Strengths, weaknesses and moving forward with consistent lending practices in a digital age – these were the topics of discussion from Dave Schaefer, CEO of Orion First Financial during the AltLend conference in NYC.
Inconsistency in completely manual underwriting is a real issue, which can potentially jeopardize either party involved. To curb this, Schaefer advocated an automated underwriting system to create consistency when assessing risk and other factors – as long as there’s still a human at the helm. “I like eyes on a deal,” he said, and continued, “We’ve got guarantors that have nothing to do with the business,” as he cited an example of an applicant with poor credit, whose 80 year old father, with great credit, portrayed himself as a young construction worker. “I’m still a big believer in the review and subjectivity.”
It may sound convoluted and impartial, but the context is quite clear. Like most speakers at AltLend, Schaefer is in favor of using an automated system to reduce risk, as utilizing a system to objectively “weed out” the bad deals, would allow a human underwriter more concise parameters to review each request and make the most accurate determinations possible.
While there are some companies who rely heavily on applicant filtering with automated technologies, there will always be people involved. Finding the optimal balance between the two is driving the crusade in search for an automated system’s “perfect tune” – the proverbial holy grail.
The other side of the scenario? People often make mistakes, whether intentional or unintentional. Schaefer has seen first hand the favoritism of biased lending as he experimented a few years back, when he submitted the same loan application to 6 underwriters. He received 3 approvals and 3 denials, which made it clear that reliance on subjectivity had to be balanced with objective policies, procedures and protocols – perfect for a machine.
While the concepts may be simple, the technicalities, technology, systems, policies, procedures and other unforeseen obstacles make an undertaking such as this a noteworthy challenge.
A recent article published in DeBanked covers more on this topic, other guest speakers and related topics from this year’s AltLend conference: