Mortgage Credit Directive and ESIS

Is the new Mortgage Credit Directive a nuisance or an opportunity to have a critical look at customer information documents, improve compliance and efficiency?

The European Union’s Mortgage Credit Directive (MCD) comes into effect on 21 March 2016. It requires rework of existing documents or creation of brand new information sheets for consumer mortgages. While from lenders’ point of view this is often perceived as an unnecessary nuisance, this legal requirement can provide a trigger for a critical review of document creation processes.

Mortgage information document review for ESIS

The MCD requires implementation of the European Standardised Information Sheet (ESIS) standard. The compliance with this new standard will require most lenders to modify the content of their information sheets as well as the document creation processes.

Diagram showing the effect of the Mortgage Credit Directive and the ESIS standard of lenders' documents

Document content compliance with ESIS

The primary subject of the review is the content of the information sheet documents. If any information sheets are already in place – for example, the UK regulators already require a “Key Financial Information” document and most lenders in other EU countries provide a summary of the key mortgage parameters – then these need to be reviewed page-by-page to ensure that all new requirements are met.

If no such documents are in place, lenders should utilise templates provided by local financial regulators as the starting point for creation of their ESIS (European Standardised Information Sheet). While the type of information provided in ESIS documents is regulated, lenders can however have a degree of freedom to apply the structure and format that suits their branding and customers’ expectations.

The review of content for compliance with ESIS usually initiates review of the content, layout, and branding of the documents in question. This review provides an opportunity to improve customer experience by means of providing documents that are more comprehensive, easier to understand and better branded.

Document creation process with ESIS

Retail lenders need to process high volumes of mortgage documentation. The amount of required documents will likely increase with implementation of ESIS. Additionally, the MCD requires lenders to provide ESIS 'without undue delay', which can be translated as ‘while the customer is at the branch or within the same working day’.

The document creation processes are typically partially or fully automated and integrated with multiple data repositories to source customer data and mortgage parameters from. The content review process often reveals the rigidity of legacy document generation processes where change to the existing configuration may have widespread implications, and small content changes require involvement of the IT team. More complex changes, such a MCD compliant calculation of APRC may even require complex re-programming.

If the estimated amount of effort to implement exceeds a few person-days, it will be worthwhile to evaluate the benefits of a modern document generation solution. The document generation solution needs to provide the ability for business users to modify document content without a need for programming, to create and modify calculations and business rules in a simple and easy-to-understand form, and to utilise lenders’ existing data stores.

The review of document creation processes may benefit the institution outside of the scope of the ESIS compliance project and can provide the opportunity to streamline other document-intensive operations.

Early adopter advantage

The early adopters of streamlined document processes will be prepared for the transition to ESIS and will be better positioned to react to changes in the market and in the regulatory environment, with the ability to modify their documents easily and to utilize their existing data.

For example, in the UK, the second charge mortgage business line may be the first adopter of an ESIS document generation solution while the other lines of business will be able to utilise the same document creation platform now for KFIs and later for ESIS.

Learn more about the impact of ESIS on Lenders in the UK.

 
 

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