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HML director of products and marketing John Grimbaldeston recently presented at the Building Societies Association's Arrears and Possessions Seminar. This presentation draws on good practice, HML's experience of interest-only mortgages customer contact and touches upon the major challenges lenders face.
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BSA ARREARS AND
POSSESSIONS SEMINARHANDLING YOUR INTEREST-ONLY BACK BOOK
28th November 2013John Grimbaldeston
• Interest-only: The journey so far
• The HML interest-only back book
• Developing the lender strategy
• Delivering the lender strategy
• MI Development
• Customer journey
• Key challenges
Audience - what are your key interest-only issues?
Contents
The journey so far…
Getting to:-“FCA Finalised Guidance”
-
• Big issue for industry - not customer
• Letter?
• Telephone?
• Response Rates
Key Objectives for Lenders
Regulatory Risk
Credit Risk
Customer Engagement
• FCA compliance
• Reputational
• Claims Management Companies
• Risk-based analysis
• Repayment plans - viable
• LTV movement
The HML Interest-Only Back Book
Maturity Profile
• Familiar profile
• Long term issue
• Peak = 2027 and 2032
• Conduct risk = key driver in near term
• Risk based approach to segmentation
Interest Only Maturities - Volumes
10/1/1
3
11/1/1
4
12/1/1
5
1/1/1
7
2/1/1
8
3/1/1
9
4/1/2
0
5/1/2
1
6/1/2
2
7/1/2
3
8/1/2
4
9/1/2
5
10/1/2
6
11/1/2
7
12/1/2
8
1/1/3
0
2/1/3
1
3/1/3
2
4/1/3
3
5/1/3
4
6/1/3
5
7/1/3
6
8/1/3
7
9/1/3
8
10/1/3
9
11/1/4
0
12/1/4
1
1/1/4
3
2/1/4
4
3/1/4
5
4/1/4
6
5/1/4
7
6/1/4
80
500
1000
1500
2000
2500
=>30% <=90% LTV >=90% LTV <30% LTV
• Appropriate and sufficient data (FCA guidance)
• Flexibility to prioritise segments
• Supports regulatory risk and credit risk management
• Beyond basic guidelines
Risk Based Analysis Tool
Developing the Lender Strategy
Customer Options & Strategy
• Customer contact campaign options• Data capture methods and systems• Reporting and MI• Training, compliance and quality
• Written policy and procedure guidance• Repayment options
Part and part
Overpayments
Repayment
Combination
Term extension
Repayment plan
• Consistent
• Configurable
• Measurable format
• Drives lender MI
• Drives FCA reporting
• Unique interest-only scorecard input
• Integrates with analytics - Probability to repay
• Communications data
Capturing Customer data
Delivering the Lender Strategy
Communications Model
• Customer letter
• Inbound call
• 3 x outbound calls
• Pilot 500 accounts
• Objective – Regulatory compliance; ‘Test and Learn’ response rates
Case Study 1
Learning
• Letter only is weak• Outbound is positive• Work hard at customer
engagement
Results
• Inbound contact = 6%• Outbound contact = 55%• Total contact = 61%
Case Study 2
Results
• 12% response rate• 3.5% switch/conversion
Communications Model
• Customer letter
• Inbound call
• Online calculator for repayments
• 13,160 accounts
• Objective - Regulatory compliance and ‘switch’ Learning
• Calculation tool= • Good letter response• Would see better results
with outbound
Case Study 3
Results
• 35% response rate so far - high response through outbound calling• 64% of respondents do
have a plan for repayment
Communications Model
• Customer letter
• 3 x outbound calls
• 1,200 non-arrears accounts
• 300 arrears accounts
• Includes
- 3 and 5 years from term
- 10 years and under to maturity
• Objective - Regulatory compliance; commence continuous activity
Learning
• Currently part way through outbound campaign
• Outbound is positive• Good level of repayment
plans in place
Case Study 4
Results
• 9% response rate• 60% of respondents have
a repayment plan in place
Communications Model
• Customer letter & “reply slip”
• Inbound calls only
• 3,902 accounts
• Regulatory risks
• Objective - Regulatory compliance; capturing the repayment method Learning
