Sourcing systems are as intrinsic a part of a mortgage broker’s business as the telephone. Good service will always make human contact a pre-requisite, but there is no doubt their impact has been little short of revolutionary.
Recent surveys have shown that perhaps 1 per cent of the broking market is not using technology – it is perhaps surprising that these companies are surviving at all. In terms of allowing a fast and easy way to search the whole market, sourcing systems have made a massive impact, but how much further can they go and what barriers are there to future development of the systems?
New entrants
It would appear that improvements will come from existing providers of the sourcing systems, rather than new entrants. The lion’s share of the market is held by four main systems, Trigold, Mortgage Brain, Mortgage 2000, and Mortgage Link, along with a number of smaller providers that tend to provide niche coverage. It appears unlikely that more will be launched, since the larger players already control a substantial portion of the market.
In addition, the system a broker uses will often not be a matter of personal choice, but be recommended by any network they are a member of. For directly authorised (DA) brokers, it is often a case where they will get to know a particular system and then will be reluctant to leave it because of familiarity. There are also some brokers who will access more than one system and certainly there would appear to be no gap in the market for another provider.
Because the systems are all different in terms of their functionality and operation, it is difficult to compare them. But all share one key benefit in that, although sourcing systems have been around for years, their use has increased substantially since regulation arrived some 18 months ago. Their compliance features may not be new, but these are now being taken advantage of in far more cases.
The systems are being used for the production of initial disclosure documents, factfinds and needs analyses. They produce a comprehensive audit trail, with date and time stamping, and an electronic document storage facility, that for the regulated intermediary is both convenient and reassuring. This is a real advantage for brokers, but sourcing systems are not a total panacea in terms of straight-through processing.
The past year has seen some improvements – typically these have included enhanced factfinds and a greater emphasis on serving the needs of the non-conforming market.
Unresolved issues
Some issues remain unresolved, although we are undoubtedly in a more positive environment to look at ways of rectifying these.
The long standing gripe concerns verification of key facts illustrations (KFIs). The Financial Services Authority (FSA) has stated that the lender is responsible for the accuracy of the data it provides to the broker, but it is the intermediary who takes on that responsibility if they use a sourcing system.
According to the FSA’s mortgage conduct of business rules, the position is clear: ‘Sourcing system providers are not subject to our rules (as they are not usually carrying out a regulated activity) and so cannot be held responsible for any failure to comply with our rules.’
We have moved forward since the early days after FSA regulation when a number of mortgage lenders issued terse statements emphasising that they would not take responsibility for KFIs produced via sourcing systems.
Since then, the Mortgage Trading Exchange (mte), which integrates sourcing systems with electronic trading capabilities, has attracted more business, as has Trigold’s electronic trading facility, but their use is not universal and many lenders are still evaluating their capabilities. They are still not being used by all intermediaries or as widely for specialist lending business, such as non-conforming.
But, it is clear that the most effective way is likely to be direct integration of KFI lender production technology and sourcing systems via electronic trading platforms. This will enable brokers to search the market, find the most appropriate product and then supply the relevant KFIs.
Lender co-operation
There does appear to be greater willingness on the part of lenders to work with the sourcing systems. Developments such as Trigold’s Prospector AAA lender verification system is a step in the right direction and Mortgage Brain’s traffic light system again indicates products that have been verified. Even so, check out any sourcing system and there will be plenty of loans that are not.
In this incredibly fast-moving market, when lenders may have hundreds of products on a system, verification requires considerable resources and not all have shown the willingness to do it. While there is greater co-operation now, a sourcing system offering totally compliant KFIs remains some way off.
There is also the argument that brokers want to retain the element of choice in whether they use a sourcing system or go to the lender direct. But, will we see a time when visiting lenders’ websites is redundant?
While seeking out compliant KFIs is a time consuming task, there are plenty of other reasons why a broker will want to go to the lender direct. A search may have only produced a small number of suitable lenders or they may be aware without using a sourcing system that a particular product is relevant and want to obtain a binding offer quickly.
Many intermediaries will still be visiting non-conforming lenders’ websites direct because this sector is still not represented in full on sourcing systems.
There has been development here and in terms of advances, Trigold leads the field. Platform went live on its enhanced non-conforming (ENC) module last year. This provides verified data and has proven to be an effective sourcing solution for intermediaries. Again, there is some way to go before all lenders are on this system and there is certainly scope for future progress in this area.
A further issue which needs to be tackled on sourcing systems is greater use of affordability calculators. These do exist on the systems but their sophistication varies. And, in general, it could be said that currently sourcing systems remain too geared around standard income models. There are, however, a growing number of clients whose income is not reflected accurately when only their main salary, without bonuses, commissions or other sources of earnings, are taken into account.
Universal calculators
It has been argued that lenders should do more to boost the accuracy of affordability calculators by supplying their criteria, since different factors are often taken into account. Although Mortgage 2000 mooted the benefits of including a universal calculator, this is unlikely to materialise since mortgage lenders use different models and might not want to reveal their exact formula for commercial reasons.
There is real logic in lenders supplying more information to the sourcing systems, but the stumbling block to this is that affordability calculations also take into account data from a credit bureau. Without this, an accurate picture cannot be obtained. This means that even if all lenders were to provide calculation details, it would only provide part of the picture.
Some sourcing systems are now arranging access to various forms of consumer credit reports. For example, Mortgage 20000 has linked up with CreditExpert in January and Trigold has announced an agreement with MyEquifax. The systems encourage intermediaries to recommend to clients that they obtain a copy of the credit report prior to work starting and relevant details from this can be supplied to the lender.
This is progress but it is not a complete solution as there may be delays between the time that the report is obtained, which could mean details are out of date. Some clients may be reluctant to pay for a credit report and if the broker needs to obtain the report, then this may leave a footprint. Furthermore, a lender is still likely to require additional information in particular if they are only supplied with lighter details.
Future development
Within buy-to-let sourcing, there would also be an advantage in providing the ability to calculate the minimum rental income required for the loan requested. This could be added as a new column when displaying buy-to-let products and then be sorted by the broker to find the lowest needed, if amount of rental income is a concern.
Longer term, sourcing systems are never going to become virtual lenders. The role they play greatly facilitates finding the right product and in recording details of the route taken to find this. But a broker may still want to access exclusives that may not be on a particular system, or work direct with a packager.
In a competitive market, there is always going to be a range of alternatives. Sourcing systems are tools that are heavily relied on, but they are not regulated by the FSA. This means there is no need for standardisation and the providers would not want this. Sourcing systems add efficiency to a process that is often complicated and help intermediaries reach decisions for their clients – but they are only one part of the process and can never replace it.
