Tag: Mortgage Broker

Bank Says Broker Fees Would Remove Conflicts

From The Adviser.

The Productivity Commission (PC) had posed the question in its draft report into competition in the Australian financial system of whether consumers should pay service fees, with the aim of finding out if such a model would ensure consumer interests are being served without any conflicting commercial influence.

In a public hearing on Wednesday (28 February), Travis Crouch, divisional CFO for revenue at Bendigo and Adelaide Bank, contended that a “fee-for-service brokerage [would] remove the inherent conflicts involved in a commission-based structure and ensure fees earned are aligned with the value of the service provider”.

The representative explained that the bank relies less on mortgage brokers than other banks, as its primary focus for the last two decades has been on developing a strong branch network.

“We have been focused on the development of a strong branch network primarily since the advent of our community banking model, some 20 years ago, where communities can open a branch of a Bendigo Bank as a franchisee. That remains a reverse enquiry model… We’re not out there selling to a community that you should open a community bank; rather, [the] community comes to us and [says], ‘We would like to open a branch’,” Mr Crouch told the PC in the hearing.

“There is a significant process including feasibility studies [that] they need to go through to show that they could be successful. But we continue to increase our branch footprint primarily through that community bank model.”

Mr Crouch further explained the difference between the organisation’s Adelaide Bank and Bendigo Bank brands, saying: “Our brand that we use in the broker market is the Adelaide Bank brand. The Bendigo Bank brand is our retail offering through our retail and community bank network. The Adelaide Bank brand is effectively an online brand once you take out the mortgage through a mortgage broker.”

Trail “an absurd option”

In response, a PC representative commented that if Adelaide Bank is ultimately an online brand, paying trail commissions must be an “absurd option”.

“For the average loan, $665 per year in perpetuity for an online-based product seems very expensive,” the PC said.

“You presumably have very little choice about that because, as you say, you have to play in the market.”

The Bendigo and Adelaide Bank representative agreed with the comment, drawing back to why the bank believes that a fee-for-service model is “more appropriate”.

Mr Crouch did not, however, deny the importance of brokers, saying that it would be a “brave decision to not participate in that market”, given that “roughly half of Australians [are] choosing to select a mortgage by going to a broker”.

When asked about whether the bank has had to make “either/or” decisions around opening branches in the same location as brokerages, Mr Crouch noted that it has separate strategies for its retail and broker businesses.

“The reality is both are generally competing in the same market, whether that be a geographic market or anything else, and quite often you’ll find one of our branches in the same shopping strip as an outlet of a major broker. So, it is not an either/or in our organisation,” the CFO explained.

“I can’t think of a time when we made a decision around our branch network based on ‘should we actually use a third party in that particular space’.”

While the bank is in support of consumers paying service fees to brokers, its representative acknowledged that “such a change will have significant and varied implications, which will need to be carefully considered before such a change is implemented”.

The proposed monetisation model has been met with criticism from the aggregator and broker community, with Connective director Mark Haron previously telling The Adviser that if brokers charged a fee for service, the Australian broker population would decline significantly, which, in turn, would negatively impact the non-major banks and non-banks that depend on brokers for business. It was his contention that such a model would decrease competition in the Australian financial system.

The major banks — which already control more than 80 per cent of all owner-occupied housing loans and 85 per cent of investor housing loans, according to the Australian Prudential Regulation Authority — would therefore gain additional market share if consumers chose to go directly to banks for their loans in order to avoid paying broker fees, Mr Haron said.

The Connective director also warned that a fee-for-service model could make financial advice less accessible to customers who need it the most, such as first home buyers, and further noted that, by managing home loan applications, brokers actually reduce the workload for banks.

“[Brokers are doing] the work that the banks would have to do themselves, so it’s only fair that the brokers get remunerated by the banks,” the director said.

Productivity Commission and Mortgage Brokers

From Australian Broker.

Productivity Commission chairman Peter Harris defended his agency’s criticism of broker commission in its report on competition in financial services, as he highlighted again the high cost of mortgage brokers.

Speaking at a Committee for the Economic Development of Australia event yesterday, Harris said more than $2.4bn is now paid annually for mortgage broker services.

