All Types of Mortgages wants to be considered as “the Harrods of the mortgage market”, chairman Vic Jannels tells me when I meet him, his son, sales and marketing director Dale Jannels, compliance and administration director Tim Henson and managing director Richard Hearn at the company head office in Horsham, West Sussex.
The company recently celebrated its 15th birthday and Jannels appears to be quite conscious of how far ATOM has come in that time. He expects the company to complete around 1bn-worth of mortgage applications this year. So, for a firm that once operated out of his house – the children’s playroom to be precise – Jannels may be rightly pleased at the progress it has made.
He says he created ATOM because he wanted to run a small business, yet the company now occupies a 10,000sq ft building and employs 70 staff. It is also a family business. His wife Sheila is finance director and son Neal is project and business analyst.
Having worked in financial services for some considerable time, Jannels made the decision along with Sheila to sell their interest in an independent financial adviser and set up on their own in 1992. Jannels says the main reason they set up on their own was to write mortgage business. They expected to write about five to 10 mortgage cases a month.
When that ballooned to almost 60 cases a month the following year, they were not only forced out of the children’s playroom but also to take on staff.
Jannels says: “We moved out of the playroom about 18 months after the start of the business into a very tiny office which actually sat four people, including clients, as long as someone sat in the fireplace. It was very tiny – if you were more than 5ft 11in tall you couldn’t stand up straight.”
After another 18 months the company moved premises again, this time to above a carpet shop in Horsham. Up to that point it had been an IFA business working direct with clients. But in 1995 Jannels sold his financial services business to J Rothschild Assurance, having been previously an appointed representative of Legal & General. The deal with Rothschild was for it to buy ATOM’s life assurance business and in return ATOM would package Rothschild’s mortgage cases for its members. This took the business from 60 cases a month to 150 cases a month overnight.
“We began to get into packaging in a big way at that time and 1995 through 1996 saw the change when the financial services part of the business became of less interest to us and the mortgage packaging part of the business became of more interest,” says Jannels. “We had followed very closely the model that Stephen Knight at Private Label had formed in the late 1980s, early 1990s. But we didn’t actually start to do business that way until 1996 and we managed to get business from most of the Rothschild’s offices spread across the UK. So instead of being parochial we then became national, taking cases from Rothschild’s offices, packaging them and then sending them to lenders.”
By 2001 the company reached the point where it decided to concentrate purely on mortgages, and having sold its life assurance business to Rothschild in 1995, it then sold the remaining business to another IFA firm. Business volumes continued to grow steadily but in 2001 the company still had a relatively humble 17 staff. Then in 2002, ATOM got into branded lending with GMAC-RFC, putting its first underwriter into the company’s offices. The distributor now has 12 on-site underwriters from its lender partners, with plans to expand this team shortly to 15.
That said, ATOM has never been purely a sub-prime packager, partly because it felt that many cases ” ATOM has never been purely a sub-prime packager partly because it felt that many cases it dealt with did not have to fall into the sub-prime category”
it dealt with did not have to fall into the sub-prime category.
Henson says: “Where we came together really was complex prime, where brokers had clients that were not sub-prime at all. They were prime, but you just had to think a little laterally to make them fit the box.
Jannels also admits he had concerns about the sub-prime market that stopped ATOM becoming solely reliant on it for business.
“We knew it would be profitable but it wasn’t where we wanted to be seen. We saw other packagers in the market that did nothing but sub-prime but we weren’t sure about the quality of the business at the time. There were not the safeguards and restrictions that lenders have today,” he says.
“For us the question was simply around how deeply we got involved with the sub-prime market. We will never be totally sub-prime, but for us there is no need to be, as there are good business levels in buy-to-let, self-cert and in what we still call complex prime, by persuading lenders to do a deal that may not fit their normal criteria. And that’s what we think our introducers want from us.”
But the following year, lenders began to increase pressure for business volumes from packagers. Dale Jannels says in 2002 lenders believed they could choose which packagers they wanted to deal with ” The FSA has made it its business to talk to packagers and find out what they do and what they are about and where they fit in the mortgage chain and my feeling is they will become regulated quite soon”and were telling packagers they wanted greater volumes but wanted to pay lower procuration fees, which caused ATOM some difficulty. Hearn, who was director of sales at First Active at the time, says lenders were already beginning to question the future of packaging.
