If 2007 could be described as a year of change, then 2008 is a year that presents great opportunity for the mortgage industry and clever use of technology will help businesses to make the most of that opportunity.
Intelligent delivery of technology has long been heralded as the future of the mortgage industry, but with capital markets losing confidence in mortgage-backed securities last Autumn, the global credit crunch has increased the need for businesses to evolve in order to survive throughout volatile economic conditions.
As a result, effective technology has become a must as it has provided a means of keeping down overheads and driving diversification into prime, buy-to-let and self-cert where there is still capital market investor appetite.
Frank Eve, from Frank Eve Consulting, agrees that technology is playing a huge role in helping businesses cope with the changing economic environment, but points out that, while intelligent technology empowers human attributes of expertise and experience, it cannot fully replace them – particularly during times of market volatility.
He says: “The credit crunch has led to a flight to quality in the mortgage industry with lenders reducing loan-to-values and tightening credit criteria as well as looking to reduce costs through the application of new technology.
"Although efficiency is the key to reducing costs in the mortgage application process, many lenders may have to go back to manual verification of data to feel secure in this new environment. With house prices falling in some areas the use of automated valuation models may be reviewed and as a result of increased regulation the self-cert process may need more rigorous audit.
"This will present new challenges for automation and the need to re-engineer application processes and integrate intermediary and lender systems to drive further efficiency gains.”
Integration, and forming closer relationships with key intermediaries, is a central theme going forward and, with closer relationships between lenders and distributors forming the bedrock for future success, Eve says that the importance of data standards will also come to the fore.
He adds: “The implementation of data standards in the mortgage industry will be key to driving down costs and ensuring a compliant mortgage process for both intermediary and lender. Origo is well on the way to providing the XML standards for all mortgage processes and the credit crunch is giving all parties the reasons to implement them.”
Multi-cascading systems
At the recent Professional Mortgage Packagers Alliance’s (PMPA) lender forum it was concluded that IT is one of the most important issues for packagers and lenders in 2008. And forward-thinking packagers are already looking at how they can use technology to continue to add value to the distribution model.
With the prevalence of processes such as automated valuations and electronic identity verification there will naturally be a decline in the act of gathering documents to support a mortgage application and, as a result, the days of packaging as a process are numbered. But some packagers have already recognised this trend and are reacting to the market with solutions, such as multi-lender cascade systems.
Most current lender cascade systems will cascade down to deliver a different product if the initial application is rejected, while some will also cascade up should there be a cheaper rate that suits the client’s circumstances.
Either way, if a client is cascaded, the onus remains with the broker to ensure that the product that has been suggested by the lender’s system is the best deal for the client. So, in order to satisfy the requirements of ‘Treating Customers Fairly’ (TCF) the broker should then go back and search across other lenders to see whether there is a more suitable deal available.
There is nothing wrong with this process of single-lender cascading and it does provide a borrower with one option. But if a broker is to act in the best interests of their customer they must then go on and compare this option against equivalent deals offered by other lenders – effectively cancelling out the labour saving benefits presented by the cascade system.
A multi-lender cascading system on the other hand can search across the criteria and products of a number of lenders in order to deliver the most appropriate deal.
Once a product is suggested by a multi-lender cascading system the responsibility still lies with the broker to ensure that this is the most suitable product from the whole market. But it reduces the amount of work a mortgage intermediary needs to do in checking the rest of the market as the product has already been selected from a panel of lenders.
Of course, we should remember that technology is merely a tool for doing business. The telephone, for example, is rarely considered in articles written about technology but it is a tool that enables people to talk to each other remotely.
In a similar vein, websites that provide information are an integral part of the technology developments that are driving our industry forward and proving a valuable tool to help mortgage intermediaries run their business.
An important theme
TCF is going to be an important theme for the Financial Services Authority (FSA) this year and to encourage TCF momentum the regulator has set two deadlines to provide advisers with a structure to help them embed TCF as a ‘business as usual’ culture.
The first of these deadlines is the end of March, by which time firms must have appropriate management information or other measures in place to test whether they are treating their customers fairly. Then, by the end of December all firms must have completed their work on TCF and be able to demonstrate that they are consistently treating their customers fairly.
Fortunately there is a free resource on the internet to help advisers do just this. It’s called TCF Info and is a joint initiative between a number of lenders to provide the information brokers need to meet those deadlines.
Eve explains more, saying: “The website www.tcfinfo.co.uk provides an impartial and easy-to-read reference point for mortgage intermediaries on the regulator’s principle of TCF. It is provided free of charge and is written in plain English with downloadable content that can be own-branded by the intermediary and used for training and reference purposes.
"The site provides checklists and tips and tools to help all intermediaries, large or small, to embed the TCF principles into their own culture and procedures. It also has deep links into the FSA’s own website to allow intermediaries to obtain more detailed information where required. It is through the activities of sites like www.tcfinfo.co.uk that the industry will build and maintain best practice.”
By enabling tools that provide lenders the opportunity to reduce their overheads and form closer links with key distributors, as well as enable mortgage intermediaries to access invaluable information, technology will be vital for every part of the mortgage industry this year. And for those that get it right, 2008 promises to be a year of great opportunity.
