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Dreaming of the perfect cascade

The lender community is continually looking for enhancements and upgrades for its intermediary websites to deliver better service. A trend among lenders, particularly in the sub-prime sector, is to provide an online cascade system for brokers.

This type of system reduces the work needed to source the correct product. The broker only has to input data once and if the first product is unsuitable or the borrower is rejected the system will cascade down the product range to find the next most suitable product. The system will then produce a decision for the borrower on the chosen product subject only to confirmation of income and valuation.

BM Solutions introduced a cascade system in October 2003 while Platform and SPML launched their versions in the summer. More recently, GMAC-RFC upgraded its point-of-sale system to provide its own cascade functionality.

According to statistics from the Council of Mortgage Lenders, GMAC-RFC is now the country’s 10th largest mortgage lender. It now claims to have a mortgage product for everyone – mainstream, self-cert, buy-to-let and sub-prime.

GMAC-RFC undertook extensive research before launching its system which revealed a ready market for the service. Brokers were asked if they would use a cascade system and 42% said it would be a huge help in saving time searching for alternative lenders or products. Another 53% thought it would be useful as long as there was a suitable alternative product offered.

The research also revealed that, according to brokers, approximately 15% of mainstream and 20% of self-cert mortgage applications are declined initially. A quarter of mainstream declines and one-third of self-cert declines are due to adverse credit, highlighting the need for a product range that falls midway between mainstream and sub-prime.

This means that the broker and therefore the customer has a far better range of attractive options with a cascade system than simply falling straight into the sub-prime category.

As a result of this feedback, GMAC-RFC introduced its version of cascade products on both its mainstream and self-cert range. This provides a bridge between these products and sub-prime which gives brokers a better chance of completing deals quickly and without complications.

These services will, no doubt, save brokers time. But brokers must be careful there isn’t a better competitor product within their lender panel. If a case is rejected initially and a cascade system finds an alternative from the same lender’s range, the broker still must ensure that this is the most appropriate product for the client. If the broker is whole of market it still has to search all lenders on its panel to find an alternative.

A better system would be one that includes all lenders in the broker’s panel in the cascade and could identify a suitable product and deliver the decision instantly. I think the market will have to wait some time for this development.

Frank Eve is managing director, Frank Eve Consulting

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