Julia Hughes, Principal Business Architect at specialist mortgage software solutions provider Sopra Banking Software, explains how new regulations following the Mortgage Market Review (to come into force in 2014) mean lenders will need to implement a more accurate lending policy. To get there, configurability and flexibility are the key features to focus on when choosing the tools for the job
Lenders are increasingly guarding against letting their money fall into the hands of loan defaulters or fraudsters. For example, in its 2013 annual in-depth report, the National Fraud Authority estimates that the annual loss ascribed to mortgage fraud is a shocking £1bn per annum – and that mortgage fraud is more prevalent than ever before.
At the same time, new industry oversights means stricter lending rules and more transparency are par for the course. Clearly, in an environment like this where lending is far from straightforward, ensuring you are adhering to all the guidelines and regulations you need to is an absolute requirement of proper business operations. Your best option here: modern, well-engineered technology designed to help make sure you are always fully compliant.
And if you’re canny, you can use that same rule-following software to deliver a great bonus – a more rounded picture of the customer when processing any mortgage application. And what’s more, the software can highlight issues that might arise unexpectedly with their loan repayments so as to make the best informed decision about lending and avoid payment delinquency or fraud.
It’s true, technology can both prevent fraud, keep you compliant and also deepen your understanding of your customer. Let’s see how.
Institutions need to generate a holistic picture of their borrower in order to make a fully informed decision about lending. To do so, they need to get better at collecting the right kind of information from customers – i.e. using appropriate third parties to provide additional data and electronic proof of identity, as well as sensitive use of credit reference agencies to check that the customer hasn’t got lots of arrears, or a track record to suggest they won’t pay their mortgage and so on. Lenders also need to determine whether the customer can actually afford the suggested loan.
But to arrive at what is dubbed a ‘360 degree view’ of the applicant, nowadays it’s far more than simply collating a name and date of birth. It’s no longer about what your customer has worked at, and how much they earn; but about determining what exactly your clients earn and what exactly is their expenditure.
A smaller organisation will try to get that data themselves and create their own affordability assessment; a larger firm will use third party suppliers to help. But however the task is carried out, the ideal assistance that lenders need is functionally-rich business mortgage platforms (such as my company’s Sopra Banking Software’s Mortgage and Savings Suite) that will give them a true end-to-end solution, managing all the processes around the applications and generating a robust set of automated processes to ensure lenders are gathering all the correct data in the correct order.
In fact, the very best software solution allows institutions to configure and maintain affordability assessments so that they can be sure that anyone they agree to give a loan to has passed their affordability rules, meaning they can pay the debt not simply in the short term but going forward into the future too.
It’s therefore plain that flexibility and configurability to configure these affordability calculations to suit your specific needs is essential. In our sector, after all, it’s not just about the borrower – it’s also about you, the lender, and the type of lending you want to be engaged in. Every organisation has a different understanding about, for instance, how they treat income; if the candidate gets a bonus from an employer, some organisations factor that income in, others will only be prepared to look at 50%; while some organisations will not consider bonuses at all, and so on.
Equally, as a lender, you can really benefit from having a system that will allow you to be alerted in advance of any problems. In practical terms, that means when you have an approved mortgage, by having detailed information at your disposal instantly about what’s happening to that borrower, the system will automatically flag up any problems that might arise – for instance, if the customer is beginning to make late payments, pay too little, or pay at too infrequent intervals, etc.
To get to that level of clarity, your software should offer you the ability to configure things you consider might present a problem. For example, if you consider it a problem if the customer doesn’t repay the correct repayment over six months or at 10% less than they agreed, then this should be picked up by the system automatically to help your business perform in a streamlined way.
Again, flexibility is essential: different lenders have a different view on what constitutes an issue according to their specific business rules and desire for risk. That has implications for when to intervene to try and solve a problem.
The outcome’s clear: the secret to highly effective lending in this sometimes perplexing market has to reside in an ability to configure your decision support platform closely to your organisation’s needs.
Fit for purpose
So, what should you seek in your mortgage solutions? One that is operating at the level you need to stay competitive must provide the following:
An automated workflow engine In other words, work is handled without the requirement for staff to intervene – for example, credit and identity checks, property searches and valuations, right through to the production and delivery of offers and welcome packs can be automated.
Straight-Through Processing This will be your best way to turn costly, slow and error-prone manual processes into a smooth and fast process that the customer sees as responsive and engaging. Highly trained staff are then free to concentrate on tasks suited to their skills and experience that add more value.
An end-to-end system This indicates that data is entered once to be available everywhere. Believe me, your customers will notice the accuracy and quality whenever they interact with you if you do this!
Powerful reporting options To give easy access to the information you need for cross-selling and up-selling opportunities.
Agility The ability to launch products in hours, not days, and tailored to the needs of the channel, sector or customer profile.
Multi-channel customer contact Online, in-branch, by telephone or via an intermediary – these channels should all be available, accessible and integrated
Finally, configurability You have to be able to fully control all aspects of your mortgage business processes and the products you offer the market, through parameters set by the people who know the market best – namely, you and your specialists and teams of experts.
It’s this level of functionality that will enable your company to grasp opportunities that a strengthening UK market is starting to offer – and only this level of functionality that will provide the depth of transparency, stress-testing and affordability checks that are necessary in our highly-regulated but fiscally-recovering times.
Julia is Principal Business Architect at Sopra Banking Software (http://www.soprabanking.com/), a market defining provider of mortgage and savings software for the European financial services sector.