The future is bright for packagers Timetable to regulation

Last year there was much speculation on the future role of packagers. This is a subject worthy of serious debate. Packagers are capable of adding significant value to any specialist lender&#39s operation and, given they can rise to the challenges, they will secure an important place in the specialist lending market of the future.

Of course, I would say that as igroup only accepts packaged business. However, our vested interest does not alter the fact that we believe many packagers are successfully making the transition necessary to thrive in the postregulatory mortgage market.

We have reviewed the measures our introducer partners have taken to face up to the changing business arena and we have not encountered a community of grumbling cynics, but one of fired up visionaries ready to exploit new opportunities, while anticipating future requirements and standards.

Change, progress and challenge are givens but not as the result of one single catalyst. Before regulation, the market had already been redefining its position and making transformations, enhancing products and focussing on transparency and service. The result is a positive swing in consumer and media perception and a real borrowing alternative to the high street lender.

Some may see regulation as an obstacle but to the vast majority it is accepted as a necessary component of a dynamic market. And to some like Fiona Hall at Formula Mortgages, a relatively new player, regulation is the norm: “The founders of the company are from a financial services background so we have lived with increasingly stringent regulation for many years. In our experience the short-term disruption is a small price to pay for driving up knowledge and skills.”

The consensus is that forced regulation for middlemen will come, but rather than adopt a wait-and-see mentality, many businesses are taking the initiative to pre-empt regulatory direction.

Russell Harvey at Synergy Mortgages takes the view that “success relies on us being dynamic and instilling total confidence in our brokers by developing a full range of services which combine knowledge, efficiency, compliance and out-sourcing expertise.” Meanwhile, Mel Fordham at Olympian Financial says that “with the general consensus that registered firms or principals will be massively reduced, we are increasing our activity in forming and stabilising the CoMPAK group which should epitomise the regulator&#39s requirements and ensure longevity for the business.”

One could say that packagers have had no choice but to change, but let&#39s not forget that large parts of the industry were already way ahead, having defined and enforced their own standards of compliance and regulation. We operate a robust internal accreditation and compliance monitoring process, which vets new introducers and reviews the conduct of accredited intermediaries to ensure they continue to comply with existing OFT and MCCB regulatory requirements and guidelines.

With a diverse network of 250 introducers, we have total confidence in how we assess the quality of business. However, there is concern among packagers that some lenders may limit their exposure to non-compliant elements. Harvey is concerned that “if lenders scale down their packager network on a selective basis, it could erode competition.”

The packager&#39s future relationship with its brokers is an essential consideration given the expectation that a significant number of brokers will choose not to qualify post-2002. Headland Finance, for example, estimates this will equate to 25-30% of its broker network while mortgagesandloansetc considers the amount will be nearer 80%. Estimates may vary but as Ranjit Narwal from mortgagesandloansetc points out, “the crunch will come in April when introducers will need to re-register, as it will then become clear just who has opted out and who is taking on a new business role.”

Whatever the final figure, the prospect of such a large pool of unregulated brokers provides an obvious opportunity for affiliated partners. Packagers have been actively seeking the necessary qualifications from day one, while developing their supporting infrastructure, such as a direct-to-consumer arm, and completely redefining their business perspective. This is an evident trend as the principal aim of many companies is to develop menu capability. This comprises a range of services for introducers – from fulfilling the traditional packager&#39s back office role to offering a full compliance service to unqualified introducers who forward business leads. Andrew Morris at Headland Finance says: “As well as providing back office support, someone has to provide mortgage advice to clients so we are paving the way to becoming mortgage advisers of the financial advisers.”

Hand in hand with these developments, there is evidence of significant investment. For example, Synergy Mortgages has recently incorporated a mortgage tracking system, is developing an internet strategy to enhance its direct business and is designing incentives to generate new business leads to build up its broker base. In the coming year, Olympian will be investing around £100,000 to ensure success of its Companies Retail section. Olympian&#39s Fordham has also indicated that “as the full extent of regulation rolls out, we see that close focus on training and competency will be required”.

This is a dynamic market and, instead of waiting to be told how to be compliant, packagers are seizing the initiative, carving a distinct role and establishing responsibilities for themselves in the new framework. This means redefining their partnership with brokers to close the gaps brought about by regulation while helping brokers to deliver a seamless service to mortgage clients. Ultimately, this will only help to make relationships stronger by increasing dependency between the two, as well as opening up new avenues of business to packagers. All in all, it will come down to survival of the fittest, but in our opinion packagers are looking extremely healthy.