Suncorp Intensifies Focus On Mortgage Brokers

From Australian Broker.

Suncorp Bank has launched a new reward program designed to reward loyal brokers of all business sizes and support their relationships with their customers.

The Elevate program offers brokers priority service and preferential turnaround times and is accessible to brokers at all business levels.

Suncorp Bank head of intermediaries, Steve Degetto, says Elevate doesn’t just favour the top loan writers and big broker businesses, making it one of the most equitable reward programs in the market.

“This new, innovative approach to reward and recognition means brokers don’t need to be big writers or have an enormous portfolio to realise the benefits, with all levels of business being rewarded.

“The program focuses equally on quality and volumes of business written, with the aim to provide strengthened customer relationships at every tier which is essential in such a competitive market.”

Degetto says the non-major is committed to investing in its third party channel and will continue to consult its broker network on how to invest further in the channel this year.

“Suncorp Bank is committed to developing sustainable long term relationships with brokers, and
Elevate is just one of the ways we aim to recognise and reward our broker partners.

“The program also demonstrates our focus on continuous improvement of our own business to fulfil broker needs.”

The program currently features three tiers: gold, silver and bronze. Each tier has access to unique special offers and dedicated support teams.

The Truth About Mortgage Brokers

Recent media coverage about mortgage brokers has been quite negative, with allegations of poor ethical standards and false application data being used by some to bolster loan applications. So in this post and in our latest video blog we look at data from our household surveys to portray the current state of play.

To begin, mortgage brokers have become a significant feature in the mortgage industry landscape. Indeed almost half of new loans are now originated by brokers. Different household segments have different propensities to use brokers. Those seeking to refinance, first time buyers and property investors are most likely to use a mortgage broker.

Broker-Feb-2016We expect this growth to continue, thanks to the current appetite for refinancing, and the broker focus now apparent among major banks. For example CBA, in their recent results reported to December 2015 that 45% of their loans came via the broker channel, up from 40% a year earlier. In addition regional players and credit unions are using brokers, alongside foreign banks operating here and the non-bank sector.

Broker-Share-Feb-2016Commissions have been tweaked recently, and the industry commission take is now back up to pre-GFC levels, (after adjusting for inflation) because whilst overall commissions were trimmed, volumes have grown.

Broker-Commissions-2016Remember that brokers get a commission payment at the start of the loan, as well as a trail paid in subsequent years. The bigger the loan, the bigger the commission. Very few aggregators normalise actual commissions paid – although Mortgage Choice does, so they claim their brokers are less influenced by commission structures.

“At Mortgage Choice we pay your broker the same rate, no matter which home loan you choose from our wide choice of lenders. That means you can tap into a Mortgage Choice broker’s expertise at no charge, with peace of mind that they have your best interests at heart”.

Some brokers refund a proportion of the commission from the lender back to the borrower. For example Peach Home Loans says:

“When we arrange your loan we are doing quite a bit of the work that the lender’s staff would otherwise have to do and as a result the lenders pay us a commission on the upfront (loan amount) – this is typically around 0.6% or $600 per $100,000. We try to recover our costs from this commission and then share what is left over with you. Lenders also pay us a small trailing commission typically from 0.15% to 0.25% pa paid on the outstanding loan balance … and this is where we try to make our profit.. after all we are in business to make a profit.”

Consider next who is the broker working for? Whilst some are directly employed by banks or aggregators, others are self employed businesses. They are mostly aligned to aggregators or banks to get access to the lender lists and access to various tools and calculators. As a broker, they want to do a deal and the legislation controlling their conduct says they need to consider the financial status of an applicant to ensure the loan is “not unsuitable.” From ASIC’s responsible lending provisions:

“As a credit licensee, you must decide how you will meet the responsible lending obligations. RG 209 sets out our expectations for compliance. Meeting your responsible lending obligations will require taking three steps:

  1. make reasonable inquiries about the consumer’s financial situation, and their requirements and objectives;
  2. take reasonable steps to verify the consumer’s financial situation; and
  3. make a preliminary assessment (if you are providing credit assistance) or final assessment (if you are the credit provider) about whether the credit contract is ‘not unsuitable’ for the consumer (based on the inquiries and information obtained in the first two steps).

In addition, if the consumer requests it, you must be able to provide them with a written copy of the preliminary assessment or final assessment (as relevant)”.

This is quite weak protection, because suitability may depend on many factors, including financial sophistication of the potential borrowers, income and expenditure assessments and other elements.

The list of lenders a broker may consider will depend on the lender panel they have access to. Most brokers will access a restricted list of potential lenders, and cannot offer a “whole of market” view of options. Quite often they will use on-line tools with a client to come up with the best deals, although often the basis for selection and lender recommendation is vague and is often not fully disclosed.

Some brokers are very proactive when it comes to shepherding the loan application through to funding, others less so. Some brokers will also keep a diary note to instigate a possible refinance conversation down the track.

