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HML's Interest-Only Mortgages Presentation to the Building Societies Association's Arrears and Possessions Seminar

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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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HML's Interest-Only Mortgages Presentation to the Building Societies Association's Arrears and Possessions Seminar

  1. 1. BSA ARREARS AND POSSESSIONS SEMINAR HANDLING YOUR INTEREST-ONLY BACK BOOK 28th November 2013 John Grimbaldeston
  2. 2. Contents • 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?
  3. 3. The journey so far…
  4. 4. Getting to:“FCA Finalised Guidance” -
  5. 5. Key Objectives for Lenders • Claims Management Companies Risk-based analysis • Repayment plans - viable • LTV movement • Customer Engagement Reputational • Credit Risk • • Regulatory Risk FCA compliance Big issue for industry - not customer • Letter? • Telephone? • Response Rates
  6. 6. The HML Interest-Only Back Book
  7. 7. Maturity Profile Interest Only Maturities - Volumes • Long term issue • Peak = 2027 and 2032 • Conduct risk = key driver in near term • 2000 Familiar profile • 2500 Risk based approach to segmentation 1500 1000 500 =>30% <=90% LTV >=90% LTV <30% LTV 9/4/48 8/4/47 7/4/46 6/4/45 5/4/44 4/4/43 3/4/42 2/4/41 1/4/40 11/3/38 9/3/36 10/3/37 8/3/35 7/3/34 6/3/33 5/3/32 4/3/31 3/3/30 2/3/29 1/3/28 11/2/26 10/2/25 9/2/24 8/2/23 7/2/22 6/2/21 5/2/20 4/2/19 3/2/18 2/2/17 1/2/16 11/1/14 10/1/13 0
  8. 8. Risk Based Analysis Tool • Appropriate and sufficient data (FCA guidance) • Flexibility to prioritise segments • Supports regulatory risk and credit risk management • Beyond basic guidelines
  9. 9. Developing the Lender Strategy
  10. 10. Customer Options & Strategy • Written policy and procedure guidance • Repayment options Part and part Overpayments • • • • Term extension Repayment Customer contact campaign options Data capture methods and systems Reporting and MI Training, compliance and quality Combination Repayment plan
  11. 11. Capturing Customer data • Consistent • Configurable • Measurable format • Drives lender MI • Drives FCA reporting • Unique interest-only scorecard input • Integrates with analytics - Probability to repay • Communications data
  12. 12. Delivering the Lender Strategy
  13. 13. Case Study 1 Communications Model Results • Customer letter • • • • Inbound call Inbound contact = 6% Outbound contact = 55% Total contact = 61% • 3 x outbound calls • Pilot 500 accounts • Objective – Regulatory compliance; „Test and Learn‟ response rates Learning • • • Letter only is weak Outbound is positive Work hard at customer engagement
  14. 14. Case Study 2 Communications Model Results • Customer letter • • 12% response rate 3.5% switch/conversion • 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
  15. 15. Case Study 3 Communications Model • Customer letter Results • 35% response rate so far - high response through outbound calling 64% of respondents do have a plan for repayment • 3 x outbound calls • 1,200 non-arrears accounts • • 300 arrears accounts • Includes - 3 and 5 years from term Learning - 10 years and under to maturity • • Objective - Regulatory compliance; commence continuous activity • • Currently part way through outbound campaign Outbound is positive Good level of repayment plans in place
  16. 16. Case Study 4 Communications Model Results • Customer letter & “reply slip” • • 9% response rate 60% of respondents have a repayment plan in place • 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
  17. 17. Case Study 5 Communications Model • Monthly campaign - Letter and inbound call Results • • 64% response rate 49% of respondents have a repayment plan in place - Outbound call - Includes Field agent contact • Pre 2020 campaign - letter and outbound • 1,700 accounts Learning • • Refining with clients brokerfree advice proposition Developing outputs to enhance Expired Term options
  18. 18. Case Study 6 Communications Model • Customer letter Results • • Inbound call • 3 x outbound calls • 1,900 accounts so far • Very early in the campaign • Objective - Regulatory compliance; test and learn risk segments • 14% response rate so far (mixture of letter, outbound and inbound) 85% of respondents have a plan for repayment
  19. 19. MI Development
  20. 20. Reporting Results • Additional Repayments When Payment Total How will will they Date Amount they be be paid? Option Option repaid? Example of Reporting Customer Identification Account Name Region Code Region 7 MIDLANDS 123456789 Mr A N Example Endowment Endowment Current Evidence Evidence Maturity Maturity Value Provided Required? Date Value Risk Parameters Payment Type Current Balance LTV ILA £40,926.82 27.99% Term Expiry Is It Buy Months Field Agent Date To Let? In Instruction Arrears Date 08/11/2017 N Strategy Information Does the Customer Number of Ceased Date have a Strategies Records Last repayment Exist Modified strategy in place? • • • Flexibility of lender Populates warehouse “Learning cycle” theory - Risk - Behaviour - Analytics 3 Sale of Property What is the Expected When do you Intended expected Value intend to sell Sale Date value Option the property? Option What is the type of sale? Sale of Asset What is the value Expected When Intended What asset expected to be? Value will this Sale Date will you be Option be sold? Option selling? Conversion How much Repayment Term do you want Amount Extension to repay? Option required months Do you have a Completion Completion Date Option Date? Type Of Conversion Remortgage When do you Intended What Type of intend to Application Remortgage? apply for a Date Option remortgage? Savings What is the Expected When is the What type of value expected Amount maturity savings plan?
  21. 21. 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
  22. 22. Analytic Models - Overview
  23. 23. Analytic Models - Graphs
  24. 24. Analytic Models - Graphs
  25. 25. Analytic Models - Scorebuilder
  26. 26. Analytic Models - Map Results • Geographic presentation of any segment • Concentration risk • Heat map improvement over time • Supports focused campaign delivery
  27. 27. Customer Journey
  28. 28. Refining the Strategy Risk Profile and Segment Contact Development Modify Results / Market (LTV) Report and Analysis
  29. 29. 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)
  30. 30. Post MMR and Contract Variation Non-advised or Execution only Customer contact Triage for variation Qualified advice team Advised - • 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 I&E Evidence Quote Quality check Complete switch/outcome
  31. 31. Key Challenges
  32. 32. 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

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