The pace of change in lender distribution technology is fast. Many lenders have invested heavily in distribution and application processing technology in an attempt to automate the underwriting and processing of mortgage applications.
The ability to deal with mortgage applications in an automated way will eradicate the historic problems involved with providing reliable and efficient service to intermediaries. In the past application processes have often gone into meltdown when faced with the volumes created by a leading product.
Mortgage application processing has always been a labour-intensive process. Inputting data and assessment of risks, together with an archaic legal process, has meant lenders have needed armies of staff to shuffle paper from application to completion. Now, with squeezed margins and intense competition, lenders will not be able to afford this luxury. Lenders are being forced to look at ways of cutting their costs and this means using technology.
There are only three ways for a lender to obtain a sustainable competitive advantage in the present mort- gage market. These are through pricing, product or speed of service.
The problem with pricing initiatives is that in most instances they only lead to smaller margins for the lender. Some lenders are innovative with their products and criteria but unless lenders are going to go down the equity release or shared equity route they will have to make difficult judgements on risk. Most lenders are therefore choosing speed of service as a differentiator.
This is significant because the regulator seems to have given the green light to mortgage brokers to choose lenders according to their ability to deliver offers and completions quickly. In its discussion paper 06/4 issued at the end of September this year, the Financial Services Authority laid out the responsibilities of lenders and distributors for the fair treatment of consumers.
It stated in Annex 2, which contains illustrations of the responsibilities of lenders and distributors, that “where it can, the [broker] should also consider the lender’s efficiency and reliability in processing mortgage applications, queries and redemptions, if the [broker] is to treat its customers fairly. For example, the lender may offer a competitive rate and low charges but the [broker] may know the lender is slow in processing applications.”
This shows that the provision of efficient systems and instant offer functionality are critical in the advice process and must be considered along with other customer requirements such as competitive rates and qualifying terms.
It also suggests that having the lowest rate in a product sector won’t be good enough. Lenders will need to deliver speed of service if this is a customer requirement – and it usually is. The use of technology is the only way to deliver the speed and the efficiency the market demands. This is good news for brokers and their clients and may lead to the eradication of application processing problems.