Annus horribilis

07 December 2009 | By Christine Toner

Unless you delight in misery you’ll be pleased to see the back of 2009. The past 12 months have been some of the most challenging the industry has ever known. Major players have crashed and burned, brokers’ livelihoods have been devastated and the mortgage market as we knew it is dead and gone. Now as the chancellor prepares to deliver his Pre-Budget Report - enlightening us all on the possible changes we can expect in 2010 - let’s take a look back at a year that will forever be etched in the minds of mortgage professionals.

JANUARY

The year got off to a bleak start with the news Britain was officially in recession for the first time since 1991. The economy had shrunk at the quickest pace for almost 30 years in the last quarter of 2008.

The world was changing with the first black president of the US, Barack Obama, taking office and things in the mortgage sector were changing too as brokers were being encouraged to diversify.

The calls for diversification came as the Association of Mortgage Intermediaries warned that net mortgage lending would decline further in 2009 and brokers’ market share could be squeezed to less than 50%. The trade body issued its first economic bulletin for 2009 early in January, which predicted that gross lending in 2009 would be just over £145bn.

And data from Nationwide revealed house prices in January fell by 16.6% year-on-year against a backdrop of low mortgage approvals and uncertainty over future incomes.

FEBRUARY

If someone had told you this time last year that in 2009 we’d have nine consecutive base rate holds at 0.5% you’d have called them crazy. But that’s what we’ve had and it was February this year that the Bank of England cut rates to the historic low.

Meanwhile, claims management firms came in for a tough time when it emerged that lenders were advising networks to avoid them.

The rise in the number of claims management firms looking to recruit mortgage brokers was said to have caused unrest among some lenders, that unofficially gave networks an “it’s us or them” ultimatum.

One network that was a little too preoccupied at the time to get involved in the claims management debate was Network Data. Things were going from bad to worse for the beleaguered network as Mortgage Strategy was deluged with tales of broker frustration as they attempted to get the network to pay them the commission they were owed.

As the debate over risky lending raged on the Liberal Democrats through their two pence into the mix when they proposed a no-fee, no-frills mortgage deal. The party’s idea was for a standard five-year fixed no fees, no frills mortgage product aimed at providing long-term stability to the market.

The supermarket theme continued in February as experts predicted Tesco could dominate the financial services sector and potentially push out smaller banks and societies with its products.

MARCH

March brought with it the results reporting season, with losses to be expected and the Turner review that revealed the market would receive a stay of execution until later in the year.

With home owners’ access to the market restricted anyway, the Communities and Local Government Committee said it was concerned that some lenders were starting to classify shared ownership mortgages as sub-prime.

The Land Registry made history this month by completing the first electronically signed mortgage. The mortgage, or e-charge, involved was signed electronically by a borrower and registered at 11.20am on March 24.

As building societies reported big losses Ann Cryer, Labour MP for Keighley, slammed the Financial Services Compensation Scheme’s fees onslaught on building societies. Cryer wanted to cut the fees societies are forced to pay the FSCS to fund the failure of banks. She argued that mutuals’ share of the burden is dispro-portionate. The FSCS fees were cited as one of the reasons for the collapse of Dunfermline this month, which was rescued by the sector’s knight in shining armour Nationwide.

And while building societies were angry at the FSCS, networks were busy making their feelings known to the regulator. Networks lobbied the Financial Services Authority to reconsider its position on regulatory fees as Mortgage Next revealed its FSA bill was a whopping 110% higher than last year.

Meanwhile, the Network Data saga rolled on as angry ARs demonstrated outside the network’s palatial Surrey headquarters Botleys Mansion in a bid to claim unpaid commission. Unfor-tunately once again the ARs left empty-handed.

APRIL

And the problems continued into April. Easter is traditionally a time for new beginnings and turning over a new leaf but there was no such luck for Network Data ARs. The network blamed an error for payment delays telling its ARs it is unable to pay them on a set payment date due to a recently identified problem, with no word on when commission would be paid.

Abbey for Intermediaries sent shock waves around the sector by ruling out paying brokers proc fees for retention sales in the near future, claiming the case for such payments did not stack up financially.

John Charcol caused a buzz by announcing it was to go where no mortgage broker had gone before and receive proc fees for offering HSBC mortgages.

HSBC announced in April that it would be introducing John Charcol advisers into 20 of its branches as part of a seven-month pilot scheme.
A number of mutuals were up in arms in April after having their credit ratings slashed by Moody’s. The building societies claimed they planned to challenge the agency over its judgment.

There was more embarrassment for the struggling government as then housing minister Margaret Beckett tried to deny the Opposition’s claims that no properties had been sold through the government’s HomeBuy Direct scheme.

