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I strongly believe the FSA should be communicating, consulting, and developing a
close working relationship with secured lenders' IT system providers. We think system
providers have something to offer both the regulator and the mortgage industry in
the design and introduction of new regulation.
What could systems providers bring to the table? Well, firstly, the majority of
system providers have multiple lending clients. As a result, we have access to a
wealth of information and have experience across a wide lending base. As system
providers have existing relationships with lenders, they should understand that
area of the lender's business. With the agreement of the lending companies, they
should be in a position to help to identify current process or system issues - and
weaknesses within the current ways of working. Theoretically, system providers can
recommend improvements.
We are also in a prime position to implement new legislative system processes in
a consistent format. We can do it across multiple lenders with a minimum of fuss.
If systems providers are involved at key stages, we can speed up the time it takes
to implement legislative change.
At the moment, this isn't happening. Currently, the FSA issue regulations, then
lenders interpret them with the help of compliance and legal departments. Only once
that has happened are the system providers informed of the required changes. It's
putting the cart before the horse and it usually results in various different interpretations
of the same regulations. Look where it's got us in the past - how many different
KFI's do you know of out there?
Problems arise when systems providers are only brought to the table half way through
the process. Then things get rushed at the end and the result is a part automated,
part manual solution. There are usually better, more system based solutions which
could be found to problems were more time available. These would reduce manual intervention
requirements and cut down the potential for human error. Furthermore, system based
solutions reduce the onus on lenders to employ additional staff to facilitate the
extra manual process.
Remember the introduction of the Mortgages and Home Finance: Conduct of Business
(MCOB)? Lenders had to spend an inordinate amount of time clarifying the way requirements
applied to them, before and after M day. Many of the clarifications were instigated
by systems providers and passed to the FSA via the Lender. That's madness - surely
any approach that can streamline this must be worth considering.
If we were to provide expert advice and guidance to the FSA, the FSA can sign-off
systems that support the regulations. That'll give peace of mind to both the lenders
and the FSA. Furthermore, the FSA would be able to ensure a consistent approach
to the interpretation of the standards/regulations across the industry. Development
costs could be shared across the lenders. And as we'd solve the issue of lenders
interpreting new regulations differently, we'd reduce the cost to individual lenders.
The FSA would better understand the process from a lender's perspective, too – and
better understand the implications of their requirements on lenders' systems and
manual processes. With greater understanding comes more realistic timescales, too
– something lenders should be very grateful for. We also think that working with
the FSA from such an early stage would create a more structured communication path
for the process.
Of course, Phoebus can't speak for other system providers- we're not entirely typical.
For instance, unlike most system providers, at Phoebus, we're not just experts in
IT. Our staff are also genuine mortgage market experts. 90% of employees have extensive
backgrounds in the mortgage industry. Keith Rogers, one of our directors, has come
out of GE and Heritable Bank – he has cradle to grave lending experience. Arthur
Woolard is another director. He's worked on Barclays, Britannia, and Countrywide
US. He worked on the design of the Barclays front-end origination system and advised
Saffron Building Society on their equity release system.
So we understand all aspects of the lending cycle - originations, prime servicing
(including interest calculation methodologies, annual statements, redemption quotes
and terms), special servicing (including TCF, letters, workflow, pre-action protocol,
arrears management and litigation) and underwriting criteria - from LTV's, and affordability
calculations to credit check agencies and AVM's. We spend a lot of time working
with clients helping them to improve their current business process. That results
in both a better overall solution and a reduced overhead in terms of staff costs.
Of course, this is only part of the solution. It won't stop the FSA working closely
with lenders. We don't want to upset lenders. We just want to ease the implementation
of new legislation. But we think we can reduce the burden on the lender and ensure
consistent roll out by working with the FSA – without reducing their ability to
differentiate themselves in the market. We think we will be able to provide a short
cut to dealing with some of the process and systems issues and a forum to discuss
the system implications of these in a practical format. |
