The mortgage industry will welcome its fair share of new lenders this year but one imminent entrant has generated more fanfare than most. The new UK lender from the Oakwood Group, due to launch in September, has attracted great interest since it was announced in October that the outspoken but highly successful Michael Bolton, along with Alan Cleary and three other senior executives from HBOS, would come on board in 2006.
The man behind this high profile launch is no wallflower either, and Mike Culhane, chairman and chief executive of the Oakwood Group, has been behind a number of high profile financial groups – including Future Mortgages, which he started in 1996 and sold to Citigroup in 2001 for £45m, and Mortgages plc, where he worked with Merrill Lynch to negotiate the buyout from Nikko Principal Investments in November 2004.
It is obvious he is driven by the desire to succeed and he admits the UK non-conforming sector is something close to his heart. Explaining his re-entry into the specialist market in the UK, Culhane says: “I want to prove, with Michael’s able assistance, that we can still do it, that we have not lost our touch and that there is still some opportunity in this market. I think Michael and I both share a pretty similar goal, which is that this is not a short-term, ‘let’s have a go and in two or three years sell it’ type of situation. He does not want to do anything else – I know this is it for him and I am pretty similar. This is going to be the play we make in the specialist lending market in the UK.”
According to Culhane, the new lender from Oakwood will not try to be all things to all people. And while he confirms the lender is looking at all areas of non-prime lending, he says it is not necessarily wedded to the purely sub-prime market but is aware of specialist sectors such as buy to let and self-certification. He also says it will look to enter any market where it thinks it can make a difference and be unique.
Commenting on intermediary research undertaken by the new lender, he says the results of the research have validated his belief that while the market may be getting more crowded, substantial opportunity still exists for a lender to come out with a new proposition.
In terms of distribution, Culhane says it is currently looking at both packaged and non-packaged channels. He says: “Historically, Michael [Bolton] has maybe been viewed, either rightly or wrongly, as being a packager-basher. I do not think that is the case at all. Michael just wants to work with quality introducers wherever they are and whatever part of the market.”
Technology is an area the new lender has been investing a lot of time in and it is a topic on which Culhane holds strong views. He argues the customer should lead the technology rather than the other way around and says borrowers should not have to fit around a cumbersome process because the technology in place only does it a certain way. While the new lender is looking at
automated valuation models (AVMs), Culhane highlights the considerations that would surround its use. He says: “You have to think about what the capital markets say about AVMs. We will be mortgage securitising and selling loans – the buyers of those loans and the buyers of the underlying bonds from the securitisation will also need to be comfortable with AVM as well as us. We cannot do it in isolation.”
Culhane believes the main challenge his new UK lender will face is the increased competition that now exists in the market. Referring to the many new lenders entering the market backed by investment banks, he adds: “Do I worry about Michael’s ability to build a successful business and build volumes? No I do not. His track record is so strong, with BM Solutions in particular, I think it is going to be a matter of degrees rather than does it work or not.”
Huge respect
On the subject of companies likely to be the new lender’s main rivals, Culhane has nothing but praise for GMAC-RFC and BM Solutions. He says he has a huge amount of respect for GMAC-RFC and executive chairman Stephen Knight in particular, and believes the BM Solutions team will be a “fantastic competitor” to his new lender.
He adds: “The investment bank controlled companies – Mortgages plc, Southern Pacific Mortgage Limited and Preferred – certainly have the capability and have already broadened the product range, so they will be fairly stiff competitors. Increasingly, some of the mainstream banks will start to dabble. Most of the origination you have seen to date in the sub-prime market has been non-high street bank lending platforms but you will start to see more high street lenders coming in.”
Culhane does not believe there is a danger that Oakwood’s new lender will enter the market as another BM Solutions in all but name. He says it has found a lot of things it can do differently, and hopefully better, from BM Solutions and other lenders as well. Commenting on the staff recruited from BM Solutions, he says: “They are genuinely excited they can take some of the great things BM Solutions has done and then, with this blank sheet of paper, build the processes for technology and products that they had always wanted but perhaps were constrained because the overall machine of HBOS maybe did not allow them the flexibility they wanted.” And he is philosophical about the increased exposure the Oakwood Group has enjoyed since it hired Bolton He says: “I have become more well known in the last year, which was not something I expected. It is nice to raise your profile but the negative side about that is you have to be careful because if you raise the bar too high, people are going to start taking shots at you eventually.”
While the new lender from Oakwood is yet to launch, speculation already exists about its long-term objectives. In the past, Culhane has drawn attention to the entrance of non-conforming lenders in Australia into sectors UK non-conforming lenders had largely stayed away from – namely equity release and commercial lending – but he says the new lender does not have plans in either of these area in the short term. “In Australia, the reason why Pepper Homeloans pushed into those areas was because there were under-served customers. Undoubtedly, with Michael’s business, if we can find the ability to exploit under-served markets where the underlying products are mortgage secured against real estate, then yes, I think we will look at it. However, from day one we are going to be fairly clear with our proposition and it will be sometime in the future when we will start layering on other product offerings.”
The Oakwood Group is on a course of rapid international expansion. Following its acquisition in April of a majority stake in Ktesios, a distributor of salary-secured loans in the Italian consumer credit market, its portfolio now comprises six wholly owned companies, which include Australian lender Pepper Homeloans. Culhane recently told Mortgage Solutions Oakwood was looking to acquire a lender operating in the Spanish market by early 2007 and would also be looking to put other products, including mortgages, through Ktesios’ distribution network of brokers at some point in the future (Mortgage Solutions, 15/05/06, p1).
Culhane comments: “We are going to add probably another six companies over the next two years. The Italy thing, even though it is distant from the UK mortgage market, was a big thing for us – it was a big step forward and a big investment.”
In his life outside financial services, Culhane says he spends a lot of time with his two children and enjoys running in Hyde Park when he can. He also enjoys boxing although he admits he does not partake in the sport as frequently as in previous years, joking he now only boxes when annoyed. Whether he will need to seek recourse to his boxing gloves in the coming months, only time will tell, but Culhane’s experience of the non-conforming market in the UK and his enthusiasm about the challenges ahead certainly bode well for Oakwood’s new lender.
