Mortgage sourcing systems supplier Mortgage Brain Limited (MBL) may be one of the major players in what is one of the most competitive of sectors, but it cannot be accused of delusions of grandeur. With a board consisting of most of the great and the good in the mortgage industry, and around 18,000 brokers using its products to arrange almost 600,000 mortgages per year, its offices are not in state of the art premises in the heart of the City as might be expected, but in purely functional offices in South London.
Mark Lofthouse, chief executive of MBL, is similarly low key, and his own office is so small there is barely room for a desk and two chairs. When this is mentioned he admits that this is not his top priority: ‘Our prime purpose at the moment is not offices, it is developing and delivering the premier service of choice for mortgage advisers, including online agreements in principle and application submissions. That is the technical speak, the mortgage speak is to give a mortgage promise in a couple of minutes and to concertina up the application process at the front end.’
So what is most important area in this sector, the system and its software, or the data on it? Lofthouse believes sourcing systems live and die on the accuracy of the information held on their systems. ‘It is their engine room,’ he says. ‘In our case this is why we not only input data internally but have a system where the lenders can check, and brokers see the result with our green traffic light scheme. We hope to be able to move towards guaranteeing the information. Advisers need to know that the information they are basing their advice on is correct, and assuming you have done that, then you can move towards the other things that are important.’
Regardless of the veracity of this information, there can be few brokers who still believe that the technology providers will be launching complete online trading facilities in the immediate future. However, Lofthouse genuinely believes the goal is finally in sight, although it will not be making an impact this year. ‘We have had several years of public relations preparation and hype on this issue, with e-mailing touted as e-trading, when it is actually essentially just e-posting, and an individual development of lender websites and applications,’ he says.
‘The real issue at the moment is that brokers now have a wall of post it notes with usernames and passwords, or at best a book, which if lost means they cannot work. Brokers want consistency, not ten or twenty different applications and account passwords. With the trading platform as a starting point it will take maybe two years to have the majority of brokers accessing real e-trading.’
Mortgage Brain’s proposed trading platform, the Mortgage Trading Exchange, aims to deliver true decisions in principle and true applications and submissions online. It is being developed in partnership with rival sourcing system Mortgage 2000’s own system, Encore, and is at trial stage at the moment. Those involved in the trial are receiving genuine e-trading from the first lenders to link up, Alliance & Leicester, Halifax, Nationwide and Northern Rock.
According to Lofthouse: ‘The service is now effectively in pilot and has been integrated into M2000’s Encore and our own Mortgage Broker5 since January. So there are thousands of brokers who have been delivered the exchange in terms of software and a pseudo-exchange so they can train and play with it.’
He adds: ‘The pilot is coming to a close around now and I would anticipate the roll out of the Trading Exchange and connectivity to the first lenders to be happening over the next couple of months. Obviously it will not be done on one day, that would be a recipe for disaster and meltdown. It will be released in phases.’
As with any new developments in technology, people are always wary about buying the latest product at great expense only to find that it quickly becomes obsolete, which is why the cost of the Mortgage Trading Exchange to brokers is going to be zero, with a transaction charge of £1 per mortgage to the lender; insignificant in terms of the mortgage process. Treatment of lenders will also be consistent, whether they are a lender shareholder or not.
‘The whole ethos of the Trading Exchange is that it does not take a chunk of money out of the mortgage process for commercial gain. It is being run to recover development and running costs plus a bit to cover initial investment,’ comments Lofthouse, adding that the four lenders in the pilot are soon to be joined by UCB Home Loans, the Woolwich, Royal Bank of Scotland, NatWest and parts of HBOS group.
Having been involved in computer systems and the internet back in what he calls the ‘internet ice age’, Lofthouse is sanguine about its threat, while acknowledging that it is developing to a stage where there could be real on-line competition for the sourcing systems in the future. He says: ‘What the internet is superb at is the publication and delivery of information; it is the biggest library in the world. But as for brokers, in the future sourcing systems will still be predominantly desktop based because advisers are mobile and there are natural barriers. If I, as a broker, went into a home for example and wanted to source mortgages online and the daughter was on the phone to a friend then I would be snookered. Mobile connections, if they work, are not fast enough.’
However, he adds: ‘What you are likely to see in future is that services will be on the internet as well and it will then be down to the adviser to decide how they want to work. But we have gone a long way from the days of ‘internet equals free’. None of this is in our short-term plans though.’
So what of the future? Will there continue to be a choice of sourcing systems? Lofthouse notes that other players in the industry break down according to their business focus. He says: ‘Most other sourcing companies, with the exception of Trigold, use sourcing systems to promote their packaging and club business. In terms of vanilla services there is only really us and Trigold.’
He added: ‘Going forwards, investment in technology is going to be significant across the sector, and with compliance issues needing to be funded somehow, potentially there will be some consolidation in the sourcing system market. But at the moment the mortgage market is buoyant, because rates are low and remortgage business is high. In the event that rates start to increase then the remortgage potential will start to decrease, and therefore, in theory, there would be fewer systems needed. It will be when the market begins to toughen up that we will see who the key players are.’
Having mentioned compliance, Lofthouse acknowledges that he is as concerned as everyone else in the industry over the impact of regulation on technology providers. However, like many he understands that it has to be made to work. He says: ‘Regulation has got to be a good thing in aiding the consumer in getting good and consistent levels of advice. The big issue is balancing that against it being an onerous task. I do not want to play down the potential impact of regulation but the industry already has a lot of the infrastructure in place, although there will be elements that need to be built or modified. If regulation follows the life industry, which I think it will, then there will be a reduction in the number of firms out there but roughly the same amount of people selling in the industry.’
Lofthouse is confident that, as one of the largest mortgage search engines in the market, MBL is in it for the long haul. ‘Overall, changes in the market due to regulation are both a threat and an opportunity for this sector. Our job is to make sure that the correct use of a sourcing system will allow brokers to remain compliant, whether they are directly regulated, multi-tied or work through a principal,’ he says.
However, because he entered the mortgage industry relatively late having originally been a chemical engineer before becoming involved in technology he can see the bigger picture. It is this that helped him to think, correctly, that computing would become big business and that he would give the IT industry a try after a year travelling. And it was why he initially he said he would give himself a few years in the sector and why 17 years later he is still here. And also why the products are more important than the location.