Can I reasonably rely on the accuracy of key features illustrations provided by sourcing systems?
That is one of the many questions that introducers up and down the country have to answer for themselves in the run-up to Mortgage Day.
This is an important question to answer, especially as the FSA has placed the onus for ensuring compliance with its rules and the decision on who can and can't be “reasonably relied upon” squarely with introducers.
Producing an accurate KFI requires accurate mortgage product information, coupled with calculation routines, pres- ented in a consistent format that complies with the MCOB rules. So, how do we produce an accurate KFI?
Mortgage product information + calculations = an accurate KFI While, on the face of it, this looks like a simple equation, it certainly is not a straightforward task to ensure that thousands of KFIs can be produced, within the FSA's rules, on a daily basis.
There are over 100 lenders, collectively accounting for thousands of products, all with particular features to meet the needs of their customers.
It is because of the complexity of this task and as a result of close co-operation between the FSA and system providers that sourcing systems have been allowed a 1 per cent tolerance level within the FSA's rules.
Lenders do not have any such tolerance level and the KFIs that they produce either at the point of sale or at the time of the offer must be accurate.
However, while I am not in a position to speak for all sourcing system providers, the production of KFIs within this 1 per cent tolerance level is certainly something that Mortgage Brain will deliver.
We cannot do this alone though, because lenders need to give us the additional information that we now require.
At the time of writing, the vast majority of lenders have given us this additional information, principally because if they do not, we will not be able to produce KFIs at the point of sale and an introducer will then either have to get one directly or recommend a different lend-er's product.
The process to provide KFIs within the 1 per cent tolerance level is as follows:
Lenders provide mortgage product information to Mortgage Brain.
Mortgage Brain inputs this into the research product database.
The information is checked at least twice before it is made available to introducers.
The master database is updated twice daily (Mortgage Brain is the only sourcing company providing twice-daily updates).
Introducers update their own local databases either over the Internet or a point-to-point connection.
When lenders change or update their mortgage products they inform Mortgage Brain, ideally in advance, the appropriate products are then withdrawn and the process starts again. We certainly believe it is essential that every measure can be taken to provide accurate KFIs, so what else do we do to ensure KFI accuracy?
Product data verification. Lenders can proactively verify key product data for correctness and accuracy. This facility has been available since January 2003 and over 40 lenders currently verify data and collectively account for over 75 per cent of all mortgages which are sold in the UK.
Over 20 more are also committed to coming on stream. Verified product details are clearly identifiable during the product sourcing and selection process by a unique traffic light system that indicates verification on a product-by-product basis.
Sharing calculation routines. Mortgage Brain utilises a suite of algorithms, together with mortgage product information, to generate the outputs required within the broker software for product selection and illustration delivery.
A range of generic calculators for monthly instalment, reversionary instalment, total amount payable, early redemption charges and higher lending fees are applied by product to lender product ranges to ensure that the highest levels of product accuracy are achieved.
This method has proved to be very reliable over the years. To enhance this further, Mort-gage Brain has put in place the capability to replicate the specific calculation routines which are used by lenders.
KFI checking. The acid test for accuracy and compliance with the MCOB rules is the comparison between the KFI produced by the lenders and the one from Mortgage Brain.
We are undertaking proactive KFI checking covering up to 10 specific scenarios. In the unlikely event that the product output comparison concludes that the tolerance levels were not being met, Mortgage Brain would work with the lender to ascertain and correct the cause of the discrepancy. Prior to this being resolved, the product may continue to be shown as a quick quote or even removed.
Provided that the outputs of Mortgage Brain are within the tolerances laid down by the FSA, a second indicator, a blue square, will be clearly displayed. This clearly advises the intermediary that KFI checking has taken place.
Online KFIs. It is also worth pointing out that introducers do not have to use KFIs produced by sourcing systems if they do not want to and can still enjoy all the other benefits of using a sourcing system.
If an introducer should want to obtain a lender-produced “penny-accurate” KFI, as part of its sales process, this request is handled through the Mortgage Trading Exchange. Supporting lenders will receive this request and return the “penny-accurate” KFI to the introducer.
Our firm belief is that we are not only doing the minimum necessary to provide compliant KFIs but are going the extra miles needed to give introducers the certainty and confidence that they need to place their trust in KFIs produced from Mortgage Brain.
On a final note, I would like to pose these two questions:
Does producing an accurate KFI make an introducer compliant?
In the unlikely event that a KFI that is outside the FSA's tolerance level is given to a customer, does this mean that the introducer is not compliant?
My answer to both of these questions is no.
Mark Lofthouse is chief executive officer of Mortgage Brain