Procurement fee or procuration fee. The proc fee. We so casually shorten it that we often forget what it means.
Procurement, according to the Oxford English Dictionary, is described as “the action or an act of causing, arranging, or bringing about, especially through an agent; the action of obtaining something, an acquisition.” The earliest reference in the dictionary to the word procurement is in 1569. So it has been around a long time.
Some 400 or so years later, in the 1990s, when lenders began paying brokers for introducing their mortgages to them, the term was aptly utilised. Lenders were paying brokers for introducing clients who trusted their broker’s advice and recommendations on a range of insurance and investment products, including now mortgages. It was a simple plan which worked well and saw the broker truly embedded at the centre of the fully protected mortgage sale.
Things went a little awry towards the end of the mortgage boom driven by wholesale funding markets, which we all know about.
Procuration fees got caught up in the mortgage frenzy as fees were used by some lenders as part of the armoury to feed the securitisation feast.
But post-credit-crunch sobriety has returned the humble proc fee to its rightful place as the bedrock of mortgage adviser remuneration, sitting alongside protection and general insurance commission.
History tells us that throughout the highs and lows of the past 25 years, procurement fees for mortgages have survived for the very reason that mortgage lenders value the introduction of clients to whom they can lend.
What has changed, however, is the process brokers have to go through to submit the application to the lender. The introduction of online application systems, new underwriting criteria, new documentation requirements, new MMR requirements for some lenders and so many other seemingly daunting day to day changes, multiplied by 50 lenders, makes the procuration fee for intermediaries a truly good value proposition for lenders.
And the alternative is, of course, dealing directly with the lender. All of my conversations with lenders recently, reveal that they will have enough challenges managing their own fully regulated mortgage sales forces from April next year to need intermediaries even more.
The humble proc fee will additionally see the introduction from some lenders of new measures, which account for the quality of submission of mortgage applications, arrears rates and so on.
We would all applaud every ambition to encourage the improvement in quality applications but it will be interesting to see whether this will have the desired effect, as I believe 2014 will be the year that the mortgage procuration fee comes centre stage and every aspect of the mortgage sales process fights for their share of value from it.
Happy Christmas to you all.
John Cupis is managing director for mortgages at Sesame Bankhall Group