HML. Homeloan Management Ltd

Since the FSA published its guidance on forbearance and impairment in October last year, the onus has been on lenders to ensure that effective processes are in place for the identification, reporting, monitoring and loss-risk assessment of forbearance and customer impairment.

 

As someone with a long history of working with statistics, I know that even if you have the account information to hand, your work is not even half done. Drilling down into the details of a portfolio’s forbearance history is the time consuming part, but it is also the bit you need to get that level of intelligence to truly understand risk – it’s also where the strategic insight lies.

 

Our user-friendly analytical tools can help establish the current position of a book by looking at the number of accounts with forbearance measures applied. This can then be split into the types of forbearance used and their relative successes with Arrangement to Pay Insight and Loan Modifications Insight.

 

These reports can then be compared to see which forbearance measure has proved to be the most successful for different account types and accounts that may require attention can be flagged.

 

Historic data can be remarkably useful if you’re planning to capitalise certain accounts for example. Using long-term performance trends you can see whether it is financially beneficial for a borrower to capitalise their account based on their previous performance. Additionally, if similar accounts show a propensity to slip back into arrears two months later, is it the best approach for them or you? Probably not.

 

The point is these tools can help lenders meet the FSA’s reporting requirements, but they can also shed light on the effectiveness of forbearance policies that might not have been visible before. The long term performance of forbearance measures is something that is just starting to crystallise after the credit crunch, so now is the time to take stock of the impact of these decisions on portfolios.

 

Provisioning sufficient capital to manage risk should be a priority for any lender, and is likely to be of increasing importance in years to come but it doesn’t need to swallow much-needed resources unnecessarily. Once the analytics have been run the outputs can be used to calculate how much capital you need to provision for different forbearance events so you can rest assured that your business is meeting its obligations while being as effective as it can be.