sub-prime crisis affecting self cert secured loans?

[mccannio]

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I have just noticed on the bbc website that a lot of morgtage lenders have either withdrawn or reduced the amount of packages they offer including self cert. Do you think this will have a significant impact on:

1 - the number of self cert secured loan leads

and

2 - the approval of such applications?

the reason I am asking is that I have had my worst month for lead rejections and I am wondering if I am in the wrong market!

[sean-leyland]

Short answer is yes. All the guys I've been supplying secured loan leads to are tightening criteria and taking less leads.

The question I have is will this be a long term issue or a short term issue. The problem isn't just the sub-prime market but also interest rates rises, High Street bank confidence, after the Northern Rock issue, even had a couple of guys rocked by the postal strike.

At the end of the day I'm guessing will get worse before gets better, but will get better. The demand is still out there so supply will always be there somewhere.

Just my thoughts.

[Michael_Anthony]

The poster above is bang on the money - it will get better, but it will get worse first, and there will be casualties amongst the smaller, non-niche merchants.

[123debtsolutions]

Hey Michael this can only be a good thing for the IVA/DM market.

[sean-leyland]

Certainly the DM market, but I'm not overly sure about IVA's. Everyone knows how the market for IVA's is tightening up for various reasons, but if the rest of the finace market continues to have problems, then the banks are going to be looking in as many places as possible to cut costs and maximise income. Maybe attacking the IVA market as it is would be one way they could go?

I don't think they really cared to much previously because they were making so much money from mortgages and secured loans with the booming housing market and economy. IVA's were just the cost of doing business. However with that possibly about to change...

I don't know if anyone disagrees?

[russell cpanuk]

The Finance market goes in cycles (just like the housing market) as they are related. Consumer confidence rules the market, the lenders with invent products to fit the demand and withdraw products that have little demand.

Sure Northern Rock will affect lender confidence, (they will add extra criteria or lower LTV) but if lenders don’t write business they make no money, so they will find products they are happy to write again, in the short term.

I was talking only yesterday to a chap I have known for years, he is a property developer around the northwest; he buys old mills/buildings and turns them into flats/apartments. Early 1990’s he couldn’t convert them fast enough, demand was very high as consumer confidence was high. He would have every flat sold, before the scaffolding went up, many flats would change hands at various stages of the build, as investors moved their portfolio. Late 1990’s things changed and he had to be smarter but today’s market, he is lucky to have 50% of the flats sold before they are complete. Then 25% of the sold flats try to pull out of the contract. Leaving only 25% sold.

What’s this to do with the Finance Market? Every flat need’s, a finance product, buy to let or mortgage. So all he is doing in the short term is changing his margins to fit into today’s finance market. In short, making sure that the equity in is enough to fit into today’s finance product. (Cutting his margins)

That is all the lenders will do, is change their products, they will still write the business. January, February 2008, I believe will be business as usual, give the lenders time to re-group, and adjust their products.

The Finance Brokers, who use internet marketing, have maintained that they should pay per sale, because that the way they have always done it with introducers. Affiliates have maintained that they should pay per lead, and over the past few years it has worked well. All I can say on this matter is don’t let the brokers use this blip in the market to change things back to “pay per sale”, stand fast it is not all doom and gloom. They need your leads more than ever now to pull through.

Just to add a little on the DM/IVA products, from the post above, 2008 will see these products/margins change. Then it will be their turn to re-group and adjust. Have a dabble while the margins are high, but it will not last. Once the creditors/banks get their way, which they always do (just look at the bank charges) things will change and fast.

[123debtsolutions]

Admittedly the IVA market will take a downward turn but there is still 5 good months left, and this is the time now to be making the most of it.

Also
Let's not forget that an IVA is a legally binding arrangement that is often the best solution for certain individuals and whilst the criteria and creditor requirements are getting stricter, they are still a very profitable product/service that have been around over 20 years.

Also I speak to countless IP's and IVA companies and believe me they are all as desperate for cases as ever. I produced an increase by over 30% in September and I am being constantly hounded to increase productivity. Simple fact is that all merchants still want "Good quality leads and cases" as they are still realising a high yield.

As for the loan market , it is always going to be a sort after product and this will never change. As you said the majority of lenders structure their offerings dependant on market changes.
And loans & mortgages will always be highly sort after, especially if interest rates drop.

Hi Sean (hope you're well) I don't agree. IVA's have been hugely popular and very much welcomed in the last few years, it is only in the last 6 months (or so) that creditors have started to favour DM more, as they now {think} the DM service is better... They will soon realise how wrong they are and implement a better solution (possibly via TIX) to the problem.

But all of this is at least 5 months off, and nothing to be too concerned about until 08. Also there is nothing we as lead generators can do. All we have to do is keep supplying the demand that is out there until told otherwise.

But my advice for all good affiliates is to not have there eggs in one basket. Diversify your services to include DM/IVA/loans/re-mortgages and other financial products.

[Michael_Anthony]

Russell - I agree completely, with one caveat.

Interestingly, our own back end (pay per sale) secured loans deal looks like actually delivering a higher effective CPA than our pure pay per lead product. The only drawback of course being the average 3 month cashflow hole until you get paid.

It is my belief that long term we will see many of our affiliates switch to this model, once we have a few big payouts and we share the information with all our members - right now, as it is a fairly new program, it looks like most of our affiliates are using a "toe in the water" approach, and hedging their bets by still delivering CPA leads as well.

