- Bob Hope, Head of Sales & Network at BDS Mortgage Group,
Increased procuration fees? Go on then twist my arm. If only it was that easy.
The reality is that packagers are far from shutting up shop to enjoy the fruits of their labours on sun-swept foreign shores; in fact we are constantly under pressure from all camps to do more but earn less. Like many of our ‘competitors’ we are extending our remit, looking for new avenues of opportunities and evolving into mortgage distributors to ensure survival and that means remaining a profitable business.
Procuration fees and earning potential are surely two of the biggest bones of contention in the mortgage industry – if not most industries. We are all looking to have the lion’s share of the fee-earning pie and there are many factors that can influence the way we cut it. As a packager, we have to maintain a fine balance between lenders and intermediaries. The former rely on our distribution while the latter want to clearly see the value we add in order to continue to use our services. Ultimately however we all need to generate enough income to survive because lets face it, no one works for free and running a network, packaging and satellite packaging proposition does not come cheap. Oh yes and cheap does not always mean best.
Socio-economic changes have had a profound effect in recent years on borrower profiles particularly so-called non-conforming clients. When this type of borrowing began increasing in popularity, heavy and medium adverse was more prevalent as there was not the product choice or familiarity with the borrower profile. However, as lenders become more sophisticated and the demand for non-standard loans increases, we are seeing more near and light prime borrowing coming through. This in turn is forcing down the higher margins as products increasingly mirror their standard range counterparts. Interest rates too have put downward pressure on margins as comparatively rates have remained low for a sustained period across the whole market. These factors coupled with consumer awareness of fees and charges, technological advancements, and the high cost of regulation can only spell one thing – procuration fee decline.
But are we saying therefore that plummeting procuration fees are simply a reality that packagers must just live with? I don’t think so and certainly our business is not in dire straits. In fact what we are seeing is an emergence of innovation not just in products but also distribution, technology and business efficiencies. Over recent months an influx of new lender entrants such as Unity, db mortgages, Salt and Beacon have moved away from mass market distribution instead opting to open up initially to a selected panel, but this ring-fencing does come at a price as the packager becomes a more valuable service.
So just what are the fee earning opportunities for packagers? We have mentioned product availability especially for exclusive products plus cases are checked before submission – a service that helps ensure that cases are processed smoothly. Many packagers take this a step further offering in-house or onsite underwriting capability provided by a lender and again these services all come ‘indirectly’ at a price. Navigation through the non-conforming maze is provided by experts [placement or new business service] and many packagers heavily invest in technology such as case tracking, sourcing or administration all to ease the process for the broker and also to prove how they earn their slice of the fee. I suppose what I am trying to say here is that most packagers can actually prove their worth and yet are still berated by many in the industry. Perhaps we should consider some brokers who charge their client an extortionate fee and whether or not they can prove their value?
I have mentioned the huge impact that technology has had on the mortgage landscape in recent years with the development of automated systems to undertake everything from sourcing a deal to submitting an enquiry to undertaking an agreement in principle. Taking this on further, we now see automated processing technology encompassing valuation, credit scoring and title insurance and new lender edeus is hotly tipped to be the first lender to offer an instant mortgage offer, the dawning of yet another horizon. Again I stress, this does not mean that packager procuration fees are on the line, although I doubt that will stop sharp tongues from wagging.
Much has been made of the introduction of automated valuation models (AVMs), the computer based system that will provide instant valuations on residential properties and negate the need for more expensive drive-by or physical visits. The theory is that packagers could lose business but surely this will only be the case for those who have been short sighted enough not to consider the market opportunities available. While a desk top valuation may cut out part of the profit channel, the ability to offer a fully integrated and improved service opens up a whole new avenue of opportunity which increases the application to completion ratio. This is why we are working with lenders such as GMAC-RFC to help pilot the scheme.
There are seemingly so many factors that could influence how much we earn, lest we forget the end customer. Regulation and the treating customers fairly initiative includes not just a demonstration of how fees are earned but a full disclosure. This means all the monies that a lender pays and a split of who makes what from their deal. It is then up to the consumer to decide if the service is worth it and up to us to ensure that it is.
I have not even touched on the various types of fees earned or the myriad of products and associated services we, as a national packager/distributor, can offer. We offer a satellite packager proposition where brokers have the opportunity to increase earnings via enhanced fees as they take on a larger percentage of the pre-offer administration. We feel we more than earn our share of the fee through ongoing training and support, quality monitoring and management and product distribution. We also have partnership associations where we can earn a share of the commission through technology, introduction or support services.
To conclude therefore, as head of sales, money does talk as I am constantly keeping my eye on the returns we make alongside business quality. We want to earn our share of the procuration fee in a profitable way over the long term. Therefore, we have to remain on top of the technical enhancements available and how we can turn them into an opportunity for us, even if that means tweaking our business strategy to fit any new model. We have to ensure that procuration fee incentives comply with regulation and make financial sense. And most importantly we need to continue to add value in the market place and remain deserving of the fees we retain. Oh yes, and if anyone knows the winning numbers for next week’s lottery, please give me a call.
