For a long time sub-prime lending had a heavy cloud hanging over it – would-be brokers in sharp suits offering a sharper practice that combined high costs and high rates in return for even higher procuration fees plus, given enough volume, the chance of an override payment. Of course, all of this was justified due to the extra mountain of paperwork involved.
However, high rates mean even higher margins and over recent years this once rag-tag sector has been dragged, in some cases kicking and screaming, into the modern world. Suddenly we're in a new age of respectability with products available through the high street and high profile brokers starting to take more of an interest in this specialised market.
But proc fees have remained high despite advances in technology – and packagers being responsible for placing billions of pounds worth of cases each year.
Why so high though? After all, it's not as if intermediaries need to know the market by heart. A good sourcing system will do most of the work for you – if not your friendly packager (who, of course, never gives advice).
Some lenders have started to reduce proc fees but others still hold to the notion that they are totally justifiable. No doubt it will be the latter who will find a way to offer extra payments post-Mortgage Day, perhaps in the form of another 'marketing allowance' dressed up to the nines. And this despite all override payments being outlawed under FSA regulation.
There's little doubt that sub-prime lending is a legitimate segment of the financial services industry that gives consumers who have traditionally been unable to obtain a mortgage the opportunity to get a start in homeownership.
But its continued availability and growth depends on mortgage lender and investor confidence – something that can only be eroded by the patchwork approach of today's lenders, a number of whom are certainly enjoying their last orders in the last chance saloon.