Processing data points to some startling trends
Data from NextGen.Net has revealed some startling trends behind lender SLAs through the broker channel. Through its benchmark reporting service, the tech provider has been able to distinguish that “more information requests” (MIRs) have been a major contributor towards delayed turnaround times throughout the year across the lenders studied.
“What we found is that lenders who were ranked outside the top four for turnaround times, were actually approving loans as fast as those with the best turnaround times, but they were taking longer to get MIRs issued,” NextGen.Net’s chief customer officer Tony Carn told MPA. “That SLA to getting more information requests appears critical and more lenders are starting to realise that.”
After they began to notice this trend, NextGen started looking at the time it took for “straight-through process (STP) loans”, those where the lender didn’t need to go back to the broker and request more information. They noticed that the turnaround times for these types of loans were quite impressive in many cases.
He said since March to June this year, NextGen saw an increased focus from a number of lenders on how they could improve their STP rates, and thus their overall turnaround times. A big part of the lenders’ subsequent focus was on cutting down MIRs.
“So, we started to see more lenders better enabling quality measures to support STP. This includes e-signatures,” he said. “We also started to see more lenders contributing to their process of upfront quality by introducing DVS [digital verification of identity documents], and while in a single instance they don't contribute to a whole new better turnaround time, they incrementally help to improve those turnaround times and improve quality at the point of sale, meaning that they don't require manual review or intervention.
“In the last six months we've seen the percentage of deals that fall into that STP category close to triple,” he said. “It's still very low - it's sub 20% of all loans, but it's coming off a low base. It's improving rapidly.”
He said it was important to distinguish between different types of loans when measuring turnaround times, as the simple, vanilla-type deals only represented a small portion of the overall market. NextGen’s benchmark reporting found that guarantor loans, construction loans and high LVR (90%+) loans falling within the STP category were largely tracking well, with the new median to unconditional approval at around 3-4 days.
When asked what he thought in terms of the industry moving towards lightning-fast processing times through the broker channel, Carn said, in many cases, this already existed.
“They exist, but they're not commonly recognised, because the focus is often on the average or the median time to approval,” he said.
“One in five deals are already being processed in three to four business days, but this includes loans in a broad range of borrowers, product types and LVR bands. That median means that some might be at five to six business days, but a lot of them are going through in one to two days. That is already in existence, and it isn’t just for vanilla home loan applications.”
And in context, it is important to remember that one in five translates to around thousands and thousands of applications in any given month, he added.
One prominent broker group the business is closely engaged with reports an STP rate of over 80%, said Carn. As a result, the group haven't reported a significant issue with turnaround times with the majority of lenders they use.
“They say, ‘it's actually not an issue now because we're investing heavily in getting quality right up front, and we are avoiding those reworks’,” Carn explained.
In terms of the wider industry achieving quick turnarounds, he added there were still challenges that some lenders needed to overcome.
“A lot of lenders have got to get more bandwidth to be able to actually understand their numbers, but more importantly be in a position to do something about them,” he said.
“There's still lenders in the market that cannot process on their new platform - which cannot process a construction loan, for example, or a company loan, guarantor loans or more than two borrowers - and therefore they're using a legacy system that they had, and it's taking a lot of time to do that. There's a lot of things that can still be done, so it will be a while before those issues do get addressed.”
Carn said Open Banking will be a gamechanger.
“The Consumer Data Right is going to allow a much lower reliance on supporting documentation,” he said. “The ability through upcoming changes in CDR regulation means that we will see applicants being able to share their open banking data with mortgage brokers as trusted advisors, and so that is going to make a big difference. I think we'll see that starting to come to market in 2022.”