A previous article by Bob Hunt on advisers’ duty of care recently raised this important issue.
His piece missed a key point, though.
While advisers are the first line of defence against mortgage fraud and they can be liable if fraudulent activity occurs as part of a mortgage transaction, they do not have to fight the battle alone. There is sophisticated technology available to support them in defending both themselves and their clients against financial criminals.
Defending advisers
The most common type of fraud in financial services is identity fraud. ID fraud made up 61 per cent of fraudulent activity in 2019 according to Cifas, with 87 per cent occurring online.
An additional threat is income fraud – in the mortgage industry, these incidents occur when borrowers pose as someone they are not, or claim an income they do not receive, to obtain a mortgage.
We saw this most prominently with self-certified mortgages in the lead up to the 2008 financial crash.
Even if fraud only appears in one per cent of cases, the money in question could be substantial. For example, there were 58,890 home purchase mortgages completed in December 2019 alone, totalling £11.9bn, according to UK Finance, meaning fraudulent cases could amount to as much as £119m per month.
Protecting against ID fraud requires a robust solution for ID and address verification.
Performing these checks manually can be costly, cumbersome, and time-consuming. However, through digitisation and automation, these checks can be seamlessly integrated into an end-to-end mortgage process and improve the speed, efficiency, and cost of verification.
Combined with advancements like open banking to connect directly to customers’ accounts and verify income, technology is working to make it easier for advisers to meet regulatory requirements at the touch of a button.
Protecting clients
Of course, advisers must also protect their client against the threat of data breaches, which could concede personal information, client money or both.
The risks of borrowers publicising their property transactions via social media and the risk of fraudsters using these details to target emails are important, but it is also important to note that simply being an adviser makes you a key target for financial criminals.
Email is notoriously unsafe and sharing confidential documents through this medium is not only bad practice, it’s dangerous.
Again, this threat can easily be reduced by using a sophisticated tech platform that digitises data, allowing it to be stored and shared securely via the cloud. This provides an additional barrier between client information and fraudsters.
The crucial point here, and the point that advisers must be aware of, is that your duty of care against fraud is vital, but you are not in this fight alone.
By adopting the right tech platform, you can significantly increase your line of defence, and simplify your work in the process.
We have moved quickly to develop and adopt sophisticated technology to continue business as usual, as much as possible; but, of course, it has not all been plain sailing.
An immediate challenge was finding a way for brokers to access, store and send client data securely from home.
This would not have been possible without the option to digitise data and host it via the cloud, making it immediately accessible and distributable from anywhere with an internet connection.
This not only saves hours for all parties by reducing waiting and admin times, but without it, the continuation of business of any kind would not have been possible.
Sophisticated technology can also be used to verify identity online, allowing a crucial stage of the mortgage process to continue remotely and safely.
The software underpinning this can be integrated into tech platforms and then tailored with lenders to ensure it meets their requirements. This is an innovation which we need to take forwards beyond Covid-19.
Use technology to maintain strong relationships
A further challenge the industry currently faces is the broker’s old enemy – product transfers (PTs).
The current market environment has made PTs an important way to keep activity moving, but this is not a trend which we should be comfortable with in the long term.
The complications of conducting home valuations and a dearth of attractive products has caused the number of PTs to rocket.
This has made it essential that brokers are finding ways to maintain strong client relationships so they can step back in as lockdown eases.
While they will never replace the real thing, video conferencing is the best way to do this – apps such as Microsoft Teams and Zoom have successfully bridged the gap.
Video conferencing is likely to continue when ‘normality’ returns, as both brokers and clients recognise the advantages of cutting back on travel time and transport costs.
Keeping a workforce motivated
It is equally as important that managers and business leaders look after their employees, ensuring they have a motivated workforce which can continue to perform.
Studies have found that an employee’s motivation increases if tasks are engaging and rewarding.
It’s not rocket science, but minimising admin and repetitive tasks can boost engagement and create a more productive team over lockdown. Once again, intelligent tech is the answer.
As a by-product of coping with the challenges of remote work, our industry has found ways to eliminate the time spent waiting for the post or travelling between meetings.
We’ve created a more streamlined mortgage process for client, lender and broker alike.
What we took for granted
The changes enforced by Covid lockdown have led us to review and reconsider everything we previously took for granted or accepted as ‘the way things are done’.
There was nothing fundamentally wrong with many of these methods per se – from requiring paper copy documents for ID verification through to meeting clients face-to-face.
But we can all agree the innovative solutions embraced by the industry to help us navigate lockdown’s block on business as usual, have made us fundamentally better businesses.
The technology that is supporting us now is what will help us thrive moving forward.
Technology adoption is no longer an option for getting ahead of your competitors, it is a requirement to ensure you aren’t left behind.
In the role, he will create a commercial strategy for Smartr365, focusing on customer success processes to ensure users get maximum value from the platform both during and after their initial purchase.
