This could transform the mortgage process

Comprehensive credit reporting is not new but has untapped potential to transform the mortgage process for brokers – but only if banks sign up

This could transform the mortgage process
Remember comprehensive credit reporting? It’s now been three years since the government set up a voluntary scheme for lenders to share information about clients beyond defaults and other ‘negative’ credit events that were previously reported.

The Financial Systems Inquiry [FSI] in 2014 envisaged that soon banks would be exchanging data about clients, enabling smarter pricing based on an individual’s risk. It’s now 2017, and just a single major bank, NAB, has publicly stated it will participate. Comprehensive credit reporting [CCR] was the main topic at this year’s RFi Group Australian Mortgage Innovation Summit, and MPA was there to learn more about this long overdue revolution.

CCR and innovation go hand-in-hand, because access to data allows lenders to make better decisions. As Will Ranken, general manager of home loans and retail lending practices at ANZ, put it: “Anyone who thinks more intelligently about how to use data, more intelligently about how to solve those customer pain points, I think they’ll get the advantage because the customer will think, ‘They understand – or help me understand – my situation a lot better; I can make betterinformed decisions.’”

Whilst the broker proposition is about understanding a client, brokers currently need to negotiate pricing with banks. In theory, with CCR, lenders would know enough about the individual client’s risk profile to offer them the best rate the bank’s commercial situation allowed. CoreLogic’s managing director, Lisa Claes, characterises CCR as “pulling the blanket off risk assessment”.

Yet as Claes pointed out to the Summit, “We need to stop dipping our toes in the pond and drop in. Unfortunately, the way comprehensive credit reporting works, unless the majority of participants are participating, you can have adverse impacts.”

The fact that only one of the major banks has said it will share data is a huge problem, given the majors hold the largest amount of customer data in Australia. ANZ has estimated the cost to the industry at up to $500m to implement CCR, and the Australian Bankers Association has told the government that banks need more time to adapt.

“The way comprehensive credit reporting works, unless the majority of participants are participating, you can have adverse impacts” Lisa Claes, Corelogic

Now, the pressure for CCR is growing, including from within the industry. The FSI recommended the government consider making CCR mandatory by the end of 2017, should banks not sign up. Mandated involvement was supported by RAMS head of product and digital Nathan McMullen, who declared that “it defies logic why it
hasn’t been mandated for authorised deposit-taking institutions to sign up for it”. McMullen, who previously was Westpac’s head of home ownership, explained that “the best thing I could see happening is the regulator saying, ‘We want everyone to sign into this; we’re going to build a bureau in the next two years, then we’re going to turn the switch on, and we’ve got a very rich source of data we can all access.’”

Australia is one of the last developed nations not to have comprehensive credit reporting, so its benefits are far from unknown. Claes, who worked extensively with European banks during her previous role at ING, said that these lenders were at the next stage of “actually looking more broadly to assess someone’s reliability and serviceability through how they behave in matters seemingly not connected to finance”. ING’s Belgian banks are already using behavioural data for personal loans; in Romania, an alliance of banks can access their customers’ tax returns and couple those with credit checks. “They are giving secured and unsecured lending decisions within seven minutes,” Claes said.

Even Australian bankers admit that more data is a vital ingredient in quick turnaround times. NAB’s general manager of home lending, Meg Bonighton, argued that banks need to start learning about their customers
much earlier, as “this makes the one-minute mortgage more realisable because we already know so much”.

ANZ is already doing this with its ‘Buy Ready’ initiative, Ranken explained. “We found customers spent three  months looking for a house in completely the wrong area,” he said. “They look at places they’re never going to be able to afford, and they build all these tools and all these spreadsheets … all of the information we can use in the application anyway: everything about the underlying asset, the servicing, their statement of position.”

Other industry players are also pointing out the advantages of more data. ASIC senior executive leader Michael Saadat told the summit that CCR, combined with tools that would allow lenders to see bank account data, “could potentially make the assessment of serviceability much simpler and much more efficient”, as well as less intrusive. Bank investors – on whom banks rely for a significant degree of funding – need “more detailed, granular data on borrowers, not just mortgages”, according to Alex Sell, CEO at consultancy exSell.

One thing CCR wouldn’t solve is turnaround-time blowouts. While Veda’s executive general manager of credit risk and advisory, Mike Cutter, suggested that most lenders would eventually offer one-day turnaround, and a specialised minority could offer one-hour turnaround, he added that “you resource to be productive, and when
you’re being productive, nobody resources to be able to deal with the absolute peak of demand thrown at them in a year. So you find when you do get surges, everyone will have a challenge meeting that peak demand.”

In the US, some lenders can offer an ‘eight-minute yes’, Sarvesh Mahesh, CEO of Tavant Technologies, told the summit, but this is helped by processes that allow easier loans to go through much faster, rather than being “designed for the worst-case scenario”.

Similar practical adaptations could make a huge difference in the broker channel, according to several speakers. Connective director Mark Haron criticised the various pain points and duplications in the mortgage application process, such as repeated credit checks, differing rules on estimated market value, and differing index systems in software used by CRMs, Apply Online and at lenders. The CEOs of broking platforms HashChing and LoanDolphin also criticised the lack of transparency by banks when it came to policies and when information was required.

It’s possible that, by the end of this year, government will make CCR mandatory, and we will finally see Australia’s banks open up their treasure troves of data. Further down the line, it’s possible the Australian Tax Office could give lenders access to their data, giving them even more risk information on which to make a decision. So in a world of smart lenders, what role would a broker have?
Brokers can already make ‘smart’ decisions, explained speakers at the summit. When asked by MPA whether banks would willingly share information with brokers to enable better customer experiences, RAMS’ McMullen argued that brokers don’t need banks’ help. “We’re already seeing the technology come out for a customer to aggregate all of that information, or even a broker; they actually don’t need a lender to willingly share that information,” he said. “The tools exist for the customer today to enable a broker to have access to that information.” Indeed, services such as allow customers to easily share information with brokers, although no single ‘dashboard’-type system has yet emerged.

According to Connective’s Haron, technology is already dividing brokers into two types. Larger groups, such as Australian Credit & Finance and Home Loan Experts, are using data themselves and constructing their own systems that are linked to aggregators’ CRMs. Single-operator brokers, in contrast, will become more dependent on aggregators to provide software and support. Lenders are also seeing a similar division between cautious lenders and the more innovative; Haron identified Macquarie Bank as a driving force.

Sitting on a broker-focused panel towards the end of the summit, ING’s head of thirdparty distribution, Mark Woolnough, argued that the channel will experience “evolution, rather than all-out revolution”. If the banks already have all the data they need to offer their best possible rate, he said, this will “make the broker less of an arranger and more of an educator and validator of decision-making”.

According to Haron, “The broker of the future will be one who brings together relationships and technology in a meaningful way … to use the digital process to make things happen fast and also create more transparency.
The key thing is doing this where, when and how a customer wants.”

“This will make the broker less of an arranger and more of an educator and validator of decision-making” Mark Woolnough, ING Direct

MPA would like to thank RFi Group for enabling us to attend the 2017 Australian Mortgage Innovation Summit.