The major headline-grabber in April though was the Budget. It was announced that the Stamp Duty holiday for properties under £175,000 would be extended until the end of the year.

The Income Support for Mortgage Interest scheme would continue at 6.8% for a further six months and the government would cover mortgage-backed securities, as already indicated. But the big news from the Budget was the extent of the country’s debt and we discovered we were in it up to our necks.

MAY

Fraud was still top of the list of priorities in May as the FSA announced it was probing 250 brokers for suspicious activity.

And there was no let-up in the Network Data fiasco as Mortgage Strategy was the first to reveal that the network’s permissions had been removed. ARs of Network Data Limited and Mortgage Broking Services Limited who decided to transfer to Lighthouse Group were left in the dark about what would happen to their pipeline commission.

Brokers were given one day to sign the 33-page contract that would transfer them to LighthouseXpress, a subsidiary of Light-house Group.
There was some good news for mutuals as societies saw app-rovals leap to £1.5bn in March. Mortgage approvals by building societies more than doubled in March, climbing to their highest level since November 2008.

The devastating effect of the credit crunch on the broker sector was all too apparent when figures revealed 300 directly authorised firms deserted the market in Q1 alone.

AMI warned of worse times to come, claiming that if lenders were banned from dual pricing it could backfire and result in proc fees disappearing.
And brokers were getting it from all sides in May as Abbey blamed shoddily packaged mortgage cases for delays in its processing and says that at one point 65% of applications from brokers were not up to scratch.

The CML attempted to lighten the mood by branding its previous prediction of 75,000 repossessions this year pessi-mistic, despite the number of homes being repossessed increasing by over a quarter in Q1 2009.

And AMI told brokers it was fighting their corner while defending its decision not to publicly retaliate against the latest bout of broker bashing after calls for it to fight back.

Brokers came into the firing line with the Inter-mediary Mortgage Lenders Association claiming that two-thirds of members thought ARs produced better quality business than DA brokers and Michael Coogan, director-general of the Council of Mortgage Lenders, claiming some brokers act like salespeople.

JUNE

Despite entering into administration in May the Network Data saga continued in June when it emerged that the network could have flouted Alternative Investment Market rules by failing to inform investors that it was trading insolvently.

As a company listed on AIM, Network Data was required to communicate any price-sensitive information relating to the company.

There was bad news for West Bromwich which revealed a pre-tax loss of £48.8m. The society remained tight-lipped about how its mortgage broking subsidiary Mortgageforce had performed. But ultimately the mutual was saved from being another Dunfermline or Derbyshire. It was rescued at the 11th hour after negotiating a deal with its creditors to convert £182.5m of debt into capital.

Also this month, an exclusive Mortgage Strategy poll revealed that 53% of mortgage brokers were charging fees for advice. Mortgage Strategy polled more than 1,634 brokers, 53% of whom said that they charge clients fees for advice. The remaining 47% take commission.

The results came as AMI said it expected the regulator not to ban mortgage broker commission as it has in the investment market.

“We don’t think the FSA will go down that route,” explained Robert Sinclair, director at AMI.

JULY

As we entered July a report from accountancy firm BDO Stoy Hayward revealed mortgage fraud topped £197m in the first six months of the year, with the FSA warning that it is causing instability in the lending market.

The report showed that 21 mortgage fraud cases in the first six months of the year formed a fifth of the £960m worth of total fraud in the UK in that period.

Meanwhile, the Association of Finance Brokers was pouring scorn on the claims management sector branding unscrupulous claims companies a cancer in the industry. “Irresponsible claims firms are the cancer of the industry,” said Robert Sinclair, director of the AFB, at the time.

As the base rate was held at 0.5% for the fourth time lenders claimed the low base rate environment was threatening to choke off recovery in the mortgage market as lenders admitted they weren’t getting the returns needed to sustain new lending.

Yet while lenders were worried about low interest rates brokers on the other hand were more concerned with what would happen when rates begin to rise. They issued a staunch warning that remortgage business could continue to be stifled if a rising base rate prompts borrowers to leave their existing tracker deals, as it is unlikely there will be funding to meet demand.

Meanwhile, the FSA claimed individual regulation could limit the movement of rogue brokers.

AUGUST

In August equity release trade body Safe Home Income Plans revealed a lack of cash was holding back the equity release sector.

“The biggest issue we face is funding,” director-general Andrea Rozario said. “We need funds to be freed up and equity release to be considered as a viable sector for institutions to invest in.”