Grimley will also lead a reorganisation of the commercial side of the business, which will involve streamlining processes and resource allocation.
He has previously held roles at TrustPilot and WeWork where he experienced integration of software as a service (SAAS) technology into businesses, which is something he will continue in his career at Smartr365.
Grimley said: “The main issue facing the mortgage industry is that the technology has often been overlooked when it comes to innovation and development.
“I’m excited to be working with a company that focuses on leading these changes and streamlining the mortgage process for brokers and their clients.
“The mortgage market is resting on their laurels and traditional views; it’s time for a shake-up.”
Conor Murphy, chief executive of Smartr365, added: “Smartr365 has always been differentiated from the rest of the market by our tech-first approach and our commitment to delivering great customer service for both our users and their clients. It’s essential that every part of our team shares that ethos, and Billy fits the bill perfectly.
“We’re excited to get going. Billy’s extensive experience of SAAS technology and customer success models will be a great asset to Smartr365’s growth as we continue to focus on delivering an unrivalled broker platform.”
The coronavirus outbreak and social distancing restrictions knocked the property and mortgage market sideways.
But out of the disruption, brokers are transforming processes and finding tech solutions to streamline business.
Time to take stock of technology
In recent years, there has been a spate of companies offering solutions for home working, customer engagement, client bank management and faster case applications and submissions.
Take-up has slowly been filtering through to the market.
But the downtime enforced by Covid-19 has meant a rush of advisers are now exploring these services for the first time.
And many technology companies have reported an increased demand for products, as a result.
Conor Murphy, chief executive of Smartr365, said: “There has been a clear acceleration in the adoption of technology, from remote working tools, to CRM platforms and digital ID verification.
“We’ve seen growth in both engagement and sales figures as brokers embrace the technology available to support their business and clients through the lockdown.”
New tech here to stay
Many advisers are realising now is the time to make the digital changes that will keep them relevant with customers, not just now, but into the future.
Practices adopted at this time will continue after coronavirus, according to Mark Lofthouse, chief executive of Mortgage Brain.
He told Mortgage Solutions: “We have experienced an increase in demand for us to build new websites for advisers and sourcing plug-ins for those who have a website, which enables customers to self-service and then contact the adviser to progress.
“About 24 per cent of advisers don’t have a website, and the effect of coronavirus is that we’re seeing more advisers embrace the digital channel.”
And the brokers who are using this time to build their digital expertise will find themselves better placed to ride out the Covid crisis and come out in good shape.
Rameez Zafar, chief executive at Eligible, which offers software to manage client databases, said: “Many business owners and managers lived through 2008 and know in these types of markets you need to be decisive and embrace what’s changed.”
Maria Harris, financial services consultant and founder of Digital Cat Consultancy, said: “Now that we’re starting to see the first tentative lock-down exit plans, it feels like social distancing and reduced office-based working is going to be here in some format for the foreseeable future.
“For brokers and lenders to survive and find a way through the long-term impacts of Covid, embracing digital technology and being able to adapt quickly to new solutions and potentially a different shape of market is going to be key.”
Security barriers overcome
In the past, security concerns over technology have prevented wider adoption, with some areas of the market distrustful of wider digital services.
A constant stream of data hacks and the increase in fraudsters plays into these fears.
However, technology has fought back against these threats.
Harris continued: “The biggest industry barrier previously to using digital channels was security and managing risk, so we’ve seen a corresponding uptake in tools for electronic identity and verification, anti-money laundering etc, which has helped mitigate any concerns around impersonation or identity fraud.
“These solutions have been around for a while and some came directly from the Financial Conduct Authority (FCA) sandbox so it’s encouraging to see them now getting the traction and credit they deserve.”
For example United Trust Bank, of which Harris is a non-executive director, has recently extended the use of its facial recognition ID verification tool, removing the need for customers to meet face to face with solicitors to prove their identity.
The changes will ultimately benefit the customer who will stop having to perform the same checks multiple times, Harris added.
Innovation on steroids
Out of the current crisis, we can expect a spate of innovation and reinvention, as start-ups and innovators work to create solutions for the new normal.
Existing system providers have been rolling out new functionality and tweaking offerings to help better support the industry with working.
At the same time, banks, lenders and providers have been quickly working to improve desktop and automatic valuation models that don’t require physical visits to properties.
Ross Boyd, founder of mortgage comparison site Dashly, said: “Times of economic disruption are almost always followed by innovation and businesses generally being more open to new models and technologies.
“We saw that after the global financial crisis when countless new platforms emerged, and it will almost certainly happen again this time round.
“In fact, we could see innovation on steroids such is the magnitude of the current economic crisis.”
He added: “What we’re also now seeing is larger, more established firms that previously hoped to build these tools in their own roadmaps becoming more open to working with smaller technology partners to utilise the technologies far more quickly.”
