Transparency is a key word in the post-regulated mortgage world but GMAC-RFC’s executive chairman, Stephen Knight, appears to have taken the FSA message to heart. His recently published book Creator and Trader: A vision for growth in the UK mortgage market, amongst other topics, details and charts the growth of GMAC-RFC over the past five years from being the UK’s 60th largest lender to its current top 10 status.
After three months of planning and writing, Knight completed the book on 31 October 2005 – the first anniversary of the FSA regime. A significant landmark and, with over 33 years in the mortgage industry, there’s no doubting Knight’s knowledge and achievements – much of which are documented in the book. Commentary includes insights, techniques and original analysis and as our conversation navigates the mortgage world, Knight can’t help referring back to his book. Reviews have proclaimed it ‘a mortgage bible for any mortgage practitioner’ and ‘a must-read for all working in the mortgage industry’, but surely there must have been secrets he has held back?
“Honestly I haven’t held anything back, seriously and honestly I haven’t. In today’s world we’re all on each other’s databases and monitoring each other’s activity anyway. GMAC-RFC has a unique strategy, for example, one of our biggest competitors in the buy-to-let market is Mortgage Express yet we sell them over £1 billion of our lending each year. Another of our competitors is Platform but our second largest portfolio buyer is Britannia Building Society. So our creator and trader strategy requires us to share our secrets with our competitors anyway. In this market if more people would embrace competitors as potential business partners then there would be more fluidity and there wouldn’t be so many petty rows going on in the trade press.”
Media ire
Knight is very conscious of the media – he points to media pressure as potentially stifling product innovation. The nationals, fortunately, incur his main wrath. “Lenders could be braver. Say if someone has a good credit score, is predicted to pay, and shows a good attitude to credit then five times income is a perfectly acceptable multiple. I suggested this at an All-Party Parliamentary Group forum on debt and personal finance, and a journalist wrote that this was irresponsible but there was no back-up to his argument. This may help ease the first-time buyer market; I’m not saying this is applicable for everyone but consumers should have choice. Why we don’t, and most lenders don’t, currently offer this is not due to any kind of commercial logic but because we might get hammered in the press from journalists who haven’t always done the analysis.”
Column inches have been plentiful surrounding the non-conforming market recently with the announcement of new entrants and speculation surrounding potential newcomers. With increased competition, consumers and intermediaries are benefiting from a greater acceptance of non-conforming lending with some old stigmas and preconceptions lifted by the increased activity.
Knight says competition is ‘fantastic for the consumer and fantastic for the sector’. He explains that the stimulation of the market will drive up standards and drive down rates but he emphasises that GMAC-RFC are under no illusions that the new players will come in with low rates and undercut the market resulting in GMAC-RFC having to undercut them. “We have no choice,” he insists.
But who does he see as the main competitors of the new era? He says: “I think the biggest threat will come from major brand lenders pushing along the risk curve, if they have the courage to use the brand they have. Say if a major lender came in using its own brand to get into non-conforming, for example, if Halifax was doing it in its own name then I believe it would be even more of a threat. I have to mention Oakwood and the Michael Bolton team because he is a fine marketer who knows how to develop products and intermediary relationships. He appreciates that to get a foothold in the market, and to break relationships intermediaries have with other lenders, it has to be new and different in its offering. I have to say the people I’m least worried about are the investment banks because we work with them every day of the week and we know they focus on profit and returns, and probably don’t have a fantastic appetite for tough decisions that need to be made in the retail market and the hurly burly of competition.”
Technology focus
Technology is a key element to GMAC-RFC’S intermediary offering with its automated processing a major part of its marketing structure – yes it’s included in-depth in the book. Its ‘whole of market’ cascade system within its POSD system was launched in October last year to fill the gap between non-conforming and mainstream products. It applies to mainstream, self-cert, buy-to-let and non-conforming mortgages. Knight says it has had an enormous effect on the business, much more than predicted.
With intermediaries increasingly relying on technology to speed up processing in a time-reliant environment, the next advance to be fully launched in the Spring by GMAC-RFC is a ‘click through’ function from mortgage sourcing systems. Knight explains that intermediaries working to source a lender will be able to click through to GMAC-RFC to get a decision then simply click back to the sourcing system and carry on working as before.
“Once this is launched we’re looking at automated valuations which I believe will be the next big thing on the horizon for the market,” says Knight. “We believe auto valuations are just as reliable, overlaid on a portfolio as a whole, as individual valuations. We ran 17,500 manual valuations through an auto valuation machine and came to that conclusion. Auto valuations could enable a point-of-sale offer.
Consumers could go to a broker, get an instant decision which is accepted and be asked if they wish to try for an offer. An application fee by credit card goes to an auto valuation database, comes back and says an offer is available. A broker can finish the rest of the keying, print the offer and at the end of a 20 minute or so interview a mortgage offer has been given. There’s no chasing, no arguing, no paper, no negotiating – it’s instant and I hope it’s possible for someone to do it this year – we will be having a go but I can’t make any promises.”
He admits the immediate reaction by some is that this might be too quick but stresses: “If someone has applied to us for a mortgage, what possible point is there in giving the customer what they’ve asked for and making the process slower? The important thing, once they’ve got the offer, is to give them no time frame and pressure in how long it takes to make their minds up.”
Products and packagers
When pressed on what other product areas GMAC-RFC is looking into, Knight highlights bringing its automated skills to second-charge loans and is taking a hard look at this area. But one area he doesn’t envisage moving into is equity release suggesting a ‘reputational risk’ still revolves around the sector. With its strategy of ‘mortgages for everyone’ being built on a fast automation he believes equity release products shouldn’t be processed quickly and that a slower process is required.
As a pioneer of the packager sector – the focus of Knight’s first book – he has been vocal in his stance on their place and future in the market. So does he consider himself vindicated in his views, pre-regulation, that packagers would continue to evolve despite some commentator’s negative views?
“Many brokers are entrepreneurs and businessmen, they like dealing with like and talk the same language – rather than dealing with a lender,” he says. “Good packagers are adapting service to brokers in a way some commentators that predicted their demise didn’t understand. Successful packagers are those who realised they had to add value and constantly find ways of delivering services cheaper.”
So in short, as well as more efficient, cheaper packaging propositions what can brokers look forward to from GMAC-RFC over the coming year? “Even more aggressive products and an even bigger commitment to service. Lenders in an over-supplied market have to earn the next piece of business and keep the relationship going. Never stop buying flowers for your missus,” he says, smiling.
Although I can’t find that in the book anywhere.
Scott Philipson is assistant editor at Mortgage Introducer
Stephen Knight is executive chairman at GMAC-RFC
