Following Mortgage Introducer’s launch of its ‘Get The Facts Straight’ campaign and Clive Briault’s comments at the CML Annual Conference, Mehrdad Yousefi outlines how crucial workable KFIs are to the whole mortgage sales process
Key Facts Illustration (KFI) documents are at the heart of the regulated mortgage process. They undoubtedly act as the catalyst to the standardised mortgage process from the moment a KFI is issued pre-application stage, right up to the completion of a regulated mortgage contract.
A number of prominent industry figures have openly questioned whether mortgage regulation was worth all the effort that we all put in over the last two years and the hundreds of millions of pounds we have spent in developing adequate processes, incorporating KFIs within the mortgage process.
I think that we need to wait at least six months to draw any lasting conclusions but KFIs are certainly the definitive sign that we are all operating in a regulated market. What also seems to be clear is that the standardisation of KFIs documents is absolutely central to providing clarity to mortgage intermediaries and consumers alike.
Continuing issues
The continuing issues with KFIs revolve around the following: KFIs are arguably not achieving what the FSA actually intended. While KFIs may not be perfect for the first time the mortgage industry has a document which enables every consumer and intermediary to compare like with like. The challenge now is to look to the future and to use regulation as a positive marketing tool. This is an excellent opportunity for intermediaries to explain what authorisation means to consumers and point out that their role is to work on behalf of the consumer to find what the very best product is for their needs
Standardised KFIs
As far as KFIs are concerned, while at the Alliance & Leicester we are proud to have a fully-compliant KFI at around six pages which is deemed transparent and has been well received by our intermediary customers, I believe the industry should call for standardised KFIs.
The KFI, in essence, is meant to be a useful document to ensure that different mortgages can be easily comparable to one another. Not only will this make the mortgage process and decision easier for the consumer, it will enable lenders to keep to a stricter criteria as to what details should be included. KFIs that look vastly different from one lender to another, both in layout and content, will not help the consumer compare products in order to make that all important decision.
Why would a consumer trawl through pages and pages of KFIs? If the consumer is particularly savvy and is trying to compare lenders and mortgages with each other, they will find that they will have an arduous job. So, it can be argued, that in an effort to be clear and concise, the non-standardisation of KFIs has actually led to more confusion. All lenders should stick to a prescribed formula from the FSA.
If a KFI is more than 10 pages long, surely this defeats the point of a ‘Key Facts’ document. At Alliance & Leicester, our key facts documents are usually only six pages long, about the length that the FSA first expected all KFIs to be. Even so, the industry would still appreciate some guidance from the FSA on what should be included in the KFI, what shouldn’t and how lenders on the whole can make it simpler for the consumer if need be. We are committed to this and the industry should welcome this initiative with open arms.
KFI review
Given that the Financial Service Authority has spent so much time consulting the industry on all aspects of regulation, I fully welcome their recent decision to conduct a review of KFIs. The standardisation of KFI documents is absolutely central to providing clarity to mortgage intermediaries and consumers alike.
I do feel that lenders need to appreciate that KFIs are confusing and too long in some respects. After all, if Alliance & Leicester or another lender can issue a KFI which is no more than five or six pages, why are there other lenders that issue KFIs on the same type of product which is 12 or 13 pages long? One also needs to appreciate that the FSA has a number of strategic aims which are as follows:
To facilitate consumers to be better able to make informed choices and achieve fair deals.
To assist regulated firms to understand and meet their regulated obligations.
To enable consumers to have confidence that financial markets are efficient, orderly and clean of any wrong doing.
To provide an appropriate, proportionate and effective regulated regime in which consumers, firms and other FSA stake holders have confidence.
No one could argue with these objectives as they promote better understanding, confidence as well as protection for consumers. I have no doubt that the KFI review by the FSA will provide greater clarity to all stakeholders in the mortgage market especially lenders once we reflect on its conclusions.
Mehrdad Yousefi is head of intermediary mortgages at Alliance & Leicester
