We all know how busy the mortgage world is at the moment and whether you’re a lender, intermediary, packager, or journalist, you’re never left hanging for long. However, with the greatest respect to everyone out there in mortgageland, there is one man who seems a little bit busier than most.
Finding a free hour to sit down with Chris Cummings, director-general of the Association of Mortgage Intermediaries (AMI), was a challenge in itself. The voice on the other end of the phone joked: ‘He could probably squeeze you in on Monday afternoon’, knowing full well that it was a Bank Holiday and most people – including yours truly – were looking forward to beers and a barbeque. However, we finally find a slot on a Friday morning when we can chew the fat and I understand why Cummings has been so difficult to pin down.
The Europe effect
Much of his time recently has been spent looking across the channel and the raft of legislation coming out of the European Union. While plenty of AMI’s attention is focused on the workings of the UK system, it seems Europe is set to dominate the UK mortgage market like never before in the coming years.
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“We have the implementation of the Markets in Financial Instruments Directive (MiFID), which comes into effect in the UK on 1 November 2007. Then there’s also the insurance mediation directive which led to general insurance being regulated in the UK. There are still a significant number of countries which haven’t yet implemented it, but have promised to do so on 1 November 2007, also the date of MiFID. This means we could have two major European directives being implemented on the same day.”
So what, you may cry – as there have been plenty of opinions flouted in the trade press from industry commentators which say MiFID will have a miniscule impact on the day-to-day workings of the ordinary mortgage intermediary.
“There will definitely be an impact on the mortgage market,” Cummings hollers down the dictaphone after already saying it once with a fair amount of emphasis. “We’re having to do a lot of readjustments in the FSA handbook because of MiFID, with a huge rewrite at significant cost. MiFID is fundamentally changing the way mortgage intermediaries and advisers go about doing business.”
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So 1 November looks to be quite an important date for the mortgage industry. But how significant is it really? The intermediary sector is still finding its feet after the introduction of mortgage regulation. Can we realistically be asked to face another ‘MortgageDay’?
“Looking at MiFID, I would definitely think there would be a ‘Mortgage Day’ for the whole of Europe as if the directive comes through as maximum harmonisation – here is what the directive says, get on and do it, and do exactly as it says – then that’s how it would need to be perceived,” Cummings says.
Another trick up its sleeve
But it’s not just MiFID which is set to overhaul the industry. Brussels has another trick up its sleeve in the form of the European Mortgage White Paper, set for publication in September. However, this is set to be welcomed by many within the market as it could see the complete redesign of the Key Facts Illustration (KFI). Combined with the imminent review of disclosure documents set to be announced by the Financial Services Authority (FSA), mortgage intermediaries may find themselves having a whole new set of rules to work within.
“I think it could substantially change KFIs and we all saw the chaos and the millions of pounds that went into them originally,” Cummings says. “That is potentially the biggest threat. I would like to see them completely ripped up and started again. KFIs are too long and I don’t think we’ve yet cracked the point that consumers need to understand what they are talking about and handing them pieces of paper sometimes really doesn’t help.”
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This point seems especially valid in a sector where ‘Treating Customers Fairly’ (TCF) is an increasingly important consideration in everything a broker does. With the regulator publishing its review of intermediary firms this month and many smaller firms being highlighted for a failure to integrate the initiative within their business models, should the alarm bells be ringing?
“I would deliberately counter that and say they have not been able to demonstrate it, rather that they weren’t actually able to do it,” Cummings insists. “When a regulator asks for information, sometimes, cultural problems occur with the language so that not all the firms understand how the questions are posed. If the regulator asks to look at the firm’s cultural framework, for instance, then a firm of two people may struggle to have a cultural framework as it may be the personalities of the guys which work there.”
Communication breakdown
So is this breakdown of communication the fault of the regulator or small firms? Much has been made of the regulator’s issues with handling the shear numbers of smaller intermediaries and the upcoming Retail Distribution Review is an attempt to alleviate that. The National Audit Office’s appraisal of the FSA recently highlighted the problems and Cummings endorses many of its views.
“It seems small firms are being put in a worse position just because they are small and they don’t have that level of relationship with the regulator that a large firm has got. It seems small firms are trying to compete against a double-whammy and I’m starting to have a degree of concern about having a level playing field.”
This would be a view echoed by many smaller intermediary firms, while the Financial Services Practitioner Panel warned in its annual report that the regulator has to be careful not to overburden firms. Cummings believes the FSA should be starting to reward those firms who are complying with the rules with the promised ‘regulatory dividend’ of lower fees and less scrutiny, while spending more time targeting the few bad apples which are impacting on the whole sector.
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“One of the things I’ve found deeply frustrating is that I don’t think we need fairness, we need unfairness. I think an unfair proportion of the FSA’s time should be spent on rooting out the firms who are causing consumer detriment – and I think the industry would support that.”
This would certainly be a big help for brokers as lenders are also set on cutting new furrows in the marketplace, with a number of massive changes on the horizon. Norwich & Peterborough’s new subsidiary, Astra Mortgages, recently became the first lender to price using Basel II and such individual risk-based pricing is set to become widespread in Cummings’ eyes, with huge repercussions for intermediaries.
“We are set for a very interesting time over the next year or two. What we’ve had has been a mass market-type approach to mortgages where we've been recommending a type of product. Now, we’re moving towards a more customised approach, based on quality of advice and individual underwriting and individual product pricing for risk.
“That actually means there is a huge opportunity for intermediaries to offer more of a professional, tailored, personal service. It also ties in longer-term professional advice and that means recurring income streams.”
And this is Cummings’ current fixation. Brokers have long been cast as new business machines, with little thought for the client once they had arranged the mortgage. However, with remortgaging such a large part of an intermediary’s caseload now, plus other auxiliary income streams like general insurance, building a well-stocked client bank should be one of the main aims of the modern broker.
This is especially true with lenders eyeing retention schemes, which Cummings sees as ‘a clear decision by lenders to fundamentally try and change the remortgage market’. Whether the practice is good or bad he would not be drawn on, but he strongly believes brokers must be ready for everything that comes with it.
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“Any intermediary who is giving advice which is to stay with the existing lender, in my view, needs to have documentation which is even stronger than if they advised the client to switch to a different lender. It would only take a client finding one deal which is slightly better than the one which you recommended for them to put a compliant into the Financial Ombudsman Service and then you are having to justify a decision not to move which can be very difficult.”
HIPs
So with European affairs, the regulator and lenders all demanding plenty of attention, brokers will also have to keep Home Information Packs (HIPs) on their radars. But while the debate has rumbled on over their worth, Cummings has bigger worries over the potential to attach mortgage offers to the packs; something he’s heard some HIP providers mooting to lenders.
“You cut out the intermediary by doing this, and this worries me hugely as it is a fundamental and structural change to the market. It’s very damaging from a consumer point of view because it’s restricting choice and presenting a solution which will curtail shopping around. This could lead to people getting terrible advice and setting off on the wrong foot in their mortgage lifetime.”
Therefore, the mortgage intermediary community is set for a number of huge challenges and changes over the coming months; an agenda which will definitely keep Cummings busy as usual. While it may be slightly over-dramatic to label him as a dam, protecting against the flood threatening to engulf the mortgage intermediary, it has certainly been a Herculean effort over the past four years to fight the battles of the intermediary. Just imagine what the mortgage advice sector would look like if there wasn’t a Chris Cummings?
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