“The main questions lenders had were ‘where are these packagers going? Is there a business plan? Do they stack up?’ And it was very difficult to justify the distribution costs versus going direct to brokers. It was viewed as much cheaper to go direct to brokers at the time and no-one could see what value packagers were adding,” he says.
It was at that time ATOM began talks with BDS Mortgage Desk, Complete Mortgage and Loan Services, and Amity (now Opendoor) about the formation of a coalition that would give each company involved better powers of negotiation with the lenders but also provide the volume the lenders wanted. Those discussions led to the formation of the Professional Mortgage Packagers’ Association (now Professional Mortgage Packagers’ Association Alliance).
Jannels says: “At first the lenders thought PMPA was a little bit gimmicky. What they didn’t realise was the four founder member groups that came together were actually quite determined in their resolve to make it work. We sat down with lenders and told them if they wanted to be on the PMPA lender panel they had to provide a certain number of things for us. We committed volume to them but they equally had to provide us with products that were both core and exclusive. They had to give us service – dedicated people to look after the cases when they came in – and they had to look after us with procuration fees based on the quality and quantity of the business.”
While lenders appeared initially hesitant – given they had to pay to run PMPA – within a year, the organisation grew from the original four founders to 10 members, so lenders were approaching it and asking to be on the PMPA panel.
“The growth in business of PMPA made lenders sit up and look but the reason for driving PMPA was two-fold,” says Jannels. “It was to bring together like-minded people who could deliver volume which would make lenders want to do business with them. But it also meant we could talk to each other about the potential for creating our own lender to protect our position for later on and we could also start looking at the potential impact of Financial Services Authority regulation – which we knew was three or four years away – but we wanted to actually start gaining knowledge of what it might mean for packagers.”
When the time came, ATOM chose to apply for FSA authorisation on the basis that it had a small direct-to-consumer business.
Jannels says the FSA did not understand what packagers did at the time but that it does now. “The FSA has made it its business to sit in packagers’ offices and talk to them to find out what they do and what they are about and where they fit in the mortgage chain, and my feeling is packagers will become regulated entities quite soon,” he says.
The general consensus among the directors at ATOM is that the FSA will wait for the European Union to take the lead in regulating distributors.
Hearn says: “European and FSA regulation will come together and lenders will also force the issue, because some of them are only distributing through packagers. So you have to ask how the FSA can ignore packagers, when for some lenders that’s the only route through which they distribute.”
Jannels says the sooner the process begins the bet” That’s why we are here, that’s what we are good at. That’s what, when I was working at a lender, I used ATOM for – testing certain products – and that’s what has moved the whole market on”ter. He says the FSA is particularly interested in whether packagers are fundamentally involved in the design and manufacture of mortgage products. His own view is distributors are, and he says there is a European initiative linked to the up-coming EU White Paper on mortgage credit which the FSA is working on that states that if a packager helps a lender to design a product which then becomes an exclusive, Finance director Sheila Jannels with chairman Vic Jannelsthen the packager could be considered to be a manufacturer.
Jannels adds: “Even if we suggest a change to the criteria or the rate we could be deemed to have been involved in the manufacture of the product. That is one of the drives coming out of the FSA because of its involvement with this European initiative. So that is why I believe the FSA will regulate packagers.”
For Hearn, regulation of distributors would also mean they would have proven their ability to survive, despite claims by lenders they would go out of business soon after M-Day.
He says: “From a lenders’ point of view it was a bit foolish to predict packagers were going to go out of business, because in any other industry distribution is king – so why would mortgages be any different? And given the number of new lenders that have entered the market since M-Day, why on earth anyone thought packagers wouldn’t succeed is beyond me, because they were all going to need to distribute.”
ATOM also recognises that key to its survival is the ability to be able to offer a greater number of services to both brokers and lenders, and much of that will come in the form of new technology. The company is currently in development talks with several technology suppliers and looking at a number of solutions – one of which has been developed by Primrose, a member of PMPA – that will include product sourcing and multi-lender cascading, as well as the potential for electronic ID and automated valuation models.
Jannels says: “There is an argument that packagers should be the providers of the AVM themselves, which is something that we are investigating fairly thoroughly ourselves. We can actually provide the AVM at point of sale, at cost to ourselves, but it’s still cheaper than a full valuation – and there is something called Broker AVM which is like a mini snapshot AVM, and if you take a client that is remortgaging their property they often have a value in mind which is not a true open market value.
