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Platforms for the future

Over the last 10 years, there have been a number of phrases that, despite having sensible meanings, have over time fallen into disrepute.

But the latest mad phrase being bandied about in lending circles is mortgage e-commerce, especially as it is app- lied to intermediary business. It may seem obvious, but for mortgage e-commerce to work, we need to have mortgages being traded electronically en masse.

Mortgage e-commerce will bring a range of benefits to lenders, which is why so many lenders have built or are building their own websites. These sites will allow intermediaries to get almost instant decisions on their clients&#39 mortgages and send applications directly to the mortgage processing centres. The intermediary will then be able to track the progress of the mortgage online, often in real time.

Lenders are focusing on mortgage e-commerce because there are a significant number of benefits for lenders if they can transact in this way.

First, the monetary savings will be substantial. Established lenders in the UK marketplace have estimated that the cost of transacting a mortgage will reduce by up to £300. This sum is achieved by eliminating data rekeying, automating some underwriting decisions and providing case-tracking facilities.

When spread across a significant proportion of a lender&#39s business, it represents large-scale savings. We have yet to see where these savings will be spread but it is conceivable that they could be shared out to provide a combination of reduced rates for consumers, increased procuration fees for brokers and increased profits for lenders. There is no reason why new systems cannot create a win-win-win scenario in the industry.

Product management is another significant area where the lenders will benefit. Matching product sales to the tranches of funds that have been bought to fund them is a major headache. Some lenders believe it balances out over a year but this is simply not the case. Lenders only benefit financially when costs of funds move in their favour. But at this point their products are uncompetitive so they do not write enough business to make the added profits.

When cost of funds moves against the lender, the products will be ultra-competitive and the lender writes big volumes of business on unprofitable products and probably causes an internal service crisis at the same time.

It is one of the lenders&#39 biggest battles and can make a difference of millions of pounds each year. It is also the most heated discussion between the lender&#39s Treas-ury department and sales and marketing function – what to do when interest rates are moving.

E-commerce provides lend-ers with the ability to match their sales to their funding limits and eliminates this loss.

A further benefit to lenders is a significant reduction in distribution costs. From the humble rate-flyer to the all singing, all dancing IFA sales aid, each require regular revision and updating. Given that over the last three years base rates have moved on average five times a year, then changing the rate-flyer alone and mailing it to 15,000 advisers each time costs upwards of £100,000 annually. This does not include changes to the product range outside of rate-prompted pricing. Even cutting out the paper-based app- lication form can save tens of thousands of pounds a year.

So with all these lender benefits, why are brokers not flocking to use lenders&#39 websites?

The main problem is that they deliver benefits from the lender&#39s perspective. That does not necessarily mean they benefit the broker or that they are easy to use.

Brokers have clients who have a range of needs. One of these is a mortgage but there are other needs too. In fact, historically fees to intermediaries for mortgages have been so low that they have only been done as a route to selling other products.

While this has changed somewhat in the past few years, brokers are still unable to make a living from mortgage procuration fees. Sending applications electronically via a lender&#39s website can deliver some useful mortgage facilities but the broker has to start again with paper-based forms for the related insurances. If the mortgage is declined, he has to start all over again at another lender&#39s site.

To provide real benefits, case tracking should follow progress on the case, not just the mortgage. It is simply an inconvenience and, therefore, difficult to use.

To be really easy to use, the system must become an integral part of the broker&#39s sales process. From inputting the client&#39s details, the broker may complete a fact-find or send an AIP or proceed to the mortgage application. To have to use different systems for different parts of this process is simply making life difficult.

These systems need to forward-populate the next screens so the broker can set up a new customer, complete a fact-find and arrive at the mortgage application form with most of the fields completed. This makes it easier for the broker and will encourage usage.

But perhaps the biggest barrier to using lenders own websites is compliance. With pension misselling and endowment sales fresh in our memories, the advent of current and future regulation on mortgages is a key issue for most intermediaries. It makes sense for suppliers and advisers to take steps to minimise the risks of future compliance problems by making sure there is a clear compliance trail for the mortgage as well as any ancillary products sold.

By integrating to lenders from a central platform, intermediaries can provide full compliance audit trails and archiving to log their compliance for future compliance visits. All this documentation, of course, will be pre-populated from the client set-up and fact-find.

In the future, lenders&#39 websites will be used to target the increasingly more sophisticated consumer for direct mortgage business. Inter-mediaries will select the best from three or four trading platforms. This will provide the tools for the intermediaries to run their mortgage and related business in a co-ordinated manner.

The platforms will provide access to product data, illustrations and other product research, fact-finds and compliance material, AIP and lender application forms, product details, illustrations and forms for related insurance products and, of course, full case tracking.

This type of system will become the major business tool of the mortgage intermediary and will ensure that lenders receive significant volumes of business electronically.

So intermediaries benefit from faster, slicker processes, lenders benefit from lower costs and consumers benefit all round. Here&#39s to the future.

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