Having recently been spellbound by Al Gore’s excellent exposé on the implications of global warming, it struck me that there are a few inconvenient truths also emerging within the mortgage industry, none more so than the fact that for some lenders, intermediated business now represents almost three in every four mortgages submitted, and furthermore that the packager sector plays a pivotal role in this distribution profile.
While many lenders have genuinely embraced brokers, there are still some out there who only engage with them on a lip service or begrudging level. Quite why this is, I don’t know. It may well be that some of the lesser intermediated lenders resent having to pay proc fees or quite simply their lending targets are such that they can satisfy shareholders or members with a more modest market share via direct business channels.
Tellingly, such lenders may find themselves being marginalised as the supply and demand dynamic continues to be forged in favour of the introducer. But to suggest that intermediary-centric lenders have not had to work hard at nurturing these relationships would be wrong. The last 12 months have seen some interesting strategic plays once a lender has recognised that one specific route to market doesn’t achieve its goals and some of these have featured their very own roads to Damascus.
A flawed approach?
The experience of Kensington last year was one such example. There’s no need to get in to the detail of that here but suffice to say, it was one lender that found making strategic decisions, without the input of selected packagers, could be a flawed approach.
GMAC-RFC also discovered that working collaboratively with packagers was better than trying to shape the agenda unilaterally. Its Partners phenomenom was one of the most dramatic success stories of 2006 and the uplift in its business volumes in a little over 12 months has been little short of staggering. The lender now enjoys a position of prominence among both the packager and direct-to-broker communities, partly because it was brave enough to face some initial errors of judgement, correct them, and then move on.
Its arch-combatant, BM Solutions has also undergone some navel-gazing on how it connects with intermediaries and packagers. Admittedly, there has been a changing of the guard since the days of its controversial ‘seal of approval’ stance, but the lesson is the same. Packagers’ importance is increasing by the year as their delivery of non-conforming business becomes ever more critical to lenders seeking to securitise or loan-sale a blended mortgage asset.
Broker-lender collaboration
Turning away from packagers briefly, there are also some success stories in the realms of broker-lender collaboration. Accord Mortgages is one case in point. Linda Will, managing director of Accord, has cultivated that business brilliantly from a standing start and so much of what Accord does is consultative. It conducts over 30 focus group sessions a year at which it actively seeks feedback and direction from brokers on what they want. Additionally, it is pretty magnanimous when it comes to sensitive issues such as retention and cross-selling behaviour – its website, for example, gives intermediaries access to the details of clients whose mortgage is due to expire in the next 12 weeks, with detailed information on outstanding balances and exact expiry dates. All new existing borrower transfers are treated as having regulated contracts, which makes life simpler for brokers .
One respected lender at the centre of the intermediation debate is Mortgages plc. To my mind, more lenders should be investing a proportion of their budget in assisting some of their smaller introducers to market themselves more effectively and to do so in a compliant fashion. Mortgages plc is one such lender that has gone down this road – as have Platform with its ‘Treating Customers Fairly program – although paradoxically Mortgage plc is presently having to defend, if that is the right word, its decision to open up a direct-to-consumer channel.
Examples of two very different lenders who are narrowing any gap between lender and intermediary populations are The Mortgage Business (TMB) and Abbey respectively. The former has always been an unequivocal supporter of the packager sector and its regular publishing of various indices measuring broker confidence and outlook are worthwhile pieces of work. The latter made a solid entrance to the buy-to-let market last year, but only after it assembled several leading broker representatives at its London headquarters to find out what was specifically important to them.
Consulting wider areas
Notwithstanding all that, lender-broker partnerships should cover more than just consultations on product launches, compliance support and retention policy.
One area where there has been a dearth of effective co-operation has been with sourcing systems and common trading platforms. I often sense that if other industries performed an analysis of the broker mortgage market, they would be astounded that in this technological era no universal and omnipotent trading platform yet exists. Origo is a commendable initiative and is making slow progress but in the meantime, packagers and networks appear to be developing their own sourcing systems, which, one hopes, can all interface at a later stage with whatever mortgage application platforms the lenders either singularly or collectively develop. But there is clearly not enough cohesion in this part of the market.
Finally, I want to address the matter of value. Or more pointedly, proc fees and how they will perhaps remain the greatest barometer of lender-intermediary relations.
Paragon Mortgages is a fully fledged broker lender and its recent survey on the subject detailed that 95 per cent of advisers now receive some form of proc fee. In almost 30 per cent of cases, advisers are receiving circa £500 per case .
This next paragraph may not endear me to the lender community, but it is my firm belief that too many lenders are still underpaying for what they receive via the intermediated channel. I am all too aware of the costs that ‘Mortgage Day’ brought, but it’s my belief that some lenders have over-played what these costs were for themselves and in spite of the tremendous savings which have arisen out of online submission, etc, there have been only marginal uplifts in proc treatments since ‘Mortgage Day’.
This is an issue I know many of my peer group also feel passionate about. For example, in some cases lenders are operating with historic business development teams which is just one cost which is less justifiable in a technological age. These costs could quite easily be reduced in some cases and a proportion of the savings applied to rewarding brokers more deservingly for their role in the food chain, which quite often involves marketing and sourcing the client, quasi-underwriting and packaging the actual application and, of course, taking responsibility for the advice given.
I’m not sure that there is any widening gap emergent between lenders and brokers. However, if you consider the conception of DIY lenders and collaboratives such as Unity, Freehold, Concordia and Spectrum, it does appear to me that brokers are becoming more and more cognisant of the value they add to the market and are looking to become stakeholders in this. The lesson for lenders is surely to keep their ‘ foes’ closer, and to engage more consultatively with brokers on every level. There has to be a greater alignment of interest.
