The Secured Loans Market Infrastructure

The Secured Loans Market Infrastructure



The Secured Loans Market Infrastructure
Introduction
With the​ rise in​ recent years of​ Secured Loans or​ Second Charge mortgages the​ market has grown both in​ the​ volume of​ loans processed and the​ number of​ organisations involved .​
This article will attempt to​ break down the​ market into its individual components and explain,​ in​ general,​ the​ organisations that make up the​ Secured Loans Market.
The article is​ aimed at​ people involved in​ the​ finance sector but will probably prove interesting to​ those taking out a​ Secured Loans or​ to​ anyone with a​ general interest in​ how the​ wheels of​ the​ UK finance industry work.
Secured Loan Lenders
Despite there seeming to​ be masses of​ organisations in​ the​ media willing to​ lend money for a​ Secured Loan or​ Second charge mortgage there are very few players who actually lend the​ money .​
This is​ because a​ Secured Loan is​ considered middle to​ high risk so there are very few organisations actually willing to​ underwrite the​ risk .​
Although there are only a​ handful of​ banks actually putting up the​ money,​ you​ will find that they may also use further downstream organisations to​ underwrite their own risk .​
For example,​ the​ London Mortgage Company,​ which now trades under the​ name London Personal Loans,​ says it​ uses up to​ thirty specialists to​ underwrite the​ loans it​ takes on​ .​
In recent years with a​ fairly stable housing market and strong confidence that there will be no sudden drop in​ prices there are a​ few more organisations willing to​ make the​ leap into secured loan lending,​ but the​ number still remains quite small .​
It is​ interesting that in​ most cases the​ 'banks' that take on​ the​ second charge debt are not well known organisations .​
This is​ because most of​ them are not customer facing,​ but sit behind a​ myriad of​ intermediaries,​ but it​ is​ similarly interesting that some well know high street banks also take on​ the​ debt,​ but for various reasons outlined later in​ this document,​ they sit behind various brand names or​ tiered organisations so that,​ in​ the​ end the​ Customer hasn't got a​ clue who they are actually dealing with .​
So if​ there are so few players actually lending the​ money,​ then why are we presented with masses of​ organisations offering Secured Loans? the​ reasons for this are multi-fold .​
To give some examples it​ is​ down to​ branding and marketing,​ due to​ core competencies (i.e .​
whether Secured Loans are part of​ a​ core business or​ incidental) and it​ is​ also in​ part due to​ the​ different types of​ media (e.g .​
television,​ internet,​ newspaper and radio) Secured Loans are sold .​
We will outline these reasons and some others later in​ the​ document.
Secured Loan Market Infrastructure
In the​ main,​ the​ infrastructure of​ the​ secured loans market is​ quite confusing .​
In a​ simple world it​ would be made up of​ banks lending the​ money directly to​ the​ Customer,​ but in​ the​ secured loan world there are several other levels of​ organisations we need to​ discuss .​
Firstly,​ there are the​ Brokers - these are organisations that supposedly approach various lenders to​ get the​ potential borrower the​ best deal .​
Secondly,​ there are Packagers - although there is​ no hard and fast definition of​ Packager they are typically organisations that process loan applications and pass them on​ either directly to​ the​ lender or​ to​ upstream brokers .​
Thirdly there are introducers - these are people or​ organisations that point Customers to​ a​ particular Broker or​ variety of​ Brokers .​
For clarity we will look at​ each one in​ turn.
Secured Loan Brokers
As the​ name implies Broker's have a​ 'database' of​ Secured Loan providers that they use to​ match the​ Customer's requirements against to​ 'broker' the​ best deal .​
Brokers use a​ multitude of​ different methods to​ attract Customers .​
For example,​ some Brokers concentrate on​ running a​ team of​ Introducers (see below) to​ obtain Customers .​
Other Brokers concentrate solely on​ newspaper,​ television and radio advertising and other Brokers focus on​ the​ Internet to​ get their business .​
Some of​ the​ larger Brokers use all the​ mediums at​ hand to​ get business.
What is​ quite interesting is​ how the​ Broker's use differing marketing techniques to​ make sure that they get coverage of​ the​ diversities of​ the​ marketplace .​
For example,​ the​ officious sounding Central Capital (which in​ turn is​ part of​ Central Trust) uses the​ brand name Debtbusterloans for its consumer loans business .​
In a​ similar vein Barclays uses the​ name Firstplus for its Internet and Television campaigns .​
One wonders whether the​ Financial Journalist Martin Lewis who led a​ campaign criticising Firstplus for using celebrities like Carol Vorderman to​ promote their loans knew he was actually criticising Barclays .​
Other interesting names to​ mention are the​ masses of​ trading names used by General Electric .​
General Electric operates GE Capital Bank that trades under a​ number of​ names including GE Finance,​ GEMoney,​ First National and Igroup and some of​ these are umbrellas to​ other trading names .​
It is​ interesting to​ note that one overall owner of​ a​ Financial Group may be directly related to​ perhaps 50 or​ so websites and trading names on​ the​ Internet .​
Maybe the​ trading names are not only used to​ attract the​ various socio economic groups but are also used to​ distance Companies from the​ rather emotive Secured Loans market .​
When a​ Customer is​ asked whom they got their Secured Loan off,​ they would nearly always say the​ brand name rather than the​ name of​ the​ Company at​ the​ top of​ the​ pyramid who supplied the​ actual loan

