Nightmares before Xmas

There\'s no doubt about it, 2008 has been the mortgage industry\'s annus horribilis. No amount of Christmas lights or tinsel can disguise the fact that the past 12 months have been the cruellest the sector has seen for decades. Businesses that seemed bullet- proof have been shot down, industry stalwarts deemed untouchable found themselves unemployed and the broker sector, only two years ago seen as the foundation of the industry, has been shaken to the core.

If the credit crunch was angry in 2007, this year it has been downright p***ed off and it has taken its rage out on the mortgage industry. The demolition of HBOS, the demise of the specialist sector and the hordes of redundancies we’ve seen illustrate how bad things have become.

So just in case you’ve forgotten, blocked it out of your memory or somehow managed to miss it, in true Mortgage Strategy style we’ve put together a handy cut-out-and-keep guide to remind you that things can only get better.

January

The start of the year saw lift-off for Home Information Packs. The much-maligned government initiative – one of the most criticised housing proposals of the past decade – was finally rolled out in full.

But the move did little to stem the criticism. At the time MS reported that estate agents were trying to distance themselves from the packs, but unsurprisingly providers were more than happy to sing their praises.

“Consumers will always want or need to move home,” said David Newnes, managing director of Your Move. “And as they come to accept HIPs as the norm and critics finally embrace them there will be greater willingness to accept the benefits they bring.”

January also set the tone for the year to come with US banking giant Citigroup reporting a $9.83bn loss for Q4 2007. Chief executive Vikram Pandit said that the loss had been caused by an $18.1bn exposure to bad mortgage debt and was “clearly unacceptable”. The news came as it was announced that Citigroup would receive a cash injection of $6.9bn from the Government of Singapore Investment Corporation.

And as the UK economy started to buckle under the pressure of the credit crunch, the Monetary Policy Committee voted 8-1 to freeze the Bank of England base rate at 5.5%. The only dissenting voice was David Blanchflower, who suggested a cut was necessary.

In the meantime, Goldman Sachs snapped up Money Partners.

February

In February the crisis in the US got worse as Lehman Brothers said it would make more staff redundant as a result of severe dislocation in the mortgage market.

Domestically the bank said it would continue to originate loans under the Preferred and Southern Pacific Mortgage Limited brands.

The second month of 2008 also saw the Banking Special Provisions Bill become law. The bill was brought in to allow the government to nationalise Northern Rock. MPs had previously rejected three amendments requested in the House of Lords and the Newcastle-based bank, which had been dead in the water since September 2007, was finally nationalised.

Private proposals to take over the bank were unsuccessful after chancellor Alistair Darling claimed they did not offer sufficient value for money to the taxpayer.

February also saw the credit crunch’s effects continue to take a grip on the market, with Britannia’s intermediary offering Platform announcing that it would make 65 members of staff redundant as a result of changes to the structure of its business.

The lender claimed a combination of difficult market conditions and a reduction in business volumes led to the decision to cut its workforce.

March

March signalled that worse was to come with the revelation that US investment bank Bear Stearns had become insolvent.

The US Federal Reserve Bank and JP Morgan attempted to stave off a market crash by giving the wounded company an emergency loan but it was not enough. After originally pricing the deal at $2 per share, JP Morgan upped its offer to $10 in a deal worth $1.2bn.

March also saw the resignation of Clive Briault as mana-ging director of the retail business unit at the Financial Services Authority. Briault announced he would leave at the end of April.

The UK market witnessed further turmoil as Wave cut all 85% LTVs from its product range and Money Partners was locked in negotiations over the number of jobs it would have to axe. It blamed harsh market conditions for the cuts.

At the time Bob Sturges, then director of communications at Money Partners, said it had not been decided how many jobs were to be axed or from which departments.

“This is caused by market conditions, pure and simple,” he said.

And there was trouble in store for another US-backed lender. Lehmans announced it was planning a single-brand strategy, leading many including MS to believe it would close its SPML brand in favour of Preferred.

April

It was not until April that the Bank decided to intervene in what was fast becoming a downward spiral. Bank governor Mervyn King announced a £50bn cash injection for the banking sector in the form of the Special Liquidity Scheme.

