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MMR: The beginning of a beautiful broker-lender friendship?

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  • 30/04/2012
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MMR: The beginning of a beautiful broker-lender friendship?
As the industry continues to dissect MMR CP11/31, one big question remains: will regulation bring a closer bond between lenders and intermediaries or drive them apart?

When the latest MMR proposals landed on our desks before Christmas a few key proposals jumped out, including the regulator’s decision to give lenders sole responsibility for assessing affordability and verifying income.

This would see lenders more involved in the application process and the FSA has said this could potentially “lead them to prefer direct sales over introduced sales” as lenders move further up the sales process into an area previously undertaken by intermediaries.

Mike Jones, director of intermediaries at Halifax insists that the most effective way to ensure compliance would be to place measures that enable documentation to be submitted at the point of sale.

“If the application is through the mortgage broker they must always submit the paper documentation to evidence the applicant’s income.

“An alternative would be to put in place a robust system of due diligence to allow the broker to hold the documentary evidence, although from a risk perspective the information would be lost for example if the broker ceased trading. If either of these processes were adopted, additional processing costs would be incurred.”

Jonathan Clark, mortgage partner at Chadney Bulgin said that under the FSA’s proposals on income verification, working with lenders to complete the mortgage process could potentially bring them closer together.

He said: “Lenders being ‘ultimately responsible’ for mortgage affordability means that brokers and lenders are going to have to work closer together and we can expect closer scrutiny and in some cases auditing of the evidence gathered.

“This means that a good broker will have to have a more detailed knowledge of which lenders will lend to their clients and in what circumstances, the days of just obtaining the last three monthly pay-slips are numbered.”

Jonathan Burridge, adviser at Burridge.eu added that the proposal on income verification should enable more applications to be broker-placed more efficiently.

“Strong and reliable affordability tools should enhance lender-intermediary relations as all too common a deal falls over between AIP and application because of affordability. Brokers need to understand how a lender makes its affordability assessment so that we can ensure appropriate applications are made.”

In the latest MMR paper the FSA also said that under non-interactive sales, no advice will be required where there is no spoken or other interactive communication in the sale. This means in the case of purely online and postal sales and consumers will be able to purchase without advice – except for those classed as “vulnerable.”

Under this proposal, the FSA is leaving the door open to online execution-only sales, giving lenders an incentive to set up efficient online systems to provide an execution-only offering to existing customers.

Halifax said that it recognises that online is an increasing market, despite low pure internet sales.

However, Clark said that while lenders may begin to pay greater attention to their online offering, the relationship between lender and intermediary will not be impacted.

He said: “I believe that the majority of customers will still require an advised sale for such an important decision and brokers will still play a vital role here.

“Although banks are increasing the quality and qualifications of their staff in anticipation of the requirement for an advised sale in most cases, the average broker is ahead of the game here.”

Jones added that one unintended consequence of interactive sales may be the “future growth of ‘internet-only’ lenders who would not be required to offer an advised service.”

“Such lenders should have an alternative, possibly interactive channel in place where the applicant feels when completing the application on the internet, advice is needed.”

As the countdown begins for the MMR rules to come into force, only time will tell whether the broker-lender relationship will be strong enough to handle the changes set to impact the market.

 

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