Packager associations are organisations that elude a hard and fast definition. One key characteristic is that they bring together a number of packager firms in order to provide a bulk distribution route for lenders.
Confident that the packager association route can deliver this bulk distribution, lenders are then willing to design competitive exclusive products that are available only through the association’s member firms – which gives them a competitive edge in the marketplace and attracts higher levels of business from brokers.
An all round win-win situation – including the satisfied customer. Another common theme for packager associations is that they all commit to high service standards.
However, although all packager associations share these common functions and aims, each of them has its own personality and selects member firms to fit its own constitution and offering.
For example, Freehold was designed to appeal to smaller packager firms and the Regulatory Alliance of Mortgage Packagers (RAMP) has focused on providing compliance support. It must, of course, be remembered that packager associations are not trade bodies that aim to set standards for the industry as a whole and/or campaign and lobby regarding sector issues.
Instead, they are commercial enterprises that are in competition with each other for lender partnerships and broker business. The volume and quality of delivery is what makes lenders give exclusives and service to the packager associations who operate most successfully.
Now that we are in a market situation where some lenders are not so keen to secure the bulk sale of their products, how can the packager associations continue to fulfil the same function of adding value to their lenders, their members, their members’ brokers and the end customers?
Understanding how we got here
It is often said that, to understand the present and look to the future, it is first necessary to understand the past. In other words, if we understand how we got to where we are, that’s half the battle of understanding where we have to go next.
The Professional Mortgage Packagers Alliance (PMPA) was the original packager association and, perhaps inevitably, created the pattern for the other associations.
We formed PMPA in July 2000 because, at the time, lenders were becoming concerned about the volume of packagers coming into the industry and at the lack of care and attention some of them were giving to the quality of business they were producing and submitting as cases.
The objectives were simple: delivery of better products, service and payments from lenders resulting from high quality, volume delivery of packaged cases to lenders, all for the benefit of the end user, the consumer.
Initially, some lenders failed to grasp the concept, particularly as we wanted them to help fund the association by way of additional contributions for each completed case.
We did not ask them to fund us in just in the hope of larger business volumes – it was on completions only. However, the benefits of bulk distribution soon became apparent, and most lenders became keen to court the packager associations.
Tough times for all
Moving on to the present, currently it is a tough time for all. As case numbers reduce, so does the income to the associations. Those that charge their member firms monthly fees will be able to enjoy a degree of continuity of income.
We have never levied a fee on member firms, but instead rely on completion numbers to deliver our income. That said, the good times should – subject to prudent management – have ensured funds to see it through until the market recovers.
Could the contraction of the packager sector see some of the associations disappear? Possibly so, although we are increasingly being approached for membership by more smaller packagers with a view to ‘being part of the whole rather than stand alone’.
Sadly, it is unlikely that smaller packagers who have lost their agreements with some lenders will find themselves able to use the major packager associations as a life raft.
The message that we are getting from lenders is that, when the market returns, they will want to deal with a smaller number of larger distributors that will deliver bulk sales combined with top quality packaged cases – something that the associations know all about.
Our firmly held view is that survival and growth as an association will, now more than ever, depend on maintaining strong relationships with our lenders to ensure products and income.
For example, our recent lender forum has not only secured even further the good relationships that we have with our lender partners – as they know we are taking matters seriously – it has also helped to identify key issues for the future. These include investment in IT, diversification, and delivering added value to lenders.
Coming under one brand
For the future, do we need to think about combining into one body representing all packagers? My view is that, while this is always possible, why would we want to do this when we already have AMI doing a terrific job for the mortgage community and now taking a real interest in the packaging sector which is fully represented on the AMI board?
It is a true trade body with the ear of the Financial Services Authority (FSA), Treasury and meaningful politicians both here and in Europe. AMI now has a packager task force looking into delivery of a code of conduct which would be seen, in a way, as self-regulation encouraging the FSA not to need to widen its scope for the foreseeable future.
Looking ahead 12 months, mortgage packager associations will need to have taken account of and invested in technology and sealed their members’ firms into tighter working units that present a united front.
They must also be able to show that they can continue to enhance quality delivery and accept reduced margins and still survive.
Looking ahead five years, I believe that dramatic changes will have taken place and I anticipate that the packager market, as we know it, will have changed beyond recognition.
It will be purely distribution-based and lenders will use packagers (based on seamless technology) to distribute tranches of funds in tighter sectors.
I think that the networks will have only one or two relationships with packager/distributors – and these are most likely to be with packager associations – where the business transacted by the distributors will include legal and valuation services, equity release propositions as well as many ancillary products.
If packager firms are to continue to create synergy by combining together, they will have to think strategically, be willing to sacrifice a certain proportion of individuality for the greater good, and – above all – communicate effectively to cement true partnerships with their lenders as the whole industry changes and moves forward.
