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Robot intelligence?

Computers and the internet are rapidly changing the face of the mortgage market but the robotic-like service could be doing more harm than good and damaging the personalised service clients used to receive.

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When it comes to technology, the pace of change is unrelenting. It seems incredible to think that the world wide web has only been around since 1989 when the British computer scientist Sir Tim Berners-Lee came up with the first successful communication between a hypertext transfer protocol client.

Fast-forward 24 years and you are now considered at a massive social disadvantage if you don’t have access to the internet.

Computers and the internet have had a tremendous impact on the mortgage market as well both at the back-end, in terms of how lenders process cases, and front-end as brokers advise clients. Gone are the days when lenders and brokers would rely on rates being posted or faxed to them and instead rates can now be sent electronically to sourcing systems and providers.

Sourcing system provider CDS Group’s marketing director Richard Hurst first joined the mortgage market in the late 1990s at Bristol & West and remembers printing up rate sheets and posting them to the 300 branches the bank had at the time.

“When products were agreed, it would take two or three days to get it out to the entire marketplace, where as now once you’ve got a product, all it can take is a single email to your sourcing system and it can be out in minutes,” he says.

And in terms of how brokers advise clients, there has been a large focus on new innovative technology within the mortgage sector in the form of web-based services for lenders and intermediaries with the aim of speeding up client service times as well as smartphone and tablet applications, enabling a more interactive approach for both the client and the adviser. With a critical mass of people now sporting smartphones and tablets, firms are now launching applications that consumers and brokers can download to help them source for products and check up on how their mortgage is progressing.

But is this a case of the mortgage sector simply moving with the times and improving services?

“Computer-says-no” is a catch-phrase made famous in the UK by a sketch in Little Britain and has come to encapsulate how people view lenders’ attitude to lending.

The rise of the robots, whereby lenders automate their underwriting and rely on computers to decide whether clients fit their criteria, has been the bane of many brokers and borrowers trying to secure a mortgage.

Could technology potentially diminish the personalised advice clients have previously received and cause more damage to an industry already struggling industry?

Back in the old days

It hasn’t been that long since brokers found out about mortgage products brokers via magazines, through the post or via fax.

Now lenders and mortgage sourcing systems are constantly updating product criteria on their websites and brokers are able to manage their businesses via client relationship management tools.

“We didn’t have things like automated valuation models and we certainly didn’t have the internet in terms of mortgage processing so essentially one was working in terms of getting updates from lenders on product changes through the post, not by email,” says John Charcol senior technical manager Ray Boulger.

“The increased speed that is a possibility now due to the internet and clearly the way that processing is done is dictated by the online environment. When lenders get an application they do an immediate credit check and they will have an immediate credit score so that is the biggest change.”

Hurst, who in the past has also worked for sourcing system Trigold, says it was about 2000 when sourcing systems started to make their presence really felt and started to be used to a significant degree.

But he says it was in 2004 when there was a real explosion in people using as regulation of the mortgage market by the FSA approached.

“It is a well worn phrase, but the burden of proof was suddenly elevated,” he says.

“It wasn’t that you were doing the right or wrong thing, it was that you had to prove what you were doing and I think even though roughly the same document was being produced, you had to evidence it now, and so for a system to do that for you everything became more complicated.”

Phoebus Software managing director Paul Hunt says that from a lender perspective, regulation has been a driving force behind many of the technological innovations in the market.

“Every time some new regulation comes up people go “hmmm, can we do that?” – in most cases the answer is probably not,” he says.

And once the downturn struck many lenders have actually slowed down their systems he says to allow some manual intervention.

“In the old days pre-2008 people were trying to automate as much as possible to reduce the cost and increase the volumes that they could put through,” he adds.

Present day systems

Fast forward to the present day and the mortgage sourcing and back office solutions now available means brokers can now use simple software to effectively complete all aspects of the mortgage process, from initially contacting clients right through to mortgage completion.

Major technology providers like Mortgages Brain, Avelo Trigold, IntelliFlo and CDS Group are all looking at or already launched cloud based client relationship management systems or app based sourcing for interemediaries to use.

Mortgage Brain offers a mobile sourcing app for consumers called UKMortgages and it recently revealed the app has been downloaded by 50,000 consumers since its launch last April.

It also has Find a Broker button on the app which generates a map and allows consumers to locate brokers that have signed up to the service in the local area.

