Making money as a mortgage adviser is not as easy as some people outside the industry believe but it can be made a lot easier by working effectively and efficiently. Over the last few years the industry has done a lot to clean up its image and make itself more transparent to borrowers, something which can only improve further when the Financial Services Authority (FSA) takes over as the industry regulator next year. However, competition and the costs of statutory regulation could make it even harder to earn money, unless advisers can guarantee clients a fast, efficient service.
Many advisers would retort that speed and efficiency are things that are painfully reliant on lenders, but there are a number of basic areas which can help push an application through faster.
The fees paid to a broker on the average mortgage case are typically 0.25% to 0.5% of the loan for prime business (£200 to £400 on a £80,000 mortgage) and up to 1% of the loan (£800 on the same sized loan) on sub-prime products. These fees have to cover everything: the cost of prospecting for new business, administration and business overheads and it is therefore important that brokers run their businesses as efficiently as possible, in order to maximise retained profits and maintain a healthy cash flow.
This is why it is so important for brokers to give mortgage applications the best possible chance of passing through a lender’s underwriting process without encountering unnecessary delays. It is not simply a case of ensuring that clients receive a fast and efficient service ‘ a laudable objective in itself ‘ but it is also about reducing the cost of re-work which erodes profit margins.
Re-work is a serious issue in the financial services market place. It has been estimated that approximately 50%, if not more, of all mortgage applications involve some form of re-work. At best, this can be a quick phone call to obtain missing information and at worst it can involve a mortgage application having to be re-submitted for underwriting. Whenever re-work is undertaken, it frequently involves the broker having to obtain further information or documentation, or having to refer back to their client to clarify information already provided.
Although tedious, the old adage, ‘time spent in preparation is never wasted’, really does apply. If brokers can cut down on the amount of administrative tidying up of inaccurate or incomplete applications, they can spend more time prospecting for new business and generating further income.
There are a number of steps that can be taken to ensure re-work is kept to a minimum, and while many appear obvious, it is surprising how many applications lenders receive where basic steps have not been followed, and therefore need to be addressed. The good news is that to eliminate re-work involves no extra costs or additional investment in the business.
The most obvious point is to ensure application forms are completed in full before being sent to the lender. All too frequently applications arrive with vital information missing and the application is then held in a pending file until the additional information is obtained. It sounds like a simple error, so why do applications arrive only partly completed?
Lender research has revealed a number of things to look out for. The first is that the broker simply overlooked a key detail ‘ making a note of the product being applied for or interest rate are good examples of this. Secondly, some brokers believe, incorrectly, that by submitting an application even though key information is still needed from the applicant, will at least enable the application to be keyed onto the lender’s system and be underwritten, subject to sight of the missing data. This simply does not happen. If data is missing, the application is put onto the system, but progresses no further until the missing information is supplied.
In reality, this is usually the start of a process of extensive chasing for information. The third reason is lack of checking. When an application is being submitted, give the form a final check before sealing the envelope. All too often applications are submitted without the client’s signature ‘ a trivial error which can easily be eliminated by carrying out a quick last minute check.
Another key failing is when an application is sent in although there is some doubt it will be accepted. In borderline cases advisers should routinely get a decision in principle before going to the trouble of submitting a case to a lender. Most lenders give decisions in principle and many have e-mail and website facilities which enable brokers to do this quickly and easily. If a decision in principle has been given on a case, it should go through the approval process without problems, assuming the application package is complete.
It is easier to spot which cases would be accepted by a lender if they have accepted similar cases in the past. Therefore, getting to know lenders firms and becoming familiar with their criteria can also reduce delays. All lenders’ criteria will differ and it is easy to make a simple mistake, such as assuming the minimum loan amount or LTV, when in fact it is slightly different to the norm and therefore rules out a client’s application. All lenders provide reasonably detailed product information guides and many are downloadable from the internet.
A major cause of delays is when brokers are less than truthful about their client, or when the client is economical with the truth themselves. If clients have CCJ’s registered against them, there is no point trying to sweep such an issue under the carpet and hoping the lender will not notice, because they will. The underwriters will then take a closer look at the entire application and it may have been faster to submit the case to a lender which does accept applicants with CCJ’s in the first place. If a borrower does have a CCJ recorded against them for a modest amount which can be easily explained, then talk to the lender about it. Lenders are increasingly willing to accept cases with minor adverse credit, if they understand all the circumstances.
Lenders appreciate that, on occasions, clients are dishonest with brokers and the first a broker knows about a problem is when the lender tells them. If brokers are at all suspicious that a client is being dishonest, they should spend a couple of minutes explaining why it is in their interest to let them know everything about their financial circumstances.
If a lender’s request for additional details appears to be unreasonably bureaucratic do not ignore it. There are no superfluous questions on application forms, and everything is there for a reason. Money laundering regulations are a good example of this. These specify that a lender must obtain two forms of identification from the borrower. This is not an option, it is compulsory and lenders can be fined if they fail to comply with this requirement.
As a follow on point, check that all supporting documents are included in the application pack. Again, this is painfully obvious to most advisers, but it is much easier to get bank statements, payslips and proof of identity when face to face with the client, than chasing them by phone later and hoping they remember to put it in the post. It is also worth checking the dates on the documents that are supplied. If, for example, payslips are a few months old check with the lender if this is OK, as it may require more up to date copies. The client can usually be encouraged to find up to date copies during a face to face meeting, but this task becomes more difficult over the phone a few days later.
Keep in touch
If all the procedures have been followed up to now then brokers should not be afraid to be persistent. If an application has been turned down on an underwriting technicality, but it seems as if a lender has missed a vital point, get on the phone and talk it through with them. The adviser will inevitably know the client better than the lender and be able to fill in parts of the jigsaw that lenders cannot do for themselves.
However, on occasions things will go wrong and in some cases the fault may well be that of the lender. If things start going wrong, the fastest solution is to work with the lender and the client to resolve the problem as quickly and efficiently as possible. This is where having a good working relationship with underwriters and processing staff can pay dividends, as people will always go that extra mile to help someone they have developed a good rapport with over the years.
Submitting mortgage applications so that they stand the best possible chance of being processed without unnecessary delays, is not complicated. It is about being methodical, paying attention to detail and not trying to cut corners. At the end of the day, we all have a vested interest in mortgage applications being processed successfully ‘ our livelihoods depend upon it.
Almost half of all mortgage applications need some reworking, even if only for small details.
Sending in semi-completed applications will not get the process moving.
Make sure clients are truthful as deception makes the process take much longer.