Blenders
“We just wouldn’t entertain this kind of top up. We’re the lender you’re the broker is how i see it. Let’s stick to what each of us does best. underwriting deals like that is hugely complex and if you top up the LtV you’re affecting the affordability of the loan”
“the blended rate across the whole deal is then something like 1.35% making it a commercial choice for the borrower,” he explains. “the higher rate on the top proportion of the loan doesn’t have a huge impact on the total the customer pays and it can mean the case will go ahead. clients are happy and the introducing broker gets his commission on the deal done with the other lender. everyone’s happy. We’ve gone up to 85% LtV in the past because we’re comfortable with it. We know this market really well, we know the risks and the take out options.” Fairfax plays it down in the same way Waters is low key about blending. “it’s just something else we can offer borrowers,” explains Fairfax. “it gives us another competitive edge and i’m not sure that lots of packagers are doing it yet – though it is pretty obvious.” Wayne Smethurst, director of bridging packager capital Advances, argues that provided the broker is conducting their business in line with best practice, whether working on regulated or non-regulated deals, there shouldn’t be any unmanageable conflicts of interest. “it’s a question of the broker
exercising a duty of care and having an audit trail in place for every deal, evidencing how they have found the most suitable deal,” he says. “there can be
8 bridging introducer MAY 2012
advantages and disadvantages for the borrower. Where a deal makes sense but doesn’t fit the parameters of any of the recognised lenders and where a private funder is prepared to take on the lending risk, then the borrower could gain. the question I would ask, though, is whether a private funder would really understand the risk they are taking on?”
Indeed there are those in the market who question the practice.
RISK, RISK, RISK “if the credit risk is good at 85% LtV why wouldn’t i just lend up to 85%?” asks Alan cleary, managing director of Precise Mortgages, a larger regulated lender in the mainstream and bridging market. “We just wouldn’t entertain this kind of top up. We’re the lender you’re the broker is how i see it. Let’s stick to what each of us does best. underwriting deals like that is hugely complex and if you top up the LtV you’re affecting the affordability of the loan. our risk goes up if the overall LTV rises because in part it reduces the client’s skin in the game and the risk of him defaulting is worse.” Laurence goodman, chief
executive at bridgebank capital agrees. “A lender is a lender and a broker is a broker and never the twain shall meet,” he says. “There are many fundamental
differences between a lender and a broker – underwriting, back office administration, risk management and risk assessment and compliance to name but a few. Any broker acting as a conduit for a private bridging lender doing one off deals can’t be sufficiently well established to deliver a professional lending offering.” goodman fundamentally
believes brokers don’t have the same mindset or necessary experience in assessing risk and worries “part-time” lenders will risk a higher repayment failure rate causing detriment for the borrower and wider industry. He is also unconvinced about the quality of deals arranged by blenders. “clearly bridging loans that are not likely to be considered by established lenders are most likely to migrate towards inexperienced lenders,” he says. “it can therefore be construed that “broker-lenders” present a lending option for very high risk lending propositions.” Martin gilsenan, sales director
at omni capital, raises similar questions. “the terms offered may not be as attractive as those usually available from a mainstream bridging lender. Also, some brokers may not have the experience, or desire, to document the terms and conditions as thoroughly or clearly as they should,” he warns. “one reason why the broker- lender relationship works so well is the way in which it helps define each party’s role. brokers shouldn’t get too emotionally involved with a deal; while lenders should never allow themselves to become too removed. there’s an old industry adage that has some relevance here: “lenders make bad brokers and brokers bad lenders”. it’s a generalisation, of course, but not entirely without foundation.” It’s perhaps no irony that the most obvious example of blending was the first incarnation of omni
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