Full steam ahead

11 April 2011 | By Robert Thickett

The Intermediary Mortgage Lenders Association’s annual dinner last year was a crucial moment in the trade body’s future.

The yearly event has long been a bellwether for how the mortgage industry is doing. Its 2008 dinner, which was held a couple of months after the collapse of Lehman Brothers, was like attending a wake, with many in the industry staring disaster in the face. Fast-forward to September 2010 and the mood was altogether different - positively upbeat.

But before the dinner the trade body had held a meeting with its executive committee over its future direction. Everything was up for discussion - if IMLA was to remain useful what should it focus on? Should it become a non-bank lender trade body? Should it focus solely on issues surrounding funding? Should it stick to its core purpose of focussing on general intermediary lending issues?

The list of questions even included whether it should carry on as an independent trade body at all.

“The response, particularly from larger lenders, was whole-heartedly behind keeping IMLA true to its core and separate,” says Tony Ward, managing director of Home Funding and deputy chair-man of IMLA.

He says part of the reason for the membership’s desire to keep IMLA going is that it exists as a talking shop. It’s an opportunity for people from diverse backgrounds, from sales and marketing to strategy and distribution, to meet and discuss market issues.

“The other thing that makes it different is that it’s run for and by its members,” says John Heron, managing director of Paragon and chairman of IMLA.

“We don’t have a big secretariat. Peter Williams, our executive director, helps us get the business of IMLA done but the agenda is set by the membership. The issues we wish to prioritise are those that the members wish to prioritise and that makes it unique.”

For both its chairman and deputy chairman the meeting also showed that not only did IMLA still have a role to play, but that two and a half years after the downturn struck, its members wanted to move forward.

“We have spent the last two or three years beating ourselves up about the shortage of funding, the new world of regulation and how difficult things are going to be,” says Heron. “And as people often do when they’ve gone through a period of adversity they get to a point where they think they have had enough of that and want to move forward, building confidence around our industry. They want to talk about new business issues not old ones.”

The issues that we wish to prioritise are those that our members wish to prioritise, and that makes IMLA unique

Seven months on from that fateful meeting Ward and Heron are still in a bullish mood.

Mortgage Strategy met Heron and Ward at the top of the Gherkin building in the City of London, scene of one of the mortgage industry’s infamous industry events in 2007 when Girls Aloud performed to a packed industry crowd.

Those days of excess may be long gone but both Heron and Ward are keen to emphasise that intermediary lenders and brokers still have a valuable role to play in the market.

At one of IMLA’s recent meetings on the state of the market Heron says that without any prior discussion, the message from many members was that they had capital available.

“That is fresh,” he says. “It’s the first time in a long while where I’ve sat with a group of lenders and the conversation has been that they have got money to lend and they would like to lend more.”

IMLA was set up in the mid-1980s by non-bank lenders as the Association of Mortgage Lenders. The other main trade bodies at the time were the Building Societies Association and the British Bankers’ Association.

But by about 1989/90 Ward says that both the BSA and the AML realised that the scope of what was needed in the market was beyond what the AML could do - or in fact the BSA. So the BSA and AML together created the Council of Mortgage Lenders.

“This allowed IMLA, as the AML was then renamed, to focus on intermediary distribution issues and products,” says Ward. “And the CML and BSA could focus on wider issues like regulation.”

When the credit crunch hit the UK in 2007/08 its membership changed and it lost a lot of members. It had 38 members in April 2007 and a number of those either collapsed or were forced to withdraw from lending, as was the case with both Heron’s Paragon and Ward’s Home Funding.

But while lenders have bowed out the trade body has continued to pick up new members over the last few years. Today IMLA’s membership consists of 14 firms ranging from big banks like Lloyds Banking Group and Santander to non-banks like Precise Mortgages and the intermediary arms of building societies, like Yorkshire’s Accord Mortgages.

“We have been perceived as a non-bank specialist lending body, but what holds this wide variety of lenders together is their focus on the intermediary sector - that’s what makes us different,” says Heron.

So if IMLA still has a role to play today, where does it add value? Heron and Ward both fervently believe that while regulation, with the various intricacies of the Mortgage Market Review and the European Commission, is vitally important, there is no value in trying to perform a similar role to larger trade bodies like the CML and BSA.

