International Financial Advisors
Outside UK: £200000
House price search
Enter your postcode here to find out how much your property is worth, based on Land Registry data.
RSS Feed
Industry in depth
Loud and proud
3 March 2007
David Copland looks at changing distribution models and how mortgage packagers can utilise technology
For any organisation to be successful, whatever the industry, they need to have a good distribution strategy. In other words, an outlet and distribution channel to ensure that its customers and potential customers are able to purchase its products and services. A distribution strategy or model should not be seen as something that is set in stone when the company launches; it will be something which evolves as the particular industry changes and adapts.
If we look at the mortgage market, at one end of the distribution chain is the lender, providing the funds and mortgage products. At the other end is the consumer, requiring the right product to suit their individual circumstances. It’s the steps in between that are not so clear. It can be as simple as the lender just dealing direct with the consumer by branch or phone, however the lender may choose to distribute their products and services using an intermediary strategy, such as a direct-to-broker offering. They may decide to distribute their products via a mortgage club or network or they may even decide to use a packager.
Distribution choices
How a company chooses to distribute their products will be dependent on a number of factors, for example, whether they are a new entrant to the market, the size of the company and whether they are operating in new or existing markets.
Register for 'Adviser Finder' here
In response to the changing market and to ensure that they hang on to, and if possible, grow their market share, many lenders have diversified into new sectors, utilising differing distribution strategies. An example being Salt, the intermediary brand for the Derbyshire Building Society. It went onto launch an adverse offering, initially via a pilot scheme, utilising Pink Home Loans’ packaging operation.
Recent research has highlighted that the direct-to-broker channel is predicted to experience enhanced growth over the next few years as technological advances allow access to more customer information; however it is thought that packagers will continue to be a fundamental part of many lenders distribution strategies, with their ability to offer multi-lender cascading.
Regulatory impact
Following regulation, brokers had two options available to them; to become directly authorised (DA) with the Financial Services Authority (FSA), or to become an appointed representative (AR) of a network. For the broker who chose the latter option, they were choosing to enter into a tied distribution arrangement, whereby they could only use the lenders on their network’s panel.
That is unless they have a reason to go ‘off-panel’, for example, if they have an enquiry for a lender who is not on the panel, or one that does not fit with any of the lenders on their network’s panel. For those who chose to become DA by the FSA, they had the option to go to any lender, mortgage club or packager in the market.
I very much doubt that even the more informed members of the industry could have visualised just how diverse the distribution of mortgages has become following regulation. It only seems like yesterday that all that everyone was talking about was the launch of regulation and for many the much dreaded ‘Mortgage Day’.
Get the daily news delivered to your inbox
Many thought that this would mean the end of ‘the packager’ as we once knew it and for some their fate was to come as regulation drove up costs and generated consolidation. However, for many it was the beginning of a new era, which prompted the phrase ‘evolution of the packager’ and hence a changing distribution model.
Times have changed
Having spent 10 years working for a company, which started out life as a ‘packager’ and has evolved with the market to become a mortgage distribution and packaging company, I often contemplate what will become of Pink over the next 10 years. One thing I am sure of is that packaging still provides an important service within the industry and will continue to do so.
The same can be said for several others in the market, a number of which have diversified, offering a host of products and services to establish themselves.
If we take a look back at the role of a packager all those years ago, it could be considered as an extension of the lender, carrying out an administration function, creating ‘clean cases’ and simplistic products, using manual processes and the underwriter’s interpretation of the case. Due to changes in the product market and the growth of non-conforming mortgages, packaging in the present day tends to be for the more specialist cases and complex products.
With more data available, credit checks as standard and advances in technology, the underwriter’s role has changed significantly from days of old. Products tend to be more complex and packagers are often provided with on-site underwriters from the lender to help interpret cases that computer systems can’t handle.
If we just look at the adverse sector, and go back a decade, a consumer would have been either ‘credit worthy’ or ‘non-credit worthy’. Whereas now, we have a spectrum of adverse solutions from near-prime to heavy adverse – we’ve moved from a simple market to one that is more complex.
Leading the ‘pack’
It is clear that technology is driving the marketplace forward. To ensure survival and continued growth within an already crowded industry, packagers must offer the customer what he or she wants in regard to quick decisions. Recent industry technology triumphs include the introduction of automated valuation models and the completion of the industry’s first 24-hour mortgage and it is a fact; technology has and will reduce the time it takes for a mortgage to complete. Packagers, therefore, need to understand how technology can help, for example, investing in online decisions-in-principle, Key Facts Illustrations (KFIs) on and offline generic mortgage applications, online product selection and case-tracking.
