Packagers are still uncertain about whether they need to be authorised or not after the FSA sent out a series of mixed messages.
Mortgage Strategy revealed last week that a letter to Kate Main, senior policy adviser at the Council of Mortgage Lenders, from the FSA indicated packagers would have to be authorised come October 31.
But a notice the FSA posted on the www.fsa.complinet.com website late last week is seen by some in the industry as contradicting the letter.
The online notice states: “So-called 'mortgage packaging companies' may undertake certain parts of the mortgage process for lenders on an outsourced basis, ensuring that a complete set of documentation is collated and sent to the lender… In the FSA's view, mortgage packaging companies engaged in these activities are unlikely to be carrying on a regulated activity where they have no direct contact or contract with potential borrowers.”
Packagers hoping to evade mortgage regulation account for at least 70% of all sub-prime business and many have not applied for authorisation. And with less than five weeks to go before regulation strikes that could mean two-thirds of the sub-prime market could be up for grabs.
Birmingham Midshires' director of mortgages Michael Bolton says that as the majority of packagers carry out branded lending, which involves underwriting decisions, they have to apply for authorisation.
Bolton says: “The issue the FSA clarified is that most packagers will have to be regulated as they undertake branded lending. Most of our competitors in the sub-prime market use packagers to distribute through branded lending.”
He adds: “Packagers leaving it until now to apply will not be regulated in time, leaving around two-thirds of the sub-prime market up for grabs come Mortgage Day.”
John Mawdsley, managing director of Merseyside packager The Mortgage Partnership, says: “Those packagers who have left it too late should talk to us. Because we are directly authorised we have the ability to take up to five appointed representative firms under our umbrella.”
He warns that if a packager carried out a regulated activity without authorisation it would be committing a criminal offence and the mortgage it helped arrange could be seen as unenforceable.
And one industry source is calling into question the Intermediary Mortgage Lenders Association's position, claiming the trade body misinterpreted the FSA rules in taking the stance that pure packagers did not need to be regulated and accuses it of wasting valuable resources in drawing up a voluntary code of conduct for packagers.
But John Maltby, IMLA chairman and Kensington chief executive, argues the trade body has never put forward this view.
He says: “IMLA has given no view. I have given my views on behalf of Kensington. If people have a vested interest in not wanting things to happen, that shouldn't cloud their view.”
FSA spokesman Robin GordonWalker says: “Packagers should follow the guidance we offer as help but it is up to them to make the judgement – in consultation with their lawyers – on whether to apply for authorisation. If someone is carrying out a regulated activity they should apply, if they're not they shouldn't.”
He adds that the FSA can turn down an application if someone is not undertaking a regulated activity but says such precautionary applications are time-consuming.