[russell cpanuk]

Can’t agree with your maths on this one Michael, but please do correct me (which I know you will) if I am wrong.

Based on 100 leads

Pay per lead
Affiliate generates 100 @ £70 average per lead, = £7,000 happy days.

Pay per sale
Affiliate generates 100 @ 5% conversion rate = 5 completed cases. Average loan value £15,000 @ 6% of loan value = £4,500.

At 10% conversion
Affiliate generates 100 @ 10% conversion rate = 10 completed cases. Average loan value £15,000 @ 6% of loan value = £9,000

So an affiliate would need to convert at 8.5% to even match the pay per lead price. That’s if they get 6% of the loan amount and the average is £15,000. The top end applications only, may achieve these figures i.e. consolidation/home-improvements, £15,000 plus, but when the other amounts and purposes are factored in, I can’t see how. But I know you are going to enlighten me.

You and your School is the main reason why, the price per lead is where it is today, across loans and DM/IVA. I take my hat of to you, for making this happen. I just can’t understand why you would advocate a back end deal? It goes against all you have worked so hard to achieve.

[Michael_Anthony]

We actually went looking for a back end for all the stuff that our regular merchants wouldn't buy on a CPA basis - low loan values, poorly converting loan purposes, etc.

Our data also contradicts your calculations as the average loan value is more like £23,000, which puts a far rosier picture on the sums. I would qualify this by adding that it is very early days - we have yet to see true conversion figures, so only time will tell.

And I agree, we have driven up prices, which is great for us all, and we have a new innovation in the works which will blow your socks off - watch this space.

[russell cpanuk]

The average loan value is £23,000, across all purposes and amounts, this is correct. However, I understood your “back end” deal to be lower value and poorly converting loan purposes. Which, you confirmed in your first paragraph.

So let’s use the £23,000 for the rosier picture as you claim.

Based on 100 leads

Pay per lead
Affiliate generates 100 @ £70 average per lead, = £7,000.

Pay per sale
Affiliate generates 100 @ 5% conversion rate = 5 completed cases. Average loan value £23,000 @ 6% of loan value = £6,900.

Affiliates will need to convert at 5% to match the pay per lead price. That’s if they get 6% of the loan amount and the average is £23,000.

Affiliates will achieve this, with consolidation/home-improvements and higher loan amounts, but not with a mixed bag, of lower amounts and poorly converting loan purposes.

My point isn’t to pick holes out of a back end deal (each to their own), it is to point out that “back end” can’t match “pay per lead” for affiliates. The work you have done over the past few years by driving up prices for CPA, has benefited us all, you have shouted from the rooftops and gone through many battles on this forum, standing up for what you believed in. I know times and markets change, however merchants will take advantage of a back end deal that is without any doubt, and I believe that networks should insist on payment per lead, so affiliates know where they are at.

[Peter1_G]

Thanks Russell

your affiliates would be doing well with your figures, but i don't think your merchants would not be too happy with your comments.

A conversion rate does not and should not, change whether backend or PPL and 5% means your merchants are paying £1400 a job plus your fee, I would not be a very happy merchant on PPL at 5% conversion Would You?

Deal with the figures in a construcive light and if an Affiliate converts at 10%-15% which is the least a merchant should or would expect. Especially if they are paying for your network services on top

Please disagree if you think i am wrong

regards
Peter G

[Michael_Anthony]

Russell, before you get too carried away, I would point out that the very same merchant that our back end deal is with also pays per lead through us on a CPA basis.

And our projected conversion on the back end is around 9% at the moment, but again I would stress that this is very early days.

And our focus is not only on affiliates - we quite like our merchants to make a profit too.

[russell cpanuk]

Hi Peter

I don’t disagree; a merchant should be looking at 10% plus on his conversions, if leads are generated in the correct way. I was simply using 5% as I knew the leads are being filtered.

Consolidation/Home-improvements will convert the best, while car/business loans will convert at the lowest. Taking them all into account then the average price would be £70 to the affiliate and conversion rates should be 10% plus.

However if the leads were filtered, this means that the “back end” merchant is only getting car/business and low loan amounts, he would be highly unlikely to achieve even 5%.

[Peter1_G]

Russell,

Maybe I didn't make my point, as a Merchant

"However if the leads were filtered, this means that the “back end” merchant is only getting car/business and low loan amounts, he would be highly unlikely to achieve even 5%."

These leads whether at 5% or 25% conversions these are the cheapest in PPL arena and therefore the Affiliate would be happy to get anything at all over and above the £5.00 £10.00 per lead

My point is you were advocating PPL as the way it should always be and as I, PPL at the top end of the spectrum a conversion rate of 5% or 10% does not warrant the cost per lead. PPL works on "Aquisition Cost" or "conversion rate" to everyone else, if they don't convert they have "no value" but still cost money , so the converted lead can at the Merchants risk, "not the affiliate" cost more than the value of the deal.

Pay per sale at 5% or 25% it doesn't matter to the merchant he wants to convert as many as he can and as long as deal has "A Value" can pay as much of his profit as he likes. and like most things in life, you get paid if your product is good

The main problem with PPL, is it allows affiliates without a good product to get paid, with very little regard to the Merchant/Customer. This is why merchants pay networks to make sure they come up to scratch, is it not?

You will also find that it would be very easy for affiliate marketing to price itself out of a potentially profitable market with strictly PPL programs were as the Pay per sale has a longevity, that in most business environments has always been a plus

Regards
PeterG