There was a renewed call for estate agents to be regulated amid allegations that cash buyers are bribing some to reduce the selling prices of properties. One lender told Mortgage Strategy that it recently had a case where an agent attempted to slash the value of a property by almost 50%.

The remortgage drought stifled gross mortgage lending at Lloyds Banking Group as lending slumped by £26.8bn from the same time last year.

But there was good news from the CML as mortgage lending rose 26% and Bank of England figures revealed that 80% of mortgage applications are being approved.

And there was fury as the FSA sparked an angry reaction by saying it was OK for lenders to reject brokers’ mortgage applications without offering an explanation.

SEPTEMBER

September saw Mortgage Strategy’s eight birthday but there was little to celebrate as talk of fraud topped the agenda again with the news the Serious Fraud Office was investigating a £45m mortgage fraud case in which an organised gang was suspected of having colluded with corrupt solicitors and surveyors.

It emerged this month that complaints about flexible mortgages to the FSA actually outweighed those related to sub-prime and self-cert mortgages combined. For the first time the regulator published complaints figures for the financial services industry between 2006 and 2008.

here were 71,406 complaints relating to flexible mortgages in the period compared with 14,029 relating to self-cert and 7,704 concerning sub-prime mortgages.

There was more bad news for ARs of Network Data when it became clear they would not benefit from the sale of the network’s headquarters Botleys Mansion. The property sold for £3.5m and while this covered the mortgage that the network had on the property it would do little to clear the £5m owed in commission payments to ARs.

But the month ended on a high with a £4bn securitisation deal issued by Lloyds group. The deal managed to breathe life into the wholesale money markets as the first deal using a residential mortgage-backed bond in Europe for over a year.

One source told Mortgage Strategy that this issuance had whetted investor appetite and that another major lender was also planning to issue a large RMBS deal, possibly before the year was out.

OCTOBER

Norwich and Peterborough hit hard times in October with the loss of 36 jobs at its headquarters. The society’s finance director Richard Wells was among the job cuts.

Meanwhile, the BSA was understood to have held talks with the Local Government Authority to try and convince it to deposit billions of pounds in building societies.

There was big news in the distribution sector when Sesame completed the acquisition of Bankhall and PMS, with Sesame chairman Ivan Martin heading the newly created Sesame Bankhall Group. Stephen Young, sales and marketing director at Sesame, assumed the role of chief operating officer and John Malone continued to head PMS as chairman. John Cupis, managing director of mortgages and general insurance at Sesame, was also made managing director of PMS.

Figures from the FSA’s register revealed more than 270 ARs left networks in Q3. There were 8,736 ARs in the market at the end of Q3 2009. Of the 681 that moved on during the quarter only 407 joined other networks, leaving a net loss of 274.

The biggest news in October was the publication of the long-awaited Mortgage Market Review, which saw the FSA propose regulating buy-to-let and banning self-cert and fast-track. There was a sigh of relief across the sector though when the regulator decided not to implement fee-only advice.

NOVEMBER

As the year drew to a close the FSA made the headlines again when it emerged it had been blocking would-be lenders from the market.

It also became clear that despite receiving a dressing down in the MMR rogue brokers had found a way to push through self-cert deals even though there are no longer any such products on the market.

Mortgage Strategy learnt that some brokers were attempting to disguise what would have been self-cert mortgages as buy-to-let deals.

The CML conference caught many of the headlines, most notably when Matthew Wyles, group distribution director at Nationwide and chairman of the CML, claimed the regulator viewed lenders as “drug dealers at the school gates”.

Meanwhile, the CML said it would represent fewer lenders in 2010 as they give up their membership due to market conditions.

The issue of fraud was still getting column inches as chief inspector Paul Barnard at the City of London Police said lenders are losing their grip on fraud. Barnard claims the force is currently investigating 15 serious mortgage fraud cases compared with just four last year.

Late November Mortgage Strategy revealed that Personal Touch Financial Services’ chairman Martin Wilson had been suspended pending the result of an internal investigation.

And the month ended on a positive note as Mortgage Strategy learnt that as many as 30 new lenders could be waiting in the wings to enter the mortgage market.

DECEMBER

The final month of the year has brought with it little Christmas cheer with the news that Enterprise Group and its subsidiary companies, Enterprise Broker Services and Edge v2, have been placed into administration, although Enterprise Finance will continue trading. Meanwhile, the boards of Yorkshire Building Society and Chelsea Building Society announced they would merge, creating the UK’s second largest building society.

Now as we enter the final few weeks of 2009 and await the chancellor’s Pre-Budget Report you can take it as a given that brokers are dreaming of more than just a white Christmas, they’re praying for a prosperous 2010 too.

 

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