News Review: Packaging


Responsibility lies with the payers themselves


by Ian Balfour, CEO, Solent Mortgage Services


one of the issues facing the industry in 2011 is the thorny subject of clients with a less than perfect credit record. ironically, in a supposedly market-driven economy we have a clear demand from customers and their advisers while being unable to fill that need except in a limited way. With the demise of the


sub-prime market and the backlash that has ensued, the appetite for risk has been partly tempered by the worldwide fallout from debt exposure in global sub- prime, the overall reduction in available funding and in the uK, the belated effect of the regulator on selling inappropriate mortgages to clients. the job is made


considerably more difficult for brokers when clients don’t know their level of creditworthiness or choose not to tell the intermediary at the outset. out of the ashes of the sub-prime, we have seen lenders entering the market offering near prime mortgages. it has provided a legitimate outlet for those mortgages which are still too risky for the high street and yet have or have had a credit blip in the past.


Underwriting When i was learning the business, the best advice i had as far as underwriting was concerned was that there were only three things


a lender needed to confirm. Firstly that the property was sufficient to provide security for the loan; secondly, that the applicant had the ability to make the repayments from income; and lastly, that he had the intent to repay the loan. this last maxim is where i


think the main problem lies today. While the regulator looks at trying to save people from themselves by putting the onus on the adviser and the lender to ensure that the client gets the correct advice, the concept of personal responsibility - like any muscle which is not exercised - continues to wither and become more useless.


Paper in place intent to repay is a coverall phrase designed to highlight the expectation of whether the client is not just good for the money on paper, but has a satisfactory history of making regular payments on time on other long term and short term financial commitments. For the broker the main headache, apart


from


ensuring that he has an accurate assessment of income and outgoings, is making sure that customers are providing all necessary information on personal debt such as credit card and loan balances, without which any decision in principle is going to be shaky at best if there is a difference between the figures provided and those the lender uses when the checks are done.


Each to their own on the question of credit worthiness, it is clear that customer interpretation of


24 mortgage introducer OCTOBER 2011


“The concept of personal responsibil- ity - like any muscle which is not exer- cised - continues to wither and become more useless”


whether they have kept up payments can be variable at best. many customers have a very hazy view as to what they consider to be debt and others are either not good record keepers or in denial about the state of their finances. the problem for the industry is to recognise what brokers have known from the off, namely that every customer is different. unfortunately the predilection of many lenders has been to resort to a ‘one size fits all’ approach to underwriting with the use of technology overtaking the reliance on human specialisation. So with a concept as nebulous as intent to repay we know that while the past record of customers gives an indication of their willingness to repay, it is only a snapshot and the reason we need a near prime sector is precisely because interpreting intent to repay cannot be left to a computer algorithm.


Near prime Staying with the theme of clients whose credit position does not fit the high street, there is clearly a huge pent up demand from clients whose circumstances leave them sitting on the sidelines for either a purchase mortgage or a remortgage. For those who already


have a good rate, it can come as quite a shock to discover either that their existing lender is not keen to have them back if they wanted to move house or even a further advance for home improvements. When other lenders are


also not interested, it is not surprising that clients can start to feel disenfranchised. along with all the pressures within the market now, the plight of the customer who has had a credit event but is in receipt of provable income and reasonable outgoings, is still not being addressed in a joined up way. What i am not advocating


by any means is a return to the old way. the industry definitely does not want to see a return to lending for its own sake. However, if we could begin to differentiate accurately between the habitual bad payer and those who have had an event which can be seen to be a financial hiccough rather than a terminal illness, many clients who are currently outside the high street, would be able to rebuild. We are fortunate that we


have a few specialist lenders such as ge money and Precise mortgages which are beginning to show the way, without frightening the horses.


TCF many new homeowners came into the market over the last ten years, we can’t just leave these people to their own devices, we need to provide solutions and products to help them. treating customers Fairly? i think so!


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