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.

1. BSA ARREARS AND
POSSESSIONS SEMINAR
HANDLING YOUR INTEREST-ONLY BACK BOOK
28th November 2013
John Grimbaldeston

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. The journey so far…

4. Getting to:“FCA Finalised Guidance”
-

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. The HML Interest-Only
Back Book

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. 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. Developing the Lender Strategy

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. 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. Delivering the Lender Strategy

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. 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. 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. 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. 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. 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. MI Development

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. 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. Analytic Models - Overview

23. Analytic Models - Graphs

24. Analytic Models - Graphs

25. Analytic Models - Scorebuilder

26. Analytic Models - Map
Results
• Geographic presentation of any
segment
•
Concentration risk
•
Heat map improvement over time
•
Supports focused campaign delivery

27. Customer Journey

28. Refining the Strategy
Risk Profile and
Segment
Contact
Development
Modify Results /
Market (LTV)
Report and
Analysis

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. 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. Key Challenges

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