Mortgage Brain says broker contact details have been viewed more than 20,000 times, generating 2,000 mortgage leads which works out as a lead for one in every two brokers listed in the Find a Broker service.

Avelo Trigold launched its first mortgage app for iPhones in 2010 and in April will launch an app that has been created specifically for the iPad and iPhone, allows advisers to source and research mortgage deals alongside the client using the device.

Avelo head of intermediary Sophie Hall says it is important for the adviser to have this interactive sales process with a client.

“We build these applications so that the broker can hand the iPad to the client and say ‘do you want to run it’?” says Hall.

“I think it builds up this passive adviser scenario where historically what happened was a broker went and did the research and it wasn’t a particularly interactive process in terms of the client going on the journey with the broker.”

Boost to business

While Hall says it is unlikely these interactive apps will necessarily increase business volumes, there are a number of benefits to be gained from them.

“If someone is sitting in front of you and you have the right tools, I think you will be able to rationalise very quickly and determine who you can give a loan to as opposed to who is not going to be applicable for a loan,” she says.

“You will be able to check everything rapidly. So it massively speeds up the process in terms of interaction with another customer and it stops wasting the broker’s time.”

Mortgage Brain are also looking to launch a pre-sale mortgage and selection app for the iPad in the next few months, which will enable the adviser to search research the most suitable mortgage deals alongside the client.

The firm’s chief executive Mark Lofthouse says the iPad app is a way of engaging with customers in the way they want to be engaged with, but it is not a replacement for valuable face-to-face advice.

“I think what it is doing is engaging with consumers in ways they want to be engaged with. Historically there has never been any solution for that tool. It won’t be for everybody but is your first port of call a person is a suit and tie, or would you go off to an app store or google?”

In an era where we rely on the internet and mobile phones in our everyday lives, it seems logical that businesses would want to develop new software integrated with smartphone and tablet devices.

But will using this within the mortgage process, or encouraging web-based products phase out the personalised advice that has been so valued in the past?

Although technology is important in the development of the mortgage industry, some believe broker advice is more valuable, and is still very much needed in order for a client to receive a fulfilling service.

Hunt believes there is an educational gap when it comes to how much clients know about mortgages, therefore an experienced professional is needed to assist the client through the process.

“Definitely there is more information available, definitely there are better ways of displaying that information, whether the borrower takes that on board is a difficult question. It is a tool but it comes down to the education of the actual borrower themselves. There is a big education gap in terms of the market. The market requires more education for the borrower,” says Hunt.

“Computer says no”

It is clear there is increased consumer reliance on technology, but is there too much reliance on technology when it comes to a client applying for a mortgage, effectively hindering the outcome?

Some brokers believe that lenders’ underwriting criteria may well be too dependent on whether their systems tell them if a client is suitable for a mortgage or not through the use of affordability calculators, rather than taking other factors in to consideration.

“When affordability calculators were launched, we were told as underwriters at that point that it was only to be used as a guide for the underwriting, says Lentune Mortgage Consultancy managing director Stuart Gregory.

“Within 18 months it became – this is what you are going to be using for underwriting now. Once they were fully implemented, it was a case of whatever the computer said, this is what you can do.”

Gregory believes that this attitude and dependency towards affordability calculators was a contributing factor behind the demise of the mortgage market, as it presented a top limit of how much borrowing could be done.

“All of the lenders did the same thing and they were all trying to out-do each other as to how much they could lend people. That was where the problems then happened. In that respect, the personal underwriting and the responsibility went out of the process.”

Ongoing reliance on affordability calculators means that clients’ mortgage applications could be flawed meaning they could be turned down for a mortgage, or receive the incorrect lending figure.

Gregory gives an example of a where the affordability calculator didn’t take in to consideration a clients’ pension deduction from his pay and the calculator estimated a net monthly income figure higher than what the client realistically took home, resulting in an incorrect lending amount.

He says this wouldn’t happen with manual underwriting and lenders should have the flexibility to influence individual cases.

“Under manual underwriting systems, where you have got physically somebody going through the payslips and going through bank statements, they would assess it totally differently and they would be able to get perhaps a better result.”

However, Council for Mortgage Lenders head of member and external relations Sue Anderson believes that regardless of the technology involved in the mortgage process, it is ultimately down to the adviser to ensure the client is reviewed correctly within the mortgage process.

“What matters is that the outcome that the customer gets at the end is that their intermediary is both clear about the range of mortgages, which they will be considering for their potential customer and also the particular rationale for the mortgages that they end up recommending or advising. How you get there is a mechanistic issue, what matters is the outcome that is being delivered,” she says.