But, to be clear, whilst many brokers will give good advice, they are in an area of potential conflict thanks to commissions, and limitations thanks to the panel. Brokers should be disclosing potential commissions and also their selection criteria.

The alleged poor conduct where brokers falsify applicant data is in our view a marginal activity of a “few bad apples.” That said, consumers should be using a mortgage broker with their eyes open. Ask yourself if the broker is truly working in your best interests.

APRA recently said that they considered loans written via brokers to be more risky than loans written direct by the banks. APRA chairman Wayne Byres said:

“Third-party originated loans tend to have a materially higher default rate compared to loans originated through proprietary channels.”

So we decided to analyse our current household survey data, looking at relative risks between third party (broker) and first party (bank) loans. We tested risks by asking households about their perceived sensitivity to interest rate rises on mortgage loans. You can read about our approach here.

The results show that households who originated loans via brokers have less headroom and more exposure to potential interest rate rises (should they occur). For example, among owner occupied first time buyers, 28% of those who got a loan direct from a bank said they would have difficulty if rates rose at all from their current levels, whereas for owner occupied borrowers via a broker this rose to 43%, a significantly higher proportion. Further analysis showed that on average loans via brokers was at a higher loan to value and loan to income ratio than those direct via the bank.

FTB-OOThere was a similar, though less extreme shift in risk across all owner occupied portfolios, with 40% of borrowers direct from a bank saying they could cope with more than 7% rise, compared with 20% of those via a broker.

OO-HeadroomLooking at refinanced owner occupied loans we again saw a higher proportion less able to cope with a rise in rates among households who got their loan via a broker channel.

Refinanced-OOOn the investment property side of the ledger, among portfolio investors – those with multiple properties in a portfolio, there was a higher proportion who would be exposed by any rate rise among those going direct to a bank, compared with a broker – but the difference is quite small and combined more than 40% of portfolio investors would have issues if rates rose.

Portfolio-Investor-HeadroomWhen we looked at all investment loans, we found that households who obtained a loan via a broker were slightly more likely to be under the gun if rates rose, and a significantly higher proportion of borrowers who went direct to a bank were confident of handling a rise of more than 7% from current levels.

Broker-Headroom Consolidating all the results, we conclude that households who accessed loans via brokers have on average less head room to accommodate rate rises compared with those who went direct. APRA is correct.

Broker-and-OO-Headroom

AFR report on brokers a ‘serious allegation’: MFAA

From Australian Broker.

The Mortgage and Finance Association of Australia (MFAA) has branded a report in the Australian Financial Review (AFR) – which questions the ethics of mortgage brokers and likened some to a Ponzi scheme – as a “serious allegation”.

The AFR report, titled ‘Uncovering the big Aussie short’ claims mortgage brokers in the western suburbs of Sydney encouraged the undercover hedge-fund manager and economist posing as a low income couple to lie on loan application documents about the deposit for a house and about income.

Jonathan Tepper, economist and founder of Variant Perception, wrote in a report, “we asked if the bank would call our employer, and both reputable and disreputable brokers said banks rarely verified payslips”.

John Hempton, Bronte Capital’s chief investment officer added that they were also told the checking of documents was sometimes done by Indian call centres.

Tepper and Hempton also claimed they encountered many investors who were able to get revaluations on their properties to increase their equity for speculative purposes.

According to Hempton, in north-western Sydney they met one mortgage broker who told them which of the big four banks would revalue properties quickly.

“They wanted to put you in 10 to 15 apartments. The only way they could do that was getting the bank to revalue the property so you could borrow more money. They were acute about which banks had bad practices,” the AFR report quotes Hempton.

Siobhan Hayden, the chief executive of the MFAA, says this sort of behaviour has no place in the mortgage broking industry and she is calling on the AFR to provide the names of the offending brokers.

“The practices of brokers are well documented and require the provision of supporting upfront documents such as payslips, group certificates, tax returns and identification check as part of the upfront application. Lying has no place in this industry and we take swift action if members are acting unethically. It should also be noted that brokers who act outside of the law represent an incredibly small portion of the industry,” Hayden said.

“We call on the AFR or the research firm provides the names of these mortgage brokers, as the MFAA has a strict code of practice and ethics attached to its membership. If these are MFAA members we would initiate a full investigation and work in partnership with the industry regulator, ASIC.”

She is also condemning the authors of the report, Tepper and Hempton, as well as the AFR for not seeking out either industry body for comment.

“We would have hoped that with any story of this nature the industry body would have been contacted to seek commentary and supporting data for validation. The article is based on invalid research samples sizes and infers that overseas outsourcing of administration is somehow inferior. Both sides of the story should be told.”

Hayden also pointed to the ‘Observations on the value of mortgage broking’ report, commissioned by the MFAA and prepared by Ernst & Young, which showed that 92% of consumers who had used a broker were satisfied with the experience, stating that the convenience and access to a range of suitable deals were the best qualities.

