Packaging has always been a specialist area but because of this many regard it as an added extra that they can try to circumvent in an attempt to drive down costs.
Therefore, there has always been speculation sounding the death knoll for the sector. However, when talk of packaging becoming a dying art was banded around 18 months ago, it was dismissed by the sector and are now feeling vilified in their belief.
As John Mawdsley, director of the Mortgage Partnership, says: “The fact of the matter is there is always room between the lender and the broker because the two do not like talking to each other.”
However, Darwin’s survival of the fittest still applies to packagers and there are always challenges that threaten to cull unsuspecting firms. The recent announcements by GMAC-RFC and Kensington Mortgages regarding the status of their packager panels are a case in point.
Heightened competition
John Rice, managing director of the Regulatory Alliance of Mortgage Packagers (RAMP), says: “The GMAC-RFC move is an interesting one as it looks to work more with larger packagers in a move to serve its interests. I think more will follow suit and Kensington has said it is thinking along the same lines as everyone is looking to squeeze the market.”
The move by the specialist lending duo represents two of the main issues facing packagers today.
The first is a heightened sense of competition within the packaging market and an increasing emphasis on larger packaging organisations. GMAC-RFC’s reorganisation of its packaging panel means fewer firms are jockeying for the same amount of business. While this is good for the firms still involved with GMAC-RFC, for those that have lost their link, it could be a big hit to take.
Payam Azadi, head of marketing at Mortgage Times, says: “We feel we are large enough and have a mix of business, from different lenders generating different levels of fees, to adapt to changes. Others may only have 10 lenders on their panel so if three leave them they are going to struggle.”
‘Safety in numbers’
The increased emphasis on larger packaging firms by lenders, with their greater clout in the market and enhanced infrastructure, has been one of the main motivating factors behind the shift towards associations.
Azadi continues: “Lenders have made it clear that they want to deal with larger packagers and that is why we’ve seen associations forming as they have bigger buying power.”
The adoption of a ‘safety in numbers’ approach has been an ongoing feature and is set to continue as competition in the market becomes increasingly cut-throat.
Rachel Bancroft, managing director of KGB Packaging, says: “I believe that the main challenge for packagers in today’s market is to continue to secure their distribution. They need to work on business development and marketing, and, of course, co-operation within the sector, as there is safety in numbers.”
One of the spin-offs of this has been the drawing together of RAMP and the Professional Mortgage Packagers Association (PMPA) into bi-monthly discussions. This would have been inconceivable in the past but shows another way in which the packaging community has evolved.
Rice says: “I think there will be a general co-operation between the two of us as 99 per cent of our interests are the same so we can try to discuss common themes. Some lenders are trying to fragment the packaging market at the minute but there are decent packagers out there doing a decent job and we are trying to protect them and make sure we are in a position to best serve the industry.”
Feeling the squeeze
While lenders would argue they are not trying to divide the packaging market, the second major impact is the attack on margins. Different areas come under scrutiny at different times, and currently packagers are feeling the squeeze.
Mawdsley agrees: “Margins are being squeezed and everybody is looking at their costs. For a bean-counter, it is easy to look at packaging costs as a way of saving money but we do much more than just process the application.”
However, while it may not be an ideal situation, most packagers know it’s just a business decision which they have to accept and tackle.
Rice adds: “There is the supply chain and everyone is getting squeezed. Packagers are being squeezed now but there will be a kickback at some point and the lenders or the brokers will then get the squeeze.”
Steely determination
But as was highlighted at the beginning, packaging is something that will maintain its importance, and while there may be challenges ahead that will mould the future shape of the packaging market, there is a steely determination to continue to prove the doubters wrong.
Bancroft concludes: “For sure, packagers are an easy target but a good packager enhances the process and should make it more cost-effective for the lenders and easier for brokers to place cases.
“Ultimately if you run a business, whatever the challenges, you either rise to them and change your business model accordingly, or run the risk of becoming an endangered species.”
David French is a news reporter at Mortgage Introducer
