As regulatory demands on lenders and brokers continue to grow, the lack of regulation on packagers becomes more apparent, with a number of market commentators suggesting this element of the mortgage market should come under some form of control.
But does this market need regulating? As usual, it seems there is no simple answer.
The reason why packagers have not been regulated to date has always been that they do not have any contact with the borrower or any power to influence their purchase ‘ so this seems fair, given that the purpose of regulation is consumer protection.
However, in recent years the issue has become less black and white and the term ‘packager’ has become a catch-all phrase for a number of different operations.
For the ‘true’ packager that carries out an underwriting and administration function on behalf of the lender, there is arguably no need for regulation.
However, there is a new breed of packagers perhaps best described as ‘master brokers’ who have negotiated deals with lenders based on the volume of sales they derive, and while they do package on behalf of lenders, they have an advice function too.
Such firms do offer a valuable service to specialist lenders, but with one company acting as agent for the lender and the client, nobody can deny there is a potential conflict of interest.
It is for these firms that a regulatory framework is required ‘ to ensure the lender and borrower functions operate as separate legal entities while providing such businesses with the opportunity to demonstrate that the fee they receive from lenders to package the loan does not influence the advice they give to clients.
How such a framework could be developed remains to be seen. While the blanket regulation of lenders, brokers and packagers may seem extreme it is perhaps better than regulation in stages, which ultimately looks like a series of knee-jerk reactions ‘ addressing problems as and when they arise, rather than identifying potential problems and acting to mitigate them.
Perhaps the best solution for all parties would be for the Mortgage Code to incorporate packaging and set standards for those firms that act on behalf of both lender and borrower.