Lenders and sourcing systems – détente at last?
Richard Hurst, marketing director at Client Data Systems, looks at how mortgage sourcing systems have developed and why they improve the relationship between lender and intermediary
The relationship between lenders and sourcing systems over the years has been quite fascinating and having worked on both sides of the fence I’ve witnessed periods where both sides have seemingly enjoyed an upper hand in the relationship.
There have certainly been moments of friction between lenders and system providers with both feeling, on occasion, that they are the junior partner but I believe that we are entering a phase where equilibrium will prevail. However, in drawing conclusions about the future it is imperative to understand the history between the two groups.
When we think back to the origins of mortgage sourcing there is a doffing of the cap due to Moneyfacts and the publication of the monthly tome that displayed (in addition to other products) mortgages available in the market.
The sheer number of mortgage providers and mortgage types at the time meant that such a monthly digest could be used as a reference source throughout the industry.
However, the astonishing growth in both the number and complexity of mortgages was a key driver in the growth and popularity of sourcing systems as the more complex the products the more an advisor needed a system to aggregate and analyse key product information.
Mortgage Day – when mortgage regulation was introduced in October 2004 (how long ago that seems now!) - was also a significant factor in the growth of sourcing systems as the newly prescriptive sales process meant that the right documents had to be produced at the right time and in the right order.
The pressure on brokers was immense and sourcing systems made a land grab for business as the overwhelming majority of intermediaries realised that using a system to generate the designated documentation was the best, if not the only practical way to survive post ‘M-Day’.
It should not be forgotten as well that the emergence of sourcing systems helped lenders at this time both in terms of costs savings and product innovation.
Having worked for a lender I can divulge that launching mortgage products was a cumbersome communication process that involved substantial print and postage costs to deliver product updates to our database of mortgage intermediaries.
The emergence of sourcing systems, in effect a communication ‘intermediary’ meant that delivering a product update to a single sourcing system disseminated information at a stroke.
This meant that product innovation was encouraged and perhaps even more vitally that product inflows could be managed through the quicker withdrawing of products.
This broadening of the shop window was instrumental in the growth in the number of products launched and also helped create a fertile environment where it was relatively easy for a new lender to enter the market.
The cost and time to launch as a traditional lender, establishing both a brand and distribution network - typically through a branch network - was removed at a stroke as listing a product on one of the sourcing systems would display it to the (intermediary) world.
Technology therefore became a tremendous ‘enabler’ for mortgage brokers and lenders alike.
The growth in reliance
It is possible that the power shift from lenders to sourcing systems began to emerge as the reliance on sourcing systems by intermediaries grew.
This came about because a substantial majority of intermediaries were using one of the handful of sourcing systems available and the market was so buoyant that competition was fierce between lenders to bring more and more innovative products to the market.
Innovation came both in terms of products (think flexible mortgages) and also the growth in targeting entirely new groups of potential borrowers such as the self employed and sub-prime sectors.
New lenders were also emerging at a rate of knots and in some cases just to appeal to a specific sector such as buy-to-let.
There was also in the history of sourcing systems the explosion of duplication as exclusives and semi-exclusives (yes, surely an oxymoron?) were placed on the system in various guises and the new breed of ‘branded’ and ‘through’ lenders effectively created an environment whereby the same product could be displayed on a sourcing system a dozen times over but through a different brand, or with a slight tweak each time.
It is perhaps appropriate to point out at this stage that claims (yes, I made them myself!) about the number of available products was always an inexact science at best. Claims that over 65,000 products were at one time available were true in the context of how many products were returned but that was fundamentally influenced by the sophistication of the sourcing system.
A single product from a major lender could account for over 15 inclusions in an overall product count should it have to be entered multiple times to reflect differing LTV bands, fee structures and distribution options.
The more modern systems offer a far more realistic ‘true’ product count and by managing the underlying data more efficiently it’s easy to see how accuracy can be enhanced as there is simply less opportunity for errors.
Additionally, such was the competition for distribution and the influence of the sourcing systems at this time that they were able to derive a significant proportion of their income by charging product providers to pay to list their products on the system.
This was a perfectly reasonable consequence of pure market forces as supply outstripped demand but I believe that it did little to encourage a positive relationship between lenders and sourcing systems at the time.
It’s interesting to note that at least one new sourcing system is not charging lenders to display products on its system which could serve as a warning to others that this may be a diminishing income stream.
