As a specialist, non-conforming lender that relies on packager-introduced applications, we are aware the pending mortgage regulation is likely to have a profound effect on the packaging sector. Depending on how the Financial Services Authority (FSA) and the Treasury define mortgage advice, packagers may have to re-organise their structure along the lines that are dictated by the regulated/unregulatedš dividing line. There is not time for this to happen.
The thorniest issue is advice. Even among our panel of packagers, there are opposing views on whether packagers are giving advice to the end borrower when they, from time to time, use their specialist knowledge to re-route applications to a more suitable lender than the applicant’s first choice. Some packagers believe this affects consumer choiceš and therefore packagers, as a group, will be included in the regulatory regime. Other packagers believe choice is the adviser’s domain, and any details passed on about the suitability ‘ or otherwise ‘ of the first-choice lender is simply informationš so they should not be subject to regulatory control.
Another group regards itself as a purely outsourced administration function for lenders and, as such, standing completely outside the regulatory issues.
These differences of opinion are the tip of the iceberg which is the diverse range of businesses that comes under the banner of packager. At one end of the spectrum, sole traders who package their own applications carry the label packager. At the other end, large organisations with a packaging arm and a mortgage adviser business are given the same label. It is easy to see why the Treasury and FSA are having a hard time deciding which side of the advice fence they sit.
It is vital to reach a regulatory position that ensures the ongoing existence and profitability of packagers. The current distribution chain has evolved for good reasons. First, individual brokers need to tap into larger organisations with a day-to-day knowledge of how applications are flowing through lenders, and how these lenders prefer to receive packaged applications. Second, specialist lenders know their best use of resource is in skilled underwriting pre-packaged app-lications not taking on the purely admin function of packaging.
Packagers are optimistic about the future, and are prepared to do whatever is necessary for compliance. Those who have built up successful operations will not see the sector disappear lightly. We may see changes in how packagers structure their businesses to achieve compliance, but the function of packaging is here to stay.
John Prust is sales and marketing director of SPML
• This piece was written prior to the Treasury’s response to the mortgage consultation.