Sourcing Systems exposed

Sourcing Systems exposed



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With the news that two bridging sourcing systems are about to be launched in the market, Bridging & Commercial wanted to find out what some within the industry think about them and what the benefits and dangers of sourcing systems are…

Generally speaking, sourcing systems are not designed to replace the packaging process but to provide intermediaries with a portal of information. However, there are concerns that they may have a negative effect on packagers and that they may not be entirely accurate for intermediaries.

B&C asked a few industry experts for their thoughts on these systems and whether they feel they may alienate the traditional short-term distributor.

A Simple Bridging source, told us, “I think sourcing systems would be a good idea in some ways as they at least allow a broker to source and compare rates but I feel that they are not appropriate for bridging loans as they tend to be more complex deals which don’t easily fit into a ‘box’.  Virtually all of my deals, the broker is never sure on the exact term they require and/or how we can do the deal.”

Terry Markham, Managing Director at the Funding Operation, stated: “Anything new will have its curiosity value and will, therefore, enjoy a little "honeymoon" period. However, we are all aware due to the absolute diverse nature of enquiries we receive that any sourcing system will not have the capability of taking into account all the positive and negative factors of a case. This will eventually lead to huge frustration amongst introducers and brokers to the benefit of distributors due to the experience they can bring to the table.”

However, Richard Deacon, Sales & Marketing Director at Masthaven, said: “Not at all. I think the sourcing systems are being aimed at the mainstream mortgage broker who thinks he has a bridging enquiry but hasn’t got any idea of where to start and place it.”

B&C looked at the two bridging sourcing systems which are about to launch:

         -          Y3S’s latest innovation - miLoanbroker.com

         -          Bridging Lenders portal and sourcing system.

The first is the highly anticipated bridging module which has been added to the already highly successful miLoan system, which will be launched imminently. It is currently in its final live testing phase with a number of brokers to test-drive the system.

Specialist loan provider Y3S opened up their secured loan sourcing system portal last July and in that time 2,500 intermediaries have shown interest and submitted quotes.

There are concerns from some that a packager running a sourcing system may treat and source deals to their preferred lenders and not necessarily from an unbiased stance.

In light of Y3S creating their own sourcing system we wanted to find out whether our industry experts think that some packagers may look at setting up their own version of a sourcing portal.

Terry Markham said: “I do not see any real benefit in any sourcing portal which will never be that accurate. Experienced distributors know they have to discuss a deal with one of their lenders so all parties can get a "feel" for the enquiry.”

Richard Deacon commented: “Probably not, as they will need a great deal of maintenance and updating and there are only a few companies who will be able to dedicate several members of staff for the upkeep of this job, which it will need if it is to be done correctly.”

The Bridging Lenders Portal and Sourcing system has been created with three listing levels available to lenders. Lenders can sign up to a Bronze, Silver or Gold listing onto this site, with the higher the level a lender signs up to the more information and enhanced facilities they receive. The better the listing the more they are able to provide on the Bridging Lenders sourcing system and it also provides them with a ‘significant discount on advertising activities’.

We asked the experts whether they think that the second sourcing system model, Bridging Lenders, may create an unfair advantage to those lenders who sign up to a bigger package on the site and can therefore advertise more.

Simple Bridging disclosed: “This is not a fair service for us smaller companies who cannot compete with the larger more well-known companies.”

Terry Markham stated, “I am sure that this is probably the case” while Richard Deacon said that, “there is always this danger.”

We asked our panel whether they thought that by endorsing a system owned by a publisher, lenders are indirectly saying that there is no need for a packager.

Terry Markham responded: “I would be shocked if any short-term lender would endorse any system as they themselves know that these systems will not be able to fully "place" a case.”

Richard Deacon said that this was not the case: “This is a useful tool for the intermediary who wants to see if they can place a case specifically themselves. The packagers who are still around are doing a great job and really adding value to their clients by providing a start to finish service that you simply will not get from a sourcing tool."