Looking for support
It seems that the dust has only just begun to settle following this year’s Packaging Summit, when the packaging community were ready to have their voices heard. Sourcing systems were criticised by packagers for not being ‘up to scratch’, with Trigold and Mortgage Brain being given a unanimous vote of no confidence.
The Professional Mortgage Packagers Alliance had plenty to say and attacked lenders that have failed to deliver in terms of the technology available to packagers.
There was also plenty of debate at the Summit around dual pricing of products ranges and accreditation to business development managers of business placed through mortgage packagers.
The Summit helped to raise some burning issues for the packaging community, many of which were to do with technology. Let’s hope that they are dealt with over the coming months to ensure packagers are given the support they need by their lender and supplier partners to deliver the service that brokers and ultimately their clients deserve.
A strong future for packagers
Going forward, mortgage packagers will continue to offer smaller lenders, or new lenders coming into the market, a dual purpose; to assist in the administrative side of the business and therefore reducing overheads, but also to act as a distributor and marketer of their products and services. For larger lenders, mortgage packagers are essential for supporting distribution in what has become a fiercely competitive and busy market.
Due to lenders’ product lines becoming more and more complex and with widely anticipated growth in the more specialist markets, in particular buy-to-let, packagers have a huge contribution to make and are a key part of an ever-changing distribution model. Packagers can provide lenders with support in resourcing and, as many lenders are having to adapt their systems to deal with developments such as client retention schemes and acceptance of non-conforming criteria, adapting their legacy systems, following the introduction of online mortgage applications.
The recent launch of a standing committee to represent packagers by the Association of Mortgage Intermediaries (AMI) is a fantastic development for the packaging sector. It will help to unify the industry and prepare it for the regulation of packagers, which industry experts think will happen by the end of 2007.
It will also help to ensure that mortgage packagers remain a firm part of lenders distribution models and that their voices are heard loud and proud for many years to come.
David Copland is sales and marketing director at Pink Home Loans
Bob Hope looks at market evolution
Distribution in the mortgage industry is constantly evolving to meet the changing financial landscape we live in. We have seen many lenders take the decision to limit distribution to packager partners something that a year or so ago may have sounded ambitious given the market perception but now is viewed as a shrewd move by many.
Intermediaries use 'specialist distributors' (packagers to you and I) primarily to gain access to lenders who are unavailable otherwise and research the best products for the client. The packager has to harness the technology to make this possible or lose out in the market as being able to for example instruct an automated valuation and get a response within seconds, allowing the broker to proceed with the application and get a complete legally binding mortgage offer in minutes is crucial in this busy market. After all if you had the choice of using a packager who could offer this or not…I know which one I would go for.
Technology has expedited the market accreditation of packagers as in the absence of a fully supported and proven sub-prime sourcing portal they have been able to act as the interface. Intermediaries need to recommend on best advice and using just one lender system to source does not really qualify. However packagers can provide sourcing and selection from a lender panel in the case of BDS they will be offered a choice of up to three suitable products from a panel of 27 lenders - a number that would be simply impossible to individually research and document.
Being able to embrace technological advances makes the whole mortgage process a lot easier and that is why so many packagers are investing in systems that not only act as their differential but also can save time, money and provide a uniform approach across the board. Case progression, via automated case tracking, direct links to lenders, minimal paperwork and no paper 'packaging', are some of the technological advances that have cut by half the number of days it takes from application to completion. Another example is the growing availability of instant AVMs which offer an instant instruction of a manual valuation to allow a packager to switch cases with minimal or no extra paperwork from the borrower.
AVM’s give a great example of how packagers status and importance is recognised and lenders themselves are now developing technology and products to ensure distribution security - take the GMAC RFC ‘Partners’ range as an example. These types of arrangements are geared towards long lasting profitable relationships building up trust with intermediaries.
Lenders and packagers want to control distribution and can only do this by offering something over and above that which can be achieved directly by the intermediary. The intermediary is unlikely to have the in-depth knowledge of all the specialist lenders' criteria and different product platforms so it means that they can go to their packager quickly without causing any disruption to their client, or potentially losing them while they have to do some research in a world where timing is crucial.
Sue Cox looks at the benefits of using a packager
Bananas Inc has just experienced its best ever trading year. Despite all the uncertainty generated in the run-up to regulation, and subsequent speculation by a number of industry figures about the relevance of the sector, packagers are accounting for ever-larger slices of the mortgage cake.
Even lenders who, in the past, have claimed that they intend to cut out the packager channel have been forced to make ‘U’-turns and return to the fold.
The reason for our growing popularity is that brokers and lenders continue to place a premium value on the sort of service that we provide. Packagers are indispensable to the sort of mortgage work that they do.