This allowed lenders to swap asset-backed securities for government bonds in a bid to get liquidity flowing. But as Peter Williams, chief executive of the Intermediary Mortgage Lenders Association explained, the SLS proved too restrictive.

“Lenders with non-prime packaged assets are unable to tap into the scheme,” said Williams.

The government also saw fit to step in. It sought the help of former HBOS chief executive Sir James Crosby to head up a mortgage finance working group to find a way to revive the flagging market. But the plans came too late for sub-prime lender edeus, which withdrew from new lending and rebranded as edeus market innovators.

Michael Bolton, then chief executive of edeus, blamed market turmoil and said it was not commercially viable to continue the lender in its existing form. The move saw around 50 staff from its origination team made redundant. The firm shifted its focus to due diligence and asset management.

May

Another sub-prime lender fell by the wayside in May as Future Mortgages shut its doors to new business. Parent Citigroup also put a stop to new lending through its personal loans business CitiFinancial.

Future promised brokers and packagers that all pipeline business would be honoured.

May also saw battle lines drawn as brokers suffered in the face of lenders’ dual pricing. MS was hit with a deluge of complaints from brokers who could not access the competitive deals available direct.

This prompted our Dump Dual Pricing campaign, which earned the support of the Association of Mortgage Intermediaries and Personal Touch Financial Services chairman Martin Wilson. Wilson was so outraged he set up a rogues’ gallery where brokers could record their frustration with lenders.

Prime minister Gordon Brown attempted to correct the regulatory failings of the past with the introduction of the Banking Reform Bill. The idea was to avert another NR crisis and allow the Bank to dish out short-term funding to lenders without them having to disclose details. The legislation also proposed measures to make lenders improve their risk management. Brown said that he was the man to steer the economy through difficult times.

“I’ve done it before and I can do it again,” he said.

June

For Bradford & Bingley, June was a roller coaster month. Chief executive Steven Craw-shaw was forced to resign due to ill health, with chairman Rod Kent stepping into the breach.

The same day ratings agency Standard & Poor’s warned of B&B’s weak asset quality. It then emerged the lender had sold a 23% stake to US private equity investor TPG and repriced its rights issue from £300m to a discounted £258m.

Then entrepreneur Clive Cowdery entered the fray. He offered to plough in £400m, only to withdraw the offer in the face of management opposition. B&B’s shares plunged 20%.

Meanwhile, Northern Rock’s new management questioned whether the previous board should face legal action over their conduct in the lead-up to the run on the bank and figures from the British Bankers’ Association showed that new mortgage approvals hit a record low of 27,968 during May – a 20% fall in just one month.

July

Spanish banking giant Santander agreed a £1.26bn takeover bid for Alliance & Leicester in July. The deal valued A&L shares at 299p each and the speed of the development took the industry by surprise, as MS reported at the time.

“A&L chief executive David Bennett has admitted there were no plans for the takeover before July 9 – just five days before the ann-ouncement was made,” we wrote.

Then Trustguard fell victim to the crunch. The packager was placed into administration and all employees bar three were made redundant.

Other big financial services players were also showing signs of strain. Edeus encouraged borrowers to redeem mortgages early with cash payoffs, which led to speculation that individual borrowers could be paid as much as £15,000.

HBOS announced plans to cut up to 650 jobs over 18 months while brokerage John Charcol was forced to make 69 staff redundant and move its fees-free arm to London.

Brokerage MoneyQuest (UK) emerged as streamlined Money-Quest Mortgage Brokers five months after chief executive Paul Gratton bought the original firm. July also saw the publication of the interim report by Sir James Crosby.

August

The packager community was dealt a severe blow as HBOS decided to terminate The Mortgage Business brand. BM Solutions took over TMB’s House 2 House and self-build ranges as the lender looked to streamline its business. HBOS revealed plans to merge the sales teams at Bank of Scotland and Intelligent Finance but maintained there would be no forced redundancies.

Speculation that the government was considering a temporary suspension of Stamp Duty brought the already stuttering housing market to a shuddering halt. The decline led to HIP provider Hipstar being placed in administration.

“Against a market background of property sales being the lowest in 40 years and no sign of any improvement, the directors have concluded there is no realistic prospect of recovering the investment that has been put into Hipstar over the past three years,” stated parent firm Network Data Holdings.

