Mark Twain once remarked that ‘Rumours of my death are greatly exaggerated’ and that seems to sum up the position of today’s packagers. Despite hundreds of column inches speculating on their extinction post-regulation, packagers are still very much with us. Indeed, many have evolved and grown into strong, dynamic businesses looking forward to a bright future.
So, with packagers set to remain an important part of the mortgage distribution landscape, what should brokers expect of them? Or, to put it another way, what should packagers be doing to add their own particular value to the mortgage process for the benefit of brokers and their clients?
We should begin by defining the term ‘packager’. For the purposes of this article, I’m talking about packagers that have a meaningful number of lenders on their panel in order to provide an effective whole-of-market service to their brokers. This means the packager should ideally have a panel well into double figures together with strong alliances that mean more clout for all members of the club or database.
We should therefore count smaller packagers among the potential customers of the larger packagers. As John Pearson of Trustguard explains, one model for the future of packaging is a large packager working in close partnership with smaller ‘satellite’ packagers. He says: “We’ve put a lot of time and energy into developing our own processing system,” says Pearson. “We can provide this to smaller packagers as a plug-and-play service. Their volumes are too low for a direct agency with lenders and the system allows them to work under our umbrella, picking whichever lenders they want to package for.”
Growing significance
Moving onto brokers, what should they be expecting packagers to deliver? Most packagers will agree they don’t expect to be presented with prime cases – it’s simply not where they can add value to the process. The area where packagers can really deliver big time is in the ‘non-standard’ arenas of sub-prime, self-cert and buy-to-let. And all the indications are that these three areas are going to be of growing significance to brokers.
Take sub-prime. According to Datamonitor, a quarter of the UK adult population – just over 9 million people – will struggle to borrow from a mainstream lender for one reason or another. No wonder so many packagers are asking lenders to develop new and better sub-prime products for their clients.
Then there’s self-cert. According to National Statistics, self-employment has been rising steadily since 2001 and there’s clear evidence that demand for self-cert is growing with it. Datamonitor predicts that self-cert growth will continue at 4.7 per cent annually between 2005 and 2009, outstripping the overall mortgage market.
The third area is buy-to-let. With demand for rental properties remaining strong and a powerful desire among many people to supplement conventional pension arrangements with other retirement income, buy-to-let will remain an important income strand for brokers.
Main sources
So we have three main sources of non-standard business opportunities for brokers that packagers are ideally placed to support. “A packager should allow brokers to deal more efficiently with their prime business by getting potentially tricky and time consuming non-conforming cases off their desk,” says Geoff Duncker of Clear Mortgage Administration. “The broker saves time and trouble while the client will normally get a better deal both in service and price because packagers handle these ‘non- standard’ cases day in, day out.”
This in-depth expertise of packagers is a major resource for brokers to call upon whenever they’re faced with non-conforming cases. Just a simple phone call can often get the broker an instant, informed view on whether an individual case is likely to succeed or not. If it looks viable, then a good packager’s human knowledge bank based on years of experience can actually be more accurate than the best sourcing systems – with their understanding of many different lenders’ service levels and specialist criteria they’ll know which are the best doors to knock on. “We’ll spend time helping brokers evaluate products from a range of lenders,” says Duncker. “Obviously an individual lender wouldn’t do that.”
The sheer volume of business packagers place with lenders should also help them secure the lowest price while still satisfying the client’s needs. They may of course also be able to offer exclusives that the broker can’t get directly from any lender.
Twists in the tale
When unexpected twists appear in an ongoing case, packagers really come into their own. “Say a broker looks at the options and decides to place a case with such-and-such building society,” says John Mawdsley of The Mortgage Partnership. “Nice two-year fix, just right for the client – then a few further details begin to emerge. That 25k basic turns out to be made up of three different income streams. The value of the property has been knocked. On top of that, it turns out that the client once missed a couple of credit card payments. There may be good reasons for all this, but the case will instantly fall outside lender criteria and probably be declined.”
The broker then has a headache because as soon as the variables appear he loses control of the situation by going direct to a lender. A packager on the other hand can retain control by keeping the credit search, references and valuation in-house so adjustments can be made if necessary as they go along. Yet everything remains transparent, with the broker able to check progress of any case with real-time online tracking through whatever system the packager provides.
“Valuations are a good example,” says Mawdsley. “As packagers we place a great deal of business with valuers and therefore we have a close relationship with them.”
This role of ‘Case Champion’ is a vitally important one for packagers – so often in non-standard cases decisions are borderline and lenders’ underwriters may well listen to a rationale from an established packager who has an intimate knowledge of their criteria. An individual broker may find it harder to have such a dialogue with lenders.
Another way that packagers can keep non-standard cases rolling quickly for brokers is by having the ability to take an AIP often with many different lenders, a facility most brokers are unlikely to have. They can also take quick action if a problem arises.
“Generic application forms can save a huge amount of effort for brokers,” says Pearson. “If the broker is suddenly faced with unexpected adverse or lower earnings than originally claimed, we have the ability to switch the application to another lender, keeping brokers informed so that they can re-illustrate to their clients. Basically, it means that we keep the process moving smoothly despite setbacks, which is great for the broker and for their clients.”
Duncker agrees that packagers can do a lot to keep non-standard cases ‘on the boil’ for their brokers. “If an initial application hits a snag we can cascade immediately, re-broking the case across the wide range of lenders on our panel,” he says.
Generous fees
Allowing a packager to do all the hard work for you doesn’t even have a financial penalty. The fees you receive should be at least as generous as those from lenders. You can even pick a packager’s brains about other income opportunities available from lenders.
What’s more, working with a good packager gives you another kind of muscle, because they’ll have a ‘direct line’ to the senior management within lenders. So if you want something you’re not getting now then talk to your packager who can bring real pressure to bear, encouraging lenders to find new solutions.
Packagers have the systems and the specialist knowledge to take any non-conforming case off your desk while you get on with prime business. The advice you give your client will be informed by in-depth expertise, more cases should succeed, the service will be quick and the price will probably be lower than you could achieve yourself. What’s more, you don’t pay the packager a penny. If that isn’t a win-win situation, I don’t know what is.
Nigel Payne is managing director of The Mortgage Business (TMB)
