No one in the mortgage industry would question the many benefits that technology has delivered over the past few years.
This is particularly true of point-of-sale systems, which have helped to speed up application to completion times, improve efficiency, reduce costs and deliver a higher quality customer service.
It is interesting that even though technology has moved a large element of front-end application processing from lenders to the intermediaries’ offices, mortgage brokers say that, without doubt, technology is a welcome development. For an industry that just a few years ago was still heavily dependent on paper-based applications, this is a remarkable turnaround.
So why have brokers wholeheartedly embraced technology, when it could be argued that technology is actually placing more of an administrative burden on them?
Delivering certainty
The answer is because technology delivers certainty – both for the borrower and the broker. Borrowers clearly like to know where they stand and there is nothing more reassuring than to have a broker give a categorical ‘yes’ to an application, there and then. The borrower can then forget about their application and concentrate on altogether more interesting issues. What’s more, the application is secure from the broker’s perspective; there is little chance their client will continue to shop around to see if they can get a better deal elsewhere and the broker can move on to their next piece of business.
Online applications and instant decisioning therefore appear to be a good example of a ‘win/win’ scenario. Unless, of course, the instant answer is a ‘no’. However, even when the news is bad news, brokers prefer to know immediately so that they can start the process of sourcing an alternative deal with another lender.
Lenders have not been slow to realise that technology can also be used to address the ‘sorry, your application doesn’t fit criteria’ scenario. Rather than simply saying ‘no’, cascade systems enable lenders to go back to the introducing broker and say ‘we can’t accept the application on product A because it doesn’t meet our criteria, but we can make an offer on product B’. It isn’t just good sense, it’s good customer service and, ultimately, good business. Rather than hitting a dead-end and having to start all over again, both the broker and borrower are given an alternative route forward. Technology has come to the fore once again.
Cascade concerns
Cascading does, however, have its critics. They say it is incumbent on the broker to find the best possible deal for their client and, if the original application is turned down, the broker should not simply accept an alternative product being offered by one lender, but should start the process of finding a suitable deal from scratch. There is a worry that cascading encourages lazy broking and that advisers will be tempted to take the easy option in order to close the deal, regardless of whether it is the best deal available to their client from the whole of the market.
Those who harbour concerns about cascading point out that, under the Mortgage Conduct of Business (MCOB) rules, brokers have a duty of care to ensure that any alternative product being offered is genuinely suitable for their clients’ circumstances. They should not, therefore, simply accept the first alternative offer which is presented to them.
In theory these concerns make sense, but in reality is there any evidence to support the notion that cascading is encouraging lazy broking and that borrowers are missing out on the best possible deals? So far, I have not seen any and there are good counter arguments which suggest the doubters concerns may be ill founded.
Take a hypothetical example. A broker submits a mortgage application on behalf of a client. However, when the application is underwritten it transpires that the borrower has been late with payments on his existing mortgage and also has a number of CCJs registered against them. The lender cascades the application and goes back with an alternative product offer, which carries a 1 per cent higher rate.
Immediately, the intermediary has a benchmark to work from. It needs to be remembered that the MCOB rules also place a duty of care on the lender, which must ensure that any alternative product is appropriate, given the client’s circumstances. In today’s highly competitive market, it is also probable – although not guaranteed – that alternative products are also going to be reasonably price competitive.
Broker judgement
Importantly, the broker is in possession of information which enables him or her to make a judgement call as to whether it is better to accept the revised offer, or to re-broke the application.
There may be perfectly valid reasons for going ahead with the alternative offer, such as the necessity for a fast completion or criteria issues which mean that a specific lender is preferable. The reputation of the lender may also be a concern for the borrower, especially in these days of market volatility, and it is a factor which brokers must take into consideration if it has been flagged by the borrower.
Holy grail
To restart the search process all over again involves considerable extra work for the broker. This is particularly true today with an increasing number of lenders using affordability calculations which require the broker to visit individual lender’s website in order to use online calculators.
However, technology may come to the rescue once again. The next phase of technological development is focussing on multi-lender cascade systems, which can simultaneously obtain alternative offers from a number of different lenders. This means the broker is only involved in keying in client data once and receives a number of offers simultaneously, which makes the comparison process a lot easier.
Multi-lender cascade systems are the Holy Grail of the packaging community, because they help to maintain the packager as the hub of the application process. A number of systems development projects are currently under way and recently a software developer called Oppono developed a multi-lender cascade system called Gravity on behalf of The Finance Centre.
The system is web-based and provides an end-to-end application solution which integrates the decision tools of a number of lenders in a multi-lender cascade system. Initially the lenders will include Kensington Mortgages, First National and GMAC-RFC, but in due course Mortgages plc, Beacon, Platform, Future and db mortgages will also become involved.
Not only does the Gravity system include the individual lenders’ affordability calculations, but it also enables lenders to see those products which they have just missed out on. This could help if, for example, increasing the deposit by a few hundred pounds helps the borrower to obtain a cheaper mortgage deal. This system looks like an interesting development and a positive step forward but, no doubt, there will be other systems developments hot on its heels. It will be interesting to see how the concept of multi-lender cascading develops over the coming months and years.
Going both ways
Another criticism levelled at cascade systems is that they need to cascade borrowers up as well as down product portfolios. This concern is more easily addressed as a number of lenders, including Mortgages plc, already offer this capability.
Cascading is one of those technological developments which has been inevitable in such a competitive market. In theory at least there are opportunities for such systems to encourage poor sales processes to be adopted but just because temptations exists does not automatically mean all mortgage intermediaries will fall prey to them.
The regulator’s ‘Treating Customer Fairly’ regime also acts as a control mechanism to prevent bad practices creeping in and, with professional product design processes in place by lenders and good sales procedures being adopted by mortgage intermediaries, the considerable benefits of cascading seem to significantly outweigh the theoretical drawbacks.
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