A quick peruse through any commercial dictionary will have the words ‘mortgage’ and ‘manager’ recorded in explicit and easily comprehendible terminology.

‘Mortgage’, as defined by the Penquin Macquarie dictionary, is a security by way of conveyance or assignment of property by securing the payment of debt or the performance of an obligation where the property is redeemable upon payment or performance. Fairly simple.

Similarly, the term ‘manager’ is characterised as being one who manages. Even simpler.

Individually, the terms are clear, succinct and easily identifiable in gauging what they entail and incorporate – join the two together and it’s a different ballgame entirely.

Without nationally consistent regulation and licensing of the mortgage industry, there are few parameters in place to categorise a group such as a mortgage manager, and this has also resulted in major discrepancies as to who fits the mould and who is merely using it as a façade in marketing their business or expertise.

Indeed, it is not just the defining of the term that has parts of the industry and punters perplexed, it’s also the inter-relating between groups such as mortgage managers, originators and non-bank lenders.

Defining the undefinable

David Gouge, managing director of Merchant Mortgages, believes the idea of defining a mortgage manager and its place is not core to the argument, but rather the problem lies in relaying to the consumer just who is acting in the interest of whom.

“The bigger point though is are there grey areas or is there potential for consumers in the market to be out of sync with the party they’re dealing with. Do they understand what that party is about… do they think that party is a true lender of funds, or do they think that party is a broker?

“Who is that party acting in the interests of primarily? Is it for the borrower or is it for the lending source – that’s a key point. There’s a lot of terminology in the industry that’s difficult and it’s grey,” Gouge says.

Like Gouge, Peter White, managing director of Avanti Commercial, says he has been involved in mortgage management since its inception, and is surprised there is any such greyness among parts of the industry.

“I thought it would be a very easy nail to hit on the head,” he says.

The most logical way to differentiate between the terms, according to James Boyle, general manager – mortgages for non-bank lender Liberty Financial, is to look to the funding source.

“If you’re looking at it academically, the difference between a non-bank lender and a mortgage manager is the non-bank lender is a wholesale manufacturer of product and they get their money from capital markets and work to come up with products to put into the marketplace. Mortgage managers ultimately are getting their product and money from the non-bank lender,” he says.

Faking it

While the credibility of mortgage brokers has heightened over the past several years, many in the industry cast disdain over the idea that some brokers continue to consider themselves as mortgage managers.

Murray Cowan, managing director of Better Mortgage Management, says that while it is of concern to him as a mortgage manager, there is a significant number of brokers who drop out of the game, unable to cope with the additional responsibility that being a manager brings.

“It’s a problem. We’re seeing it to a degree, but here are situations where brokers have said we can be a mortgage manager, but in 12 months’ time we hear they’ve found it too difficult… they didn’t want the extra work or collections or risk involved or found it all too much trouble,” he says.

Further testament to this are reports that some brokers, operating under the guise of a mortgage manager, have had applications rejected by mortgage insurers, and redirected to groups such as Better Mortgage Management.

According to Cowan, in many of these cases, the insurer doesn’t believe the broker has the experience, credit skill or resources to undertake the task adequately.

Cowan acknowledges he can identify with the advantage a broker labelling themselves as a manager brings, which is fundamentally product and service driven.

“It sounds like the business is growing and getting bigger,” he says.

Phil Naylor, CEO of the Mortgage and Finance Association of Australia (MFAA) says it’s of primary concern to the MFAA that some brokers are intent on masquerading in the manager space, particularly evident when it comes to matters of regulatory involvement.

In 2004, the NSW government introduced broker legislation and, in conjunction with the MFAA, were given the unenviable task of identifying who is liable to the legislation.

Naylor says that while the regulators are comfortable in exempting mortgage managers from this law, the difficulty lies in deciphering who is to be covered and vice-versa.

“What blurs the line are people who are brokers who are operating under the façade of a mortgage manager when they’re not,” he says.

Pre to post

While the opinions in defining these segments are mixed, the crux of what a true, authentic mortgage manager undertakes is unanimous across the board.

The idea that they oversee every part of the loan process is accurate, however, it’s the degree of detail that sets them apart from alternate loan introducers, such as a mortgage broker.

It many cases, a mortgage manager will have acquired a delegated lending authority (DLA), whereby loans can be processed in-house, negating the need for consent by the lender at the back-end.

While this isn’t applicable to all managers, it does make for a quicker and more efficient application process from the perspective of the borrower.

According to White, whose commercially-based business acts in part as an originator and in part as a mortgage manager, the key point of difference for a manager is the ongoing responsibility and accountability post-settlement of the loan.

