A changing model

‘The current turbulence in the credit market’ is a phrase which has been used so many times across the press over the past few weeks.

But what has happened to the lending market in the aftermath of the downturn in the US non-conforming sector has dominated the industry unlike any other topic, arguably, since mortgage regulation. What had been boom time for UK firms has now started to turn slightly sour as the ripples are felt from across the pond.

Much of the focus has been borne on the lending institutions and the impact on both their day-to-day workings and that of mortgage brokers and IFAs up and down the country that are reliant on them to supply them with products.

However, little attention – until now – has been paid to how mortgage packagers have been affected. Many packagers have their roots in the adverse sector; placing cases which brokers felt uncomfortable or unable to complete. How has their daily business changed? The answer is quite significant.

Times are changing

Eddie Smith, managing director of the Professional Mortgage Packagers Alliance (PMPA), comments: “What we are doing, and what I’m sure others are doing as well, is getting in touch with our lenders and working in partnership with them. They won’t tell us everything, as there are things they won’t want in the market domain, but things will not be the same in the future. Times are changing”

But how are they changing, and is everyone being affected in the same way? The most obvious impact has been the withdrawal of packager-focused lenders from the market, both temporarily, such as the likes of Unity Home Loans and Infinity Mortgages, and slightly more definite, as is the case with Victoria Mortgages. This has left packagers with holes in their panels and the question of how to proceed.

For Doug Hall, sales director of 3mc, the impact of lender withdrawals hasn’t hit packagers too hard just yet. He says: “The lenders who have dropped out won’t have too much impact as they were smaller players in the packaging market and there are enough lenders out there who show the appetite to do business with packagers. Personally, I’m not concerned that other lenders will leave the market.”

Even with this apparent nonchalance, will packagers look to their existing panels to fill the void or will they be forced to look elsewhere – to lenders who they haven’t had strong links with before?

Brick wall

It seems if they do look to branch out, packagers could find they come up against a brick wall. Jeremy Duncombe, director of sales at Advantage Home Loans, admits: “We have seen a number of people approach us recently about adding us to their panels but we have a panel of packagers who we have targeted from day one. We have had a small panel which is concentrated on the major groups and we are happy with this.”

Linda Will, managing director of Accord Mortgages, believes packagers will have to revise their expectations. “To deal with the big players in the past, you have had to make a big investment in areas like on-site underwriters. I could imagine some packagers spreading their net to get more lenders on their panel but if they do this, can they be so insistent on their demands from lenders?”

However, Hall believes that panels won’t look too different once the market situation finally settles down. “I can’t see huge amendments to panels as it is only a temporary situation. Lenders will come back when the markets starts to settle. If packagers try to chop and change now, they might find the lender has disappeared before a deal can be completed.”

A foregone conclusion?

While panels may be staying the same, the products on offer from lenders are certain to change. As Smith admits, this is a ‘foregone conclusion’. Therefore packagers must react to this to ensure they continue to add value to the process with the lenders they retain.

As Will believes: “If you have an unlimited panel and the lenders are restricting criteria, raising rates and pulling out of the market, should you just work with those same lenders? If so – how will you justify staying the same? If they are trying to be the broker’s broker, if they don’t have the reach, brokers might lose faith. Packagers must respond to this or intermediaries will go direct.”

However, there is a role for lenders in this as well to ensure they are offering packagers products which remain competitive. As Hall explains: “Lenders have to be careful if they are reducing packaging and procuration fees. If another lender on the panel has a similar product but a higher procuration fee, the broker is much more likely to go for the higher procuration fee deal.”

So like any other section of the market, the credit crunch is set to shape a new destiny for the packager market and firms must make sure they are not left behind. In fact, packagers have an upper hand in these uncertain times as they have the ability to offer brokers a number of choices, as Duncombe explains:

“Packagers are more like distributors and are evolving their propositions around technology and having access to a range of deals. This is an advantage they have should a product or lender disappear. There is a lot of work for them at the moment but as long as they are adding value then they will continue to play an important role.”

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