Electronic lodgement

With many lenders anxious to embrace the cost and efficiency advantages of electronic loan submissions, we look at which lenders are furthest along in the rush towards a paperless environment, as well as the advantages of the new technology for brokers.

Paper it seems is the new enemy of efficiency, and lenders are joining the rush to rid their offices of the stuff. The craze has engulfed major banks and non-conforming lenders alike, with all and sundry keen to get the edge on their competitors with the help of the latest innovations in e-commerce.

CBA's head of third party banking Kathy Cummings for example tells AB the bank is very keen to see all its mortgage applications dealt with electronically.

"The Commonwealth Bank's medium term goal is to shift to paperless mortgage applications," she says.

"Increasing the uptake of online applications from our broker partners is a major priority for us to continue to improve on our operational efficiencies."

Currently CBA receives about 70% of all its third party loan applications online, with plans to boost this to 90% over the next 12 months, Cummings notes.

ANZ is just as keen to purge its offices of paper.

"ANZ is moving to a paperless environment as part of its broader transformation program to deliver outstanding services to customers and brokers, to differentiate us as the clear market leader in providing more convenient and simple services," the bank's head of broker distribution Glenn Haslam declares.

A long time coming

For Mark Hewitt, general manager of AFG, the shift, while welcome, is long overdue.

"I think it's been a long time coming," he says.

"I mean people have been talking about electronic lodgement for as long as I've been involved in the industry."

He says growing the number of electronic submissions is a major priority for AFG.

"It's extremely important - The number of applications that our members are submitting electronically has just tipped over 50%, and that's up from about 30% 12 months ago.

"It's something we are placing a lot of emphasis on."

According to Hewitt, the move toward electronic processing could benefit brokers in more ways that just slower turnaround times and improved service, with a new AFG pilot program aimed at selling insurance to new home buyers highlighting creative uses of the new technology.

"It's one of the many benefits of online, but it's probably an additional one that is new to the market," Hewitt explains.

"Our members through being able to submit their applications online, can not only take advantage of the CRM database... they will be able to use that information proactively."

Brokers who opt into the pilot program will see their new loan clients contacted by an Allianz representative aiming to sell home insurance, providing a new income stream for the broker.

The new system also prompts brokers about important dates in the loans' life such as the end of honeymoon periods.

"It will be able to help them market new products to clients, be able to help remind them when loans are coming due, or fixed rate terms are maturing or honeymoon periods are coming up," Hewitt says.

Truly paperless?

For Cummings and Haslam, electronic processing is undoubtedly the way forward for the sector.

"Globally lenders are seeking to improve their efficiency and service levels," Haslam notes.

"A paperless environment and electronic lending are key to increasing automation."

Cummings concurs observing that the CBA is able to deal with brokers more efficiently online, and as a result actively encourages electronic submissions.

According to Hewitt, CBA is a 'notable exception' in terms of the priority it gives to electronic submissions. He says he would like to see lenders doing much more to encourage brokers to embrace the new technologies.

"We are still really looking forward to the day the banks all pile the fax machines up in the corner and burn them all," he says, adding that while he couldn't see it happening in the next 12 months, AFG would be very keen to see lenders move to embrace 100% electronic submissions.

"We've made a very big investment in our technology and in our CRM - electronic lodgement is key to that."

"We'd love to see the banks, if not outlawing paper applications, certainly moving to -from a service point of view - where it is clearly advantageous for a member to submit online."

"At the moment that's a grey area. We still get feedback from a lot of members that our lending partners treat the applications in similar manners."

"We'd like to see our members and brokers see the tangible benefits of dealing with banks by submitting online."

Asked how lenders could encourage the shift to paperless submissions, Hewitt points to an 'extremely successful' trial with Suncorp where the lender paid AFG a 0.05% commission bonus which was passed onto members for deals that were submitted electronically.

A change is coming

However, according to LIXI CEO Socrates Vasiliadis even without incentives the shift toward electronic mortgage submissions is well underway.

"When we did a survey back in 2006 we had a lot of vendors who were up to the 70% to 80% of electronic submissions and a whole lot of them predicted by 2008 it would be up to 100% of electronic submissions," he told AB.

He says from what he's heard brokers are keen to adapt to the new environment.

"[Brokers] are embracing the technology. It is so much easier now to collect information, submit it, receive a reply and offer good customer service."

LIXI, which stands for the Lending Industry XML Initiative has been at the forefront of the shift toward electronic data exchange.

A not-for-profit organization made up of banks, non-bank lenders, brokers, and insurers LIXI was formed with the goal of standardizing the home loan application process to allow online applications and improve efficiency.

"LIXI develops standards... and the standards are for transactions between two different parties," Vasiliadis explains.

"The platforms use the LIXI standards every time there is an exchange of information between the various parties that are involved in the transaction."

UK example

In the United Kingdom, the march toward paperless mortgage applications is far more advanced than in Australia.

According to David Holmes, chief operating officer for Pepper Homeloans which has a UK-based sister company Edeus, the trend there is firmly biased toward technological innovation.

"The UK market has really moved towards technology and any changes in the marketplace have moved away from product development to being technology-based," he says.

"The move has really been toward making it as easy and as friendly for brokers to lodge applications with the lenders as humanly possible."

According to Holmes, the UK's positive credit reporting has enabled brokers to move very quickly from gathering information about a client to offering them a mortgage.

"The advantage the UK has over Australia is that they have positive credit reporting which basically means that on my credit report for example it would have 18 months of my mortgage history, credit card history, any personal loans I might have".

The big difference between the positive reporting model in the UK and the 'negative' one in Australia is that negative consumer credit reporting provides lenders with limited data about a potential borrower's credit obligations such as the borrower's total number of payment defaults and any court judgements or bankruptcies against them.

A more comprehensive consumer credit reporting model provides information such as the number and types of credit accounts a borrower holds; the limit of each credit account a borrower holds; and the age of each credit account a borrower holds. Currently Australia's privacy laws stand in the way of a more 'positive' model.

Under the UK model, as Holmes explains, when a lender runs the result of the credit report through their business model they can give a binding decision on the mortgage.

"They can tell me exactly how much they will lend me and exactly what they will do. And that is an advantage that you can move forward very, very quickly to actually sending out an unconditional offer."

Pepper, which is hoping to launch its new electronic system in the next six weeks, has taken what it can from these UK systems, Holmes says.

"We've taken the best we can from our UK sister model and we are going to use that in Australia, but there are some constraints," he said, noting that unlike Edeus, Pepper's system could only go to a conditional offer, rather than a binding one.

However, despite some limitations, the new system will clearly advantage brokers, Holmes said.

"The beauty of it... is a broker can order an evaluation online instantly which is the next step, so if there is an application fee they can get the fee off the borrower... they can press a button and the evaluation is ordered so that takes the client off the market..."

Pepper receives about 25% of its mortgage applications electronically, with Holmes noting he hopes to see that figure hit at least 75% in the six months following the launch of the new system.

"These models deliver consistency... and brokers have demanded that, they have demanded easier access to lenders and speedier turn around," he said.

However, it isn't just brokers but lenders too who benefit from abandoning paper applications.

"The benefits to us (as lenders) is the consistent decisions we are making...[and] the ability to upscale," Holmes says.

"We can now do multiple small loan applications because I haven't got to have underwriters looking at every single one of them. They will only look at the exceptions where it doesn't meet the criteria."