The 2011 IT Benchmark Study

Frank Eve, managing director of Frank Eve Consulting, outlines the results of the annual Benchmark Study comparing lender online distribution and application processing technology

Technology within the mortgage market has changed out of all recognition over the last decade. Ten years ago discussion revolved around whether brokers would ever complete application data online and how many actually owned a personal computer. Fast forward to today and all application data is keyed online, every lender operates automated decision and underwriting systems integrated with credit reference agencies to provide online in principle decisions, and all intermediaries have to have a personal computer and access to the internet.

During this time Frank Eve Consulting Limited has produced an annual Benchmark Study comparing lender online distribution and application processing technology. The study, in its 10th year, has become the industry’s definitive survey of mortgage distribution and automated underwriting technology.

The objectives of the study have remained the same over the years - to assess market conditions in the light of the industry’s ongoing technology requirements and set the standard for emerging best practice in lender intermediary technology, as well as assisting lenders in understanding their competitive positioning.

Over the last few years the study has expanded to obtain intermediary feedback on lender distribution technology. Three separate pieces of research were undertaken this year, which when combined provide a unique assessment of emerging best practice in intermediary distribution technology.

Firstly, the study benchmarks the intermediary technology offered by 12 lender participants based on the results of a detailed questionnaire. This ‘benchmark’ questionnaire was designed to identify major functionality required by intermediaries. The second was collated at a number of intermediary forum groups undertaken earlier this year where the questions, scoring and weighting methodology for the study were verified by representatives of the intermediary market. The final part was a usability online survey in association with Mortgage Brain Limited, in which over 500 mortgage intermediaries took part.

The study examines website functionality in relation to intermediary business transaction capability, customer service and sales support. Lender technology was broken into four categories:

• Website design and analytical content;
• New registration and logon procedure;
• Application decision in principle (DIP) and underwriting procedure;
• Document flow and case tracking.

To define best practice, and determine whether it is a basic requirement or will provide the lender with a competitive advantage, website functionality was sorted into one of three criteria: ‘basic threshold requirement’; ‘current best practice’; and ‘emerging best practice’. The basic threshold requirement is the minimum functionality required for a lender’s intermediary technology. The current best practice is functionality that provides a better than average service to the intermediary compared with other intermediary technology. Emerging best practice is the most advanced functionality currently in production or development.

Results

In terms of pre-log-on functionality, comprehensive and reliable affordability calculators have become increasingly important. Intermediaries need to be able to access these directly from lender home pages which in general, tend to be far too cluttered. A number of lenders are providing instant messaging/chat and this is seen as the future for compliant effective communication as it delivers a record of conversations and agreements. The functionality is under development with a number of lenders including NatWest and Halifax, although the current intermediary experience has not been good. To fully utilise this technology, lenders need to deliver a medium that works better than the phone.

All lenders involved in the study provide adequate functionality for the application process, automated DIP and production of offer documents. The major differentiator is online systems for such things as product swaps and further advances. These provide an intermediary with online, streamlined process to access client data, balance and an AVM or house price index to undertake product swaps and further advances. This functionality is vital for intermediaries at a time of limited funding and low interest rates, if the transaction can be achieved quickly online it delivers an efficient customer experience and a much needed income stream. The best lender system for this is the Halifax’s which delivers instant further advances and product swaps and allows intermediaries to access client data and their house price index.

Following a successful pilot the Mortgage Verification Scheme (MVS) has been launched with the HM Revenue and Customs. This scheme allows lenders to access tax records to verify an applicant’s income and detect fraud. HMRC has set up a specialist unit to deal with requests and charges lenders £14 plus VAT per case. This is an excellent way for lenders to detect fraud and to establish affordability.

When lenders require further information or documentation to establish identity or to verify data there is still a tendency to use paper based communication or the telephone. With the widespread use of email and scanning, better methods are available. The ability to scan and email a document or upload a scanned document directly onto the case file on the lender’s system is now regarded as emerging best practice. Abbey provides a document management system that lists documents outstanding and allows the intermediary to upload scanned documents directly into the web page for action. The page updates automatically when documents have been approved giving the intermediary the opportunity to track document flow through to completion. The Abbey for Intermediaries’ website was voted by intermediaries, in the online survey, as the easiest to track cases through to completion.

Which lenders are doing well?

The top four lender websites for functionality identified by the Benchmark Study were Halifax, Nationwide, Platform and Accord. Halifax was benchmarked in highest placed and developed its technology in-house. It was regarded as the lender with the most functionality valued by intermediaries. Halifax also has the unique online system for automating product swaps and further advances and intermediaries valued this functionality most highly as it gave them the opportunity to control the process and deliver a valuable service experience to their clients.

Nationwide Building Society was placed second in the benchmarking of functionality and was the top placed lender on the online broker survey for ease of finding product information on its site as well as being voted as having the best business development managers. Its system provides the intermediary with the opportunity to upload scanned documents directly onto the case file which puts the intermediary in a position to drive document flow and control the verification process.

The best of the smaller lenders were Platform placed third with Accord in fourth position and both provide intermediaries with a wide range of sophisticated functionality that intermediaries scored as important in giving them the best possible online experience.

All four lenders were awarded a 5* accreditation for their websites in the study.

The success of an intermediary website depends in part on the quality of its core technology platform and the leading propriety system identified by the 2011 Benchmark Study is Avelo’s Mortgage Sales and Origination System (MSO) and the system has been awarded the only 5*Accreditation for proprietary technology. Avelo’s enterprise-class MSO powers Nationwide’s website and origination platform providing multi-channel capability and the flexibility to deliver the most appropriate customer experience across its sales channels.

Nationwide now has a single platform that is service-oriented, modular and customisable with automated third party integrations which will reduce costs and increase margins. A reduction in re-keying data is provided via the system’s unique integration with the Mortgage Trading Exchange, the reduced time to offer, real-time case tracking and ability to upload scanned documents onto case files were all seen as valuable functionality that delivered a first class intermediary experience. The system will also provide benefits for Nationwide’s call centre and branches where it provides an enhanced sales process with channel switching (for example, from consumer to call centre) and cross selling capability to maximise profit opportunities. According to Nationwide, year-on-year average time to offer has reduced by over 36 per cent - a tangible result for the consumer and the broker.

What does the future hold?

With continuing economic uncertainty, lenders have adjusted to funding constraints and lower volumes by consolidating operational centres causing strain on current legacy systems that struggle to provide the support required for processing operations.

With restrictions on mortgage lending and squeezed budgets, major mortgage lenders are trying to reduce cost and increase efficiency through better automated distribution systems. Although funding for large technology projects is restricted a number of lenders are looking for opportunities to further streamline application and underwriting processes whilst adapting to a new regulatory environment.

This transformation of the market and a more interventionist approach to regulation will have a major impact on IT strategy and spend going forward. Lenders need the ability to differentiate by product and price across all channels and identify target markets whether they are consumer or intermediary. Lenders with legacy systems are finding it increasingly difficult to comply with regulation and at the same time streamline the mortgage process to enhance efficiency, reduce cost and provide a first class intermediary experience.

The future market environment calls for innovation to ensure mortgage lenders remain compliant and efficient whilst reducing cost and potential risk. By replacing redundant legacy systems lenders can move from struggling to maintain current procedures, to leading the field in innovation and competitive advantage. We look forward to the next 10 years of mortgage technology and whatever the future holds - we will be monitoring the results.

To have a copy of the full study contact Frank Eve, managing director, Frank Eve Consulting Limited, email: frank@frankeveconsulting.co.uk