Mortgage Packagers

Mortgage Packaging is the administration process for the approval in principal of a mortgage advance. It consists of the gathering of client information and documentation, including the property valuation report. This is an important and often time consuming part of the pre-offer process.

Background

As far back as the 1980’s this process has been outsourced by some lenders to what has become known in recent years as the ‘packager sector’ Following the collapse of the sub-prime market this sector was often associated with poor practice and some survivors of the demise became known as ‘mortgage distributors’. There were also ‘satellite packagers’.

Central Mortgage Administration (CMA) was the packaging arm of a well known London brokerage that was responsible for introducing large loans to lenders.  CMA was paid by the lender to carry out a packaging service, receiving a fee when the mortgage completes and making a financial margin for the administration of the valuation. Other companies helped this sector grow, these included Private Label and The Mortgage Operation (TMO) who also set up a dedicated service for the market in Scotland offering this service to brokers from offices in Edinburgh.

Sub-prime mortgage packaging

The launch of Kensington Mortgage Company (KMC) in 1995 saw the packaging sector change. KMC specialised in sub-prime mortgages and paid Private Label and TMO to package the loans.  This saw other packagers emerge as brokers who referred business to the large packagers were granted their own packaging agreement. Other’ specialist lenders’ entered the market to cash in on the rise in demand for sub-prime mortgages. These included Mortgages PLC in 1997.

The payment of commissions or ‘procuration fees’ to brokers, for introducing clients to mortgage packagers, was paid from overall packaging fees paid by the lenders. This payment became significantly higher than that paid by traditional or mainstream lenders.

Another tier of packager emerged known as ‘satellite packagers’. These operated under a larger mortgage packager as they could leverage the relationship with lenders accessing exclusive products and receiving higher fees. ‘Satellite packagers’ caused great concern as the levels of accountability for both administration and advice given to introducers of business diminished. 

CRA checks were used by unauthorised third parties and relationships with valuation companies were questioned.

Mortgage Packagers role in the product selection process

As sub-prime and specialist lending became more complex, brokers used mortgage packagers to help source products for their clients.  This became a point of debate as many had restricted panels or ‘preferred’ lenders.  Also, the commission and fees influenced where business was submitted, lenders were keen to compete in this area offering greater financial reward including generous marketing allowances.  Mortgage sourcing companies such as Mortgage Brain (MBL) were unable to accurately source the best product for a client once the information captured in the fact find was entered into their mortgage sourcing system. Opinions differed within the financial services sector, compliance services were expressing concern over the influence of packagers in the selection of products for clients.  This proved to be founded as many regulated companies have been fined (Thinc Group fined by FSA for sub-prime failure).

Packager Associations and regulation

As the mortgage packagers sector grew, it increased at all levels.  Associations were formed.  The biggest was the Regulatory Association of Mortgage Packagers RAMP. This was established to offer lenders more control over both origination of loans and distribution, originating several billion pounds of loan completions per annum. RAMP, once established, restricted its membership to ten and had a strict voluntary code of conduct and a regulatory regime and support service for its members. RAMP negotiated products, commissions and terms for its members with lenders. 

Other large packager associations were established these included:

The sector was not regulated by the FSA

A packager code of conduct was discussed for introduction and driven by the Association of Mortgage Intermediaries, (AMI). Two drafts went through its standing committee and there was an intention that the new code showed the difference between a broker, satellite packager and packager. Once implemented, all packagers that were members of the Association of Mortgage Intermediaries (AMI) must abide by the code. It failed causing concern with the regulatory bodies including the FSA.

The end of mortgage packagers

Early in 2009 it was announced that RAMP would cease its operations, this marked the end of the sector as it was known.