The commission’s draft report released in early February says that based on ASIC’s findings, lenders pay brokers an upfront commission of $2,289 (0.62%) and a trail commission of $665 (0.18%) a year on an average new home loan of $369,000.

“Some in the broking industry want to know why there is suddenly attention being paid to commissions. The sum I just cited, as a large apparent addition to industry costs since the mid-90s, by itself suggests a public analysis of why it is so large might be in order.”

Harris said the amount becomes problematic when some parties suggest that consumers do not bear this burden as they do not pay commission costs.

“Which is a comment surely made for Twitter – since anyone with a slight amount of common sense knows that somewhere in any product purchase, it is only a customer or a shareholder who could be paying this charge, unless offsetting costs have been stripped out,” he said.

Harris also cast doubt on industry changes to broker remuneration structures. He said that despite announced changes to parts of commission payment schemes, broker commission remains far from aligned with consumer interests.

He zeroed in on trailing commissions – which he said are worth $1bn per annum – and questioned their relevance.

“The industry itself has said that trailing commissions are designed to reduce churn and manage customers on behalf of banks. Despite the hint to the contrary, we do actually understand quite well why it might be in a bank’s interest and a broker’s interest to jointly limit churn,” said Harris.

“But not the customer’s interest – who is most probably paying for the service.”

Harris said the Productivity Commission preferred that banks imposed on brokers the duty of ensuring they act in consumers’ best interests, “perhaps via contract”.

“But we have no power to recommend what banks do for themselves, so we have instead a draft report that proposes regulation,” he said.

The commission is moving into the public hearing stage this week, and will submit its final report on 1 July.

ASIC bans mortgage broker from credit for three years

ASIC has banned Michael Wilkins, of Watanobbi, NSW, from engaging in credit activities for three years.

Mr Wilkins was a mortgage broker and helped clients to arrange finance to purchase properties. ASIC found that on five occasions in June and July 2010, Mr Wilkins submitted loan applications on behalf of clients in which he deliberately overstated their savings by between about $130,000 and $179,000.

By submitting these loan applications, ASIC found that Mr Wilkins gave to the bank information or a document that was false or misleading.

Mr Wilkins has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

Aren’t mortgage applications tough enough?

From Mortgage Professional Australia.

Amid regulatory and market concern, banks are scrambling to make mortgage applications tougher, leaving brokers to pick up the pieces, writes MPA editor Sam Richardson

Although ASIC and APRA didn’t exist, applying for a mortgage in 1960s Australia was a highly regulated business. The government controlled not only lending conditions but even your interest rate, and you’d have to head to a branch to apply for a loan. Now you can apply without ever setting foot in a bank or even leaving your computer.

It’s become easier to get a mortgage; for some, too easy. Over four days in late September two major banks added extra checks to an already-extensive application process. ANZ introduced a Customer Interview Guide requiring brokers to ask questions about everything from a customer’s Netflix subscription to whether they were planning to start a family. Three days later CBA introduced a simulator that would show interest-only borrowers how their repayments would change and affect their lifestyle. Customers would be required to fill in an ‘acknowledgement form’ to proceed with an interest-only application.

ANZ and CBA are trapped between a rock and a hard place. On one side is the mantra of customer convenience and choice, but on the other the lenders and regulators are desperate to avoid public embarrassment. Brokers have been caught in the middle.

Not tough enough

Two weeks before the majors took action, Swiss investment bank UBS published an alarming and controversial report. Surveying 907 recent borrowers on their experience of getting a mortgage, it argued that the “ease of attaining approval had improved over every prior vintage back to the 1990s”.

Therefore, UBS concluded, “we believe there is little evidence to suggest customers are finding it more difficult to attain credit or that mortgage underwriting standards are being tightened from a customer’s perspective”. That was a problem, UBS argued, because the banks had already written $500m of ‘liar loans’ based on inaccurate information, with ANZ the worst affected.

UBS’s conclusions have been met with intense criticism. ASIC senior executive Michael Saadat told the Senate that, because of the sophistication of the verification process, “we think consumers are probably not the best judge of what banks are doing behind the scenes to make sure borrowers can afford the loans they’re being provided with”.

