hml's interest-only mortgages presentation to the building societies association's arrears...

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