Case Study

Innovation comes to mortgage loans with flexible repayments

By Richard Hartung

The innovative Feng Yun mortgage offers a 40-year loan with fully flexible changes in repayment terms and customers can use online tools to check the value of a property and apply for a loan.

Around the world, innovation in mortgage lending has been relatively slow and limited.

SinoPac Taiwan  has come up with a product that offers more flexibility in payments than most other lenders, faster processing, and value-added services for its customers as well. The bank believes that the mortgage is the most important in-depth engagement between an individual and the bank.

SinoPac decided to add more value, changing the longstanding fundamental concept of paying a fixed payment for a mortgage for 20 years with only one or two chances of changes in payment terms. By developing a new framework for its loans, it was able to develop a significant competitive advantage.

Solution

Rather than simply making small tweaks to existing products, the bank decided to offer a flexible product for a lifetime. SinoPac was the first bank in Taiwan to extend from 20 to 40 years offering the  maximum LTV (loan-to-value) ratio which lowered the monthly payment by 60%.

Customers can input the address of a home and calculate how much they can borrow, with instant online appraisal and credit limit calculation in about 30 seconds.

A customers’ mortgage payments can be adjusted, just before the next payment date, and one can go online and change payment terms, within a certain cap. Payments can be changed every month. The lower rate can last for between 3 and 24 months. Once this grace period is over, the bank will recalculate the payment and forecast the new payment term. All this can be done online.

Rather than asking customers to apply for a credit card separately, the customer is issued a a credit card with a limit up to NT$3 million. The bank also cross-sells insurance, and more than 40% of customers sign up for the product.

On the back end, the bank uses an automated risk management and control system. It analyses debt serviceability and post-loan management to reduce credit risk.

Outcome

The bank launched the new product right before the tax season in 2017. Sinopac grew its outstanding mortgages by 3.3% between 2015 and 2017 to $14.4 billion, making it the number five among private banks, and ten among all banks.  The flexible repayment is currently used by 20% of accounts. From a regulatory perspective, the bank can recognise e-contracts online via mobile phones.  Productivity has also increased. It used to take four hours for the application. On the mobile phone, it takes seconds. Part of the reason for the speed is that whereas competitors may require about 17 pieces of information, SinoPac needs only six.

Global Comparison

Mortgage lending has had perhaps some of the lowest levels of innovation in financial services, though more banks are shifting to online and digital lending to speeding up their processes. Within Asia, lenders have focused largely on changing how they calculate or re-set the base rate for mortgages are calculated.

Hana Bank, Korea

Hana Bank pioneered digital mortgage processing with its ‘One Click’ Mortgage, launched more than half a decade ago. Hana offers full online functionality, from e-application to e-closing. Many players in the US and other markets are even now just catching up.

Rocket Mortgage from Quicken, US

Mortgage approval or refinancing is processed in minutes. It also allows applicants to retrieve their financial information from their accounts at other financial institutions and upload their employment information.

TD Bank, Canada

Customers can increase their payments from monthly to weekly or bi-weekly, or they can make an additional payment once per year. They can skip a monthly payment, though no more than once a year and only four times during the entire duration of the loan.  TD Bank repayment flexibility though is more limited than at SinoPac.

SWOT Analysis

STRENGTH:

  • Changing longstanding fundamental concept of paying a fixed payment
  • Evolution from managing a product to managing the customer
  • Speedy, efficient online application

WEAKNESSES

  • Not yet fully end to end digital processed
  • Only 20% of accounts use this mortgage option
  • Low synergies with wealth management

OPPORTUNITIES:

  • Insurance and wealth management

THREATS

  • Higher  risk and revenue delay due to long tenure

With it’s different approach to mortgages, focused on identifying customers’ needs and meeting them, SinoPac has developed one of the more innovative mortgages around. The 40-year duration makes mortgages more affordable, few if any other banks allow the degree of flexibility in payments that SinoPac offers, and its mortgage-linked credit card delivers an added bonus to its customers.



Keywords: LTV, Online And Digital Lending
Institution: SinoPac, Hana Bank, Rocket Mortgage, TD Bank
Country: China
Region: East Asia
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