“It gives you more control and keeps you closer to the client and it’s a style of service that people want in the marketplace,” he says.

Firmly of the belief that managers offer a superior level of service to other introducers and intermediaries, White says the difference goes beyond the post-settlement stage.

“A mortgage manager is somebody who has significant responsibility during the processing of the loan application, including ordering evaluations, general instructing of solicitors, and liasing the co-ordination between solicitors going to settlement.

“There are post settlement responsibilities as far as direct debit authorities or changing the access in the lender’s system to make alterations. Loan statements and products will have your branding on them,” he says.

Committing to committees

The MFAA Mortgage Management Committee was re-established in 2003 after there was seen to be a need for representation in that segment of the industry, and one of its primary functions has been to put some parameters around the notion of what a mortgage manager entails.

Simultaneously, the MFAA established originator, lender and non-conforming lender committees in addition to this, to demonstrate objective and fair representation to each of the industry’s segments and in catering to the scope of members.

While the support and attendance levels from the originator and lender committees has remained strong, the same cannot be said for the mortgage managers committee, according to Naylor.

“One of our challenges is how can we make involvement in that committee more attractive to make sure the interests of non-bank lenders and mortgage managers are properly represented,” he says.

A board meeting held in August 2007 highlighted the fact that mortgage managers and non-bank lenders need to work together in having an effective influence on the MFAA board, and in promoting themselves.

Naylor believes the single most important thing they can do is champion the cause of the existing MFAA committee that’s been established.

“Committees are only as goods as people who support and attend them – we need much more input from the whole of that sector in making sure they’re getting the best possible representation,” he says.

Gouge, who also chairs the MFAA Mortgage Management Committee, echoes the sentiments of Naylor, arguing there aren’t enough people prepared to get involved, and goes further to say it’s these people who are thwarting progress by shifting the blame.

“The people who throw the arrows are the people who don’t contribute. Right across the MFAA [committees] there’s a distinct lack of people who are prepared to really contribute and do the hard yards in advancing the MFAA, and taking off their respective corporate hats and looking at things for the benefit of the mortgage industry,” he says.

In rejecting suggestions that such committees are potentially a conflict of interest with the running of one’s business, Gouge is quick to refute such a proposal.

“Ethically, what’s required is for people to leave their ego at the door and look at things from the overview of the MFAA and not from their own personal corporate interests,” he says.

In response to whether there needs to be an independent body established for mortgage managers – separate to the MFAA, there appears to be consensus amongst senior industry figures.

Most believe it is pointless to have a separate committee purely for the sake of it, and if people want to have a voice and be heard, they should be putting their efforts into the existing committee and not segment the industry further.

Barrie Gaubert, managing director of Iden Group, concurs, arguing that if the ambiguity is to be clarified, everyone involved needs to be proactive in bringing a resolution to the fore.

“You can’t keep pointing the finger at the industry bodies. You’ve got to make sure you’re doing enough yourself. I see people sitting on the sidelines who are happy to poo-poo the associations from the outside in. If this is your industry and this is the industry that you earn a dollar from, give something back to the industry,” he says.

Stand and deliver

Despite the negative publicity, the ambiguity and other intangible setbacks, some believe the outlook for these segments of the market is looking good. This is in contrast to the most recent Fujitsu JP Morgan Australian Mortgage Report, which suggested continued competition (particularly from the banks), tightening margins and scare capital market liquidity would make it harder for the non-banks and wholesale originators to survive.

At this stage, non-bank lenders have been able to weather the US sub-prime storm.

Boyle points out that you only need to look at the evolution of non-bank lenders over time to see they have more than adequately earnt their place in the market, and he praises the mortgage management space for complementing their model.

“Ultimately, when it comes down to whether or not non-bank lenders are worthwhile, we point out that without them, there wouldn’t be the same great product range that we have in the market today. Mortgage managers are fantastic at being good stimulus in that product manufacturing, and are driving customer benefit,” he says.

According to Cowan, provided a few basic rules of business are adhered to and maintained, the future is looking as bright for mortgage managers as it is for any competing business model.

“There’s a good future for organisations that are well organised, provide a good service, look after the people they deal with. Margins are tighter than any other time, [but] so long as the service is kept up, there’s a good future for managers,” he says.

Those that compete on price alone though are likely to find things tougher.

Gaubert insists the reliance of these groups on differing distribution channels and points of separation in branding should see it continue to prosper going forward. “As a group, we’re quite large and we’re not here for five seconds, we’re here to stay,” he says.