Your questions answered

Hans Geberbauer

April 21, 2020

Mortgage Introducer held the second in its series of live webinars on Thursday 9 April at 3:00pm. Unfortunately, there wasn’t enough time for some of your questions to be answered on the day. 

Foundation Home Loans’ chief executive Hans Geberbauer answers those questions now.

Q. Can you please explain why Foundation Home Loans does not offer product transfer/rate switches to existing customers?

A. It has not really been relevant so far as most of our business is in 5-year fixed rates and little has reverted yet. We are actively working on a product transfer option. The other constraint is that a product transfer requires a repurchase from an existing securitisation into a new securitisation – this is difficult to do while the securitisation market remains dislocated.

Q. Do you think you will continue to have your lending appetite for the more high-risk lending that you were currently considering i.e. New Builds, moving forward when we regain some sort of normality?

A. When we return to lending, the proposition will be a more conservative (and we have always been somewhat conservative on New Builds even by specialist lender standards) at least for a while.

Q. Interesting distinction – price of credit vs price of liquidity. What happens when there’s a big difference where liquidity is very cheap but credit priced high?

A. Typically, it will cause very safe credit (mainstream mortgages to employed people on strong incomes at low loan to value) to be priced very cheaply, but anything slightly riskier to become very expensive.

Q. Do you believe that property values will reduce?

A. Yes. We don’t believe the market will crash, but values will be depressed for a while and any forced seller may take significant losses. However, we take a lot of comfort that house prices have grown only moderately prior to this crisis – this was very different in the run up to the credit crunch twelve years ago.

Q. Home Insurers are utilising secure systems such as Sightcall/Vision to conduct virtual surveys of properties – lenders can utilise these systems as well. Where do you stand on this?

A. We are actively investigating this and hope to incorporate this into our range. However, we believe securitising lenders like ourselves will move cautiously as we have to take rating agencies and investors along on the journey.

Q. Why do you think that the legal profession is being slow in gearing up digitally to help the whole process?

A. The conveyancing process does seem especially slow and difficult to influence for lenders, brokers and customers alike. But I admit I may have over-generalised with that statement (I am a solicitor myself, as it happens).

Q. The cost of warehouse lines has increased, Hans has mentioned that lending will be more conservative. Will lenders in the space have higher hurdles in terms of reps and warranty requirements? If so, how will this risk managed? Moving forward to you think the warehouse lines will have less appetite for the space?

A. Yes, we believe warehouse lenders will have a reduced appetite for risk and the amounts they lend in the immediate future. As a long-established player with a strong balance sheet, we believe we will be less affected but higher warehouse pricing and tighter warehouse criteria will feed through into more expensive and more conservative products.

Q. How will the payment holidays work for people who only just manage to pay their monthly mortgage? How will they manage if their payments go up after, say the minimum of three months mortgage holiday break?

A. This is a good question. Thanks to our legacy mortgage book from the pre-credit crisis days, we have a lot in-house experience in managing customers with payment difficulties and will we create plans that allow customers to catch up on mortgage payment holiday amounts which reflect their means.

Q. Do you have predictions for what may happen to house prices over the next 1-2 years?

A. Yes. We don’t believe the market will crash, but values will be depressed for a while and any forced seller may take significant losses. However, we take a lot of comfort that house prices have grown only moderately prior to this crisis – this was very different in the run up to the credit crunch twelve years ago.

Q. After few months when everything is normal, will the banks review in lending policy, making it very difficult?

A. Criteria will be more conservative for a while.

Q. How would any type of insurance help right now in this situation or any future situation like this?

A. Various types of income protection or business interruption policies may well help moderate the impact. We will also start exploring policies protecting lenders.

Q. Would having insurance as part of the conditions of a mortgage being granted give the clients some form of protection for them or their family?

A. We can see that happening. We are not interested as a lender in selling or brokering insurance but we may insist on customers having it in place.

Q. Aside from technology, what other innovation do you believe we could see from non-banks like Foundation Home Loans when we emerge from the crisis?

A. I think working with protection providers on ways that continue to make contractor and self-employed and entrepreneurs like buy-to-let landlords eligible for mortgage finance at competitive rates will be a key area of innovation.

Q. Do you think that insurers will have the appetite to offer income protection, given the clear fragility of the market, and vulnerability to global pandemics?

A. That is a good question. We will certainly explore it with them.

Q. What will happened to the AIP already approved in February 2020?

A. We will focus on completing the post-offer pipeline. Anything pre-valuation may have to be repriced in light of the dramatic increase in our cost of funds.

Q. What do you think the likelihood is that the government will extend the furlough scheme beyond the end of May? We don’t believe we will be able to take our full team back by then and ideally need some further time to have a phased return as the market gradually gets back to some sort of normality.

A. As we said during the webinar, we expect the mortgage payment holiday scheme to be extended beyond three months and we suspect that the furlough scheme will also be extended, at least for certain sectors (like travel and hospitality – which would not be so helpful to business like yours or ours).

Q. Do you think that lenders such as Foundation will now seek to embrace technologies such as AVM, remote ID verification, etc. as many are woefully behind the times?

A. Yes, we will do more of that. However, many of these technologies are not fully proven for mortgage products where the underwriting, KYC, AML etc process may come under scrutiny ten or even twenty years later – we still have loans from 1998 and experience some interesting challenges.

Q. What should brokers who do specialist lending be telling clients with so many lenders pulling out of the market should they just sack off offering specialist advice?

A. We think the disruption will be temporary. At least some of us specialist lenders will soon be ready again to meet your customers’ needs.

Q. Going forward, say when assessing an application in a year’s time, will lenders be able to see who has and who has not taken payment holidays. I am thinking that this might help portfolio landlords who have not taken payment holidays to pass affordability etc.

A. It would be impossible for a lender to find out (e.g. by asking for bank statements from this period). We are getting many genuinely needs based requests for mortgage payment holidays and will not be holding these against these customers.

Q. Would you still allow the three-month payment holidays if you knew the client was going to redeem the loan in the near future by re-mortgaging to another lender?

A. Imminent redemption is not a factor for granting mortgage payment holidays – the money would have to be repaid in full on redemption so I would not consider that a problem.

Q. Does Foundation Home Loans offer free desktop valuations and free legals?

A. We have withdrawn our fee free products – part of our cash preservation strategy.

Q. Its brilliant that everyone is together on getting through this, but do you think there is anything to cover off to protect ourselves from the claims management companies who may find a spurious business opportunity from the crisis?

A. The answer is, sadly, no. The best defence is to run our businesses properly but we will still have to invest time batting away their spurious claims.

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