Posted: 13th February 2014
As we enter 2014 there is one thing on the mind of the mortgage lending and intermediary market: readiness, willingness and ability to comply with the revised MCOB rules when they come into force on 26 April 2014.
Technology and people
Implementation activity accelerated in the second half of 2013 with much of the focus on two key areas: ensuring both technology and your people are equipped to cope with the post Mortgage Market Review (MMR) world.
These have been key gaps for many direct lenders and rightly receive a high degree of attention. In 2014 technology is a vital ingredient in making sure the sales process asks for and gathers the right level of information from customers to support lending decisions. The people gathering this information, however, must be suitably skilled and able to critically and professionally assess the suitability of a product which fits the plausibility of the individual circumstances of the customer.
MMR is much more pervasive than simply IT and people. As we countdown to MMR we will focus on these three areas:
- The impact of post contract variations on the people and operations within lenders
- The impact on the control environment of MMR and what firms need to be doing to satisfy themselves that they have appropriate 1st and 2nd line defence mechanisms in place to demonstrate fair outcomes to customers
- The likely areas of FCA focus in the months immediately after MMR implementation
Post contract variations
There has been much debate within the lending community about this topic. Trade bodies, the regulator and the press have mooted which types of contract variations are potentially caught by the new advised only regime under MMR.
The rules themselves are relatively clear on where the boundary sits. If a customer interacts with a firm, i.e. begins to discuss options and explore alternatives, and those alternatives are seeking to vary any mortgage contract in place on a material basis by extending the terms, increasing the borrowing or impacting the affordability of the future mortgage, this is likely to result in the need for advice to be provided to the customer.
It is vital to gain an internal understanding at your firm about precisely where these interactions occur in your current operating environment. Once this has been established, the question is then whether the firm has suitably qualified staff available to discuss the options with the customer and explain to them the impact of the contract variation post MMR.
This is an issue that many firms have only recently started thinking about and one which can have significant impact on proposed MMR target operating models. Areas of the firm most likely to be impacted include: arrears handling, mortgage servicing areas post completion and underwriting.
The main challenge for firms will be ensuring that they have the right people, with the right skills in the right place to do the right thing within each customer interaction. MMR is not the finishing line, it is the beginning of a new, common sense way of lending given the importance of the mortgage industry to consumers’ lives, firms’ revenue and the national economy. Looking left, right and preparing for BAU beyond the MMR deadline will get firms in shape to create a sustainable approach to lending in 2014 and beyond.