While it may not be in the same league as the ‘super packagers’ just yet, Mortgagematch Homeloans appears happy to do things at its own pace and in its own way.
Part of this is down to experience. Both Ian McPherson and Amo Ruprai, the directors of Mortgagematch Homeloans, have worked in financial services for some considerable time and know how they want to run their business. Moreover, it appears to be working for them, with monthly completions reaching £60m in June for the first time. The company now has seven branch offices in and around South East England, employing 70 people with a network of 30 appointed representatives.
McPherson started out as an insurance claims processor for Legal & General in 1987, before moving across to the mortgage industry with Mortgage Systems, one of the earliest packagers in 1988. So early that its offices were in the same building in Fleet, Hampshire as the offices of Stephen Knight’s Private Label.
After a couple of other roles in the mortgage industry, McPherson joined new lender Future Mortgages six months before its launch in 1996, initially as an underwriter. He moved to the sales side of the operation, as a business development manager for the lender, within two years. It was at this point he met Ruprai.
Ruprai ‘s first job in mortgages was in 1996 as a BDM with UCB, before he was recruited by MPS, one of Future Mortgage’s strongest packager partners. The relationships between Ruprai and McPherson developed simply because the two of them worked together within the same region as the BDMs for their respective companies.
After a couple of successful years working together, both McPherson and Ruprai began to explore the possibility of setting up their own packager, although this was at first something they were doing independently of each other.
“We were both looking at doing it and I was spending a lot of my personal time carrying out a feasibility study and working on a business plan to decide whether it would be a good idea to set out on my own. Unbeknown to me, Amo was carrying out a similar exercise at the same time. We thought it made sense to work together. The regions we covered were slightly different in that he was based more in London, while I was based more in the Home Counties. I had a background in underwriting, his background was based more in sales. We thought the dynamic of the business would need both our talents, so we went ahead and launched in August 2001. When we started I would be building the policies and procedures and getting the relationships going with the lenders, and Amowould be on the road looking after the broker relationships.”
McPherson explains the rationale behind creating a network to sit alongside the packager was largely based around not wanting to lose business from brokers the company had already built good working relationships with. “We created our network on M-Day, spending several months pre-M-Day building that. All our appointed representatives are people that we have known, dealt with and trusted pre-M-Day. Mainly, they are people that we have known for several years, both from a trust point of view and knowing they can do the business levels as well. The network is made up of brokers who typically will be in the specialist arena. A lot of stuff will come through for us to package, so it was a means to an end to an extent. We also wanted our brokers to find the right home at the time, and we didn’t want them joining other life company networks which precluded them from using us, which obviously isn’t particularly fair practice. If a broker wants to use us, whether its because of service or competitiveness, they should be allowed the choice really.”
To some extent this also applies to Mortgagematch Homeloans’ own ARs. Ruprai says that although the network arm of the business uses the packaging side of the business exclusively, if an AR “desperately wanted to use another packager for a lender that we don’t have an agreement with, or a product that we do not have access to, then I would always say yes” .
He says the network accounts for around a quarter of Mortgagematch’s overall business volume. The rest comes from people to whom the distributor markets, either directly authorised brokers or ARs that sit on networks that have an agreement to use the firm.
McPherson adds: “I like the fact that we don’t have all our eggs in one basket. Around 70% of our business still comes from DA brokers that have to have a choice, and hopefully that shows that we have got the service and product split right. If 100% of our business came from ARs we could get complacent.
“We have 15 lenders on our panel, ranging from clean buy-to-let and self-certification lenders right through to the more heavy toxic adverse end of the market. It is worth making the point that when we started we never purely went for sub-prime business. We have always done clean self-cert, buy-to-let and sub-prime, possibly even in that order. So we maybe haven’t felt the pinch as much as other packagers, with procuration fees being adjusted recently from some lenders on the sub-prime side, and near-prime being introduced, but we embrace stuff like that because we have had the background of dealing with self-cert and buy-to-let.”
