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Controlling forces

Mortgage distributors are striving to offer lenders more stringent tranche management as they compete for available funds. Lenders want control and are looking to networks and mortgage clubs to guarantee that.

Chelsea, for example, has only lent through Openwork and Legal & General intermediaries for the last three months. Alliance & Leicester has slowly returned to the market in 2009, mainly through club exclusives.

Woolwich’s recent decision to manage its tranches by using allotted funding slots has attracted both praise and criticism in the mortgage community.

Woolwich intermediary business director David Finlay says networks and clubs have been happy with its system. “I have asked clubs and networks what else do you want me to do? Do you want us to go back to what it was before? They have said absolutely no,” he says in response to recent broker criticisms.

Finlay says Woolwich is looking to “insure and assure the risk of lending” and is willing to talk to anyone about how it can create and control mortgages that accomplish that.

What are distributors doing to control mortgage flow? Sesame and Pink have created online tranche management systems. Pink managing director David Copland, whose network was the first to develop an online tranche management system, says: “We did this as we would be favoured over our competition if we can manage tranches. Lenders can request information on tranches by the day or minute and they want that control.”

Sesame head of mortgages John Cupis says his group saw a trend towards tranche control last summer and launched its system at the start of 2009. He says: “The system we have built allows the lender to have a real-time view. They can top up tranches or even refine tranches, it is flexible. All lenders are in a different place right now but by having tranche management on the distribution side, those lenders who have not got specific restraints on lending will have a means to control their output. In the future, lenders’ flexibility will depend on how flexible we can be.”

PMS development director Martin Reynolds says his club is not looking to follow Pink and Sesame in creating its own tranche management system at present but admits that “everyone is looking at everything right now”.

He says: “For a distributor to choose tranche management, it would depend on the aim of the lender, the size of the distributor and the size of the tranche.”

L&G revealed last week that it is taking on all of Mortgage Times’ mortgage distribution and admits that one of the reasons distributors are looking to merge is to show lenders that they can maximise quality and reduce risk.

Head of mortgages Ben Thompson says: “We will be looking at the management of tranches, both in the club and working with lenders. We may do more internal controls.”

Mortgage Times says it already has capabilities from its management of mortgage packagers.

Not everyone thinks the future of distribution lies in tranche management. Personal Touch Financial Services sales director Dev Malle says it can offer lenders the option within its toolbox if they wish but he thinks the strategy has limitations.

He says: “Lenders are looking to limit products, not necessarily tranches. The best way to do that is to have up-front and honest conversations with advisers, warning that some products will be limited. I would challenge any system managing tranches because they limit the lender’s proposition.”

Nationwide group director Matthew Wyles says the society would not opt to limit its tranches to networks and clubs and is wary of any lenders which opt for that strategy:

He says: “The tranche model can hide direct exclusives. The lender will say the product is available to everyone and then just offer up a tiny tranche to distributors and no one will know. It is not to do with quality control, it is to assure lending limits. The lender can boast that the mortgage was successful if the small tranche runs out. It is market manipulation.”

Home of Choice managing director Gerry O’Brien says tranche management will tighten over the next year and says commercial distribution deals will become more prevalent going into 2010.

He says: “Lenders are sorting themselves out but soon they will be ready to get out there. How we as clubs and networks deal with lenders will change forever. It is going to be about creating more profitable lending for both parties and trying to get best results for clients.”

Mortgageforce managing director Kevin Duffy says: “Distribution should always be a meritocracy, whether it is through a lender, a club or a network. The adviser who can offer quality should always be favoured.”

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