Tech firm mergers
James Tucker, chief executive of Twenty7Tec, said he has seen the current environment as an opportunity, with more time to work through and find solutions with his team, as they ask “what can we deliver on really quickly that will add value to the market at the moment?”.
The market will be forever changed by the Covid crisis, according to Tucker.
He said: “Processes and experiences that are not great from the customer point of view are going to be replaced by slicker tech with brokers who want to embrace that.
“There’s no way customers are going to want to fill-in papers, they are going to want to do it online.”
However, it could also be a time where a lot of consolidation of tech firms takes place, as some smaller firms struggle to access funding in the current climate.
Tucker said we could see some small firms potentially go out of business but added that Twenty7Tec is “very much in the market for acquiring businesses”.
The lender is currently live with five broker firms piloting its pre-population API link which works through the Smartr365 and Twenty7Tec systems.
This pre-populates the Barclays application system with details from the fact find, reducing the amount of data the broker has to re-key.
“There’s still some re-keying – obviously every fact find, every sourcing is different so the question set isn’t necessarily standard,” Craig Calder director of mortgages at Barclays told Mortgage Solutions.
“It takes all the data that’s within the fact find and sourcing and pre-populates it into the Barclays application system.
“It takes all the bits that it possibly can and then leaves the bits which are more specific to Barclays or might be questions which have not been asked in a fact find,” he added.
API roadmap
Barclays is also working on an API which will enable brokers to track cases that it expects to go live in the second quarter of this year.
A submission API that will be an end-to-end submission without the need to come into the Barclays application system and a soft-decision API which will give a soft footprint decision in principle (DIP) are also in development.
The latter is currently available on the lender’s website but not as an integrated API.
“The soft decision will definitely be next year, but I’m hoping the rest of it will be this year,” Calder said, although he added that like any big program, “timelines are fairly fluid”.
“That’s our roadmap,” Calder continued.
“We’ve talked to brokers and platform providers about what does a sensible roadmap look like.”
Lot of learning
Barclays is only working with Smartr365 and Twenty7Tec at present as these were the two that were “most advanced at the time” it was looking to begin work.
However, Calder acknowledges that in time every lender will have to work with all of the providers, but doing so at one time will slow the process down.
“We’ve done a lot of learning with those two providers, our teams internally and broker partners,” he continued.
“Everyone operates slightly differently, everyone asks slightly different questions, everyone asks for things like identification at a different part of the journey.
“So by being able to tweak and course correct at every part of the journey it gets to absolutely meet the needs of the broker submitting the case, us as the lender and ultimately the customer,” he added.
Writing in a contribution for Mortgage Solutions, Calder explained the aims behind APIs and how they will evolve the mortgage broker and customer journey.
These prompts may come from a range of sources, and they can sometimes present positive options for borrowers who are coming to the end of their fixed term.
However, there is a significant group of borrowers who are being prompted to switch early on in their deal, and this is where problems may arise.
Switching in-deal has found great success in the US, where mortgage deals tend to have longer fixed-terms and, more importantly, no early repayment charges (ERC). These two differences between the UK and US housing markets may seem small, but their impact is considerable, especially when considering the suitability of mortgage auto-switching tools.
US versus UK
The average fixed term for a US mortgage is 23 years, whereas in the UK the average fix is 3.5 years. American borrowers also do not face early repayment fees for choosing to change deal during their fixed term. In the UK, the early repayment charges can be significant with varying conditions between lenders.
Due to these fluctuating terms, there is no one-size-fits-all approach when it comes to remortgaging in the UK, and to assume otherwise could lead to expensive consequences for consumers, from a rise in overall expenditure to foreclosure due to unaccounted-for fees.
At the end of the day, whether or not a switch will benefit the client comes down to a full understanding of ERCs and both their short and long-term impacts, so that both brokers and their clients are as informed as possible when the time to remortgage comes around.
For example, individual borrowers’ circumstances play a vital role when it comes to switching deals mid-term – advisers need to fully understand all aspects of each product, along with the factors facing their clients, if they are to offer useful advice for those considering a switch.
The bigger picture
The prevalence of switching offers is a direct consequence of the continuously falling interest rates we have seen over the last three years, which have led to a steady rise in demand for in-deal switchers.
Homeowners are keen to capitalise on offers which promise lower overall repayment rates, but once the fees of valuations and solicitors have been factored into the final savings amount, an initial saving of £5,000 might work out to less than £20 a month. This considerably reduces the incentive for the homeowner to switch.
Furthermore, even if the proposed new deal does provide a significant saving on monthly payments, it is unlikely that this would be better in the long run. The saving generated by running down the current deal to the end of the ERC period, and then choosing the cheapest available product, would often be greater.
