Blenders
money themselves might allow them to move faster for their client.” McColl agrees it always has to come down to transparency. “What I’m advocating is transparency and honesty,” he says. “I’ll always set the options out in front of clients. If they want the speed at a slightly higher price with fewer hoops to jump through we can go to a private individual or if they want the cheaper rate and don’t mind waiting two to four weeks for the deal to go through we can go to the bigger lenders. It’s their choice.” McColl says blender activity
is likely to rise as the bridging market “demystifies”. Ultimately larger professional investors who want a slice of the action need distribution. Either they can deal with established lenders or they can go to brokers who will bring them clients. There are those investors with a slice of cash too small to be of any real use to the larger lender players – it’s this gap that blenders are filling.
WHITE LABELLING There is another blender situation which is perhaps the most established of the lot – white labelling. This practice
“If you have a situation
where unskilled people who are inexperienced at lending are taking on more of the lending role there will be mistakes made”
12 BRIDGING INTRODUCER MAY 2012
“In the heady days of sub-prime lending many lenders went so far as to outsource underwriting and even the decision to lend to packagers. This was in effect correspondent lending – something the FSA has now cracked down on hard”
is traditionally where a lender supplies the funds but allows the broker or packager to brand it as their own loan. In the heady days of sub-prime lending many lenders went so far as to outsource underwriting and even the decision to lend to packagers. This was in effect correspondent lending – something the Financial Services Authority has now cracked down on hard. Nowadays lenders engaging in white labelling say they underwrite everything themselves and disclose to the borrower that the loan is being supplied by them rather than the packager they have been dealing with. In a sense white labelling has been reduced to a marketing exercise enabling lenders to target specific products on specific terms at a restricted audience via a “preferred partner” or broker. The broker in this sense isn’t really a blender at all. However there is a distinctly grey area in the white label arena. It applies both to packagers using funding from larger lenders and private individuals lending through brokers. Cheval’s Gavin Diamond
explains the biggest potential pitfall for the borrower caught in white-labelling or correspondent lending is not knowing who they’re dealing with. “They are not actually aware who they are borrowing from,” he says. “This is of particular importance as not all lenders work to the same standards of responsible lending
and/or treating customers fairly. Indeed, the motives of certain lenders may be incongruous with the interests of the borrower.” Precise Mortgage’s Cleary
takes that sentiment further – if borrowers don’t know who they’re dealing with they may be mistreated but they may also unwittingly participate in money laundering. He recalls exactly that problem in the past sub-prime packaging world. “Correspondent lending
was proved to be rife with lax underwriting and fraud in the sub-prime era,” says Cleary. “If you have a situation where unskilled people who are inexperienced at lending are taking on more of the lending role there will be mistakes made. You also have the added worry of money laundering if you as the legitimate borrower don’t know who’s lending you the cash. People intent on washing money may actually target this type of set up. The whole thing is a grey area. It would be disastrous if that came back as it reveals over exuberance on the part of lenders trying to grab market share.” Although McColl acknowledges
Cleary’s point he calls the money laundering worry “a red herring”. “All money in this type of transaction has to be routed through a solicitor who has strict Money Laundering Regulation checks to do every time,” says McColl. “I’ve never seen a bridging case done without a solicitor so I’m pretty confident the
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