Peter Beaumont, deputy chief executive officer of Mortgages PLC, was addressing the monthly meeting of the Alliance of Mortgage Packagers and Distributors on why his company faced some big challenges.
The question was – how do you cost products for market and eventual securitisation if you have no idea what to charge at launch? Even more important was the view expressed that you may not have any purchasers. As Beaumont pointed out at the time, an interesting time was around the corner.
Some eight weeks later, in a similar presentation to the Professional Mortgage Packagers Alliance, a representative of Victoria Mortgages explained how it had run out of funders and would be bowing out of the market for a short period. A few weeks later, Victoria ceased trading and then went bottom up.
Even the most optimistic packagers and distributors must now be aware that the industry in general, and the packager and distributor model in particular, is facing a less than stable future.
I have little doubt that lenders are already looking at their costs to market. If lenders are no longer looking for huge volumes, why would they need the extra costs involved in dealing with third parties?
In this reduced market, they will want to cut costs so direct business may start to look more appealing.
Lenders embraced packagers because packagers had a good understanding of the specialist sector. As far as I can see, much of that sector has disappeared and it will be a long time before it returns. If products are no longer specialised, why do lenders need to employ specialists? The answer is they don’t. Packagers that have the will and ability to survive are also intelligent and successful business people. They will be aware that lenders are now calling the shots.
In the past couple of years we have seen lenders throw caution to the wind. Was this greed for market share? I think so but whatever the cause, we are left with lenders that are unable to price the products we have seen in the past.
The time of frenzied product pricing has passed. So too have the increasing proc fees, packaging fees, marketing fees and sponsorship fees that have been demanded and enjoyed by large packagers in the past few years.
We have already seen a few established packagers cease trading. The question on many commentators’ minds now is – which will follow?