The generation gap is a legendary phenomenon, with each successive generation thinking that their elders are reactionary old-timers who don’t have a clue about the modern world, and every generation of parents trying to pass their wisdom and experience onto their children - usually without much success.
Happily, in the realms of business and commerce we are usually only too eager to learn from the experiences of our forebears and, with broker-introduced commercial mortgages being the relative youngster in the marketplace, there are a number of ways in which we can learn from our older and more well established relative, the residential intermediary mortgage sector.
First, with regard to infrastructure and application processing, residential mortgage brokers are highly proactive in processing their applications and pushing them through to completion, and this is something that is translating well into the field of commercial mortgage intermediaries where, traditionally, much longer turn-around times have been the norm. Some might say that the driving force behind brokers pro-actively pushing through their cases is the desire to receive the procuration fees as quickly as possible.
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However, with competition driving down rates and levelling out most other product features in the residential mortgage sector, brokers must differentiate themselves on service or see their clients migrate to brokers who can provide this top-level service. So far, in the commercial mortgage sector, differentiation on product features is still possible, but this still does not cut out the need for service excellence and pro-active case management.
On the subject of products, the commercial sector has been learning from the residential sector and is moving towards offering a greater variety of products and making them easier for the broker to understand. Historically, the process of a broker sourcing a commercial mortgage loan for a customer consisted of a woolly conversation with the lender, and then the lender coming up with bespoke loan offer.
Comparing products was practically impossible, as loan rates and other terms were not standard but ad hoc to each deal. Some lenders, including ourselves, offer complete transparency, whereas others still have some way to go. Nevertheless, we have reached the stage where commercial mortgage brokers can expect to be provided with at least ball-park lending parameters – other wise how could they ever start to source the “best” deal for their clients?
Many bad practices have now been driven out of residential lending. These include dual pricing - especially for those in arrears; dual redemption charges; and lack of transparency regarding the conditions of the loan. This process had already started, but was given a huge boost by FSA regulation and its focus on consumer protection.
As an unregulated sector, commercial lending was not obliged to follow this good practice, but the disciplines of TCF and all other customer-focused desired outcomes are permeating to other lending areas, including commercial mortgages, as lenders and brokers realise the resulting benefits to customer satisfaction and good. reputation. Some of these poor practices still linger in commercial mortgage lending, but not for too much longer – we hope.
Regulation by the FSA has also forced residential intermediary mortgage firms to look at the way that they are organised and directed, and made senior management take seriously their responsibilities for controlling risks within their businesses. It has also driven firms to generate management information for both regulatory reporting and use within the business, assess and train their staff effectively, keep proper records, advertise truthfully, and deal effectively with customer complaints.
Painful though it may have been, the vast majority of businesses that have survived the process are undoubtedly stronger and better managed, and commercial mortgage firms could learn a lot from the experiences of their residential colleagues.
Finally, I believe that the commercial mortgage sector needs to emulate the sort of supportive institutions that exist in residential lending, where strong lender and broker associations such as the CML and AMI help to set standards; lobby to preserve and further the interests of members; conduct research; and provide explanatory material and training. In the commercial sector we need a well-funded and influential broker association, and we have the well-established NACFB , which deserves the support of all brokers that handle commercial mortgages – so if you are just starting to so some commercial business I would urge you to join.
If this all seems a bit one–sided, next month I’ll take a look at what the residential lending sector can learn from the younger generation of commercial mortgage lenders and brokers.
