At the recent Mortgage Introducer Sub-Prime & Technology Forums we discussed how lenders have had to adjust their offerings as dictated by market dynamics, bringing risk and pricing back into a sustainable balance whilst still treating customers fairly.
Risk will be managed through factors such as full status only lending and tighter limits on loan-to-values. Lenders need to provide stable sources of mortgage funding to the market, but that also includes ensuring brokers and their clients understand that the ability to repay is of prime importance and underpins all lending decisions.
Good practice
The Financial Services Authority has already provided guidance within this sector with a paper on adverse credit market recommendations along with a good and bad practice guide for both lenders and brokers. Lenders must be able to show they have taken into account a customer’s ability to pay, usually with a robust affordability model that is reviewed on a regular basis and amended when required.
In addition, lenders should have a clear policy on when self-certification of income is acceptable and record these reasons on each case. A plausibility check of the income should be undertaken with reality checks against the type of employment and the income declared.
Quality of broker information will also be key to a healthy non-conforming sector. Brokers operating in this market face far more complexity than the mainstream. They also sometimes deal with clients who may have selective amnesia about their past credit histories. To write non-conforming business cost effectively in the future, brokers will need technology that can do more of the spade work for them.
Enhancing systems
Sourcing systems will need to reflect lenders’ non-conforming products accurately,
and leave a clear audit trail to justify the broker’s advice. It’s fair to say that the established players have been working very hard to enhance their systems and there’s no doubt that these are now more sophisticated when it comes to non-conforming cases. Mortgage intermediaries can now drill down to an individual piece of criteria as well as perform a credit search on a client.
Earlier sourcing systems had lacked the detail a broker needed to give properly informed advice. As a result, brokers would look to packagers for recommendations. While many packagers aren’t regulated, they can give details of lenders and criteria to match circumstances. For an audit trail, brokers have always been vulnerable and looked for more support. That’s now happening with packagers, distributors and lenders working together, developing new technology to save the broker time and manage risk in the non-conforming sector.
Next generation
The next generation of technology is purpose designed to work within the non-conforming niche and has the capability to handle complex queries as well as meet the necessary audit requirements. Brokers can gather sufficient information before making a recommendation to their client so they have reasonable grounds to decide whether the product meets the client’s needs.
In addition, the reason behind the decision is supported by adequate documentation. As a result of increasing integration of distributor systems with lender systems, brokers will be able to produce fully verified lender Key Facts Illustrations within minutes with cascading across lender panels and the option to perform a credit search.
Moving forward, lenders will have to be more prudent in deciding who they provide with non-conforming mortgages. The time has come to remind ourselves as an industry what non-conforming mortgages are really about. They were created to solve problems for a category of customer we have all met – those who have lost their jobs or whose relationships have broken down and those who have been ill or had accidents. These are people who have had credit problems through no fault of their own and are sincere about getting back on their feet. They are people who take paying their mortgage each month seriously.
Then there is the other category of customer that the industry needs to say no to – the serial defaulters who have no ability to meet future payments and who have used property price increases to remortgage their property over and over again by surfing their equity.
We all have our part to play in maintaining this sector of the market and with it comes the drive to push the boundaries of systems to deliver more for the intermediary to enable more accurate and detailed product justification and record-keeping.
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