I believe the big shake-up in the packager market is yet to come.
Yes, I know I’ve said this before but what I had not factored into earlier predictions was the bedding in period the Financial Services Authority would give the mortgage community before starting to enforce its regulations.
There is evidence that the FSA is now starting to focus on packagers, and in particular the advice given by brokers using them.
The FSA recently conducted visits to nine brokers and six packagers and also conducted a telephone survey with a further 25 brokers. I’m not entirely sure why it thinks this small survey is representative of the 20,000 strong mortgage advisory sector but hey, what do I know?
Anyway, this survey uncovered cracks in advice due to the relationship between brokers and packagers.
Many brokers confirmed that they do not do product checks or conduct research but rely solely on the advice of packagers without checking suitability or ensuring Key Facts Illustrations are accurate.
Brokers have a duty of care to ensure that the advice they are being given by packagers is appropriate, accurate and suitable to their clients’ circumstances. Simply passing an enquiry over to a packager that is unregulated and has no duty to ensure advice is suitable spells disaster.
But it’s not all bad news and cowboys out there. Some ber-packagers have taken their responsibilities seriously by adopting a regulated process and entering into commercially binding agreements with brokers to effectively put their money where their mouths are.
But brokers still need to ensure that the advice they are being supplied with is appropriate and that their own research parameters have been met when short listing lenders.
Ignore this at your peril, because if there’s a complaint and you can’t show suitability, you may as well start writing out the cheque.
‘Proc fees are paid by lenders’ shock
Stupid comment of the week must be the incredibly obvious statement issued by The Mortgage Trust whose research discovered that almost 96% of brokers get proc fees from lenders.
Have you ever tried to get a lender to not give a proc fee? Sure we can refund it if we choose to charge a client a fee instead, but asking a lender to not pay a proc fee and essentially reinvest it into a client’s overall mortgage costs is like asking Gordon Brown to ask the public what they think about him assuming the role of Prime Minister – you know he should but you know he won’t.
A particularly festive time for RBS to bury bad news
The Royal Bank of Scotland cynically chose the week before Christmas to issue a press release about the departure of Jayne-Anne Gadhia from RBS Intermediary Partners.
I found this depressing mainly because it signalled the end of a bold move by one of the UK’s largest banks to use its leverage to punch a hole in the mortgage market and recognise the importance of the broker sector, and secondly because the bank knew that most of the sector had stopped work a week earlier.
Thank God I was not party to the politics that must have gone on in the bank, but Gadhia looked to be doing everything right. She started by asking us what we wanted from RBS at the Mortgage Strategy Mortgage Summit in Jerez in 2005, and then amazed us by delivering it. The broker sector responded and RBS went up our tables, as I suspect it did with many of you.
But this started to wane in the second half of 2006 and we started to feel that RBS’ heart was not in it. Surely it did not expect to pull off a shock and awe offensive and that would be it?
RBS had a mountain to climb that would take a lot longer than a year but the signs of success were there. I suspect the politicos got their way and reined Gadhia in. A traditionally conservative bank did not see results fast enough and took a step back from the market.
There’s no such thing as being a little bit pregnant and I suspect this got to Gadhia, which is a shame.
Sub-prime sector poised to cash in
Grant Thornton says almost 30,000 people will become insolvent in the first quarter of 2007, citing higher interest rates, utility bills and unemployment as the reasons.
This comes as the government warns about debt management companies mis-advising clients by recommending that people go into individual voluntary arrangements when they could avoid it.
But the government is too quick to damn the ‘financially ignorant’ public. There are some gullible people who will be led by the nose, but latest figures from the Consumer Credit Counselling Service show that unsecured debt has reduced sharply as consumers rein in spending and repay borrowing.
Still, it’s good to know there’s enough growth in sub-prime to keep the new lenders going for a year or two.