Industry view

an independent report from lyonsdown, distributed with the sunday telegraph

12Business Reporter · february 2012

Andrew Jones

The mortgage lending industry is in the doldrums, but the UK’s major banks can ease the burden if they’re open to exploring outsourcing options

Challenging times require robust yet flexible solutions, and few sectors will face more challenges during the coming year than the mortgage industry.

a sluggish housing market, low levels of new lending, funding challenges, rising repossessions and increased scrutiny by the regulators will put further pressure on lenders and their depleted resources. many face the quandary of being caught between the need to cut overheads and shed assets while handling spikes in mortgage administration activity.

many lenders can struggle to find the manpower to manage these multiple, competing priorities without outside help, says andrew Jones, CeO of hml, the mortgage outsourcing specialist that manages around £43 billion of mortgage assets for more than 50 clients.

“this year we expect to see demand for our services from lenders who are looking to divest themselves of assets, reduce costs, employ overflow collections resource to supplement their own staffing through peaks in activity, get support for new lending, and access more rigorous forecasting tools,” says Jones.

asset trading (when one lender sells a ‘book’ of existing mortgages to another lender) is a classic example.

“in December, we completed the migration of 15,000 prime mortgages from the Bank of ireland to our mortgage administration platform, facilitating a sale of the assets,” says Jones. “the buyer wouldn’t have had the manpower to move the mortgages to their own system quickly enough, but we were able to complete the migration within the seller’s required timeframe. the whole project from inception to completion took just four months.

“We have a dedicated team that handles mortgage migrations and we’ve completed about 70 deals in the past two years, far more than our nearest competitor,” says Jones.

and it’s this expertise – being able to move mortgages from any platform in record time, and take over the administration of large numbers of mortgages by moving its own resources around – that has earned hml its position as the market-leading provider of services to companies and investors who want to trade assets.

alongside a reduction in domestic mortgage lending, the credit crunch brought with it greater scrutiny of the mortgages that are currently being traded.

this led to an increase in demand for back-up, or standby servicing arrangements, so the traded mortgages could maintain their existing investment grades. it also allowed hml to consolidate its position as the leading provider of standby servicing in europe.

But it’s not just asset trading where hml is able to provide a service that lenders may find useful over the coming year. “some lenders face a backlog of borrowers in financial difficulty that need help,” says Jones. “We can take that extra workload on an ad-hoc basis, covering the activity the lender doesn’t have the resources to deliver.

“We have more than 300 people with arrears management experience so we have the scale to do this. We’re

like a tap that the lender can switch on and off at will.”

the tap analogy also works well when you consider the drip, drip impact of additional regulatory activity on existing it systems.

the mortgage market review, published in December by the Financial services

authority, introduced new regulations and

HML’s 2012 regional repossession forecastdata is another area where hml has an unparalleled amount of market intelligence to offer its clients.

in december the company published its annual regional repossession forecast, which concluded that uK property repossessions are set to rise by around 7 per cent during this year – as 2011’s high level of mortgage arrears is aggravated by the worsening economic situation – before starting to fall back in 2013.

hml’s is the only forecast to break down repossessions by region. it predicts that about 37,700 uK properties will be repossessed during this year, with northern ireland seeing a repossession rate of 1.08 per cent – four times higher than southwest england.

hml’s clients get access to much more detailed data, says Ceo andrew Jones. “for example, if a client is considering buying a mortgage book, we can model the tendency to default on the mortgages in it.

that means administrative and it systems will need updating. a major lender may have 20 or more such systems, many stemming from mergers and acquisitions, and relating largely to legacy mortgages.

“lenders can decide to switch off their legacy systems and move the mortgages to our system instead of shouldering the cost of continuing to invest in, update and maintain these,” says Jones. “Because we only have one system that’s shared between all our clients, we can make changes far more efficiently than a lender with multiple systems.”

During the recent years of financial uncertainty, hml has been working behind the scenes to prepare for the challenges ahead.

“We’ve spent the past few years with an internal focus, getting our own cost base and resources right to support our existing clients and welcome new ones,” says Jones. “now we’re very confident in the value of our propositions to the market. We successfully transferred two new clients on to our system in the last quarter of 2011, adding more than £2 billion worth of mortgages to our mortgage administration platform.”

training and development has also been a major focus, with hml working closely with the national Outsourcing association (nOa) to put its employees through diploma courses.

“historically, outsourcing hasn’t been seen as a specialism, but we believe it’s a discipline that requires very specific skills and capabilities,” says Jones. “One of our employees even won the nOa’s award for academic achievement for a dissertation on managing the cultural challenges that can arise when one company outsources parts of their mortgage administration to another.”

this year hml also plans to continue its expansion into the savings and unsecured lending markets, building on the work it has done over the past 12 months. “there’s a lot of similarity between these markets and mortgages in terms of skills, systems and regulations, so our expertise is very transferable,” says Jones.

Call: 01756 776 729www.hml.co.uk

Boost your assets with a helping hand

Region Forecast % Forecast No.

east of england 0.35% 3,111

east midlands 0.31% 2,452

london 0.42% 4,661

north east 0.38% 1,635

north west 0.31% 3,663

northern ireland 1.08% 2,988

scotland 0.40% 3,636

south east 0.31% 4,226

south west 0.25% 2,265

wales 0.38% 1,820

west midlands 0.40% 3,742

yorkshire & humber 0.38% 3,510

UK 0.37% 37,709