Packaging is one sector of the industry that is hard to ignore: used by many, criticised by others, and frequently ruffling feathers by operating in an area with few checks and balances. While this has not proved a problem for its growth there have been strong calls for it to fall under the auspices of statutory regulation in 2004.
However, when the Treasury first published its proposed legislation for the regulation of mortgage advice, it confirmed it would not be taking account of those mortgage packagers that just provide administrative support and do not have an advisory arm.
The Financial Services Authority (FSA) is now collating the responses to CP146, its interpretation of the Treasury’s high level guidelines, but needless to say the Treasury’s view has not been universally accepted and there have been calls to say all forms of mortgage packaging should be regulated ‘ not just some.
In its proposals for the regulation of mortgage advice, the Treasury said mortgage clubs and mortgage packagers who provide lenders with administrative support will not be regulated.
However, those broker packagers who offer outsourced services to intermediaries, and correspondent lenders will be regulated if they carry on the regulated activity of arranging.
But in identifying so many different sectors including mortgage packagers, broker packagers, mortgage clubs and correspondent lenders, it appears to have clouded the issue and as a consequence the true role of the packager needs further clarification.
If all forms of packaging were subject to regulation consumers would know precisely where they stood. If the mortgage process starts with a regulated intermediary and ends up with a lender who is also regulated, then surely if a packager is in the middle, whether they tend to help the intermediary or the lender, their processors should be regulated too. The last thing the industry needs is to be tainted by a pensions-type scandal.
Going forward, packagers should embrace every opportunity to help the professionals offering advice to borrowers. It is vital, therefore, that intermediaries can be certain they are dealing with qualified professionals as well.
The debate over the regulation of mortgage packagers has brought the issue of technology onto centre stage. Whatever happens, it seems likely that those packagers which survive and thrive in the regulated environment will be those that embrace technology ‘ for their own benefit and the benefit of the intermediaries who play a key role in the market.
The regulation of mortgage arranging and the tough compliance requirements will effectively oblige all brokers to embrace technology. And some lenders are indicating they will only deal with those packagers who embrace technology, making life easier for them.
The use of technology can help in the world of statutory regulation to reduce the costs of mortgage compliance.
Therefore, there is a need for packagers to develop their online activity and an operating system that is capable of producing an audit trail and managing information at the touch of a button.
Letting electronic systems do the work means not having to rely on paperwork, especially when it comes to audit/inspection time and so the benefits far outweigh the cost. Some packagers are already providing these sorts of services free of charge in the market.
Technology can also help identify suitable products for specific clients and produce appropriate compliant quotations. Again, some packagers can provide the software needed to do this for free, provided intermediaries can provide them with certain level of business.
Technology can also help to increase efficiency relating to the completion of mortgage applications online and pre-populating data from a factfind into a product search or mortgage application, whereas amendments to paper-based mortgage application forms require authorisation by the client and incorrect completion of the form will cause delays. Pre-populated fields also save processing time and as a result higher standards of service can be delivered, which is vital to generating new clients and retaining existing ones.
Functionality created by the use of technology is also important. Intermediaries need to be able to complete work both online and offline, but although some systems do this, some do not. At the moment we appear to be at a stage of smoke and mirrors in many cases. Having said this, true real-time functionality is not far away.
Websites are already playing a key role and are another area where packagers should again be able to help intermediaries. Packager websites should offer more than advisers have in their office. They need to have facilities such as comprehensive mortgage and sour- cing systems as well as full product specifications issued by the product provider and state-of-the-art tracking facilities. As should marketing tools, helpful hints and tips on how to attract and maintain client relationships.
A quality packager website with a suite of services offers the intermediary a fully functional web-based solution to clients’ pre- and post-sales service. The time-saving potential of a quality quotation system is enormous.
An intermediary no longer needs to phone to request client specific quotes. For any site, however, the guiding principles should always be ease of use and functionality. Great emphasis should be placed on a design philosophy making information available in an attractive, logical, organised, easy-to-access format.
Other areas in which a packager can help intermediaries in the post-regulatory world include offering workshops and seminar sessions in liaison with its panel lenders, especially for the more complex sub-prime cases and portfolio buy-to-let business. The communication is simple and business results for usually go up with a win, win scenario.
Packagers must adapt and by offering the intermediary value over and above taking a mortgage application (and packaging it to be presented to the relevant lender) they should flourish. The packager should be a business partner to both the intermediary and the lender. The stronger the business relationship, the better for all in terms of business volumes, quality applications and speed of turn around. The aim is to achieve mutual benefit for all parties concerned.
However, there are numerous opinions about how much added value the packager can give the lender. Some say they add no value and slow up the process, while others opine that smaller ‘niche’ lenders rely on packagers for processing, marketing, sales administration and even forms of underwriting.
Nevertheless, closer relationships should not stop a packager being able to advise its intermediaries when a lender is behind in its administration, which may impact on the advisers’ choice of lender. It has been known some packagers suspend dealing with some panel lenders until service issues are resolved. And some lenders have been known to have been removed from panels for continual poor service. This can only benefit the broker and the consumer.
What is interesting is the way some lenders are trying to strategically close the door on packagers even before statutory regulation. There are examples where the lender’s requirements both before and after application in principle seem greater when dealing through a packager than they are when going direct.
Nevertheless there seems to be a consensus of opinion which says that lenders and packagers should work together for the benefit of all.
One positive aspect to emerge from CP146 it is that the role of packaging has been recognised in the financial services industry.
There have been calls for a non-profit making trade body that represents its members but has no commercial gain. It is difficult however, because some have the opinion that: we have lasted this long without one, so why have one now? Others may be reluctant to fund such a venture.
Facing the future
There are many challenges to be faced by the industry over the next two years. Everyone will need to be flexible in their approach, and technology will have a huge part to play.
The most noticeable challenge at present is the need for mortgage advisers to have passed the CeMAP exams. Some believe that come January 2003 there will be fewer advisers in the business with the result that packagers and lenders will therefore receive less business.
However, many organisations ‘ from small companies and networks through to packagers ‘ are willing to pay an introducer fee to non-qualified advisers for the lead and then give this to a qualified adviser. Provided the business is maintained such flexibility and a wide view approach will continue to be required.
The industry needs to view the challenges ahead as opportunities to improve the standards in the industry and aim to be flexible. By developing the technology to facilitate the industry packagers should still thrive. This should benefit everyone.
Steve Scholes is a director of Scottish Life Mortgages
Packagers will need to offer marketing support, sales administration and underwriting where needed.
Packagers should be able to warn brokers of lenders’ administration problems without penalty.
Packagers could help in the regulatory environment by passing an introducer fee onto non-qualified advisers.