Peter Beaumont, deputy chief executive of specialist non-conforming lender Mortgages Plc, is a man waiting for big things to happen. With a promotion in the pipeline, and with US giant Merrill Lynch behind the lender, he certainly is looking forward to a bumper year.
He certainly has had a huge amount of experience. Previous companies include Scottish Life, where he was chief inspector of agents – he jokes he was PC Beaumont – Hypo MSL, which became GMAC RFC, Money Store with Guy Batchelor, now chairman of the Intermediary Mortgage Lenders’ Association, and finally Mortgages Plc.
When Nikko Principal Investments, the majority shareholder of Mortgages plc, announced the sale of its shareholding in the lender to Merrill Lynch in 2004, Beaumont saw the move as a significant triumph for Mortgages Plc, and he lists this as one of his greatest successes.
Last year, Mortgages Plc recorded a 70% increase in business, which Beaumont claims is on a par with GMAC RFC in terms of growth. He says: “We managed to improve profitability and revenue, and business targets were massively exceeded, so we have a happy parent at the moment. This year is going to be a challenge, as we have testing targets again this year.”
In February 2006, the lender launched its On Demand system and saw a massive increase in volume from roughly 350 to 3,000 decisions in principle (DIPs) a month and 10,000 people registered onto the system. The next stage, known simply as On Demand II, will include new developments, which in Beaumont’s words: “will give us a system that rivals GMAC or Edeus in terms of functionality”. This system will be fully integrated with packagers, following concerns that the old system was not as packager-friendly as it could be. The new functionality will include auto-offers, e-identification and it will also have an automatic valuation model. It is being constructed in parallel with the new mortgage business automation project which has front and back-end administrative components that contribute to a completely paperless environment. Prime self-certification will also be launched along with On Demand II, but this will also be preceded by the relaunch of prime buy to let, which Beaumont promises will be “far more aggressive” than before.
When asked as to whether Mortgages Plc is playing catch-up with the likes of GMAC and BM Solutions, Beaumont convincingly replies that this certainly was not an issue for the group. He says: “We would rather spend a little bit longer and make sure that we have the right supplier and the right product, and that it works very well with all our distribution channels, whether broker-direct or packager.” There will be a “few twists on functionality”, he says, but at this stage, can reveal little else.
Tech wars
It certainly does seem to be a race though among the top non-conforming rivals in the market. “Tech wars” is what Beaumont jokingly calls it. But there is also a need for lenders to step back and consider the mentality of consumers who are dealing with an world increasingly dominated by technology.
This has resulted in Mortgages Plc looking at the house-buying process very carefully. In the next few weeks, it will be offering a new streamlined legal process. Potential legal partners are currently tendering to be the sole provider of two options for clients. Clients will be able to choose from either an assisted legal package for borrowers with wholesale rates negotiated by Mortgages Plc, or a fees-free package. Ultimately, Beaumont is hoping to streamline the amount of documentation needed so that the legal process can progress cheaply and quickly. He says: “What we have done is streamlined the amount of documentation that we need.”
The power to instigate these changes inevitably comes from the American parent – a marriage that Beaumont says “genuinely, is made in heaven”. The full integration with Merrill Lynch has indeed made Beaumont re-evaluate how he sees himself. He says: “In fact, I almost see Mortgages Plc as a trading name now, and when people ask me who I work for, I say Merrill Lynch, and Mortgages Plc is one of our UK platforms along with Freedom as well.
“It has invested massively in us in terms of capital to improve our systems, to improve the infrastructure of our business including IT, structured finance, marketing, human resources. Every part of the business has been invested in. We are a big animal, capable of writing a lot of business and making a lot of profit.”
There have been insinuations in the trade press that Merrill Lynch is not interested in maintaining both Freedom and Mortgages Plc as separate brands. But Beaumont is convinced that a multi-brand offering from the investment bank is sustainable, profitable and capable of maintaining their individuality. He says: “There is room for different brands and room for different distribution. HBOS has made it work, Lehman Brothers has made it work. There are many examples of multi-brand strategies. We are not being forced down any route. We work and run our business with Merrill Lynch. We have our own management team our own executive and our own board and we make decisions for ourselves in terms of where we are going. We are set revenue targets by Merrill Lynch and we work very closely with our colleagues there, but we control our own business and we are also to that extent controlling our own destiny.”
Beaumont also makes it clear that Edeus is not necessarily part of the same Freedom/Mortgages Plc/Merrill Lynch family. He emphasises: “Edeus is a great business, but it is owned by Mike Culhane and his management team. Merrill Lynch funds and owns the fund that funds the Oakwood Group. It has no directional holding in Oakwood or its companies. I am not privy to its plans, I would not want to be.”