Adapt or die

Because of this heightened consumer reliance on technology, it seems clear that if advisers do not adapt their business to involve modern technology, it could be detrimental.

Financial and Technology Research Centre director Ian McKenna says that one of the things that is crucial for advisers to understand is that the majority of consumers are researching their own information on the internet whether advisers like it or not, therefore it is important for advisers to position themselves to be the consumer’s first digital port of call.

Hunt says that clients will expect lenders and brokers to use devices such as tablets and smartphones to assist the mortgage process.

“When you start seeing lenders sitting there with iPads, people who don’t do that are going to look a little bit old and something people are going to see, rightly or wrongly, is whether this guy with the iPad has got more information and is he more savvy? You have to move with the times.”

However, Hall believes the majority of brokers are more than prepared to embrace technology and move with the times.

“Many brokers that I have been speaking to have very much all been saying – ‘We need to have iPad applications, we need to have advice diagnostic applications, we need to be doing this, because we do see a threat from the inset potentially’. But they are more than well prepared for it, they are more ready to say they need to enhance their presence on the website and to talk about SEO. Ten years ago we wouldn’t have been having that conversation with them.”

Frank Eve Consulting managing director Frank Eve believes technology will have a greater impact on larger businesses, whereas smaller intermediaries will rely on personalised advice with clients.

“There has only been one or two larger intermediaries that have been able to crack that model and generally they have cracked that model because of the way they have generated leads and those leads have come from mass media across the industry. Technology plays a part in that, but the majority of business is still transacted by small intermediaries based on client relationships. I don’t see that changing greatly.”

Embracing the future

The current trend in mortgage technology seem to be within Smartphone and Android tablet apps, but what other innovations has the industry got up its sleeve?

Recently launched is vScreen from Vizolution, a screen sharing program which enables lenders and brokers to demonstrate products on the client’s computer while talking them through the mortgage sales process over the phone.

An extension of this is vChat, an instant messaging tool which allows advisers and clients to chat via the internet on a one-to-one basis and instantaneously send documents through the system throughout the mortgage application process.

Vizolution chief executive Bill Safran says these are aimed at making engagement between lenders and clients much easier.

“Instead of having to read a script out to people, you can show things to people and they can click on buttons and investigate things so it is better for the clients,” says Safran.

And London brokerage Coreco managing director Matt Lowndes says we have a new generation coming where all they will know is social media, therefore financial services needs to ensure it is involved.

“We have got to adapt and that is just the changing metric of time. I think if we don’t embrace it we are just going to get left behind. If I didn’t have the technology we use now, I would have to employ more people just to do the paperwork,” says Lowndes.

But he adds that at times, technology isn’t all its cracked up to be.

“I think some people do hide behind technology. People hide behind emails when sometimes a five minute phone call is a much simpler way to do things.”

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The direction in which many technology developers are heading, is that they are taking generic solutions and adapting them to the financial services industry. They are taking the technology and saying – how can this explicitly support one of the key things that you need to help the mortgage market?

That does demonstrate an issue for the whole adviser community. One classification that is used is that some people are a ‘digital natives’ in that they have grown up in the digital world, whereas most advisers are ‘digital immigrants’ where they have had to adapt to the digital world in their lives.

Increasingly if you think about people who have taken out mortgages, if the state of the mortgage market was at it was 20 years ago where the majority of people buying a house for the first time were in their 20s, then virtually the whole mortgage buying public would be digital natives as opposed to digital immigrants.

This is relevant because digital natives do things involving technology innately as a matter of instinct whereas digital immigrants have to think about how to work with technology and don’t see technology as important as digital natives, who just use technology to do things without thinking.

The challenge for advisers is to embrace and adapt to working methods to get the best out of technology, while leveraging their own personalised additional value on top of that. The interesting challenge is that as the technology gets cleverer, advisers need to be moving on at the same time.

There are some firms that are clearly embracing things but I think the whole mortgage community could do vastly better. Yes, we’re a long way forward from where we were, but if you started today with a clean sheet of paper, would you design it to work the way that it does?

People are collecting information about the way they choose to live their lives in different ways today. There is no way financial services will be immune from that. Financial services is a long way behind and it is quite amazing the industry have managed to maintain the distance that it is behind, compared to other industries but it isn’t going to go on forever.

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