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A straight case of excellent service to the customer

Last week a debate broke out between a number of non-conforming lenders as to whether cascade lending was in the customers’ interests and if there were any regulatory issues. This issue deserves examination in more detail.

For many intermediaries that don’t conduct a great deal of non-conforming business this whole issue of cascade underwriting may seem at best a mystery and at worst irrelevant. The principle is a straightforward one: the intermediary submits a case to a non-conforming lender, at which point there are two obvious outcomes. The case either fits on the terms submitted and during the processing and underwriting stage no information is received to change the selected product.

The second scenario is that new information comes to light during the process that changes the selected product. With cascade underwriting the lender finds the alternative best fit in its criteria to make an offer of a mortgage to the customer. I would suggest that this is no more than excellent customer service. What is clear for all intermediaries is that cascade underwriting does not remove any of the intermediary’s regulatory responsibilities as laid out in MCOB. There will need to be careful and detailed record keeping of all the actions taken on a particular case. Remember if it has not been written down it has not happened from a compliance perspective.

It is worth recalling that in many cases the clients who are eligible for non-conforming mortgages very often have complex circumstances. Additionally in some cases vital information that is withheld by the client at the time of application can, as we all know, have a very deleterious effect on the progress of their application.

There is little that any of us can do to ensure clients give truthful answers to fact find questions. It is of course in their interests but there is always the temptation for the client to gloss over vital information.

The central issue is that clear and unambiguous communication with the intermediary, X, is not available but Y is an option. At this stage the intermediary can replace the case with another lender.

There is also another very powerful force at work here – choice. The intermediary might wish to research the market and find other options. Remember in some house purchase situations the difference between having a mortgage offer and not having one can mean losing the purchase. Additionally what is clear is that some clients’ circumstances are highly complex and the possibility of getting a fit with another lender, at what can be a late stage could be very difficult indeed.

I am firmly of the view that the non-conforming industry has built its reputation with both intermediaries and customers by saying yes to applications that others refuse. With that in mind cascade underwriting fits very comfortably with the whole concept of non-conforming lending. After all how many clients have said when you have recommended a non-conforming lender “I’m amazed, I never thought a mortgage would be available for me”? Non-conforming does exactly what it says on the tin.

From my perspective, cascade underwriting seems to be a sensible customer-centric solution based on the good old fashioned principle of customer service. Long may it flourish.

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