Profile: Exact mortgage experts
Joanne Atkin spoke to chief executive officer Ian Lonergan on Exact’s growth strategy and finds out what the firm is about
One of the unique things about Exact is that it is the only mortgage servicing and asset management business to get FSA permission post mortgage crisis. Exact received its authorisation at the end of 2009 and has been successful in finding ways to grow within a slow market. The organisation prides itself on the experience of its people, state-of-the-art technology and the value of its data.
Joanne Atkin: What does Exact do?
Ian Lonergan: Our product set has expanded quite a lot since we launched nearly three years ago because we are being asked to do more things by our clients so it has naturally evolved. Our business can be broken down into three core mortgage sectors – asset trading, mortgage servicing and outsourced origination.
J.A: Is there much asset trading going on in today’s more subdued mortgage market?
I.L: We have been doing a lot of work helping firms who want to buy mortgage assets. We put buyers and sellers together. It’s been quite a consistent market in secondary mortgage trading since the credit crunch. There is no boom but there is a consistent level of activity.
We do valuation modelling where we look at a pool of mortgages and work out what the core risks are by utilising the systems that we use for origination. By being able to pull down credit data, buyers of the assets get a good degree of comfort about what they are actually buying. We then model scenarios on a loan by loan cashflow basis to predict the possible financial outcomes.
J.A: How is the mortgage servicing side of the business going?
I.L: We have seen quite considerable growth in servicing over 2011 and 2012 and now have over £1 billion in mortgage assets with seven clients. That is growing at broadly £200 to £250 million a quarter so it is quite steady growth. We provide the core loan servicing on first and second charge mortgages including buy-to-let and bridging loans. We do all the administration, collecting payments, dealing with arrears, litigation, redemption statements, repaying the mortgage and so on. We are still the only servicer to be FSA authorised post crisis, so process, regulation and control are top of the agenda for Exact. Our investments in great workflow and data warehouse technologies give the control we require and great information flow to our clients.
J.A: Where is the growth coming from?
I.L: There are two segments. Firstly, we are getting assets that have been moved from other servicers and that is predominantly on the back of the asset trading world. One of the by-products of asset trading is that the organisations may ask ‘can you do the servicing for us as well’. So it’s a natural flow - when you get involved in asset trading the assets come to you to be serviced too.
The second area of growth is down to our own clients who are originating mortgages. Our sister company Precise Mortgages gets its servicing done by Exact and we have two other clients whose origination we manage.
J.A: That leads us into the third service you provide, which is outsourced origination.
I.L: We are not only servicing the mortgages once they have completed at the back end but we are also doing origination for clients so we are effectively their outsourced provider from start to finish. That’s quite interesting because it is growth which isn’t reliant on the secondary trading market. It’s new business, which is important for future growth – and that’s very positive.
One of the key areas where we think we have a significant edge in the market is data. We have a lot of mortgage expertise. We have a lot of new business data as we do origination for ourselves, as Precise Mortgages, and third parties.
Say a broker goes onto our system as he has a client who wants a mortgage. We pull down the credit data, utilise our scorecards, run our fraud tools, and come up with a yes or no decision. This is live data today on what UK borrowers are doing and what their credit profiles look like. There are benefits to having that data, like how to manage borrowers, what the risks are, what you should be avoiding. We can translate that information to our clients to work out, for example, who might go into arrears in the future.
We keep our scorecards up to date and our processes up to date. If you are originating and servicing, and something is wrong at the origination end then it will quickly become apparent in your collections department and servicing department so you can move to stop those problems happening.
J.A: How much analytics work are you doing?
I.L: We call it Asset Quality Assessment (AQA) where we undertake due diligence on a mortgage book loan by loan. We have analysed £6.33 billion of mortgages within 24 separate projects - some are repeat clients. What we are seeing is that once we do work for a client we end up repeating work for them. That is a positive sign as it leads us to believe from the feedback that they value the service we provide.
A lot of the analytics work we do is for non-traditional lenders, some are hedge funds, and some are lenders who buy mortgage books as well as originating their own loans. Some are smaller, newer lenders, others are established.
J.A: You offer a back book reduction strategy service – can you explain what that is?
I.L: Here our customers own a mortgage book which they believe is going to be with them for a long time. They understand that they need to develop a strategy to manage risk and encourage redemption.
We have worked on nearly £2.5 billion of such projects. We generally start by working with the client to analyse the current risks in the portfolio via our AQA service, we then determine what de-risking and monetisation tools could be available and provide the operational skill to deliver the strategies they select. These strategies often include incentives for the customer to redeem and repay the mortgage.
J.A: Do you have any plans to move into other product areas?
I.L: We will consider adjacent markets where we believe we can bring a true difference with the experience of our team and focus on credit analysis and technology. We moved into second charge mortgage servicing earlier in the year and outsourced origination. I don’t expect any further announcements in the near future, however we are working with our clients to consider alternatives.
J.A: Have you got any new business lined up?
I.L: Yes we have but it takes time for things to come to fruition. These deals gestation period is around 12 months. We have to think a few quarters ahead of boarding. You can look forward six to 12 months quite confidently knowing what your books will look like. The immediate future is looking positive for us – we hope to make some announcements shortly.
J.A: What makes your IT platform "state-of-the-art"?
I.L: We have invested heavily in our workflow and data warehouse technology over the years so we have a very robust processing system. It really is state-of-the-art, which is not prevalent in the UK mortgage market. We build our systems for today‘s regulatory and control environment.
However it’s the experience of the people who use the system which really makes the difference. The average Exact collector has 11 years specialist mortgage industry experience. Our systems are good, but people make the difference.
J.A: How many staff does Exact have?
I.L: Exact started in 2009 with 27 people, we now have 110 employees. Our staff numbers are based on actual contracts, so when we win new business we will recruit people to man that contract.
J.A: I’ve heard that you are looking to refresh the brand and launch a new website? Is this true?
Yes, the new website is live at www.exact.co.uk. The new website reflects all the things we do now and explains who we are. We decided that it was time to refresh the brand a little, so we have changed our logo, we believe that the new look and feel is representative of who we are today. Despite the fact that we haven’t done a lot of advertising or marketing, Exact is going from strength to strength as a result of word of mouth. Going forward, we are going to get involved in more pro-active marketing as we want more people to know about us.