Guy Garrard, head of business development at Tiuta, argues there is still a place for the mortgage packager in 2009
It’s almost exactly two years since the beginning of the downturn.
What initially looked like a blip in the mortgage backed securities market in August 2007 led into a rapid decline in early 2008, and saw the entire raison d’être for the UK mortgage packager community disappear completely. What had started as a failure in a distant US hedge fund, quickly led to a collapse of monumental proportions. It was very much a pack of cards collapse, and one of those cards was the specialist UK mortgage market, a market that had been in rude health since the mid 1990s.
With the vast majority of the sub prime or specialist lenders retreating back across the pond from whence they came (and incidentally for those of us long enough in the tooth this wasn’t the first time we’d seen it – I for one can still see Barry Norman grinning inanely selling The Mortgage Corporation) a huge body of distribution expertise, product knowledge and innovation was left staring into a very bare cupboard indeed.
The initial retraction of the market was undoubtedly welcomed by some.
There were the high street lenders that were sat on seemingly healthy balance sheets and saw the demise of the specialist lenders as an undoubted opportunity to make some proper hay. Others quietly enjoyed the increasing squeeze on the packager community as they’d never fully embraced them in the first place. They were considered as nothing more than a means to an end, a necessary evil if you will. They were a source of business that many lenders had had to do business with because of their successful securing of distribution. But now it seemed the boot was going to be on the other foot.
At the same time, and with the wonderful benefit of 20-20 hindsight, it would be reasonable to say that some of the former packaging powerhouses of the preceding 10 years were in denial as to where the world now was. Some clung to the hope that this would only be a short term blip and the days of champagne hubris would be just around the corner again. Either that, or they had grown too big and fat to readjust their business models accordingly. Those companies are no longer trading.
That said this wasn’t the entire picture. Over those years some of these companies had demonstrated incredible entrepreneurialism and an ability to adapt to a rapidly changing mortgage market. Whilst this worldwide financial maelstrom was too much for many, some still had the ability to react and meet the challenges head on. Some had already fully embraced technological possibilities, others diversified, but all necessarily downsized and continued to reinvent themselves.
Let’s agree for the moment that we have reached the bottom of the bottom. There are now some increasingly positive signs of life for sure, and some genuine green shoots. I don’t think it’s just people trying to talk positively any longer.
Perhaps the most significant recent sign of life was the launch into the UK residential mortgage market by The Bank of China. Just take a minute to think about how they elected to come to market. They had the chance to appoint any distribution medium they wanted. They could have used their branch network. They could have appointed a mortgage club, or one of the major networks. God forbid they could even have entered into a JV with a lender already here. One imagines that part of their due diligence process in entry to the market was to look at all these options and probably many more. Having gone through that process they elected to appoint four packagers. For me that speaks volumes.
I think that there are some lenders that will bear grudges. They’d like everyone to believe that they were taken advantage of.
There are lenders that have spent the last two years looking for someone to blame and mortgage packagers were a very easy target. It has been de rigeur to blame anyone but themselves. But it wasn’t packagers that decided that 80% unlimited adverse was a sensible credit call (and in one instance the stock product for a new lender’s launch). Packagers didn’t have underwriting mandates. The world was full of the lenders’ onsite underwriters. Packagers didn’t appoint valuers. For sure packagers demanded product, but as far as I can remember it was the lenders that decided what their risk profile was. Packagers didn’t lose the plot, lenders did.
The packagers or specialist distributors that have survived are now lean and hungry to do business. We are certainly delighted to be working closely with a group of these companies and using that pool of knowledge that they’ve built up to help us to develop our lending plans going forward.