Yet while it defends lending standards with one hand, ASIC has been strengthening them with the other. The regulator is currently embroiled in a long-running court case against Westpac over the bank’s estimation of customer expenditure, in addition to dictating tougher rules for interest-only lending in April and preparing a ‘shadow shop’ of brokers later this year. Additionally, the Consumer Action Law Centre told MPA that verification was “critically important” and that it supported high standards. For Consumer Action, ASIC and UBS, application standards are still very much a work in progress.

The cost of compliance
Brokers have a very different opinion. Mortgage Choice CEO John Flavell has publicly stated that “lenders are more scrupulous than ever”, explaining that “new legislation requires brokers and lenders to forensically examine a borrower’s assets and liability situation”.

While no friends of the broker channel, UBS noted that brokers “arguably do much of the application heavy lifting” and brokers can attest to the impact of tightening lending standards. Turnaround times have actually got worse over the past year, according to 40% of respondents to MPA’s Brokers on Banks survey. Compliance and bank mismanagement have negated the gains of huge investments in technology, the experience of one broker suggests: “I have been doing this for 20 years. Twenty years ago we were getting unconditional approval in five days. We are still struggling for that 20 years later.”


“If I go back four or five years, I was amazed at just how loose many of the processes were” – Martin North, Digital Finance Analytics

Easier, not shorter
Martin North, principal of consultancy Digital Finance Analytics, has studied mortgage applications for years and has observed an improvement in standards. “If I go back four or five years, I was amazed at just how loose many of the processes were and in fact what would happen is the information would be captured on the form but never used in the underwriting process,” he says.

Progress has been driven not by extra questions for borrowers, North explains, but by an increase in documentation required from applicants. North believes there is room for improvement, however, particularly when it comes to understanding borrower expenditure. Only half of households have formal budgeting, he explains, and “whether it’s a real lie that households have not been truthful with the lenders, or whether they’ve got the best estimate and it might not be accurate, is probably the moot point”.

Applications can be made easier, North argues, but “easier doesn’t necessarily mean shorter”. Improvements in technology could improve underwriting standards for banks while pre-populating interactive application forms for consumers and offering time-saving solutions to brokers.

This is already occurring. Realestate.com.au’s new home loans offering integrates an online calculator into its website, which indicates how a borrower’s lifestyle would be impacted by mortgage repayments on a particular property. When borrowers apply for conditional approval the calculator’s details are fed into the form, allowing a quick online form to lead to instant approval.

For brokers, Advantedge has introduced two mobile apps to make collection of identification documents faster. Looking further ahead, banks have committed to sharing data within two years, which according to Australian Bankers’ Association chief executive Anna Bligh means that “at the click of a button, Australians will be able to directly share their transaction data with other banks or financial services”.

Should technology meet these lofty expectations, today’s paper-heavy application process could eventually be viewed in the same way that we view the branch of the 1960s today. Yet until this technology kicks in, brokers should prepare themselves for more heavy lifting.

Broker market share rises to a record 55.7% in September quarter – MFAA

From MFAA.

Australian finance brokers settled 55.7% of all residential mortgages during the September 2017 quarter, up from 53.6% in the same quarter last year, the latest industry data reveals.

Mortgage and Finance Association of Australia (MFAA) CEO Mike Felton said this represented a record $51.77 billion worth of residential home loans settled by mortgage brokers nationally in the September 2017 quarter, up from $48.57 billion in the September 2016 quarter.

“The broker share of the residential market is now at an all-time record which is reflective of the excellent value and service the broker model delivers,” Mr Felton said.

“The dollar values represent a pleasing 6.6% increase from the September 2016 to the September 2017 quarter,” he said.

The $51.77 billion settled by brokers represented a market share of 55.7% of all residential home loans as a percentage of ABS housing commitments. Comparing the market share on a year-by-year basis, this was an increase of 2.1% from the September 2016 quarter and 3.1% higher than the September 2015 quarter, comparator’s quarterly survey reveals.

