View more on these topics

Bad lending decisions can damage brokers

Lenders are making increasing amounts of data about client default levels available to brokers.

They are even suggesting that they will monitor the overall performance of brokers, distributors or networks based on a number of quality measures including how long clients stay with them and default levels.

You can’t blame lenders for doing this, especially after the report by the Citizens Advice Bureau last September which suggested that as many as 4% of mortgage holders have missed payments to their lenders – considerably higher than the industry had thought up to then.

But the question remains as to whether it is right to penalise the brokers who place these mortgages.

There are numerous cases of lenders writing to brokers stating that they have decided not to take more business from them due to a quality review.

This might mean that out of 50 prime cases a broker has placed, five could fall into arrears and the lender may decide that a 10% arrears level is unacceptable.

Clearly, there is a requirement to know your customers but brokers might only know many of their first-time customers for a matter of hours.

Consider this scenario. A client is put through a robust credit check and credit scoring process. Their broker completes and satisfies all the requirements when it comes to money laundering processes, identification and supporting paperwork.

The lender involved has a de-tailed credit account information sharing history system. It asks for employer and lender references as it sees fit and the client happily makes regular payments on their mortgage for several months. But suddenly, due to a change in circumstances they default on their payments.

Why is the broker responsible when they have adhered to all the lender’s checks and the lender has set the credit scoring and profiling limits and criteria for lending?

By using monitoring systems such as Nat-ional Hunter, lenders also track multiple applications and are able to access the data under which applicants have been placed with other lenders.

On the face of it, this is an excellent fraud detection tool. But there are a number of circumstances in which brokers – based on lenders’ requirements – might have placed genuine applications.

For example, one lender’s self-cert mortgage criteria might be based on net income from accounts, an-other’s on turnover and yet another’s on projected income.

When a lender checks the income declared on the other applications it may appear a broker has changed the income but in fact all they might have done is provide what the lender asked for in its criteria.

I am not suggesting that these checks should not be used and if poor advisers are driven out of the industry it will help us all. My point is that an ill-thought through decision by a lender, especially when a broker has no process of appeal, can have a devastating impact on a broker’s business.

Losing a high street name from a broker or network’s panel restricts client choice, especially at a time when more lenders are promoting retention products.

Recommended

Harry Potter boosts property sales

The popularity of the Harry Potter films has been driving house sales and boosting the economy in Alnwick, the location of the Hogwarts set. The small Northumberland town was first made famous by the Harry Potter film The Philosopher’s Stone in 2001 when it played host to Hogwarts, the famous school for witchcraft and wizardry […]

Leads firm overwhelmed

Paaleads.com says it does not have enough brokers to cater for the influx of mortgage leads that has followed January’s shock interest rate rise.The lead distributor has seen a surge in the number of people seeking mortgage ad-vice since the base rate was upped by 25 basis points.But it has had to turn down potential […]

Mortgage Angels launches marketing database

Mortgage Angels has launched Angels Media to provide database marketing services and support to mortgage intermediaries and lenders.Angels Media will provide intermediaries and lenders with access to its comprehensive consumer and intermediary database for cross marketing and new business development. The consumer database includes some 360,000 contact details and the intermediary database some 30,000 brokers. […]

Newsletter

News and expert analysis straight to your inbox

Sign up