It is​ interesting to​ note that nearly all Brokers aren't impartial .​
The Lenders providing the​ money at​ the​ end of​ the​ chain offer them volume overrides (bonuses) if​ they obtain a​ particular volume of​ business over a​ given period .​
But contrary to​ this,​ it​ is​ also noteworthy to​ recognise that given the​ relatively low number of​ moneylenders at​ the​ end of​ the​ chain the​ affect on​ the​ end Customer is​ minimal .​
When a​ Broker says they are processing an​ application against Hundreds of​ Loans,​ what they actually mean is​ that they are matching the​ Loan against various configurations of​ the​ same three or​ four loans .​
For example - with County Court Judgements/without,​ of​ a​ particular age group/of another age group,​ for a​ particular value/ for other values.
Secured Loan Packager
Although the​ term Secured Loan Packager is​ used very loosely and there is​ no clear definition,​ a​ Packager is​ simply an​ organisation who 'packages' up a​ loan application and passes it​ onto either a​ Broker or​ the​ downstream lender .​
So in​ essence the​ Packager fills out the​ forms on​ behalf of​ the​ other organisations .​
In some cases this operates in​ a​ sort of​ outsource relationship between the​ Broker and the​ Packager and in​ other cases the​ Packager also has their own team of​ Introducers (see below) who they package up further loan applications for .​
I​ guess the​ reason for this is​ that seeing as​ they have the​ infrastructure in​ place they can increase their own organisations turnover and,​ hence,​ profitability by employing their own Introducer Network.
Secured Loan Introducers
Secured Loan Introducers are employed by Packagers,​ Brokers and indeed,​ in​ some cases the​ actual lenders to​ get further business .​
An Introducer may simply be a​ local person who gets business by word of​ mouth,​ or​ they could be an​ organisation (like a​ Double Glazing company) that passes on​ a​ Customer to​ a​ particular Broker .​
In some cases the​ Introducer companies are reasonably large organisations in​ their own right and might have a​ complete network of​ physical Introducers,​ a​ large Broker/Lender panel and a​ whole host of​ Internet websites and brand names.
Conclusion
The Secured Loan Market contains a​ complete myriad of​ organisations and as​ the​ market grows it​ is​ certain to​ become even more puzzling .​
What is​ even more confusing to​ the​ onlooker is​ that there is​ a​ lot of​ grey areas in​ relationships between the​ businesses within the​ hierarchy .​
For example,​ a​ broker may do their own packaging or​ an​ Introducer may have relationships with many Brokers making them in​ effect a​ Broker of​ Brokers .​
But the​ interesting thing is​ that no matter what level of​ the​ hierarchy the​ end Customer gives their business to​ they are highly unlikely to​ be charged any differently - the​ only things affected within this instance are the​ individual profits at​ each level of​ the​ pyramid.




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