instead, he points out, the packages refer applications not immediately accepted for further analysis by a human underwriter. As a result, suggests Scheuble, parties protected by fair-lending law may obtain an even better break because of automation. By automating the straightforward lending, he says, you're now paying underwriters to focus on the more difficult decisions. This, he says, should result in better decisions than might have been made by an underwriter swamped with routine matters. While some might suggest that automated systems can only reflect the native even-handedness of those devising the packages' standards, Scheuble notes that any potential tendencies along such lines would rise to the surface and be addressed. He says his own organization's automated effort, combined with human underwriter backup and both a second- and third-review effort, gives BancBoston cause to feel the end result is eminently fair. Scheuble adds that BancBoston has run the concept past its bank regulators; they appear to be comfortable with the idea. The grow it yourself club So, where does a lender begin? With the off-the-shelf packages available to lenders, home-grown versions would be in the minority, says consultant James Jones. However, there are lenders out there who have taken this path. Most notable is Countrywide Credit Industries, Inc., the nation's largest mortgage lender. Countrywide developed a system, dubbed CLUES, for Country-wide Loan Underwriting Expert System. The package, a rules-based artificial intelligence system that evaluates data drawn from applications, credit reports, and appraisals, was implemented in early 1993. …