For brokers, the reliance on sourcing systems, and one reason why their role as ‘kings of distribution’ was due to the way that data was able to be re-used through not just the mortgage sales process but in a range of other ancillary products and programs.
It’s important to pay testament to just how significant this re-use of data was. With brokers beginning to take advantage of cross sales in areas such as insurance and conveyancing it’s easy to see just how tiresome it would be to input a client’s name, address and a raft of other details over and over again.
The development of the sourcing system has also been facilitated by a truly collaborative approach to partnerships and integrations. This is particularly apparent in the area of client management systems.
Mortgage brokers became far more sophisticated in their management of client information and the use of customer relationship management (CRM) systems have increased exponentially over recent years.
The link between sourcing systems and CRM systems is also set to flourish in the future as the integrations are made more robust. Data standards, data security and a shared vision for development is going to be crucial for both parties to deliver ongoing solutions for brokers.
Opportunities for sourcing
I believe that there exists a tremendous opportunity for sourcing systems to re-establish themselves as equal business partners offering some genuinely value-added services.
Sourcing, of course, sits at the heart of this and it is the sourcing systems responsibility to demonstrate to lenders and brokers alike that the job of sourcing mortgages is more accurate and more accessible.
Part of this lies in the fundamental technology underpinning the sourcing engine. Although existing systems have added tremendous value to the sector you wouldn’t expect the same technology in the 1992 version of (insert your favourite car here) compared to the 2012 model.
Additionally, there will be a shift away from sourcing systems forcing lenders to place products in certain boxes simply because the system isn’t able to offer the ability to differentiate.
The future will see the end of the days when sourcing systems dictated the dozen or so filters that they could use to refine mortgage sourcing results in favour of the ability to define your own filters.
Think of Microsoft Outlook and how if you want to dig out an email you simply tell the system to search based on a particular word, topic or phrase. Mortgage sourcing should, and will, be that simple.
Enhancing electronic applications
The development of online application platforms has also been a fascinating one and it’s fair to say that as different camps were formed it created one of the most defining splits in the market.
I think that returning to one of my original points, the online application battle has been fought on benefits that were perhaps more theoretical than practical. Were efficiencies so great and application accuracy so great that departments could be rationalised?
I have no doubt that there were benefits but I believe that in the current economic environment there exists the opportunity and desire for real, tangible savings.
This represents a great opportunity for system providers and lenders to work more closely and use the technology available.
The sourcing process should not end at the point that a product is selected, even if the system is also factoring in underlying underwriting criteria, but should continue through the application process.
As the mortgage application is being completed the system should be whirring in the background and if some data is entered that means the product is no longer available then this should be flagged and alternatives presented.
This would remove the submission of a doomed application that has no purpose but to waste the time of the underwriter, broker and borrower.
When looking back at a similar article I wrote in 2004 (no, I haven’t plagiarised all of it) it is astonishing how many similarities exist in terms of predictions about the potential for lenders and sourcing systems to work more closely together, and specifically about how a closer, more integrated solution can genuinely bring down costs for both parties.
There is little doubt that some of the things on the ‘wish list’ remain but it is the vigour with which these are now being invested in that is the most startling difference. Efficiencies, accuracy and cost savings have firmly moved from a ‘nice to have’ to a ‘must have’.
When business was booming technological innovations were almost touted as marketing and sales benefits without necessarily having to affect great change and the drive towards the speed at which a mortgage offer could be produced was an interesting example.
The fight to shorten and shorten the time between application to offer became something of an arms race in terms of PR bragging rights but it was probably true that in the vast majority of cases, getting a mortgage offer in a minute rather than an hour or a day was not as essential with the rest of the process taking three months.
I spoke of equilibrium before and mentioned détente in the headline of this piece as I think that for all the ups and downs between lenders and sourcing systems in the past there now exists an equality between the two parties where neither hold greater sway over the other and commercial terms are fair and appropriate.
I'm sure there will always be times when a lender is annoyed to find an error in the listing of their product and sourcing systems are frustrated that products are pulled at short notice but with greater co-operation these will become an almost noteworthy rarity.
I am also aware that as someone sitting on the sourcing side of the fence it is up to us to prove we are adding value and genuinely supporting lenders in all that they do.Sourcing systems - Predicted future benefits for lenders
- Lenders will stop being charged to display products
- Lenders’ underwriting criteria will influence sourcing results
- Lenders will use sourcing systems more for product development
- Lenders’ own forms will be used for online applications
- Lenders’ product changes will be reflected on systems in minutes not hours (or days)