There has been much comment in the industry recently on the subject of cascading and whether it treats customers fairly.
Given the experience of running packaging firms with a number of lenders on your panels, what stances and processes do you adopt when a cascade result is returned to you? And what reaction do you receive from point-of sale brokers when informing them of this?
Cascading can operate both up and down the credit spectrum but many lenders still offer only downward cascading. Does this present you with any issues? How many cases, upon receipt of cascaded decisions, would remain with the original lenders?
And as packagers, does this process add value to your proposition and the service you provide to your brokers?
Shaun Vickery, managing director, The Select Partership
The process of cascading is nothing new. Brokers have been doing it for years, often with the support of packagers. However, it is only recently that lenders appear to have identified the opportunity to benefit, largely due to improved technology and automation.
It makes sense that lenders will wish to suggest an alternative basis on which they consider clients’ applications. That makes good commercial sense and in turn packagers should do the same thing, taking into account other lenders at their disposal.
However, it is brokers’ responsibility to ensure that the next product recommended is appropriate and satisfies their regulatory obligations. If they fail to go back to the drawing board, it is here that a potential problem arises. The FSA has made it clear that the burden of responsibility lies with brokers.
I have always believed that sourcing systems cannot substitute eff-ective advice. Likewise, a broker should never rely on a cascaded product from a single lender in identifying a suitable product. Effective advice can only be achieved by harnessing all available resources and coming up with a suitable solution. Brokers beware.
Rachel Bancroft, managing director, KGB Packaging
We are in a strong position because we have a wide variety of lenders on our panel (32 at the moment).
I am often asked why we don’t cut these. First, every one of my packaging agreements I worked hard for. I built up relationships with lenders over long periods and I hold each one in the highest esteem.
Yes, there is a lot of crossover with lenders offering similar products, but most of them have niches. And of course, if we culled a lender this week, next week we would be sure to have a broker contact us to ask to use that lender.
I believe that this helps us enormously, in particular when it comes to lender cascade issues. We deal with cascading by reporting back to the introducing broker that a case has been cascaded by the original lender of choice, and then providing them with two alternative lenders or products that would also fit the client’s requirements.
Often, the product selected by the cascading lender is not the most competitive in the market and therefore we resource the case and report back. This is where the benefit of a large panel comes in. Many packagers restrict themselves to a panel of around 10, some even less. There could be issues here with treating customers fairly.
Huge Dennis, managing director, Chapel House
Cascade underwriting is the lazy man’s path to riches.
Much has been made of cascade underwriting since its birth. I believe it adds no value to the market – the benefit exists only for lenders attempting to retain cases. Clients gain no benefit as applications sliding from prime to sub-prime could find better options elsewhere.
We do not accept cascading. Our process is to undertake an in-depth credit search first, together with a review of our detailed decision in principle form before reviewing our lenders’ offerings. Brokers who run endless numbers of online DIPs are damaging their clients’ credit files with unnecessary searches.
Several years ago, Bristol & West introduced cascade underwriting in tandem with Mortgages PLC. In reality, a competitive prime lender offered brokers an uncompetitive – at that time – sub-prime option. It was no surprise that this venture failed.
An experienced packager that conducts a full search at the DIP stage should not experience cascade underwriting – they should be able to correctly locate the best deals from their panel at the first attempt.
Brokers blindly accepting cascading do so at their peril if scrutinised by the Financial Services Authority.