“What a great result this was in these market conditions. The results suggest a rising trajectory for the broker-originated lending share and are further evidence of the trust and confidence consumers have in their broker,” Mr Felton said.

“Of course these figures need to be viewed in the context of the growth in broker numbers for the same period which is a statistic that will only be made available in the first quarter of next year but the latest surge in broker market share in both percentage and value terms in extremely positive,” he said.

Research group comparator (a Corelogic business) compiles quarterly broker statistics by calculating the value of loans settled by 19 of the leading brokers and aggregators as a percentage of the ABS Housing Finance commitments. The MFAA releases these statistics each quarter.

Major aggregator issues fraud warning to brokers

From The Adviser.

One of the industry’s largest aggregators has said that brokers are “on the front line” of preventing mortgage fraud as regulators turn their attention to the third-party channel.

In a compliance update this week, Connective pointed to findings from the 2016 Veda Cybercrime and Fraud Report, which recorded a 27 per cent year-on-year increase in falsifying personal information.

“Falsified documentation — particularly documents that verify a customer’s income — is the most common type of fraud that a mortgage broker is likely to encounter,” the aggregator said.

“It is your responsibility to ensure [that] the income declared on a customer’s loan application truly reflects their actual income. That puts you on the front line in terms of mortgage fraud prevention.”

Since 2010, ASIC has investigated more than 100 matters relating to loan fraud, and it banned, suspended or placed conditions on the licenses of more than 80 individuals or companies.

“We can only expect this scrutiny to intensify,” Connective said. “Quite recently, one mortgage broker was actually jailed for five years for colluding with clients over fraudulent loan applications.”

The award-winning aggregator urged brokers to carefully check income and verify living expenses by “studying” payslips and bank statements.

“You should check carefully to ensure that these documents, particularly the payslip, contain the information you would reasonably expect to see, and make an effort to check [that] the documents have not been altered or doctored.”

Connective provided this list of what should appear on a payslip:

  • Employer’s and employee’s names
  • Employer’s Australian Business Number (if applicable; verify by looking it up online)
  • Pay period
  • Date of payment
  • Gross and net pay
  • Hourly rates and amount paid
  • Any allowances or bonuses
  • Superannuation deductions
  • Any other deductions (such as child support payments, HECS payments)
  • Leave balances
  • A year to date summary

“If you are in any doubt, it is a good idea to ask your customer’s permission to call their employer and verify the information in their payslip,” Connective said. “If they refuse to give you permission, this can be considered a red flag.”

Back in June, Equifax BDM Steve Arsinoski informed brokers at a Pepper Money roadshow that 13 per cent of frauds reported were targeting home loans and there has been a 25 per cent year-on-year increase in frauds originating from the broker channel.

NAB streamlines loan process for brokers

From Australian Broker.

National Australia Bank (NAB) has announced a series of changes that will make its digital home loan capabilities more efficient for brokers and their clients.

The bank has introduced two online verification tools, IDme and ZipID, that allow brokers to securely collect customer identification from their mobile devices. NAB will also add DocuSign to its suites of tools in 2018 so customers can sign documents anywhere from their phone or tablet.

“We are focused on using smart technology to make it easier for brokers to both collect customer information and submit documentation, simplifying the home loan process,” said Steve Kane, NAB general manager of broker distribution.

These improvements have been rolled out as part of the bank’s Helping You Accelerate campaign which seeks to enhance the home loan experience for both brokers and customers.

Brokers will gain access to a variety of digital tools and personalised support from NAB to help guide them through the home loan process and deliver a positive experience to clients.

“In 2017 we have made a range of changes to make submitting home loan applications easier, simpler and more efficient for brokers and their customers,” said Kane.

The Helping You Accelerate campaign will help brokers get the most out of the support NAB offers by integrating its tools and assistance into a simple, step-by-step guide, he added.

“It’s yet another way we are showing our commitment to the broker channel.”

Over the past 12 months, NAB has rolled out a number of other initiatives to assist brokers such as its renewed small business offerings for SME clients and the Customer Adviser Broker Program which saw the bank install support experts in more than 20 branches with the specific remit of on-boarding broker clients.

