The packager sector must surely be the most discussed sector of the mortgage market. Whenever industry commentators get together, they seem to plaster on their faces the sort of expression one would use when explaining to a ten-year-old why the dog needs to be put down and mournfully point out another threat on the horizon certain to lead to the sector’s demise.
Needless to say, the sector has refused to die and is thriving to date. If anything, packagers are set to grow in importance as more bring in cross-lender cascading sourcing systems for sub-prime and, if recent weeks are anything to go by, new blood will soon be entering this thriving market.
Last week, lead originator Mortgage Angels announced that it was entering the packager sector as a logical next step in the firm’s evolution, seeing little reason to watch brokers who had been sold successful leads take their new client elsewhere for packaging (Mortgage Solutions, 03/09/07, p1).
Also, Infinity could be considering re-entering the mortgage arena as a packager, following its withdrawal from the lending market due to funding issues brought about by the recent ‘credit crunch’ (mortgagesolutions-online.com, 03/09/07).
Alex Murray, group director of mortgages at Thinc Group, comments: “The packagers of the future will be the ones that have the sourcing systems to secure the best deals. People entering the sector often join to make up for lack of income in other areas, rather than doing it for the right reasons.”
Murray sees future pressure coming to bear on the less well established players in the sector, believing that the market already has more packagers than it can sustain in the long term.
He says: “As whole-of-market sourcing systems improve and margins in this sector tighten, which we are already seeing, there will be a reduction in the number of packagers in the market. The main issue is that brokers use packagers for sourcing, potential exclusives and for the service they offer. If brokers can source with a sophisticated sourcing system why would they use a packager? There are more and more sub-prime lenders dealing directly with the broker.”
Payam Azadi, head of marketing at packager Mortgage Times Group, is concerned that many entrants are leaving their core businesses and competencies behind to enter a totally new market, commenting: “I think that in some cases, they do not realise how times have changed and what is now involved in packaging in terms of systems, effort and investments. Some of the newer entrants, I think, are a little naïve, but people have successfully entered the market, so good luck to them.”
Michelle Harriss, marketing and communication director at Personal Touch Packaging, is in agreement, pointing out this is a difficult time for all packagers involved in the sub-prime sector. She says: “For example, we have 20 lenders on our panel and each has withdrawn and repriced products, some more than once a week. It is a difficult time to enter a market and to get to grips with lenders. For those without a degree of market experience, I would suggest this is the wrong time to enter the market. However, the more experienced people considering this sector would know how vulnerable they would be and would have researched accordingly.”
The current ‘credit crunch’ has led to a certain amount of turbulence in the packager sector with lenders pulling sub-prime ranges and, in most cases, repricing back into the market. Turbulence on this scale, in what most would consider packagers’ main area of expertise, has led to service issues. Pink Home Loans hit the news this week, announcing it had packaging delays of up to 72 hours, which have since been drastically reduced.
David Hollingworth, head of communications at brokers L&C, says: “The sub-prime sector is where most brokers would use packagers, simply because some lenders do not deal directly with brokers. In this period, with such a large amount of repricing, sometimes twice in a week from a single lender, there have naturally been problems, it is not the packagers’ fault.”
While delays are an annoyance, the main problem has been when cases are being processed, paperwork is still being sourced and funds have not yet been secured. Any delay in processing in fast-moving times drastically increases the possibility of not getting the rate the client was told about.
Harriss believes the sub-prime sector is looking at an unsettled period for at least the next six months. She adds: “However, I do not mean this will be a detrimental period. We could see the pricing between prime and sub-prime get back to where it perhaps should be, with lenders pricing to risk, rather than the 0.1% price difference we have seen. This is an involuntary market correction.”
There are signs the packaging community is beginning to recognise markets may be unstable for a while and are beefing up their service proposition. Mortgage Times, Solent Mortgage Services, AToM, KGB and Mortgage Next have all signed to put application forms electronically onto the Mortgage Trading Exchange (MTE).
Azadi says: “We will take the business in whatever form brokers are comfortable, through MTE, through Trigold, through our own online solution or paper-based.
“Obviously, applications that come through online offer the ability to streamline operations and processing times. The challenges in the current market as far as packaging is concerned are gaining efficiencies, dealing with volumes, and maximising processes. The problem at the moment is not one of getting the business through the door.”
So, overall the packaging sector remains vibrant, albeit with a few challenges on the mid-term horizon. However, the one thing which the sector cannot be accused of is sticking its head in the sand.
Harriss concludes: “The gap between super-packagers and the small packagers has widened, but the death of the packager has long been called. The future will go to those, as it always has been, who can adapt best to changing circumstances.” n