Well intentioned though these initiatives may be, brokers must question their value because when push comes to shove, such reassurances count for little.
For example, promises to hold proc fees in separate bank accounts are only meaningful if those accounts are le-gally ring-fenced from the core business, administered by an independent third party and part of a scheme which is transparent.
Most brokers have no idea about the financial health of the packagers they use or whether their proc fees are being inappropriately used to fund firms’ cash flow.
It can be difficult to get this information, even for lenders when they are carrying out due diligence. Analysing historical accounts is of little value so what can brokers do if they want to play safe?
The answer is to use a liberal dose of common sense and ask themselves certain questions.
For example, is a packager’s business model potentially vulnerable? If the firm is wholly dependent on packaging the answer may be yes. If it has a broader-based business including other sources of income such as network services, it may be able to weather the storm.
Does it have sound financial backing? If it is part of a larger group that has substantial financial strength it will be better able to cope than if it is a standalone business.
Does it pay proc fees immediately on completion? If funds are paid to brokers as soon as cases complete, the opp-ortunity for financial loss is lessened as there will be less money owing.
Have its proc fee payments slowed down recently? If so, brokers should place their business elsewhere and be ruthless in chasing payments.
Also, are senior managers trying to make too many soothing comments? If they are, be suspicious. And don’t be fobbed off with financial performance information which is more than three months old.
It’s easy to produce accounts that were generated when times were good but give no indication of the state of a business today.
So are there any other early warning signs? Indicators of financial hardship include a reduction in service standards, withdrawal of facilities without warning and murmurings from staff. These factors may not provide conclusive evidence of a problem but they help to form a picture of what’s going on.
It’s not easy to establish the financial strength of businesses but like all good sleuths, brokers can build up a picture from the information they have available and ask some common sense questions about the firms they are dealing with.
Managing director, Mortgage Next