Duncan Berry, director of mortgages at GE Money Home Lending

22 May 2008

With lenders continuing to pull out of the secured loan market, LoanDistributor.co.uk has interviewed Duncan Berry, director of mortgages at GE Money Home Lending, to discuss the market, regulation, and why he thinks it is still lacking a unified voice.

What is your view of the secured loan market at the moment?

It’s certainly a period of change and the change is probably broader in the second charge market than it is in the rest of the specialist market. The credit crunch is driving an undersupply of products, but there has also been a significant change in the way that products are designed and packaged, with more of a move towards fee based products.

A secured personal loan used to be a very niche product and sold by relatively small group of intermediaries, and I think it is increasingly becoming a mainstream product that is sold by a broader range of intermediaries.

Is GE committed to the intermediary secured loan market?

Yes we are. I don’t think I need to add anything more than that, you can talk for hours about it, but yes, we are committed.

A lot of brokers see you as a balance sheet lender, but you have made a lot of changes to your products lately, why is this?

This links in with the next question. The answer is around two things, it’s around the way that we fund and our view of the marketplace.

As a lender we try to originate loans that are going to have a particular risk performance that we know and understand, it also depends on how we think our security will evolve over time. The biggest impact on that is house prices, with the drop in house prices and a heightened volatility over what’s going to happen, this increases the volatility of all our products.

This is why we have made the change that we have, we are trying to be a bit more targeted and we are focusing on areas that will be the hardest hit. We made some changes to our valuations for example, and for properties where we think there will be the most downturn.

How have you financed your loans in the past, and has this changed?

We are not immune to the credit crunch, the way that GE funds all its financial services assets is internally. We have around $500bn worth of funding, and around 20% of that is short-term commercial paper, which is under 90 day debt, the remaining is longer-term debt. We don’t link that funding to specific products that we sell in different countries around the world. The cost of funding has gone up, so we need to reflect that in our products.

What advice would you give to secured loan brokers at the moment?

There are some things they can do to help their business.
The first thing I would say sounds simple, but I’m not sure all brokers are doing it.

They need to align their business to a realist estimate of their expected revenue. Firms have had to make a lot of tough decisions lately, but you need to make sure that your costs are in line with your revenue. I think people shouldn’t expect that revenues are going to go up a lot in the next few months.

The second thing is to try and have a better understanding of the types of customers they are able to attract. So try and understand the type of customer by lead source. When there were a lot of products about there was a little less focus on understanding the quality of leads, and I think this is what the best brokers are focusing on.

The last thing is they need to focus on sales practices, and make sure that their selling practices are in line with regulation and the principles of TCF. There has been a lot of discussion around insurance and the role of the Financial Ombudsman Service. The best way to handle this is to make sure that customers know what they are getting and that they are sold in a manner that is transparent and fair.

Do you plan to cut the number of secured loan brokers you do business through?

We don’t work to a target number of accredited brokers, we tend to focus on whether a broker can send us quality deals, as long as brokers meet these criteria we’re happy to do business with them.

What is your view of the association in the secured loan market? (FISA and the AFB)

We really think that the secured loan industry needs a voice and I think its not a consistent and a strong enough voice as it could be at the moment and I think making that voice stronger is partly the role of the associations.

I think most people in the industry would agree that the way the associations have evolved and the way they are today hasn’t put us in the best place to sing from a single hymn sheet.

Not everyone is going to have the same view, but ultimately there needs to be a way for brokers and lenders can state their view and have that represented for them.

The associations can play a pivotal role in that and we are committed to working with FISA and the AFB to make their roles more effective in influencing the way that the industry moves.

Lenders and brokers are going to have different views and they need someone to represent those. There is a bit of overlap with FISA and the AFB which makes life a little bit more complicated.

Do your brokers have to members of FISA to do business with you?

They are not obliged to be members, we think the FISA booklet is a good start in terms of meeting the quality that we expect from our brokers.

Where do you see the secured loan market in three years?

I think there will be a continual move towards a single regulator. I think it would be more logical that the Financial Services Authority would regulate both first charges and second charges. I would expect that to lead to a more transparent market for the customer.

I also think it will be a lot more integrated with the first charge market and second charge products will be seen as an overall credit solution.

I think there will continue to be a limited supply for products from lenders, from a capital market standpoint I think the secured personal loan market will be the last to return. I think a minimum of a couple of years or longer, before there is capital market solutions for secured loans.

From a product standpoint I would like to see more flexibility for consumers. I think consumers have lower product choice in the second charge market then they do in the first charge market.

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