Like many other distributors in the mortgage market Mortgagematch Homeloans in recent years has invested in technology. But McPherson is cautious about taking a Big Bang approach to technology investment. “We haven’t really put aside a certain amount of money for technology, as we have seen companies in the last couple of years invest up to seven figures in IT only to find out that the system isn’t up-to-date enough now, or is becoming too expensive to maintain, or simply isn’t as relevant as they thought it was,” he says. “We’ve seen companies spend a lot of money, and in some cases waste a lot of money, on systems. So we pay for IT as and when it is required.”” We have seen companies spend a lot of money, and in some cases waste a lot of money, on IT systems “Its back office system – Interactive Mortgage Application Process – has been in place for a little over a year, and is currently at the next stage in its development. As a result, despite being a member of the Association of Mortgage Packagers and Distributors, Mortagematch has invested in its own system along with Trustguard and 3MC.
He adds: “AMPD was keen for its members to have a choice in terms of technology, rather than to be made to go down a certain route, which is why it opted for two systems rather than one. We were already using IMAP as our back office system anyway, so we decided to stick with it from a cost and loyalty point of view.”
Mortgagematch Homeloans plans to develop the platform to integrate with lenders’ own systems. Ultimately, McPherson says he hopes the platform will integrate with at least nine or 10 of the lenders on its panel. It is also currently piloting a broker version of IMAP, which will put the responsibility for keying information into the system into the hands of the broker. Future plans include developing a non-conforming sourcing system within the IMAP platform, to include the lenders on Mortgagematch Homeloans’ panel. Asked whether he fears the introduction of a
sourcing system for non-conforming products might lead to a tick-box approach to the process of packaging, McPherson says: “I would not rely 100% on a sourcing system. You always need a human being to check things and there are so many variables within sub-prime, buy-to-let and self cert that I would never want to take human beings out of the equation.”
One departure the company has made from its contemporaries, however, is the creation of a branch network, as opposed to satellite packaging agreements or franchises. Ruprai believes operating a branch network gives the distributor the control satellite agreements lack, because the branches are owned by Mortgagematch Homeloans. Within that, the non-executive director of each branch has a 50% shareholding in the branch by way of a separate partnership agreement. In this way, he says, each non-executive director feels they own that business, while Mortgagematch Homeloans supplies the technology and the expertise in terms of products and lender underwriting, and payroll and several other functions each branch would not have if it were trying to create its business independently. Again, McPherson says the relationship with each director is based on trust and control. “Each non-executive director in each branch is someone that Amo and I have known for a long time. They have either packaged themselves before for other people, or have been in other parts of the industry – so the trust and empathy is there,” he says.
What makes this arrangement different to a franchise network, says McPherson, is that “the buck stops with me as the controlling director”. Were the FSA to investigate Mortgagematch Homeloans for some sort of regulatory irregularity or over a complaint, then it would go to him and Ruprai as the main directors. “These are true branches, in that the HR director looks after all of the branches, the payroll is done centrally and so on. There are also other distinctions, such as a franchise will often be expected to pay a cash sum for that opportunity, whereas we have not gone down that route. There is no joining fee and the buck stops with me.”
McPherson also admits the option of creating franchises of the business was simply one the company didn’t explore. That said, he has concerns about satellite packaging. “We certainly didn’t like the satellite option from a control point of view. I think if lenders were honest they don’t either. Some are embracing them nowadays, but if they were being honest and if it wasn’t as competitive a market as it is at the moment, they wouldn’t embrace the idea of every packager up and down the country having 25 satellite offices,” he says.
It is also clear that managing relationships with lenders, and knowing what they really want, is something McPherson and Ruprai work hard to understand. But sometimes they feel lenders fail to reciprocate. McPherson describes the current situation in terms of lender relationships one of two extremes. “You have the hungry specialist lenders that we have an amazingly close relationship with. Their business development managers are in our offices every week and their marketing people are bombarding us every week by email and by post and those relationships are fantastic. Or you have the lenders at the other end of the spectrum, where we find out we have got a semi-exclusive product offer from a lender that we have had for a week and a half. That particular lender chose not to communicate with us particularly well, so we found out by default that we had a great product that we knew nothing about. The key is having a great BDM working for the lender. It’s not just a sales role now, it’s marketing, it’s relationship maintenance, it’s helping the network in terms of speaking to appointed representatives with us and for us, and troubleshooting if there are issues surrounding certain cases. It is a key job, and the lenders with the best BDMs seem to prosper with us. Obviously they have got to have great products and service, but you cannot just live off your name, you need the relationships as well. It’s relationships and communication. It’s having a contact point that will talk to us about integration with IMAP. It’s about having someone prepared to answer their telephone once in a while and troubleshoot on an issue with a case. What bothers me is when you still get some sales people screening calls and not returning calls when they find out its related to a case rather than something more sales-driven. It’s a respect thing.”
