The Family Building Society, a trading name of the National Counties Building Society, entered the market this month with a range of products to allow families to support eachother to buy a home.
To allow it lend and underwrite to its maximum potential it has enlisted the help of an outsourcing firm.
Brilliant Solutions will take on responsibility for Family’s mortgage processing and will hand the case back when it is ready to offer. But with every hand off comes an added layer of risk and the possibility of errors – or does it?
We asked our panel of experts to consider the opportunities and risks posed by outsourcing a mortgage processing operation.
Paul Darwin, head of intermediary sales, makes a compelling argument for outsourcing but explains why it is not the right fit for Skipton.
Brian Pitt, chief executive of due diligence firm Rockstead, discusses the risks of letting go of part of your operation and gives practical advice on how lenders can protect themselves.
Matthew Arena, managing director of outsourcing firm Brilliant Solutions, says to make the relationship work for both parties technology is key.
Paul Darwin is head of intermediary sales at Skipton Building Society
Major change such as the MMR or a lender’s desire to enter a new market place often lead to internal challenges on how things should be tackled and what’s right for the business both now and in the future.
When it comes to mortgage processing what are the benefits of outsourcing versus in-house?
The decision often depends upon the size and maturity of the business. Outsourcing can be a very real option for lenders which do not have the right level of skills, expertise, time, resources or established processes to fulfil this complex role. This is particularly important when service can be a key differentiator and excellent customer experience a given.
Outsourcers can provide access to economies of scale, reduced costs per transaction as well as providing the means to perhaps more advanced technological solutions.
The ability to develop and bring new products to the market quickly and efficiently also has strong appeal. However, when backed up with a capability to meet regulatory scrutiny and manage conduct risk it can also give peace of mind.
But there are key questions which need to be considered. Will the outsourced solution reduce business risk? Will there be an opportunity to bring the processing in-house at a later date? Will it enhance performance and protect your brand? Will the outcomes be achieved effectively within desired timescales?
If the answers are yes, the reasons for outsourcing can be compelling. So why do lenders often retain processing in house?
I think this is very dependent on the lender’s business model. For Skipton the ability to maintain control, apply a more bespoke approach to the decision as well as a human touch has long been a key differentiator for us which is the key driver behind our decision to keep our mortgage processing in-house.
Brian Pitt, chief executive of due diligence firm Rockstead
Outsourcing aspects of mortgage processing has been common in the UK mortgage market for decades. Even within retail distribution, it was common to allow local brokers to collect and collate supporting documentation in support of mortgage applications back in the eighties. The reason was simple; it saved time and as a result cost allowing a focus on sales not process.
So the benefits of outsourcing for lenders was clear, but what of the risks? Frankly, there were few. But there was a flaw in the relationship between lenders and outsourced suppliers then and it remains in place today; the risk is that the supplier is effectively like the king that wears no clothes. It may appear to have distribution power and in-house expertise, but is that verified? Even after regulation appeared in 2004 most lenders did not carry out even basic checks to make sure outsourced suppliers had sustainable business models. It was proven after the financial crisis that most of them did not.
Now of course we have more regulation designed to protect the consumer, more hoops for firms to jump through to get regulatory approval and lenders still choose to outsource good chunks of the mortgage process.
If you follow the principle that the closer a manufacturer (lender) is to its ultimate customer (the borrower) the easier it must be to ensure compliance throughout the sales and after sales process, then the involvement of a third party processor can expose a lender to risks. It can lead to a lack of direct control and regulatory risk, reputational risk and ultimately the potential for fraud.
But they can all be mitigated by carrying out proper due diligence. Check out the company registration and financials, establish who the directors or owners are and carry out background checks on them. Ask for evidence of the PI cover, look at its terms of business, internal compliance structures and make sure the principles of business match that of the company appointing it.
Matthew Arena is managing director of outsourcing firm Brilliant Solutions
Outsourcing mortgage processing is nothing new but does it really fit in today’s highly regulated lender market? Mortgage regulation is not going to be relaxed and therefore the cost of compliance is only ever going to increase resulting in an upward pull on the price of mortgage products.
With an increasingly competitive market the downward push to gain a competitive position makes it more likely that lenders will look at an outsourcing partner but will need to balance the risks and the opportunities.
Technology is an ever increasing facet in the lending market. Whilst is it fairly easy for an outsourcing partner to integrate seamlessly with a lender it is imperative that the technology is flexible to meet the lender’s individual requirements to maximise this opportunity.
Technology is an essential element of risk mitigation as long as the platform ensures that the lender remains in control enabling it to have the ability to review any case at any time during the process together with a full digital audit trail on all case actions.
An outsourced proposition can enable a lender, particularly a new lender or a smaller lender, to use its valuable staff to underwrite more and process less thereby growing the business without necessarily increasing headcount.
The technology enables the interaction between the outsourcing partner and the lender’s underwriters to be a marriage made for service to both the customer and the intermediary.