Introducer Today

Non-conforming

Time to Conform.

David Burrows, Managing Director, Secured Loan Services

It’s time to get back to basics. The last few years has seen an alarming shift in focus and over concentration on providing mortgages only. One particular area that has attracted the most attention is the non conforming sector where, in many cases, clients have little choice but to go see a mortgage broker about getting that much needed loan or mortgage.

Naturally, given their circumstances, the client pays a premium for this service and both the lender and broker does very nicely thank you out of this arrangement. Well, enough is enough.

It is time that we as intermediaries stopped making the most money out of those that can least afford it. It is time for us to revisit the way, and with whom, we do business. And what is business about? It’s about selling things, either goods or services. Brokers sell loans. Selling is about establishing need, presenting a solution then closing the deal.

Some in this industry have become lazy and take for granted that there will be an unending queue of people at the door desperate for a way out of their financial predicaments. These sub-prime or near prime customers want to borrow in order to consolidate. The only question they ask of the broker is’ where do I sign?’

Why do brokers with excellent qualifications and experience place so much emphasis on the non-conforming sector? Because it is an easy sale or because it offers the opportunity to make more money, or both? Those should not be the reasons for indulging in any kind of professional activity, particularly one that separates people from their money.

Let’s face it; you don’t have to be an expert salesman to make money in that kind of environment. But as Bob Dylan eloquently put it, the times they are a’ changing. The days of gorging off the sub-prime plate are coming to an end as the regulator focuses attention on treating customers fairly. This is a sector that will get more protection and deserves more regulation and it will get it. What it will mean for brokers is more red tape and work for less reward, as the crisis in credit markets will mean lenders will be forced to take a hard look at their margins.

They will quickly realise that there is too much commission being paid out to brokers who, in some cases, would be hard pushed to justify the fees and charges. Of course, I am not suggesting for a moment that we turn our backs on this sector - they need advice the same as anyone else, but advisors should not forget conforming business. Too many appear to have done so. But remember, this is a sector where although day one earnings may be lower compared to sub-prime, potential earnings going forward are much greater.

This is going to become an important factor as the economy seems poised for a difficult spell. This will be felt most severely in the sub-prime sector where the threat of higher unemployment, high rates of interest and fewer lenders and products will make trading conditions difficult.

It’s worth noting that when plans are pulled or securitisations struggle or repossessions increase, the adviser operating in the conforming market is far less often affected. That is why I believe the time is ripe for advisers to refocus on financial planning; get back to fact-finding, get back to selling more products to more people. Get back to looking after the conforming sector as well as non-conforming.