September

September was the cruellest month that saw the credit crunch morph into a once-in-a-generation financial crisis. In the US, Fannie Mae and Freddie Mac were taken into gov-ernment ownership with the backing of US Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke.

A week later global markets watched aghast as Lehmans filed for bankruptcy while the Fed stood by. Stock markets around the world plumbed record depths on hearing the news. The same week saw Merrill Lynch sold to Bank of America and insurer American International Group propped up by an $85bn credit facility.

Much was made of Paulson’s Troubled Asset Relief Program, the largest part of his $700bn plan to remove toxic assets from lenders’ balance sheets. The last remaining US investment banks, Goldman Sachs and Morgan Stanley, succumbed by the end of the month by becoming bank holding companies. Wall Street was in tatters.

Over here, the government unveiled a £1bn housing rescue package which saw the Stamp Duty threshold raised to £175,000 for one year, earlier payment of Income Support for Mortgage Interest and funding for sale-and-rent-back and social housing.

Rumours were rife that Merrill Lynch had shut its last UK specialist lender Wave, and Derbyshire subsidiary Salt withdrew from the residential mortgage market. After a long power struggle, around 80 appointed representatives with the Prestbury network transferred to PTFS.

Mid-month the industry was left reeling at the news that Lloyds TSB was to buy HBOS for £12.2bn. HBOS shares took a pounding in the week up to the announcement, at one point falling to just 88p.

As the industry was grappling with the consequences of the proposed superbank, the apocalyptic month closed with the news that B&B had been part-nationalised. Santander rode to the rescue again, paying out £612m for the lender’s deposit and branch network. The government absorbed B&B’s remaining assets including mortgages.

October

You could say that October was the nadir of a terrible year. Within the first two weeks the US and UK governments had injected $700bn and £500bn respectively to buoy up their financial sectors while Iceland’s banking system had effectively collapsed.

The bailout schemes meant increased oversight by government and regulators. Four years on from Mortgage Day, lenders were being forced to pursue more transparent, risk-oriented policies and redress the bonus culture that many suggested had rewarded cavalier behaviour instead of sustainable profitability.

October also saw Lloyds TSB, Royal Bank of Scotland and HBOS pocket a collective £37bn of government assistance as firms including em-financial, edeus, Oryen, Heritable and UCB Home Loans shut up shop and mutuals Barnsley, the Derbyshire and the Cheshire merged with larger societies.

On top of this, industry heavyweights including Pink Home Loans’ Barry Meeks, Birmingham Midshires’ Nigel Payne, IF’s Cammy Amaira, West Bromwich’s Stephen Karle and Money Partners’ Martin Gilsenan and Bob Sturges were among those looking for new jobs.

October also brought much needed guidance from industry trade bodies. The Council of Mortgage Lenders issued guidelines on repossessions modelled on recommendations by the Civil Justice Council and AMI warned that 40% would be chopped off broker incomes in 2009. It encouraged members to diversify to survive.

November

Networks were in the news in November as some in the upper echelons of the sector began speaking about consolidation.

The industry heard David Copland, man-aging director of Pink, Sally Laker, managing director of Mortgage Intelligence and Richard Griffiths, chief executive of Network Data, all declare that consolidation in the sector was overdue.

And consolidate it did. In November brokers saw the union of Network Data and Mortgage Broker Services Limited, and the finalisation of the deal between Prestbury Financial and PTFS, which led to the creation of the UK’s second largest network.

ARs who for months had vented their frustration about not receiving payment from networks heard numerous firms continue to deny they were having funding problems. Many insisted that delays were the result of system changes or software glitches.

Of course, there were more mergers and mutations. Skipton and Scarborough merged, the senior management teams at Abbey for Intermediaries and A&L joined forces and former mortgage originator edeus emerged as Exact, a portfolio servicing and due diligence specialist, after its board sensationally ousted former chief executive Michael Bolton.

Finally the Crosby review and the pre-Budget report rolled out promises of government guarantees for mortgage-backed securities, £15m for debt advice and £775m for social housing and shared equity schemes.

December

The 12th month of 2008 brought a glimmer of hope. The MPC added a 1% cut to its 1.5% November reduction, reducing the base rate to 2% – its lowest level since 1939.

