UK mortgage lenders face a growing challenge as the mortgage approval process becomes increasingly complex. When the Mortgage Market Review (MMR) comes into effect in April 2014, the Financial Conduct Authority (FCA) will require lenders to complete affordability assessments and to verify income in all circumstances.
As mortgage brokers introduce significant levels of new business to lenders, pressure will intensify for them to play a role in the compliance process as vital partners with lenders.
Although the primary responsibility for ‘Know Your Customer’ (KYC), income verification, affordability assessments and credit approval will always lie with lenders, there is an important role for brokers to play in the process.
Lenders will always, to some extent, rely on brokers to capture key information for KYC and credit approval. In part, lenders expect brokers to collect application information in return for their commission payments.
However, from our work with lenders, we know that they often have concerns about the accuracy and completeness of information provided by third-party advisers.
Dealing with brokers, or any other third party, will always represent more risk for lenders. That is not a criticism, merely a statement of fact as another step is introduced into a process which already comprises numerous points for potential error.
We believe brokers can take proactive steps to improve their perceived value to the lender. They can do so by adopting best practice to collect all necessary information from prospective customers and then to verify this data before presenting customers to lenders for consideration and approval.
Brokers can help lenders satisfy KYC, customer ID and address requirements by employing a range of data tools on the customer information they collect. While lenders usually use these tools at a slightly later stage in the review process, brokers will help build trust with lenders by demonstrating that they can provide a high quality, accurate, complete and timely customer introduction service.
Customer ownership is always a hot topic amongst brokers and lenders; both believe that they own the primary relationship. When it comes to the responsibility for the fiduciary and compliance duty under the new Prudential Regulation Authority (PRA) and FCA, respectively, there is no question that it will continue to sit with the lender.
However, if a broker is found to have acted carelessly or unscrupulously, the lender may look to them for redress in the event of financial loss through PRA or FCA penalties. It will, therefore, benefit brokers to continually and proactively review their own processes, and put into place systems which allow the quick provision of evidence regarding checks and verification carried out, to prove they are committed to following compliance guidelines.
We’ve already seen Santander introduce payment on quality in an attempt to enhance their relationships with their broker network. Other lenders may follow this example to offer preferential terms to a network of brokers who demonstrate that they can be trusted to consistently deliver customers who meet the lender’s desired profile and assist the lender to meet new compliance guidelines.
The place for the use of brokers remains as strong as ever – but brokers do need to take proactive strides to fully establish their worth. A good broker’s experience should be invaluable in helping lenders find the right customers.
Validating all data and information a broker provides against independent data provided by CRAs such as Equifax will ensure their reputation isn’t undermined by putting forward fraudulent or inaccurate applications.
By operating best practice, brokers reduce risks to the lender which in turn builds a relationship based on trust. Using CRA data helps brokers achieve best practice to the benefit of both parties and, most importantly, the customer.