• Securitised portfolio• Demand for options from
customers = driven policy change
• Outbound call would enhance contact rate
Case Study 5
Results
• 64% response rate• 49% of respondents have
a repayment plan in place
Communications Model
• Monthly campaign
- Letter and inbound call
- Outbound call
- Includes Field agent contact
• Pre 2020 campaign - letter and outbound
• 1,700 accountsLearning
• Refining with clients broker- free advice proposition
• Developing outputs to enhance Expired Term options
Case Study 6
Results
• 14% response rate so far (mixture of letter, outbound and inbound)
• 85% of respondents have a plan for repayment
Communications Model
• Customer letter
• Inbound call
• 3 x outbound calls
• 1,900 accounts so far
• Very early in the campaign
• Objective - Regulatory compliance; test and learn risk segments
MI Development
Reporting Results
• Example of Reporting
• Flexibility of lender• Populates warehouse• “Learning cycle” theory
- Risk - Behaviour - Analytics
Account Name Region Code
Region
123456789 Mr A N Example 7 MIDLANDS
Customer Identification
Payment Type
Current Balance
LTV Term Expiry Date
Is It Buy To Let?
Months In
Arrears
Field Agent Instruction
Date
ILA £40,926.82 27.99% 08/11/2017 N 3
Risk Parameters
Does the Customer have a
repayment strategy in place?
Number of Strategies
Ceased Records
Exist
Date Last
Modified
Strategy Information
Endowment Current Value
Evidence Provided
Evidence Required?
Maturity Date
Maturity Value
Endowment
Do you have a Completion
Date?
Completion Date Option
When do you intend to
apply for a remortgage?
Intended Application Date Option
What Type of Remortgage?
Remortgage
What is the value expected
Expected Amount
When is the maturity
What type of savings plan?
Savings
How much do you want
to repay?
Repayment Amount Option
Term Extension required months
Type Of Conversion
Conversion
When will they be paid?
Payment Date
Option
Total Amount Option
How will they be repaid?
Additional Repayments
What is the expected
value
Expected Value Option
When do you intend to sell the property?
Intended Sale Date
Option
What is the type of sale?
Sale of Property
What is the value expected to be?
Expected Value Option
When will this be sold?
Intended Sale Date
Option
What asset will you be
selling?
Sale of Asset
Analytic Models - Navigation
Results• View and segment Interest-Only portfolio
• Discover and focus on specifics e.g.- Age- LTV- Balance- Term- Region- Bespoke IO scorecard
• Profitability by portfolio and segment
• Beyond FCA Guidelines
Analytic Models - Overview
Analytic Models - Graphs
Analytic Models - Graphs
Analytic Models - Scorebuilder
Analytic Models - Map
Results• Geographic presentation of any
segment
• Concentration risk
• Heat map improvement over time
• Supports focused campaign delivery
Customer Journey
Refining the Strategy
Risk Profile and Segment
Contact Development
Modify Results / Market (LTV)
Report and Analysis
Expired Term process
• Repayment is the customer’s responsibility (FCA)
• Breach of contract
• Lender- agree policy and customer options
• Evidence and robust governance
• Outcomes- Switch to capital and interest/part and part with extension- Lifetime extension- Re-mortgage- Extend term (allow for repayment plan to mature)- Assisted Voluntary Sale (AVS)
Post MMR and Contract Variation
• 2,600 contract variations per annum
• Specialist entity – SMS – created for advice and regulatory role
• 5 levels of advice for clients – options
• Lender pays advice costs
Customer contact
Triage for variation
Non-advised or Execution only
Advised Qualified advice team
Complete switch/outcome
- I&E- Evidence- Quote- Quality check
Key Challenges
Key Challenges
• Written policy
• Engaging customer- Communications
• FCA - change in oversight
• MI - Risk based profiling - Communication
evidence - Customer plans and
actions - Impact on risk profile - FCA will want to see
evidence