A new shield for traditional underwriting

By David Tropp, MRICS, Orion Asset Services,

Orion Asset Services (Orion) offer a number of bespoke services to the short term bridging and second charge lending market including Asset Recovery, Repossessions and LPA Fixed Charge Receivership. In addition, we also offer a New Loans Risk Analysis service which complements lenders’ underwriting.

What is New Loans Risk Analysis? : Where a new loan is being considered - especially when the security is complex or unusual - Orion can add a considerable amount of comfort to the underwriting process. We are able to assess the valuation that is being relied upon, by checking on the validity of the methodology and providing an opinion on the accuracy of value and relevancy of comparables provided.

Orion will always inspect the subject property and will meet the borrower. Through doing this, we are able to let the lender know whether or not the borrower’s current story is the same as the one they provided on their application. Meeting the borrower also enables us to assess their competency and their ability to deliver the proposed take out.

It should be seen as an invaluable additional layer to the underwriting process. We don’t replace the formal valuation process, but rather fill the gaps that valuers don’t cover. We go beyond a basic valuation and provide a broader understanding of the deal, the borrower, the take out and the local area and market.

This additional layer should be seen as complimenting the underwriting process with an independent, dispassionate and objective appraisal of the case. Understanding how uniquely short term lenders think and what their priorities are, puts us in a position to think the way you do and foresee all the potential pitfalls and obstacles to a positive redemption of a loan.

Case Study

The following is an example of a new proposal submitted to a lender and how Orion’s New Loan Risk Analysis service added value to the underwriting process...

Our client lender was approached by a borrower wanting to borrow money on a property that she owned outright but which needed some light refurbishment. The borrower wanted the refurbishment to include a side extension. She was planning to either sell or keep and rent out the property once completed. The loan was to be for less than 50% LTV.

At a first glance, there seemed to be plenty of equity in the property and the deal was looking like a classic six month bridge. We met the borrower at the property to find that there was no quote from a builder and the figures provided to our client were her estimate of how much she thought the works would cost. Furthermore, the borrower believed the work would only cost two thirds of the amount she was requesting. It turned out that she wanted the balance of the money to complete some works to a commercial property in order to release a retention on her commercial mortgage. She also needed some of the money to pay off debts and another portion to apply for planning permission to extend the property contemporaneously with starting work to the rest of the property. None of this information was provided at the time of the application.

On visiting the site, it was clear that the property was in a much worse state than the borrower appreciated and would require quite an extensive refurbishment programme. On meeting her, it was also evident that she had no previous experience in the property industry and the proposed term of the loan was totally insufficient to enable the work to be completed. She was not even clear if she wanted to create two self contained units or keep as one house. 

Our recommendations following our own investigations were to lend the required amount to pay off the immediate debts and complete the works to the commercial property in order to release the retention. The lender was adequately secured against the asset and we recommended that no works were to start to the subject property during the loan. This way, the loan was not predicated on a completed refurbishment and subsequent sale or refinance, which she would never have been able to successfully deliver.

Adopting this approach, the borrower would then be in a position to solve her immediate problems and be left with enough money to submit a planning application and afford to employ the necessary professionals to assist in the tendering process. 

In this example, Orion were able to assist the lender in bringing a wider perspective of the loan and the borrower. We were there to guide the lender and to support their commitment to responsible lending.