All businesses need to get the fundamentals, explains Bob Young, managing director of CHL Mortgages
A major part of a firm’s success will be heavily dependent on how it handles the ‘fundamentals’ of its work. In the mortgage lending sector we appear to have moved a long way down the road from a time when many lenders did not handle the fundamentals of their business well. Indeed in a time pre-Credit Crunch many specialist lenders appeared often disinterested in areas, for example, such as managing their own book. This was because they were origination organisations, only interested in applications through the door, rather than worrying about such ‘troublesome notions’ as securing mortgage payments, dealing with borrowers, handling arrears and the like.
Looking back at this origination model – so dependent on securitisation and not holding those mortgages on the book – it seems like an incredibly warped version of today’s mortgage market. Of course many lenders choose to outsource certain aspects of their business and mortgage administration is often one such area, however to my mind if this is going to be the approach then it pays to work with an organisation which has plenty of experience in, what I call, true end to end lending.
The fundamentals of any business are so important that choosing to outsource such a function is a major decision. Don’t get me wrong, where the business has no expertise in a certain area but needs to perform strongly nonetheless I’m all for outsourcing to experts in their field. However for us when it comes to lender fundamentals, such as managing one’s own mortgage book, we have always chosen to take charge of this in-house. And I have to say that it is a decision that we have never regretted, even more so when we consider the performance of our own book compared to both industry averages and our immediate lender competitors.
Administration is a vitally important part of any business and achieving success in this area sets the foundations for what the rest of the business is able to achieve. For example, for CHL our whole raison d’être over the past few years has essentially been to focus on mortgage administration. Our strong performance in arrears management is testament to this, however numbers can only tell some of the story.
When it comes to administration, experience and expertise are everything. Some of our staff members have over 20 years’ experience in this business which is perhaps why we have been able to administer a £6.4 billion mortgage book with just 110 staff. Again, for any business, to survive in this marketplace there has to be a focus on controlling costs whilst at the same time producing a motivated workplace. Not always an easy task however it is vital if you want to achieve not just stability but profitability.
Also, as stated above, often it is as simple as keeping one’s eye on the ball. Distractions come in all shapes and forms, however if care is take and the objective is always held in sight then success is achievable. For instance, we have only one objective and that’s the management through mortgage administration of our portfolio we are not having to juggle different lender clients and their priorities which is often the case with other outsource alternatives.
The other key area to maintaining fundamentals is to find a system and set of processes that work for you. For example, in areas such as IT the firm may think about buying an off the shelf solution however this is not always the right approach. Bespoke offerings may take time to develop but they can be formulated so they’re a perfect fit for the firm rather than a catch-all offering that is attempting to be all things to all men. We developed such a bespoke mortgage admin system to mirror and improve our work rather than buy one in where we would have had to change our work patterns to fit in with the system. Plus, having this bespoke offering allows you to constantly innovate and develop methodologies and solutions which, in our case, improved the performance of our portfolio no end.
Finally, the firm needs to understand and review what work it is conducting and achieving on a regular basis. In our case we understand the regulated environment for both home loans and the buy-to-let market in the case of the latter it is our complete understanding of this sector that allows us to, for example, work very closely with Receivers of Rents to ensure the best outcome for the borrower. Also, firms should make sure they have key performance indicators (KPIs) in place and they are reviewed regularly as part of the systems and controls – our KPIs are reviewed weekly to ensure all is working correctly and moving in the right direction.
All in all, everything in a business starts with the fundamentals, and often this is the administration function or a variation of. Ensuring this works efficiently and competently can set any business up on the right footing and pave the way for all of the success that is (hopefully) to follow.