An increasing challenge for major lenders is how to ensure satisfactory governance and oversight of outsourced arrears management suppliers. This is in the context of where the regulatory burden is ever increasing but investment in internal processes and resources – especially in supplier management – may be going backwards.
Increasingly, the solution to this challenge is to find “super-suppliers” who can provide a wide range of services, across multiple jurisdictions, all under the same high-quality approach to governance and oversight.
This approach can span areas from early arrears outsourced management (or even full servicing, including both performing and non-performing accounts), field services, litigation and enforcement including property sales and shortfall recovery.
A number of lenders have consolidated panels, removing firms who are able only to offer one service line or one product.
This approach is also increasingly finding favour as the number of matters requiring escalated activity by external providers continues to drop. The latest data from the Ministry of Justice shows that in the second quarter of 2018, compared to the same period last year, mortgage possession claims in England and Wales have fallen by 14%. Mortgage possession orders were also down by 14%, warrants fell by 18% and repossessions by county court bailiffs dropped by 11%.
These trends are welcome of course, being good news for customers, lending institutions and indeed society as a whole. They have not developed by accident since they coincide with prolonged lower interest rates and reflect too the proactive approach undertaken by lenders to manage more effectively customers having financial difficulties. One less obvious cause of the trend is that there has also been a downward trend in recent years in the proportion of owner-occupiers, which inevitably affects these statistics.
How many suppliers do you need?
Given this pattern, an important recent development in the market has been a widespread move towards reducing the number of suppliers; and where the service is considered low risk or volume associated is low a move to sole suppliers, at least for certain service lines.
This squares the circle of how to manage increased oversight with less resource and indeed it may be said that the very nature of fewer suppliers de-risks the process if the selection criteria are right. A management information (MI) suite which is clear, transparent and predictable results in relationships where all parties are able to identify and agree in advance “what good looks like” ensuring suppliers can align their services to the requirements.
Service providers must also ensure they understand the risk appetite of their clients and align their service provision and delivery to this overarching ethos.
Those without sole suppliers may question whether the super-supplier approach creates a level of over-dependency or a lack of contingency. The answer is that models are now in operation which effectively address these aspects and which do so in a way which satisfies regulators.
Most obviously, regular reviews, relationship building and transparent pricing models are the key to a successful partnership which delivers the best customer outcomes. But more specific examples of mechanisms to address dependency are service credits, indemnity clauses and “standby suppliers or servicers” who are on notice and primed to step in if any material service issues are observed.
This approach can cover a wide variety of services, some of which are described below.
Early arrears outsourcing
Outsourcing of internal tasks – especially at early stages of the process such as when one or two payments have been missed – is a valuable strategy for organisations looking to achieve high performance by controlling costs, reducing risk, fostering collaboration, increasing transparency or growing their businesses.
As organisations try to do more with less, new business models are emerging and the benefits of outsourcing are being realised. Outsourcing continues to evolve from being perceived as a short-term cost-cutting exercise to driving long-term efficiencies and sustainable success, and from single non-core activities to multiple critical processes requiring specialist expertise.
Few areas of the mortgage arrears process have seen as many recent changes as in field services. With certain suppliers exiting the market, the introduction of new technology and an ongoing debate as to whether full income and expenditure details should be secured in the customer’s home by the lender or customers should simply be reconnected over the phone.
This market now expects the facility to voice record all interviews with customers through iPad or similar technology, though it remains a matter for each institution to decide – consistent with its approach to risk and customer engagement – whether to embark on recording. Full recording (as opposed to voice only) has been considered by the industry but found to be a potential barrier to true customer engagement. By contrast, customers have strongly welcomed the voice recording approach with around 98% of customers not only agreeing to, but welcoming the voice recording of their interview.
The market is still considering the benefits and drawbacks of Full Fact Find visits versus Reconnect models. There is likely always to be a place for the former in cases of vulnerability. Customers may also prefer face to face discussions where prior telephone contact with the lender – even if understandable from the perspective of a bank or building society which simply wishes to try and get matters back on track – has led to a loss of trust. This is in no one’s interest in resolving matters going forward.
The decision of any supplier to litigate must always begin with consideration of individual customer circumstances to determine if litigation is appropriate.
The underlying ethos in such a review must be to arrive at a fair outcome for the customer. That should not change based on the number of suppliers an institution has on panel, though the understanding of the risk appetite of the bank or building society may be deeper where a “super-supplier” is in place. One likely area of advantage from having fewer suppliers will be the ability to control costs on defended matters through the range of fixed cost solutions for non-standard cases increasingly offered by larger service providers.
The ever increasing regulatory burden in this sector means the direction of travel is clear. Lenders are likely to consolidate panels further, seeking to rely on super-suppliers who can ensure the highest levels of governance and the best customer outcomes across a range of services and jurisdictions.
- Super-suppliers can provide a wide range of services, across multiple jurisdictions, including early arrears outsourced management, full servicing of performing and non-performing accounts, field services, litigation and enforcement, property sales and shortfall recovery.
- In Q2 2018, compared to Q2 2017, mortgage possession claims and orders in England and Wales were both down by 14%, warrants fell by 18% and repossessions by county court bailiffs dropped by 11%.
- There has been a widespread move towards lenders reducing the number of suppliers; and where the service is considered low risk a move to sole suppliers. Lenders without sole suppliers may question whether the super-supplier approach creates a level of over-dependency but models are in place which satisfy the regulators.
- The market expects all interviews with customers to be voice recorded but it is not compulsory. Some consider recording to be a potential barrier to customer engagement. However, 98% of customers agreed to the recording of their interview.
- The decision of any supplier to litigate must always begin with consideration of individual customer circumstances to determine if litigation is appropriate. The underlying ethos in such a review must be to arrive at a fair outcome for the customer.