“So if they are buying or remortgaging a property they think is worth 350,000, and they want to buy 85% of that and the quick snapshot AVM shows us the likelihood is the property is only worth 290,000, we can stop the process on that case immediately, or we can confirm the valuation will stack up so we can move forward more quickly. Distributors should not beafraid of AVMs or electronic ID because we can actually provide that ourselves.”
Jannels says ATOM is in advanced negotiations with several lenders about providing both AVMs and electronic ID services and says the firm expects to launch those services by the start of the summer.
Hearn adds: “We hope to also have multi-lender cascading going both up and down and it could even go further and cascade between first charge and second charge and highlight near misses. We have had the development, in that there have been a number of suppliers sought and found, and we hope to launch that at the beginning of Q2 this year.”
There are also increasing moves by lenders to test ” This will be the year when some larger lenders with parents will find those big corporate parent organisations will start asking some tough questions of them”their products through ATOM as well. Hearn adds: “That’s why we are here, that’s what we are good at. That’s what, when I was working at a lender, I used ATOM for – testing certain products – and that’s what has moved the whole market on. It’s the large distributors shaping products and services with the lenders and that’s still continuing today, and why packagers are still here.
“We are talking to company right now where it is a virtual lender – we have got product design in house; we have sales people in house and on the road; we have 11 regional development managers, and there are going to be 15 of them soon; we have got the processing power; we have systems in here that are the same as a lenders; we have got completions people in here – so all that is required is funds to come in at the front-end. We design the products with the lender, distribute them, process them and then securitise them later.”
Hearn says ATOM plans to plans to extend this offering and create a menu service for lenders so the lender can choose whether it wants to use ATOM’s regional development managers rather than employ its own business development managers, or use ATOM’s sales force instead of employing a sales force itself.
He says: “We think the way in which you run a sales team is different – you strike a regional relationship. In fact, our regional development managers look after their relationships completely and even do some processing up in Leeds or Manchester or somewhere else with the broker. So we are saying to some of our lenders: ‘Why have BDMs running around the country? We will do that for you.’ They can have our internal sales team if they want. They can have our processing. If they want our design they can have that. If they want our completions they can have that.
“And it’s in a menu-style selection, so we have some lenders saying they want some of these services and not others, and we have others saying if they drop funds in at the front-end and pick them up at the back-end that would work for both them and us.”
Meanwhile, Hearn also says he believes the FSA currently has 24 applications for lending and while some of those may not be new lenders, he says it still offers an insight into the appetite some have for the mortgage market. Dale Jannels suggests the entry of more new lenders can also only be a good thing for distributors because they are all going to want market share very quickly.
But ATOM also sees problems for some of the larger, more established lenders, some of whom have already stated publicly they believe margins will be squeezed this year.
Hearn says: “This will be the year when some of the larger lenders with parents will find those big corporate parent organisations will start asking some tough questions of them and will be demanding the volumes they were promised in earlier business plans.”
He says some regional building societies are looking at buying a share in distribution companies, similar to Melton Mowbray’s minority stake in Praxis, suggesting they see doing so as a way of securing market share and distribution for their products.
Jannels also sees a continuing consolidation in the marketplace both among networks and packagers, saying: “From a lender’s perspective the ideal next step would be some consolidation in terms of distribution. The fact is, lenders are dealing more closely with a smaller number of companies and what the lenders are really interested in is whether an application goes to offer, and then that offer goes through to completion. So there is a natural coming together and that has already begun to happen with the creation of the packager alliances, franchises and the likes of Concordia.”
Such consolidation, Jannels believes, is a good thing and is a sign of a maturing distribution market. Moreover, he sees the creation of the packager task force under the Association of Mortgage Intermediaries as further evidence of a distribution sector showing more willingness to work together and adapt to the changes that he believes are inevitable.
Jannels says: “Two and half years ago, distributors were seen as not having a future, but now we undoubtedly have a future and we are stronger than anyone could have ever imagined. And distributors will probably be unrecognisable to what they are today or even two years ago.
“Why wouldn’t we get distributors together to look at their sector of the market and drive it to the next level?”