How much value do packager agencies or satellite packaging arrangements actually add to the mortgage chain? A trend has developed in the packaging industry towards the emergence of large national players over the past few years, and this has accelerated since regulation to a degree where there is now a wide gulf between the large and small – and all the advantages seem to lie with the big battalions.
Bigger packagers are able to access better products than their smaller rivals, and so because of greater volume can pay more of their fee income to introducers. This in turn weakens the smaller packagers, which begin to suffer from increasingly uncompetitive products and then struggle to maintain a significant number of regular introducers. From there on it is a slippery slope.
All of this has not been helped by the effect of polarisation between appointed representatives and directly authorised intermediaries, and many smaller packagers have suffered as a result of being unable to use introducers that have joined networks.
Some have joined packaging associations as a way of harnessing the advantages of being part of a greater whole. Many others have gone into partnerships with larger packagers to access the products they are no longer able to command on their own.
The advantages appear to be obvious. Access to products and the support of a larger distributor would seem to be the answer for any packager wishing to keep its independence and identity.
Larger distributors work with more lenders than their smaller relations. In the case of new lenders to the market, the satellite packager is more likely to get access to that lender if it chooses its relationship carefully. Procuration fees should be higher, particularly for those firms packaging their own mortgage deals. Apart from access to lenders and their products, the primary benefit of being a satellite is enhanced commission, reflecting the increased responsibility for processing the deals.
Satellite packagers also benefit from access to exclusive deals through these relationships, allowing them to compete more effectively, while choosing a partner that has access to on-site underwriting provides a whole new dimension of service to complement the greater range of products on offer.
The upsides are pretty obvious but what of the negatives? First and foremost, as far as the general health of the industry is con” The important decision is to make the right choice of partnership. Getting it wrong on either side could have dire consequences”cerned, what are the checks and balances that large distributors use to ensure satellite packagers are competent? After all, while the opportunity for the larger player offering the facility is to maximise the advantage it has in volume, is there any incentive to make sure the satellite is up to the job?
From the lenders’ point of view, the dangers from satellite packagers should not be underestimated. Apart from cursory checking for poor past performance, how can any lender be really comfortable with the extended distribution when it comes to compliance issues?
Ultimately, the packager offering the satellite facility carries no regulatory responsibility for the performance of its satellites, so there has to be a concern over the quality of the distribution.
Packager associations that offer packaging facilities to small, medium and large players have robust screening facilities agreed with their lending panel which ensures the quality of processing is up to standard. New satellite packagers are also trained comprehensively on the underwriting requirements of the whole lending panel and cases are thoroughly checked at head office for further processing and offer.
Smaller packagers wishing to become a satellite need to weigh up the potential advantages against the disadvantages. For example, would joining a packaging agency restrict them from dealing with other firms offering other lender facilities and services?
Bigger players are able to offer a wider range of lenders and services than their smaller rivals, so it is wise to shop around for the right partnership. Service is another issue. Offering satellite facilities is a proven way of growing volume, and aspiring satellite packagers need to assure themselves that the infrastructure being offered is strong enough to support their business.
Satellite packaging is set to continue growing. It can offer smaller packagers access to lenders and better products to which they would not ordinarily get access.
The important decision is to make the right choice of partnership. This applies equally to both the satellites and those offering the facility. Getting it wrong on either side could have dire consequences not only on a local level but throughout the industry.
By Matthew Arena, Managing Director, Exclusive Connections