McPherson believes this has to apply both ways for the relationship to work fully, but he also clearly believes regulation would help to sustain relationships with lenders as well. While he accepts the point that pure packaging may not necessarily be a regulated activity, he also believes the activities of packagers are increasingly falling into a grey area where there may be a good argument for the FSA to regulate.
“Mortgage packagers that have networks naturally have to be regulated. As the law stands – and it’s an arguable point – a pure packager that never speaks to a consumer, and that never steers a broker in the direction of a particular lender or product, does not carry out a regulated activity. But it is a grey area. The job of the mortgage placement desk is to try to give a choice of a few lenders. But where you have got a small packager with a relatively small panel that is possibly doing 70% of its business with one lender within that very small panel, I would say that activity ought to be looked at. Whether that is regulation or not is for the FSA to decide. Obviously our panel is big enough for that not to happen with us but you do get small packagers with very small panels where one or two of maybe five or six lenders are used massively.”
However, he is also clear that self-regulation would not work, saying: “You would have over 100 egos getting together to discuss a very thorny, albeit a very important subject, and I just can’t see it happening. We are members of the Association of Mortgage Intermediaries, and the matter was discussed at the Mortgage Summit. Quite rightly, I think it was agreed that AMI should continue to represent the larger portion of the industry. I really can’t see all packagers subscribing to a voluntary code of conduct.”
Asked whether he is concerned the FSA’s current Retail Distribution Review will have an impact on the mortgage market, McPherson says the possible removal of procuration fees would not necessarily damage packagers. Instead it would make it more likely that packagers simply receive a pure packaging fee, while brokers would have to rely on charging fees to their clients. Ruprai adds: “I don’t think it’s a done deal because proc fees still mean there is an active remortgage market. There is a reason for the broker to maintain their client relationships at the moment, and to take that away might mean there is consumer detriment because actually no-one shops around. Get rid of proc fees and you kill off the remortgage market.”
Ruprai says the days of brokers chasing proc fees have gone anyway. He cites BM Solutions and edeus as two lenders that pay the same proc fee, and suggests a lot of adverse lenders now mirror each other’s proc fee scales. He says: “The days of the broker going to the heavy adverse lender for a 2% fee when the client has only got a default have gone, because the lender will cascade that client down to the best appropriate product and a more appropriate proc fee. You used to hear of situations where brokers were getting 2%-3% proc fee when the client only had a default, but nowadays the broker and client can go near-prime or almost near-prime so they are paying 6% instead of 8%. So I think the practice of mortgage brokers chasing higher proc fees is hopefully a thing of the past.”
Meanwhile, the recent suggestion by Optoma that packagers be rated on the basis of day-one offers in a league table is one McPherson describes as “crass and bizarre”. He says: “I like the idea of packagers being measured on efficiency and calculating how efficient a packager is via some scientific method. To measure them on day-one offers I think would be wrong. You could have an incredibly inefficient packager who could take two months to gather information from the broker, and although they might get an offer on day one the poor broker has had to deal with a packager who has mucked them about for two months.”
Asked where they want Mortgagematch Homeloans to be in three years, McPherson says: “In the next three years it would be nice if we had a couple more branches, possibly seeing the existing branches we have doubling in size. We should have technology licked by then. In terms of network recruitment we are never going to take the big shotgun approach to that, but we may look to grow it within the next three years – possibly doubling the size of the network. Whether that is with existing people that we know that are directly authorised, or whether we invite new candidates to join us is something we have not decided yet. The branch network will grow slightly, but the ones we have already we want to see grow significantly. Beyond that, who knows?”