“These initiatives are just a few examples of how NAB is listening to the insights of our brokers and continually improving the broker-customer experience. It’s just one step closer to becoming the bank for brokers,” Kane said.

Brokers should ‘move away from being a broker’

From The Adviser.

As technology and artificial intelligence make loan processing easier to automate, brokers should be looking to move from being a broker toward having “a professional mortgage practice”, a mortgage industry veteran has said.

According to author, broker and High Trust mortgage sales training specialist Todd Duncan, brokers should be focusing on improving culture and building trust if they are to succeed, as the dominance of technology means that “the trust barometer is really suffering”.

Speaking at The Adviser’s US Study Tour in San Francisco last week, Mr Duncan explained: “I want you to think about the decision you make as a leader, in terms of culture. I want you to think about how you’re building and running your organisation. I want you to be thinking about what is the strategic advantage that everybody in my company has in any customer interaction. And to understand that the measurement in life of any company — whether it be product, culture or the final relationship a customer has with you and the overall experience — is based on trust.

“Because what we see in the world is that the trust barometer is really, really suffering right now. We see world trust declining, we see corporate trust declining, we see financial sector trust declining, we see trust in a one-to-one relationship being held at suspicion if there’s not some direct referral, or some previous knowledge or existence of that person and what they do. And what I know about trust is that it really becomes the most important selling proposition that anybody has in this room.”

However, Mr Duncan acknowledged that trust is the “hardest” aspect of building a successful business.

“We can spend our entire career building an organisation around trust, but it can be gone like that [in a click]… And the decline of trust can absolutely bury a company, can tilt a company from forward-thinking growth to being reactive and respondent, all the way to non-existent.

“So we need to think about how every person on our team has to be not only an initiator of trust, an embracer of trust, a creator of trust, but also an endorser and a practitioner of trust. Because it is the one thing that gives you a strategic advantage in the marketplace.”

Establish an emotional connection ‘mandate’

Mr Duncan gave the example of the US bank Wells Fargo, which recently lost billions of dollars of deposits because of a perceived “low trust culture, with incentivised sales and compliance and regulation deficiencies”.

He said that the best companies, therefore, make it a “mandate” to have every sales activity centre based around empathy and emotional connection, as that is the unique trait of humans that technology has not been able to replicate — and is one which is the fastest at establishing trust.

The Duncan Group founder said: “It’s not about coverage, it’s not about advertising, it’s not about marketing, it’s not about any of that. It is about, at the very essence, the heartbeat between two human beings. One’s a specialist and one’s in need of advice around the most important decision they’re ever going to make in their household, which is buying and financing real estate…

“Plus, customers with an emotional investment in the business are more likely to turn into repeat long-term customers, and customers with an emotional connection to your business are likely to recommend your business to others.”

Specialisation is key

Mr Duncan added that specialisation was also a key trait to have, as there are an increasing number of products, rates and mortgage technology out there that can cause confusion.

The High Trust founder and CEO gave the example that when searching for a “do-it-yourself mortgage” on Google, there can be more than 17 million results. Further, there are 72 million results for “online mortgage”, which means that brokers are at the forefront of sifting through the noise and reducing customer confusion.

He outlined that brokers should therefore start building trust by moving away from branding themselves as brokers, but instead marketing their companies as “a professional mortgage practice”.

“I would even move away from being a broker. I would rebrand myself, I would rebrand the way that I operate. I want to position myself as having a professional mortgage practice, and I want this to be my brand.”

Mr Duncan concluded: “I think you need to begin to look at what you’re doing in the marketplace to have unadulterated, unequivocal, rating-supported, compliance-driven trust.

“Because if you have high trust, you shorten sale cycles. If you have high trust, you lower loan expense. If you have high trust, you accelerate the referral networks that are available to you in your marketplace that are just screaming for this kind of solution. And if you don’t have that, then you have nothing.”

REA Group to acquire a majority stake in Smartline

From Australian Broker.

REA Group announced today that realestate.com.au has entered into an agreement to acquire a majority stake in mortgage broking franchise business, Smartline and has also entered into a strategic mortgage broking partnership  with National Australia  Bank (NAB).

