Straight-through processing (STP) is the generic term that describes the end-to-end automation of a trading process. In financial services STP can be viewed as a seamless and rapid process, where there is a single entry point for customer information and the entire process is completed using electronically obtainable documentation. As such the term STP sits uncomfortably within the context of UK first-charge mortgage lending since there are steps in the process where manual processes and non-electronic documents are required. True STP may well be achievable sooner rather than later and is set to become the norm very quickly.
In the UK mortgage market we are poised to move into this electronic environment and take the steps to adapt to the new technology and services available. Many intermediary lenders (including SPML) offer mortgage intermediaries the facility to enter customer information into a browser-based application. Within our own system this information can flow through to an online agreement-in-principle (AIP), which in effect matches the customer to a product; or to an online decision-in-principle (DIP) which is rule-based electronic underwriting incorporating consumer credit information via a direct link to Experian. Already the application form can be automatically populated with data captured at the DIP stage and soon there will be tools for electronic completion of a full mortgage application.
Even with an instant decision and an electronically submitted application the form itself with its essential declarations must still be printed off, physically signed and transported to the lender before an offer can be made. At the same time, even if a valuer is instructed via e-mail or another form of electronic communication, a paper valuation report is often required prior to offer. Naturally, prudence demands the lender verifies the worth (and even the existence) of the property and often, where the risks are high (for example, a large loan request), a second valuation and photographs may be required. These are ‘breaks’ in the process and have inherent administrative overheads and delays.
Eradicating process breaks
Two simple sounding solutions would eradicate these breaks and the technology to implement them already exists but they are not easily adopted. Many involved in developing and implementing new application systems believe, as I do, the use of electronic signatures is at least as safe as pen and ink and it will not be very long before the technology is sufficiently refined and adapted for use in mortgage applications. Also close to general use are online valuation models, some incorporating voice recognition software, and who has not yet experienced digital photography? Use of such systems requires a great deal of co-operation making implementation a joint venture between all parties involved in the process.
Complex encryption and electronic signatures are also at the heart of what has become known as e-conveyancing and plans for electronic funds transfer which the government is keen to see implemented. When a standard for electronic signature products has been established and these are available to lenders, intermediaries and solicitors the complete cycle from mortgage application to completion will be available online, making the process for many applications seamless and wholly electronic – true STP.
Electronic solutions
Apart from these currently manual stages, application form, valuation and conveyance, there are other areas where electronic solutions add value. For example, establishing applicant identity used to be a stopping point in the process but we are rapidly moving to full electronic identification (ID) checks. The Financial Services Authority has approved more than one fully electronic ID process in the industry where credit reference agency data is used to establish proof of residency and personal identification. Indeed, the tools available from credit reference agencies are ever expanding and include electronic ID, fraud indicators, applicant indebtedness measures and on the horizon is electronic valuation. It is likely credit reference agencies will view online valuations as a service that fits well with their current offering – so credit reports and valuations can be obtained from a single source.
I have not covered every element of the process in detail here and there are still many other issues such as evidence of income to consider. However, the level of automation, electronic processing and case tracking, which I estimate will be available within the next two years, will make the whole experience for the all-important customer far more satisfactory. It also delivers vastly increased processing speed and tangible administrative efficiencies and savings for all parties, particularly for packagers, but stops short of delivering the sofa via e-mail.
In my next article I’ll look in detail at the implications and benefits for brokers and packagers.
Stuart Aitken is director of credit at SPML
