Claridge’s roundtable 6th July 2007
Claridge’s was the venue of choice for this month’s Mortgage Introducer Lunch Club, sponsored by GMAC-RFC, and saw figures from across the industry coming together to join the discussion on technology and what it meant for the industry.
With GMAC-RFC a vocal proponent of the heights that technology can take the mortgage business, guest speaker Stephen Knight, outgoing executive chairman of GMAC-RFC, kicked off the debate by looking at some of the key issues facing lenders.
Not to be ignored
For Knight, speed, certainty and immediacy were the vital factors being demanded by customers. He stated the industry could not resist or ignore this shift and this would become even more pressing once Halifax enters the point-of-sale offers market on 1 January 2008.
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Knight said: “With margins reducing, price and profit demands require technology to replace repetitive, uncertain, expensive and long-winded processes and there’s nothing more so than gathering a lot of paper to process a mortgage application.”
For Knight there was no doubt that technology has made a massive difference in how the industry does business, with offers being available in 25 minutes rather than 25 days. He said: “In GMAC-RFC’s case, we’ve doubled our volume every two years and halved the number of staff needed per case. That is in the face of demands for better service from intermediaries and packagers and thinner margins.”
He pointed out that in one month this year, there was a day when GMAC-RFC was asked to make 370 decisions and on a later day 980 decisions were asked for. “There is not a group of people that I can put together that will give brokers and packagers consistent decisions and a consistent service on treble the business in the space of a few weeks. Technology can do it; humans can’t.”
Not yet reaching potential
While there is little doubt of technology’s impact, Knight was far from believing it has reached its potential. He added the increasing speed of the process was inexorable and as customers increasingly saw 25-minute offers for Halifax’s and other lender’s customers, it would become the norm rather than an option, while completions should remain flexible. To resist this, he said, was technophobic.
The cost savings created by technology were huge, yet he noted that it appeared that packagers and brokers continue to accept a situation where they lose hours of their time, which could be spent with new clients, chasing paperwork for the lender and not being paid for the privilege. Knight predicted the time was coming when brokers would demand higher payment for lengthier cases, as it could not remain the same price for a 25 minute offer and a two week offer, where treble the work is done.
Cascading
Knight cited cascading as the controversial side of technology, but stated: “If there is another product in your range that is suitable, then it is entirely appropriate for you to make that information known and instantly available to the broker or packager.”
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He said it was important to understand the difference between the two types of cascading – rules-based, where clients have to fit certain rules, and underwritten, where personal circumstances are looked at. He added that cascading up was ‘fraught with difficulties’ as the lender has no access to the factfind. Research by GMAC-RFC found only 1 per cent of accepted customers would have been eligible for products higher up the risk curve.
Increasing profitability
Knight said technology was the only way forward for brokers and packagers to increase profitability, by not having to chase endless pieces of paper. “The next evolution for technology will be in an area we can’t imagine today. New technology begets new technology. One area that will take off is data transfer. If lenders can read the data that brokers key and convert it into their own system, there will be massive savings again for brokers in repetitive work.”
Profitability was certainly topical for the attendees, with lenders and packagers feeling the squeeze from lenders pricing to a level where risk and margin are not there, leaving little money for investment in technology.
Technology was said to be creating a two-tier market, with increasing efficiency attainable only through technology. For packagers, profitability would be based on the speed of processing and the reduction of fees. However, it was felt canny packagers would respond to the squeeze by becoming lenders or quasi-lenders.
The creation of a product model that distributors could use to fill gaps in ranges was mooted as an opportunity. While knowing their distribution and what they want would be vital, it was suggested that if lenders gave distributors a certain sum and a model to work with, it could be tweaked to create suitable products by distributors themselves, working to create the margins and procuration fees.
Yet, the challenge remained of building a truly innovative and different product that couldn’t be offered elsewhere to avoid commodity pricing and whether lenders’ systems would be able to support and generate unique Key Facts Illustrations for such products.
Greater support
It was also felt that brokers needed greater support from lenders to reduce their cost base for processing business. It was said Origo common standards started the process of creating a standard that business could be put through to lenders, but more support was needed for brokers who chose to invest in such technology. A voluntary set of standards was seen as the way forward, as waiting for Origo was not an option for business.
However, a lack of dialogue on how to integrate broker and lender point-of-sale systems was a hinderance, with lenders seen as reluctant to advance the discussion on data transfer. It was noted that systems such as the Mortgage Trading Exchange had not been a great success. Linking up distribution and moving it beyond simply sourcing was seen as the next step – something packagers had noted as an opportunity for middle ground distribution.
It was concluded that while technology would never replace the human touch in market relationships, speed and accuracy were the driving factors that brokers wanted. While it would take time for behaviour to change and accept point-of-sale offers as the norm, some firms will be quicker to embrace it than others.
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