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Five Aspects Of Unsecured Credit Servicing We Can Apply To Mortgages

06 October 2021

In today’s mortgage market, where vanilla is no longer the norm, we have had to adapt loan servicing technology and practices to an increasingly fragmented and complex world. Certainly lenders’ expectations of Business Process Outsourcers are far from simple, and the old world of quietly and methodically running billions’ worth of homogeneous, safe, low risk prime mortgage books is a relatively rare job.

Post-2008, many smart lenders, funders and servicers were quick to adapt to the “specialist” opportunity, and the many guises and directions this could take. Here in the present day, the consumers that fit into the specialist category are becoming the majority.

In the unsecured credit markets, meanwhile, there exists a similar cohort of lenders, funders and servicers - who have succeeded by methods less unfamiliar than we might think.

Here are five examples of how the mortgage sector can borrow best practice from our neighbours in the unsecured lending space, and successfully apply those aspects to secured credit.


Flexibility

It can be argued that a portfolio of unsecured loans will by nature contain far more variety in terms of different people with different circumstances. And with that comes complexity.

Flexible

A servicing platform for such loans will therefore be set up to accommodate more product flexibility: the lender can configure lots of product differences such as payment dates, drawdown facilities and interest rates, all of which is common in unsecured lending and becoming increasingly similar in mortgages.

This flexibility is applied to underwriting too: if a lender can more clearly see each customer’s information and apply it to policy, this can open doors to more customers and better fit products.

And finally, this opens up the possibility to make servicing more personal – as more and more customers expect the ability to view their accounts and make adjustments via their own self service portals, this is naturally becoming standard in the mortgage space too.


Shorter Term

As specialist lending becomes mainstream, old-fashioned set-and-forget 30-year products are being outnumbered by short and mid-term loans such as bridging, developer and second charge.

Any system that was built to handle unsecured loans will therefore inherently have the functionality to cater for much more fast-moving and fast-changing mortgages. A bridging loan for example can be a 9-month product, but within that time a lot can happen.


Scale

Apart from the biggest high street banks with the lowest-risk prime books, everyone in mortgages has become accustomed to dealing with volatility and spikes in volumes.

Whether a lender has vaulting ambitions to originate huge volumes of loans, or simply wants to be able to process the applications they have with maximum efficiency, they will need to know that their system can cope with volume.

Scale

To take an example from the unsecured world, one of our teams processes a credit application every five seconds whenever a new iPhone handset is launched. No mortgage system will ever need to cope with such scale, nor could it because of the relatively manual process – but such a demonstration of capability becomes relevant when we consider that the same consumer applying for handset finance will likely also have been promised “an answer within ten minutes” on a mortgage application and therefore have high expectations.

Everybody in mortgages is talking about this frictionless process: the ability to offer a loan that goes straight through automatically without any intervention.

And even in specialist mortgage lending, if your system is geared up to deliver 80% of your business by automation, this frees up more resource to handle the 20% that needs it.


High-touch

Today’s customer is slowly but surely becoming more aware and savvier about finances, and with interest rates where they are now, people take more of a concern in managing their own affairs.

As online and mobile banking become ever more intelligent and interwoven in people’s lives, people in turn are becoming more attentive and information hungry. They want a real-time dashboard and the ability to manage and configure their accounts themselves, without needing to wait on hold for a helpline.

This is already the norm with current accounts, car loans, credit cards and so on – and inevitably mortgages will follow. Mortgage customers will want to consume more information and will expect the same sort of self-service portals as a minimum.

This is by no means bad news for the industry. By giving mortgage customers more ability to see and do more of the basic functions for themselves, we can reduce a lender’s operational overhead, again freeing them up to focus on the more complex cases that require human intervention.

And with contact centres struggling so much post-Covid, there has never been a more important time to shift to a better way.


Risk

Lenders still have to make sure their risk is protected, but good underwriting means wider understanding of each customer as individual. The unsecured world has moved successfully towards the retail model, and mortgages are catching up.

Risk

As outlined above, customers have grown accustomed to quick and easy credit applications – and the tech that supports this will also allow the same convenience with mortgages. Alongside the development of credit risk scoring, predictive algorithms and online dashboards has grown a generation of more aware and educated consumers.

This has led to a certain common ground between secured and unsecured lenders around credit risk scorecards. Historically a mortgage risk policy was very rigid and inflexible, but in today’s economy lenders have had to be more flexible to accommodate the increasingly varied nuances of customer risk profile.

Given, for example, the ever-increasing likelihood that a home buyer will either be self-employed or contracting, our definition of good and bad risk has had to change rapidly.

Of course a mobile handset and a house purchase are not the same, but the customer often is.

EQ Credit Services delivers market leading loan technology and outsource services, talk to the EQ team or see the solutions we provide.

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