The evolution of the good borrower

by 11 Feb 2019

As the profile of a “good borrower” continues to change, Peter Ellis, founder and borrower advocate at Lending Mate, explains how brokers should embrace specialist

SINCE

I started in the mortgage and finance industry 11 years ago, I’ve noticed there has been a keen focus on helping ‘good borrowers’ – the prime clients.

If there was any ‘challenging credit history’ in an application, the would-be borrower may have been told that they could not be assisted.

I must admit that earlier in my career I, too, was focused on assisting prime clients, often advising those that didn’t fit that they would not be assisted.

When I went out on my own in 2012 I spent a considerable time learning about the specialist side of lending and what the ins and outs were.

Ever since then I have embraced specialist lending with open arms, and to this day I still enjoy it with a passion.

Why? Once we truly understood what could be done and why specialist lenders existed, it showed us that there was no such thing as a simple deal – many factors had to be considered.

If a customer presents with a difficult or unusual set of circumstances, we believe they should not be treated any differently.

The old saying “Don’t judge a book by its cover” needs to be applied more widely in finance circles, which is why we have always focused on those lenders with assessment policies that consider the whole of the applicant and not just the interest rate, or what the computer or credit file says.

To us the interest rate means nothing if the borrower doesn’t meet the lender’s policy in order to obtain that rate.

If we have clients looking for the lowest rate, we tell them that until we receive all their application documents we cannot advise on what is possible. Scalable enquiry is needed, not a simple yes or no.

With artificial intelligence and a new generation of credit-scoring tools becoming part of everyday finance, there is the possible risk that the human element of finance and talking to the individual may become less relevant.

You cannot understand what you don’t experience, and a computer is not able to read a client’s past like a broker can.

We routinely see clients who come to us after being declined elsewhere.

There are plenty more fish in the sea, so we use second-tier and non-conforming lenders who have different policy requirements and may be able to assist customers with different needs and challenging credit histories.

We work with these clients long term, and if their position changes we look to assist them in other ways. So far, so simple – or is it? Having worked in this area of lending for many years, we see that the vast majority of rejected applicants are not advised to consider the other options available to them. However, now that the market is changing, those clients who have been told no – or have not even been considered previously – may have a chance of obtaining the help they need.

That said, a massive learning curve for brokers lies ahead.

The level of questioning, knowledge and understanding required to broker a specialist loan is huge, and new skills cannot be learned overnight.

Knowing the rules gives you a framework; understanding them gives you knowledge of the wider issues and nuances that must be considered.

Brokers therefore need to enhance their comprehension of such things as the NCCP rules and make them applicable at a practical level.

Further, they need to collaborate more closely with BDMs in order to communicate their clients’ needs and history.

The last time I remember seeing the market behave in this way was during the GFC.

Knowing the rules gives you a framework; understanding them gives you knowledge of the wider issues and nuances that must be considered

Lenders’ rules became tighter and things got a bit hairy, as they say.

I had been in finance for only one year at that point, and I didn’t have the knowledge that I do today.

But with the benefits of hindsight, the path through our current situation is much clearer.

We all need to pull together, stay abreast of regulatory changes, continue to research products, and keep ahead of policies so we can write loans for all types of clients.

With the right upfront checks and balances in place, the only thing that should stop a loan from being approved is unforeseen circumstances, and with the right diversified suite of lenders there should be no reason why a client cannot be given the chance to see what is possible within their current financial situation.

 

 

Peter Ellis

Founder and borrower advocate

Lending Mate