HBOS and Nationwide ignored the tracker collars that were included in their deals and joined Abbey, Northern Rock, Woolwich, Britannia, Lloyds TSB and HSBC in passing on the full 1% cut to existing borrowers.

On top of this the PM unveiled a scheme to cover redundant Britons’ mortgage interest payments for up to two years. Eight of the UK’s largest lenders support the scheme and are in talks with the government about the details. Also in December non-performing loans were tagged as a possible source of liquidity as lenders can sell stagnant mortgage books to each another to free up their balance sheets and start lending to consumers again.

While 2008 was a year marred by figureheads leaving the industry, December saw the return of Bill Dudgeon, former managing director of TMB and DB Mortgages, to spearhead IFA network Virtual Net Europe.

Rob Clifford, chief executive of mortgageforce, quit to become managing director at Virgin Money, with the remit to create a mortgage proposition. Chief financial officer Kevin Duffy, who joined mortgageforce earlier in 2008, took the helm as MD.

With interest in arrears growing it fell to Exact to round off the year by pointing out that the latest government measures could lead consumers into a nightmare from which they may never awaken. Let’s hope it is proved wrong and 2009 is better for us all.

If Mortgages were bad, the secured loan market was no picnic either

When somebody writes a book about the secured loan market, 2008 will go down as one of the most shattering years ever. Lenders and brokers have been forced to fight for survival, with many professionals losing their jobs.

The sector has changed dramatically in the past 12 months and many in the industry are still nursing their wounds. Nobody could have forecast the storm that would hit the market this year and if they had they would have wished to stay in 2007.

The year started as it would continue, with a firm being fined for mis-selling payment protection insurance, this time HFC Bank. The firm, part of banking giant HSBC, sold PPI with 75% of the loans it provided and traded under the names Household Bank and Beneficial Finance. The fine did little for the industry’s reputation.

In April Norton Broker Services revealed plans to create a secured loan packager network and bought the rights to Loan Directory Network’s client database to support its grand strategy. The month also saw the first signs of lenders starting to cut distribution and introduce quotas. Swift was one of the first to do so and announced it would no longer accept business from new brokers.

In May the Finance and Leasing Association decided to take matters into its own hands and set up a focus group for secured loan lenders.

As the year progressed it became clear that the credit crisis had dug its claws into the market and more firms shed staff as a result.

Loanmakers entered troubled waters in June when its operating board resigned, including managing director Tim Wheeldon and chief executive Kevin Hindley. Endeavour Personal Finance, the intermediary secured loan lender and part of the HSBC Group, also closed its doors in June and FirstPlus followed in July. News of FirstPlus’ demise rocked the market and there was more bad news as it was revealed the lender would claw back commission on PPI sales that didn’t go through from August 2007 to January 2008.

There was some good news in August as Link Lending entered the market. The short-term lender launched its secured loan products via a limited panel of distributors.

The same month, Loanoptions.co.uk managing director Andy Moody’s decision to place the firm into administration and launch phoenix firm Loan Options divided the industry. Many thought Moody should have thrown in the towel while others thought that resurrecting the business was the right thing to do.

In September the sector’s attentions turned to the Association of Finance Brokers’ White Paper on secured loan regulation. The paper met with a mixed response. Fiona Hoyle, head of consumer finance at the FLA, thought the AFB’s focus should not have been on regulatory change but helping customers in financial difficulties. But Robert Sinclair, director of the AFB, said it was vital for the industry to take a proactive approach to regulation.

The sector was hit hard in October by the news that Loans.co.uk was shutting its doors, resulting in the loss of 276 jobs. The Watford-based broker blamed the withdrawal of a number of secured loan lenders for its failure. But there was also good news with the return of ex-Loanmakers movers and shakers in the shape of internet brokerage Fluent Money. Hindley and Wheeldon launched the firm alongside former colleagues Paul Ford and Simon Moore.

But November saw more departures, with Richard Beaumont, managing director of Freedom Finance, quitting the firm. Nick Chadbourne, formerly operations director, took the helm.

As the crunch intensified, White Label Loans offered little comfort when it announced it was withdrawing from the market, surprising many brokers. The sector is holding its breath to see whether it will be able to re-enter the market next year.