Niche Mortgages Article

BRINGING THE IVA TO BROKERS- completing the advice circle

The fact that Clean Slate even exists shows how serious the mortgage market is in providing complete debt advice to its Clients. The current climate is a difficult one for lending but potentially excellent for the IVA- firstly, and most obviously, the increased interest from brokers means new business and fewer declines and secondly it brings a cross-over with the more imposing mortgage regulatory framework which could bring real positives to the debt advice industry.

Tightening Belts
The debt market is blossoming at the expense of a public who have found themselves more and more exposed to credit in the last 24 months and found that it can be taken away as quickly as it is handed out. The IVA is, rightly or wrongly, the cornerstone of the debt solutions market and the boon starts here. Credit card balance transfers are being restricted and personal loans withheld. Brokers are facing more declines and have to expand horizons to prevent data waste. The IVA becomes the only recourse in many instances.
However, the public perception of the IVA is still nervy and the mainstream press amateur. One Sunday red top was giving juicy gossip on a female celebrity’s recent IVA application:

“[She] has now hired a team of professional insolvency advisers to help them DODGE bankruptcy court, AVOID paying the huge sum, and DUCK £60,000 of loans and credit card bills”. The capitals are not mine. The article continues, “...assets like her home and vehicles will be sold by the Official Receiver….”

Their reporting shows just how much further education is needed amongst the public at large. Perhaps bringing IVA’s to the mortgage industry as a product in its own right may be a great way to do this.

What a difference a credit curve makes
Best Advice reported last week at the Expo that the CML was redefining what it means to be sub-prime (or near prime or heavy adverse!)

“….the CML has created seven different categories of borrower, based on their credit status. It is encouraging lenders to report their data in this format to make it easier to segment the market consistently…”

Not only will the terms be different but the Lenders are also going to sharpen the credit curve by, for example, leaving heavy adverse borrowers in the lurch and redefining good borrowers (say with only one missed credit card payment but no arrears/defaults) into near prime. This begs the question where do those heavy adverse borrowers go? Are there lenders willing to accept their risk profiles or, more interestingly, are there borrowers willing to accept the associated increased interest rates? Does it continue to be best advice or TCF to place a borrower in this way? Perhaps not. The IVA (or any of the other debt solution products such as debt management or even bankruptcy) can deal square-on with the debt rather than postponing the crisis by consolidation. With news this week that HSBC appear to be dropping their 40% dividend hurdle this could undoubtedly be the best advice option for a broker and satisfy their compliance function.



Regulation and Compliance
The expansion of the mortgage broker’s interest into the IVA market can only be a good thing for compliance. I suspect that in doing so we should see a distinct improvement in the quality of advice and the quality of outcomes for the clients. The drive for compliant advice which followed mortgage regulation has left brokers with some of the most assured systems of any industry and much more so than those industries that are self-regulating.
There are three distinct functions to the selling and administration of the IVA- the role of the front-end adviser (in our case the broker), the role of the practitioner (for an IVA this is a Supervisor) and the role of the creditors. It is often forgotten that commercial creditors themselves have their own regulatory issues- be it Consumer Credit compliance or the Banking/ Financial Services Ombudsman. An Insolvency Practitioner is both Court appointed and regulated by a number of professional bodies but there are clamours for more specific supervision of the industry. I have to say I agree and there are model practitioners who also believe that a fair and open industry can only create a positive image.
The mortgage broker who advises an IVA solution will need to see that their compliance function is continued- if only to satisfy their own model of TCF. There a possibility that the broker could be giving good advice to seek an IVA but then places the IVA with the wrong partner who fails the client in service and advice. Does the broker become responsible? It is unlikely that the broker will have a panel of IP’s and choosing the right partner has never been so important.

Partnership with Providers
People should choose their professional partners carefully- particularly in this market. There is an argument that some brokers have been a little too ahead of the game and jumped into bed with the company that shouts the loudest; others have been won over by IT; more by AIM listings. In truth, as always, a successful partnership has to be about the long-term.
As a firm we are lucky to have been able to initially rely on our existing conveyancing relationships which ensured our due diligence was already done and good relationships with our introducers were already formed. But what should a broker look for when choosing a debt solution partner?
Part of our proposition includes an income stream from the referral, client tagging for future refinancing opportunities and strict service standards for client communication and reporting. As a broker I would expect this to be standard but real additions (not just aesthetic) should bring compliance audits, tele-sales scripting assistance, calculators or white labelling to create a brand awareness. A high success ratio, both in the initial proposal and also in the administration of the IVA, is also critical- check out free sites like www.iva.co.uk where you can see what the public really thinks about your proposed provider or www.iva.com which is a comparison site.
The crucial element to any offering though takes us right back to where we began- brokers are concerned to ensure they provide a whole of market advice circle. Indeed, MCOB requires it. So why partner with IVA companies only? Ensure your debt provider gives you options for debt management and bankruptcy as well. Whole of market advice cannot be allowed to mean a one-way ticket to IVA-land! And if the Sunday press gets wind about your provider- move!