However, there is sense of frustration that Edeus has capitalised on the Merrill Lynch brand. As Beaumont notes: “Having a name like Merrill Lynch behind you is very powerful.”
So, the next big thing for Beaumont is going to be his promotion to chief executive. He is reticent as to when this will happen – “some time this year” – but it is certainly guaranteed. Trevor Pothecary, the group chief executive, will become full-time chairman of the business. There were rumours that Beaumont had to complete a 30-point plan before ascending to his new role. He laughs this off: “There are no specific objectives that I had to achieve. My biggest challenge is moving from a sales specialist to a generalist. So that has been really exciting for me.”
Direct to consumers
Another challenge for Beaumont is the group’s direct to consumer brand. Mortgage Magic was launched in October last year. The lender, with its 12 staff, is growing and works predominantly by buying leads off the web and various other media. Beaumont says his Mortgages Plc subsidiary has hit every single target that has been set. But how does it work in terms of its parent’s commitment to the broker market? “The reality is that if there is a channel which is unexploited, we need to look at it. We need to look at getting a foothold into that market. It does not mean we are not committed to the intermediary market. We called up all our key partners when we were launching and explained what we were doing. Their major concern was that we kept a level playing field.”
“What is its objective? With any business, you are looking at how to make it successful. There may be a natural cap on that brand and what we can get out of it. Remember, it is a tough market for business to consumer players out there. There has been a big slow down, rates have gone up, people are more aware and are shopping around. But being part of Merrill Lynch, we have zero tolerance to any form of compliance breaches. That business is run very, very compliantly, so we control our own destiny.”
This could be a dig at other non-conforming competitors, which Beaumont is on the record as saying are in danger of ruining the sub-prime industry that has struggled to be seen as compliant and of value to consumers.
Commenting on the sector, he says: “New lenders are coming into the market with no or little experience, pushing the risk envelope, and a lot of mature, larger lenders are very worried about the impact that could have on the market.” He and other lenders, he says, are going to the market with the message: “Do not go out there with more risk when you do not understand the implications of your action, because you might not pay for it today, but you may pay for it in the future.”
Packagers, too, do not escape Beaumont’s comments. He coined the term ‘super-packagers’ in 2004 and still has not revised his opinion that there will be only a few of these. He says: “If you are a packager, you have some challenges. The first one is that technology conspires against packagers. The major lenders are going direct to brokers now, and the reason we do that and have a direct to consumer channel is that we work on a blended cost of acquisition. If we go ‘all packager’, it would cost us a lot more to acquire that loan than it would if we have a blend. If we were ‘all broker’, we would suffer from volume but it would be a much cheaper route to market.
“We have always been supporters of packagers. Having said that, as lenders are going direct to brokers, there is a chunk of business that historically would have gone to packagers that is not any more. There is only so much distribution and a big chunk of it comes from the appointed representative (AR) network. The networks are wising up to the fact there is a profit at doing business as a joint venture, by themselves or creating a do-it-yourself lender. Each of these three things conspires against packagers currently on panels. We are already seeing networks removing packagers from their panels and doing their own thing in their own way.”
The “big stay of execution” for packagers, Beaumont explains, comes with cascading. If a broker ‘single lender cascades’, they have to re-broke, or go back to ‘Go’ as on the Monopoly board. But the reality is that this is not happening in a sizeable chunk of cases – brokers are taking the first recommendation. The FSA is well aware of this, he warns. “However, if you have a multi-lender cascade – like the Enterprise Edge system – it effectively does a multiple electronic DIP. It feeds all the answers back into one place electronically. That is a very, very strong proposition that will potentially save the packager market.”
Retention is the other area of compliance that concerns Beaumont. He formed a product strategy group in November last year that looks at various things including pricing, product innovation, short, medium and long term strategy. Retention has been an issue that has concerned the strategy group. However, at the moment, Mortgages Plc securitises a vast amount of its loans.
He says: “When you securitise your loans, there are only certain things you can do in terms of retention. So we are now looking at working with the investors who buy our bonds, to see if we can get some wording that they will be happy with, and if we can be more proactive in the way we deal with client retention. I think we will see increased retention in the market. There is no way that any lenders can just afford to have people coming off fixed rates without retaining them. Where it ends up, I don’t know.”
What he does know is that there are exciting times ahead for Mortgages Plc, and some time soon, he will be spearheading its success. n