More simply, even if the new deal is cheaper than the current deal, it is still unlikely to be as cheap as waiting and taking the best deal at the end of the ERC period.
An adviser’s primary function within the mortgage process is to provide complete and trustworthy advice to their clients.
Without a proper understanding of ERCs and the costs associated with switching mortgages while the borrower is tied in to a deal, advisers are unable to fulfil this duty.
The platform aims to enable advisers to automate parts of their process freeing up time for developing client relationships and new business opportunities. It supports brokers in managing clients, applications, pipeline, protection and introducers.
“Smartr365 is committed to creating a frictionless digital mortgage process and that means giving advisers the tools they need to deliver the best possible service to customers,” said Conor Murphy (pictured), chief executive at Smartr365.
“We know where the mortgage industry is heading and we’re excited that Matthew and the team at Brilliant Solutions share our technology-first vision. Smartr365 will make its advisers more efficient, productive and profitable – reducing the application process from a matter of weeks into minutes,” Murphy added.
Matthew Arena, managing director at Brilliant Solutions, said: “The partnership between Brilliant Solutions and Smartr365 is the next step in providing access for our members to all the tools they need to find the best solutions for clients.
“In an increasingly complex market, the value of technology cannot be overstated. It’s the future of the industry. Through the adoption of platforms like Smartr365, we are ensuring our advisers stay ahead of the curve and continue to deliver the best outcomes for clients,” he added.
This new partnership sets out to expand Smartr365’s lender connections, following integrations with Nationwide in June 2019 and Halifax in March last year.
The integration will give Smartr365 users multi-DIP functionality for both new lenders, and advisers will have access to any new lenders connected with Mortgage Engine in future.
Mortgage Engine launched to the market earlier this week.
Conor Murphy (pictured), CEO of Smartr365, said simplifying the application process was a vital step, and that started with automating DIPs.
“We look forward to the future development of the partnership as we work together to improve the mortgage process,” he said.
Cloe Atkinson, managing director at Mortgage Engine, added: “We launched Mortgage Engine to help improve efficiencies at every stage of the mortgage application process.
“The platform will also enable brokers to track their cases and get minute-by-minute updates on the status of applications.”
“Through Mortgage Engine, Smartr365 will immediately reap the rewards of a faster application process with multi-DIP potential, and advisers will have access to even more lenders in the future as we establish new connections,” she said.
Live testing is set to begin in December, with Smartr365 set to have full access to Santander and NatWest’s services from the end of January 2020.
The partnership has aims to eventually expand beyond DIPs to cover the full mortgage application process with all lenders accessible through the platform.
While the mortgage industry must keep up with anti-fraud regulations, including the upcoming fifth Anti Money Laundering Directive (5AMLD), there is also an opportunity for forward-thinking actors to proactively improve the mortgage process.
Advisers are the first line of defence against mortgage fraud as they have the greatest opportunity to raise any suspicions.
They also face liabilities through the Fraud Act 2006 and the UK’s anti-money laundering regulation if they fail to do so.
Advisers can be held financially and even criminally liable if clients use fraudulent identity documents, whether they know about it or not. To avoid this, it is essential they can show due diligence.
ID verification
ID and address verification is a key but often expensive, time-consuming, and problematic part of a mortgage application.
Whenever there is manual transfer and checking of documents there is scope for error. As a sector, we have to be better in this area.
Current processes comply with Joint Money Laundering Steering Group (JMLSG) guidance, but they are often ineffective in preventing fraud.
Staff are often inadequately trained, do not have access to appropriate equipment, and few organisations conduct checks in conjunction with authorities. This provides little defence against determined fraudsters.
Improving the ID and address verification process with technology can address these failings, helping advisers meet both the spirit and letter of the law and saving money for all those involved in preventing fraud.
Advisers should look for services that meet all key compliance requirements: recognition by the Information Commissioner’s Office and conformity with JMLSG guidance; governmental or authority certification; use of multiple positive and negative information sources; and use of a transparent process.
A more robust process does not necessarily involve increasing the burden on customers or advisers. Through digitisation and automation, it can be seamlessly integrated into an end-to-end mortgage process and improve the speed, efficiency, and cost of verification.
Slow, manual checks can be replaced by convenient, fast, and secure ID verification, improving the mortgage process for all parties with a serious but simple and effective approach to fraud prevention.
More work to do
There must be a cohesive, cross-industry approach between lenders and advisers if we are to truly reap the benefits of this technology.
Advisers need to ensure the systems they use meet required standards, and lenders need to understand these systems better to make the need for certifying original documentation a thing of the past.
Some lenders have already adopted sensible standards that advisers must follow, but there is more work to be done.
Combined with advancements like open banking to connect directly to customers’ accounts and verify income, this technology makes it easier for advisers to meet regulatory requirements. Furthermore, through end-to-end platforms, advisers are not only protecting against fraud, but also creating a more frictionless process.