Mark Posniak, Head of Marketing & Operations at Dragonfly Property Finance, said:

"We fully support the launch of BridgingLenders.com, as anything that brings intermediaries together with the right specialist lenders is a good thing. Where we will perhaps differ from other lenders listed on the site is that we will be passing all leads generated onto our key partners who can then preside over the applications. These key partners are loyal to us and we will naturally remain loyal to them. For us, the involvement of packagers and master brokers makes for a far more streamlined application process."

To provide accurate key facts illustrations (KFIs), a sourcing system provider will have to continuously ask lenders to guarantee the accuracy of its data and information. If this is not updated accordingly then this would cause problems and inaccurate information to intermediaries. An intermediary must not simply assume that a KFI provided to them by a sourcing system provider is accurate and fit for their purpose. The FSA expect an intermediary to use their knowledge of the market and products to reassure themselves that the details appear reasonable and accurate.

Information will have to be updated continuously – some lenders don’t even update their own websites efficiently.

Brokers like to have a direct relationship with a lender and pick up the phone straightaway as opposed to going through a sourcing site. Those who already know which lenders to work with will, we assume, continue to work to this method.

The bigger lenders and specialised lenders will also come out on top in a sourcing system as it will become quite oligopolistic in places as when a broker inputs a borrower’s requirements and the details of a case the bigger and more specialised lenders will inevitably be higher up in the end shortlist.

Smaller lenders do in places tend to have higher rates and also much less finance to be able to fund deals. However, these lenders will have to be used as the bigger more funded lenders will not be able to cope with all these enquiries on their own. Sourcing systems are a good tool for lenders’ underwriting criteria but they will not inform the intermediaries of which lenders are unable to fund a deal if there loan book is already full to capacity at a given time.

Increase service for intermediaries is a good thing but it will also take away the instant communication that brokers have with lenders. Many brokers and intermediaries already have existing working relationships with certain lenders and they will continue to use this source of funding for their clients.

Terry Markham added: “Any sourcing system will only be able to deal with the vanilla deals, which are obviously appealing to all lenders; however, they will not be able to deal with any complex enquiries.”

Our Simple Bridging source, concluded: “I still find that many brokers throughout the country who are not familiar with bridging loans, need ‘educating’ on how bridging loans can work for them.  Also in this very difficult market place, brokers need to take comfort in knowing that the lender they choose can actually ‘do’ the deal and not just advertise then find reasons not to lend further down the line – a sourcing system can only show the best rates etc. but doesn’t allow for service.”

Sourcing systems if done properly and effectively will be a good tool of information for the industry as this will assist those unfamiliar with bridging finance and do not know where to place a deal. However, they are not designed to replace the process; it is simply a very useful start for brokers when delving into bridging products for their clients.

It must also be noted that these systems will still not be able to handle complex cases and will not accurately give all the options available to the borrower. Many cases are dealt with in a very flexible manner and a sourcing system may to some look like a credit scoring type system when sourcing a lender to work with. It will be interesting to see how successful and useful the two systems launching will be for intermediaries and the sector as a whole.

 

 

1 Comments

  • I have to agree with the opinion that sourcing systems are not the be-all-and-end-all. As soon as something becomes "non-vanilla" you really can't beat an experienced person looking at the case and understanding the ins-and-outs of it. Kevin Theobald heads up our enquiries desk and he has been in the industry 23 years. He knows our lenders' criteria inside out and can search for a solution surprisingly quickly. We can also use our experience to know when lenders will be flexible and go outside criteria. It just isn't possible or feasible to program a computer system to give you that level of knowledge, experience, interpretation and more importantly an opinion. Computers don't like grey areas, but it is in those grey areas that packagers, such as ourselves, excel. It's very rare that the answer to every question in the early stages of placing a case is "Yes" or "No". Taking one of the points above, if brokers aren't familiar with a product (bridging, secured loans, buy-to-let, commercial mortgages for example), surely it is better to speak to someone who is (and who won't steal your customer - we NEVER cross-sell) than blindly answer questions on a computer thinking that it is giving you the best solution?

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