The purchase by Halifax, Nationwide and Alliance & Leicester of a
controlling interest in the mortgage sourcing and packaging company
Mortgage Brain is yet another fascinating twist in the progress of the
mortgage market towards electronic trading.
I fear, however, that while there may be sound commercial logic in this
acquisition, for all the lenders involved and particularly the Hali-fax it
may turn out that they have bought a curate's egg – good in parts.
My reasoning for this is that it puts them on a regulatory tightrope that
will be difficult for them not to fall off.
If they can walk this tightrope, their move may be an excellent move for
the industry and for consumers.
Several other players have been trying for some time to establish
electronic trading platforms for the mortgage market so it will be
interesting to see how they react to this alliance.
The practicalities of a commercial market are that from time to time any
organisation may choose to offer preferential terms to business partners
with which they find it attractive to do business.
There is nothing wrong with this. The problem comes when they have a
financial interest in such partners.
At the time that the deal was announced, Mortgage Brain was quick to tell
Money Marketing it is prepared to offer “every assistance” to other
electronic systems to enable them to link their software to the platform.
While this is a move in the right direction, I fear it might not be enough
to satisfy the alternate trading platforms which have already established
direct links into many lenders' systems. They may well object if they are
only given the opportunity to link to such a key group of lenders through
the competing Mortgage Brain platform.
In order not to be seen to be giving a commercial advantage to a platform
in which they have a financial interest, the Mortgage Brain investors may
feel they must give equal access direct to their systems to the other
service providers which are competing with the company in which they have a
stake. This would be a very good thing.
Last week in Money Marketing, Mortgage Brain managing director Mike Green
described this as the establishment of an industry-owned trading platform.
But while his new shareholders represent a big part of the mortgage
market, they do not represent the whole market and other lenders may be
reluctant to support a platform that is majority-owned by a number of their
Many smaller lenders have been keen to see electronic trading as they
believe it will give them the opportunity to level the playing field,
increase competition and give them greater access to a wider market. One of
the great things about e-commerce is it has the potential to make it far
easier for consumers to gain access to information and compare products on
price and other terms rather than on brand strength where the biggest
organisations always have a significant advantage.
There must be a risk that intermediaries may find themselves forced to
deal with multiple platforms if non-shareholding lenders are not prepared
to join the Mortgage Brain platform because of the changes in their
There was a previous attempt by the Intermediary Lenders' Association and
then the Council of Mortgage Lenders to establish an “industry” mortgage
Readers may recall I was highly critical of this initiative. Presumably,
Halifax was not entirely satisfied as it was one of the first lenders to
withdraw from the service.
It is easy to think of instances of similar services that have attracted
the attention of the European Commission's competition regulators. This
acquisition can be seen as bearing many similar traits to the previous
situation when The Exchange was originally owned jointly by a big group of
insurers and AT&T. Several years ago, long before it launched its own
m-link platform, Misys complained to the European Commission that such an
arrangement was anti-competitive.
As a direct consequence of this complaint, the insurers involved decided
that ownership could present difficulties in the long run. The result was
the insurers disposed of their interests in The Exchange, which was sold to
its management which later floated the business.
Another parallel must be the scrutiny of Microsoft because of its decision
to distribute its Explorer browser free. Although the action by the US
Department of Justice has attracted most publicity, it is well known the
European Union had also been conducting an investigation.
One of the suggestions was that Microsoft had been involved in “predatory
pricing”, offering its product at a subsidised rate to drive competitors
out of business. I can envisage a situation where Mortgage Brain may find
it difficult to introduce very low levels of charges to lenders or others
for fear of being accused of similar practices.
It is not just necessary to be doing the right thing but also to be seen
to be doing the right thing. It is clear that even Microsoft has found it a
burden to meet such obligations. There are many in the IT markets who would
suggest that much of the decline in the fortunes of IBM during the 1980s
was due to it having to spend time fighting a similar court action in the
If Halifax and the other lenders can maintain a fully open position where
they can allow a whole raft of other competing initiatives equal access to
their systems, to compete with the organisation in which they have a
financial involvement, they may make a real contribution to electronic
trading in the mortgage market.
But I fear that, without questioning their intention or ability to do so,
the practical issues in demonstrating such impartiality in the long term
means they may end up being hamstrung by the need to keep regulators and
competitors constantly happy.