The subtitle of this feature was originally ‘is it a case of rise and rise?,' but I think everyone will agree that the events of the last few months have checked the rise in every part of the intermediary sector.
Before the current ‘credit crunch’ took hold, the priorities of most players in the mortgage market was to try and keep up with the almost never ending demand for cost-effective mortgage products which also provided solutions for more and more niche needs in the marketplace.
Meanwhile, in determined pursuit of increasing their market share, lenders seemed to be adopting the volume-at-any-price routes to market.
When the securitisation market disappeared virtually overnight, most players in our marketplace, at every level of the mortgage food chain, had not seen the storms gathering.
It is still hard to understand how mortgage assets can be sold around the globe with many of the buyers of these securities having no idea what they contained, and to comprehend the rapidity with which confidence in mortgage-backed securities vanished. As a result, most experts agree that we still have a lot more horror stories to come as we move into 2008.
Holding our own
Will this current credit crisis damage the distribution sector? Will we be able to retain our major place in the distribution chain – or are we destined to become extinct?
The mortgage distribution sector is no stranger to prophecies of doom, which go back as far as the run up to regulation more than three years ago. However, we have proved to be great survivors and so far we have managed to hold our own. But what will the short and medium term future hold?
Few are predicting an early return to a healthy and stable intermediary mortgage marketplace, and the appetite to lend to non-conforming borrowers has reduced considerably.
In addition, Home Information Packs (HIPs) have now been made mandatory for every property, which will no doubt act as a further disincentive to buying and selling, and will not help the vital first-time buyer market, as the cost of the HIPs will, of course, be added to the purchase price.
With or without a liquidity crisis, packagers are also facing the threat of lenders reaching the IT breakthrough point to offer brokers fast, simple routes into direct access to products for their clients – so packagers and their associations could be about to suffer even further reductions in their volumes
Although direct-from-broker business is highly attractive to lenders, the efficiency and effectiveness of using highly skilled mortgage packagers is, in my firm opinion, too valuable an asset for lenders to ignore.
Cases presented by packagers are estimated to average more than 80 per cent resulting in a first-time offer, whereas the average for broker-submitted cases is estimated at nearer the 50 per cent mark. As lenders cut staff numbers to produce cost efficiencies, they cannot afford to overlook this 30 per cent differential in the quality of cases submitted by experienced packagers that have high levels of industry knowledge and expertise.
Proving their worth
As lenders have pulled their products and changed criteria, sometimes with little or no notice, many packagers have proved their worth to brokers, by moving mountains to find alternative options so that the brokers’ customers are not let down.
Certainly the situation as reported by Professional Mortgage Packager Alliance (PMPA) members is that the help they have given their brokers has resulted in 90 per cent of affected cases being re-broked. Packagers have been proving their worth as a one-stop shop, as brokers have not been in a position to source their own alternatives and have been able to use packagers to do the necessary research for them.
The service commitment shown by packagers over this period – together with the strong support that some lenders have also given – must have surely proved their worth both now and as we look forward to 2008.
Strengthening relationships
As well as cementing mortgage intermediary/packager loyalty, the current crisis has also helped to further strengthen relationships between lenders and packagers. We all realise that technological advances have the potential to allow lenders to deal direct with mortgage intermediaries, and this may become a real threat to the packager function in future months or years.
But now, hopefully, the current credit crunch will help both mortgage lenders and intermediaries realise that the straight-through IT solution may be great for standard applications, but once there is any thing non-standard or out of the ordinary involved in a particular case, it comes back to needing the knowledge and expertise of the experienced and dedicated mortgage packager.
It is definitely the case that personal relationships and historic links between lenders and packagers have underpinned the way that we have responded together to help mortgage intermediaries through the product withdrawal frenzy, which doesn’t show any signs of diminishing just yet.
Adding value
Everyone within the packager community now needs to look carefully at ways in which they can deliver added value to both their brokers and their supporting lenders. ‘Treating Customers Fairly’ (TCF) doesn’t immediately spring to mind as an exciting subject to tackle but, as all readers should know by now, the Financial Services Authority is very keen to see this principle embedded in firms, from senior management downwards.
All who attended the seminar came away with a much better understanding of TCF but, more importantly, they also came away with a lot of practical ideas about how to ensure that it is embedded in a firm’s culture. We learned that TCF should become part of the appraisal process for staff reviews, which means that it is clearly part of the firm’s structure and provides proof that TCF is embedded in the company.
The workshop was very well attended, which indicates how seriously the PMPA members and staff do take TCF and, more importantly, it shows our lenders that we take mortgage distribution very seriously. If the packaging community wishes to raise its profile and prove that it can deliver added value, then I would urge other groups and individual packagers to follow our lead and become more TCF literate.
Shaping a stronger future
We believe that packager associations can help to play a significant part in shaping a stronger future for their members, and the current market conditions are likely to boost membership all round, as individual packager/distributor firms see the benefits of being part of the combined strength of an association and the access to exclusive market-leading products that this brings to all members.
We recently held our first member-lender forum, specifically for members and lenders to brief each other on the current situation and how we can work together to survive it. We were overwhelmed by the response from lenders, 18 of which joined our members for meetings that ranged from strategic, senior level discussions, to briefing operations and underwriting staff on criteria.
We based the forum on the premise that a common denominator for all of us is that we are currently witnessing the most challenging times in our industry since the late 80s and early 90s, with the current crisis particularly affecting the niche areas of the marketplace that have become especially important for packagers, i.e. non-conforming, self-certification and buy-to-let.
The forum created an opportunity for members to understand the lenders issues and to understand why they have withdrawn from some asset categories and tightened their criteria. Issues, now, not just being about the credit crunch but also about the areas of the marketplace where the FSA is driving for changes and putting pressure upon lenders.
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