Would you consciously go on holiday leaving your front door open and your car keys in the ignition? I doubt it – that would just be asking for trouble. Yet many mortgage brokers are unconsciously risking the obvious consequences of not dealing with secured loans properly within their business. That is asking for trouble too.
Censure by the Financial Conduct Authority, Financial Ombudsman Service complaints, paying out compensation, unhappy customers and an attack by claims companies are all a potential.
However, because this is not happening yet some brokers do not even think about it.
When the payment protection insurance debacle rocked the industry, the clean-up operation was criticised for being too little too late. The phrase “shutting the stable door after the horse has bolted” was bandied about regularly. There was a shared understanding that both brokers and lenders should have had preventative measures in place and the situation should not have gotten as bad as it did.
Many brokers had tried to offer PPI correctly but got swept up in the backlash against the assumptive selling practices adopted by the banks. Many suffered, not because they had done anything wrong by their client, but because they could not prove they had done everything right.
One would think therefore, that with such a crisis still fresh in everyone’s memory, those in the financial services industry should have learned that there is little point in addressing a problem when chaos has already ensued.
Yet here we are at the dawn of a new era for secured loans, regulatory speaking, and many brokers are doing very little to protect their businesses, choosing instead to wait it out and ‘see what happens’.
Now that FCA regulation is in place brokers need to think about what they must do right now to avoid, inadvertently, getting it wrong with secured loans. While the EU’s mortgage credit directive will not be implemented until 2016, FCA principles already apply to firms and individuals so demonstrating the best outcomes for borrowers must be at the forefront of the adviser’s mind.
That does not just mean offering a secured loan when a remortgage is declined. It means comparing a secured loan and a remortgage each time a borrower is capital raising. There are numerous examples of borrowers being better off with a secured loan rather than moving their existing tracker, fixed or interest-only mortgage as well as better outcomes for those who are self employed, have historic adverse credit or need greater underwriting flexibility than that offered by first charge mortgage lenders.
But just considering secured loans when dealing with a client is not enough. Brokers must be considering them in the correct way and documenting this in order to validate their advice.
This is where the issue of “best practice” rears its head. Mortgage brokers have the sourcing tools, recording keeping and sales process to easily source and sell a remortgage. They probably would not contemplate arranging a remortgage without them. So why should it be any different for secured loans?
In the past – and indeed, for many firms today – brokers have employed a tick box approach when offering secured loans. It may be a great means to record clients buying preferences but does it really result in the best outcome. Ask a client if they want the lowest monthly repayment and they will probably say “Yes”. Ask them if they want the lowest fees or the lowest ERC’s the answer is also “Yes”. The answer to what makes the best loans is: “It depends”.
Loan sourcing technology is available free to mortgage brokers who wish to introduce secured loans and brokers can only arrive at the right conclusion if they have all the answers at their finger tips and are able to compare and flex between products in response to the client’s needs.
Aligned to the sourcing and sales process will be a detailed audit of what has been offered and why. It really is no different to the mortgage sales process.
So here is the point I am trying to make. Get your remortgage and secured loan process right from the outset. The networks are doing it right now and if you have interim permissions for consumer credit you should already have it in hand.
It is not difficult. The systems are all in place to help you and it has to be preferable to the pain of getting it wrong. If every one of your remortgage files contains the evidence of your secured loan and mortgage comparison plus why a particular product was offered you are well placed to defend criticism from numerous quarters. Action needs to be taken now in order to protect your business – why wait until it is too late?