Lenders who believe that it is a simple matter for them to go direct to the broker and leapfrog the packager are ignoring the simple realities of the sub-prime market.
Almost half of adverse business is written at the margin of lending criteria and the tailored service that packagers bring to product sourcing is critical. Packagers’ in-house underwriters make on-the-spot and swift decisions that are impossible when approaching a lender direct.
Sub-prime cases have a tendency of changing as the application progresses, as two CCJs turn out to be three and a couple of months’ arrears end up being considerably more. When such cases are submitted directly to a lender, they bounce around the lender’s product range as additional adverse history becomes apparent. At the end of the process such applications can fail. The adviser has then to go back to square one and move the application to another lender.
Submit the application via a packager, however, and it is able to provide the lender and product from its panel that represent the best ‘fit’. And, if that does not work because of changes to the application over time, it can transfer the case to another lender on its panel.
If the business is placed at a packager with 20-or-more lender relationships, then the broker can rest assured that everything than can be done, will be, to make the case work.
On the other hand, brokers know that direct submission to a lender can often mean applications going backwards and forwards from them to lender as additional and/or more accurate information is sought. Such time-consuming paper chasing is not something the broker or the lender experiences with a packager.
For this reason and many others (which I have not got the space to go into here), packagers are going to be a central feature of the mortgage market for many years to come.
Those lenders that accept this and work with the market, rather than against it, will find themselves in a much stronger competitive position than those who don’t.
Data Integration – Where’s it going? - Jeff Knight
Data integration, Data Transfer, Data Reading, XML – are hot topics at the moment especially amongst Packager/Distributors and are high on the list of priorities for mortgage processing system providers, but what progress has really been made?
Mortgage regulation is now embedded into the systems, procedures and processes of Lenders, Brokers, & Packagers businesses and we now see technology behind almost every innovation brought to the market from Electronic ID, Instant Mortgage Decisions, Automated Valuations, and Online Offers.
Technology is now starting to deliver real time benefits to much of the mortgage Industry, but a myriad of systems are being used throughout the distribution chain to source products, obtain KFI’s, provide compliance, obtain a lending decision, gain case tracking updates and manage customer relations.
For this technology to benefit us, we need to apply application data to it to enable it to perform the many functions of mortgage processing. It should follow the SPODE “Single Point of Data Entry” model and information should not be re keyed for every stage of the process. This saves time for the Broker, the Packager and the Lender.
In a highly competitive and dynamic marketplace, time saved means one thing, a better product and a better experience for the consumer.
Having delivered Data Integration last year with Trigold and MTE, GMAC-RFC has now embarked on a pilot programme for its Partner Division to enable application data to be transferred from their systems into POS O to obtain an instant binding decision.
Looking ahead to the next stage of Data Integration development, GMAC-RFC’s research amongst its Partners revealed that the Data Integration functionality they would like lenders to provide included:-
• A data file of product and criteria information ahead of every product launch.
• Ability to submit application data to obtain lending decisions and receive a list of all qualifying products back into their system.
• Ability to select a product and request and receive a KFI in PDF format back into their system.
• Ability to submit a full application to the lender and receive a PDF of the mortgage offer into their system.
• A daily data file of case tracking updates.
The research identified that mortgage distributor shave a number of issues to consider when exploring data integration. For example, how to integrate the data, who to integrate data with and where to integrate it from.
These are very challenging questions that GMAC-RFC has been able to help with. A dedicated person to the Partners who has a full understanding of their business model and shares the vision they would like to achieve. This can only happen once trust is built between the distributor and the lender - only then can the technical challenges that need to be overcome by each business be fully understood.
Further questions that Partners need to consider when exploring data integration include - the cost implications versus time savings, whether they should integrate all or part of their business systems, the best way to manage compliance and processing systems and whether they should continue using their own systems or that of a third party.
When looking at whether to implement their own systems, Packager/Distributors need to take an honest look internally and identify whether they have the skills and appetite to develop such system themselves. Ongoing maintenance, competitive advantage and exploring which Lenders are ready to integrate also need to be fully explored. A key issue for many will be how they can use new systems to their competitive advantage and differentiate themselves from the competition
Making such a change can be daunting for any business and GMAC-RFC can advise on how best to do this and work together with its Partners to achieve their business goals.
Whilst the entrepreneurial spirit of the large Packager/Distributors have already started to embrace this challenge, and those with more advanced systems look to become technology providers within the market themselves, it seems disappointing that only a small number of Lenders are making any real moves to turn these requirements into a reality.
Data Integration will benefit all parties in the distribution chain from consumer to lender with quicker cost efficient mortgage selection and processing. To make this a reality, Distributors rely on all panel lenders to deliver data integration for this model to work.