“The CML is good at doing regulatory critique papers,” says Ward. “We’ll have our own perspective on what each consultation paper means for our members and their products distributed via intermediaries. But just having IMLA repeating what the CML says is pointless.”

Heron adds that part of IMLA’s opportunity to contribute has been understanding how it fits with the other trade associations.

“Going back to that formative discussion last year about how IMLA would move forward, we decided that we would not repeat what other trade associations were doing well,” he says.

“What we seek to do is work directly with the CML and the broader policy community to ensure that what the intermediary sector delivers in terms of consumer benefits, product innovation and competition is understood. These are crucial factors in terms of what consumers can derive from the mortgage market in due course.

“It’s an area where the intermediary sector uniquely contributes and that’s pretty much our theme,” he adds.

Where it sees itself as providing particular value is on funding and engaging with the Financial Services Authority, the Treasury and the Bank of England to provide a market perspective.

“The problem that the FSA has is who does it talk to?” says Ward. “A consultation or discussion paper goes out, it has all the responses back in, it has individual discussions with firms and individuals and there are clearly vested interests in all that.

“But if you’re the FSA you have the problem of weeding out the vested interest, working out what’s actually going on and doing something about it. We try to give a balanced view about what is happening on those issues.”

A good illustration of how different perspectives on the market are can be seen in the individual responses to the question of whether the securitisation market is improving.

Many lenders had fallen dormant for three years or so but now lenders that haven’t had funding want to lend again

The IMLA perspective is that broadly funding is improving and Ward argues that the headline for this piece could be ’Getting the market back to work’.

“So many lenders in so many areas have fallen dormant for three years or so but now lenders that haven’t had funding want to lend again,” says Ward.

But he’s slightly more pessimistic over whether this is a sign that the securitisation market is returning.

“It’s still tough,” he says. “We’ve seen a whole range of covered bond and securitisation transactions since September 2009. But by far the majority have only placed AAA-rated paper. There have been tweaks to those deals that haven’t made them normal, such as buyback options. We’ve seen Investec move towards a more conventional offering last year. It’s a lot better than it was but it’s not there yet.”

He says what the UK really needs are international investors and foreign money coming in because that increases the stock in the British banking system.

“If it’s just Barclays or Lloyds group buying securities issued by Paragon then you haven’t increased liquidity in the UK - and that’s what we need, foreign investors,” he adds.

But foreign investors is exactly what we’ve seen with Paragon, which last year announced that it had secured a £200m warehouse facility from Australian lender Macquarie Bank. Not surprisingly, Heron has a more upbeat take on the state of the securitisation market.

“There has been some improve ment over the last year although it’s been slow,” says Heron. “But the fact that lenders like ourselves have been able to put warehouse funding in place and can anticipate a point where you can undertake a transaction shows that there’s a change of tone.”

And it’s relaying this type of information to the likes of the Treasury, Bank and FSA, that the pair see as the primary purpose of the trade body.

“It’s not just working with them on regulation but also to inform them about what the market looks like today,” says Heron. “Regulators are often informed by what they have seen in the past and by the worst of what they’ve seen. So what IMLA can do is get senior practitioners to tell them what’s going on in the market today.”

But he adds that tensions exist between the various parts of the government. He believes the Treasury is well informed about the shape of the housing market.

“Increasingly it is focussed on the lifestyle ambitions of the popu-lation,” he says. “It is concerned that there is a whole generation coming through who will struggle ever to buy their own home.”

But at the same time there is an inherent friction between its desire to get more borrowers on to the housing ladder and the FSA, whose job is to safeguard the integrity of the financial system.

“There are tensions and part of our job is to provide some intelli-gence around that,” Heron says.

And doing this can also promote the value that mortgage interme-diaries as a form of distribution provide.

“We’re sold on the efficacy of the model based on simple and affordable access for consumers, to whole-of-market advice,” says Heron.

“No other form of distribution model can deliver that. That means it’s relatively easy for consumers to get information and advice on a wide range of products and lenders. Promoting that and getting policymakers to understand it is a key part of our mission this year.”

With the intermediary market having gone through a torrid time over the last couple of years, it’s a good sign that IMLA chose to stay the course and that it is so wholeheartedly backing the sector’s corner. Let’s hope that the powers that be listen to what it has to say.

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