Smartline is a leading Australian mortgage broking franchise group with over 300 advisers nationally, settling more than $6bn in loans annually with a total loan book of approximately $25bn. realestate.com.au will acquire an 80.3% stake in Smartline, with the remaining 19.7% shareholding to be retained by the existing management team. This team will continue to be led by executive director and co-founder Chris Acret and will operate under its current structure and brand.

The purchase consideration of $67m will be funded from existing cash reserves. The minority shareholders hold a put option to sell the remaining 19.7% of shares which can only be exercised after three years, at a price dependent on the financial performance of Smartline. If not exercised, REA will acquire the remaining shares at the end of four years. The transaction is expected to complete in late July 2017.

realestate.com.au and NAB have also agreed to build a mortgage broking solution which adds to the strategic partnership announced in December 2016 to create an Australian-first end-to-end digital property search and financing experience. To help achieve this, NAB will provide an opportunity for its Choice Home Loans brokers to join this new broking solution.

The strategic partnership with NAB enables REA to offer a realestate.com.au broking service at the launch of realestate.com.au Home Loans later this year. The acquisition of Smartline will give the REA Financial Services segment greater scale and capability for the long term.

With an average monthly audience of  5.9 million, realestate.com.au has the largest audience of property seekers in Australia. This investment and partnership further strengthens REA’s move into financing, an integral part of buying a property. The home loan market in Australia is worth approximately $400bn a  year, of which more than 50% are obtained through mortgage brokers. The share of mortgages originated through broker channels continues to increase.

It is expected that REA’s entire Financial Services segment will contribute revenue, net of broker commissions, of between $26m to $30m and EBITDA between $7m to $11m in FY18.

REA group CEO Tracey Fellows commented: “Building a strong presence in the broker market channel is an important part of our financial services strategy. These investments allow us to enter a new market with two of the industry’s most trusted and successful mortgage broking operations.

“Providing a broker solution will complement the digital search and finance experience we are building in partnership with NAB on realestate.com.au. It’s about giving people greater choice when selecting the right home loan for them, ” said Fellows.

Smartline executive director and co-founder, Chris Acret commented: “This investment is a great strategic fit for both businesses. It’s born from a shared vision to build a market-leading home loan offering, marrying our trusted network of brokers with realestate.com.au’s leading digital capability.”

Brokers losing clients as channel conflict thrives

From The Adviser.

Mortgage brokers have grown increasingly concerned about channel conflict over the last 12 months and singled out which lenders are costing them business.

The Adviser surveyed 766 brokers over two days last week and found that 88 per cent were more concerned about channel conflict than they were 12 months ago.<

Over 93 per cent of brokers cited the major banks as their biggest concern.

More than half of brokers surveyed (55 per cent) said channel conflict had influenced which lenders they recommended to clients over the last 12 months. However, 74 per cent of brokers said channel conflict would influence which lenders they recommend to clients over the coming 12 months.

Over 78 per cent of brokers admitted they had lost a client as a result of a direct approach from a lender. Of those brokers who lost a client through channel conflict, 97 per cent said the major banks and their subsidiaries were responsible.

The survey results are part of a well-established trend taking place in the third-party channel. As fears mount over channel conflict and the majority of brokers admit to losing clients, sentiment towards the big four banks is clearly trending downward.

Aggregators have reported a notable shift in the flow of mortgages to the majors. The latest AFG Competition Index, released in March, found that the big four lost 6.55 per cent share of broker-originated loans over a 12-month period.

The major banks and their subsidiaries (ANZ, CBA, Bankwest, NAB, Westpac, Bank of Melbourne, Bank SA, and St.George Bank) saw 65.25 per cent of all mortgages written to them through the broker channel in the quarter to February 2017, according to the Index.

While this figure is up from the low of 64.09 per cent in the quarter to December 2016, it is markedly down from the comparative period last year, when the majors accounted for 71.8 per cent of all mortgages written by the third-party channel.

Meanwhile, information gathered by Momentum Intelligence for its Third-Party Lending Report: Major Banks 2017, suggests that the dominance of the big four banks is being undermined by a growing dissatisfaction among mortgage brokers.