OO Housing Finance Bounces Back – Refinance Anyone?

The latest ABS data to December 2015 shows that in the month, trend owner occupied lending grew 1.3%, seasonally adjusted, with $21.3 bn of loans being written.  Construction loans grew 1.4% ($1.9 bn), purchase of new dwellings grew 1.7% ($1.3bn) and purchase of established dwellings by 1.28% ($18.75bn). Refinance continued to grow, with 33% of loans written in the month churned, up 2.3% to $7.29bn.  Overall owner occupied lending, net of refinance grew just 0.8%.

OO-Trends-Dec-2015Looking at state trends, VIC led the way, up 1.5%, QLD at 1%, NSW at 0.7%, SA 0.6%, and WA down 0.3%. But startlingly, TAS reported a rise of 1.8% and NT a rise of 1.4%. The ACT was 1.6% higher. So, WA apart, owner occupied lending grew in every state.

State-Trend-Change-Dec-2015Total finance, including investment loans grew by just 0.025%, investment loans fell 2.36% to 11.4 bn. We see the clear focus of lending is to owner occupied borrowers, and a massive focus on churning loans. We also see a significant rise in the number of fixed rate deals, as households lock in low rates, with the number of deals up 17.2%, whilst secured revolving loans fell 9.8%. This reflects the cheap loan special offers which are currently in the market.

Trend-Flow-Dec-2015First time buyer OO loans grew in December, with a rise of 4.6% on the previous month to make up 15.1% of new loans. This is faster than for non-first time buyer loans, here the number of loans grew 3.1%. The average loan size fell a little in the month, reflecting tighter lending criteria. This is original data, not trend smoothed.

FTB-Orignal-Dec-2015Overlaying first time investors, from our surveys, overall first time buyers were more active, still wanting to get on the property ladder one way or the other. FTB investors grew by 6.5% in the month, after a couple of slow months before. Overall, about 14,000 first time buyer deals were done.

FTB-All-Dec-2015

Macquarie buys up mortgages in $1bn deal

From Mortgage Professional Australia.

Macquarie Group agreed to buy the rest of ING Direct’s unbranded mortgages portfolio in a $1 billion deal with the Dutch lender, The Australian reports.

This will take its mortgage book well above the pre-GFC peak of $25 billion.

In 2013, Macquarie bought a $1.5bn book of non-branded mortgages from ING Direct, then acquired a $1.6bn portfolio in 2014 and in 2015 followed with another $1.5bn deal.

Macquarie chief executive, Nicholas Moore pledged to restore the bank’s pre-GFC grip on the sector back in 2014.

The string of acquisitions from ING means this target has been far exceeded, prompting questions about where the bank’s aspirations in the market now lie.

Federal Reserve Board announced a $131m penalty against HSBC North America

The Federal Reserve Board on Friday announced a $131 million penalty against HSBC North America Holdings, Inc. and HSBC Finance Corporation for deficiencies in residential mortgage loan servicing and foreclosure processing. The penalty is being assessed in conjunction with an agreement involving similar deficiencies that HSBC announced Friday with the U.S. Department of Justice, other federal agencies, and the state attorneys general.

The penalty assessed by the Board is the maximum amount allowed under the law, taking into account the circumstances of HSBC’s unsafe and unsound practices and foreclosure activities. The penalty may be satisfied by providing borrower assistance or remediation in conjunction with the Department of Justice settlement, or by providing funding for nonprofit housing counseling organizations. If HSBC does not satisfy the full penalty amount within two years, the remaining amount must be paid to the U.S. Department of Treasury. The Board will closely monitor compliance by HSBC with the requirements of the order.

The terms of the monetary assessment against HSBC are similar to those that were part of the penalties issued by the Board in February 2012 and July 2014 against six other mortgage servicing organizations that reached similar agreements with the U.S. Department of Justice and the state attorneys general.

The Board previously issued an enforcement action in April 2011 requiring HSBC to correct its servicing and foreclosure-related deficiencies. That action was among 14 corrective actions issued against Board-supervised mortgage servicers or their parent holding companies for unsafe and unsound practices in residential mortgage loan servicing and foreclosure processing.

DFA Comments On Keen Mortgage Pricing, For Some

DFA contributed to a piece on ABC RN Breakfast which discussed the deep discounting currently available for selected mortgage borrowers, reflecting heightened competition, more difficult funding and changes in demand. You can listen to the segment, which also included Sally Tindall, Money Editor, RateCity and Alan Oster, Chief Economist, National Australia Bank. The reporter was Sheryle Bagwell, Business Editor.

 

AMP Bank reduces variable and fixed rate loans

AMP Bank has announced will reduce interest rates across a number of variable and fixed rate loans for new customers, effective Monday 18 January 2016.

The AMP Essential variable rate loan will be reduced by 30 basis points to 4.08 per cent
per annum (comparison rate 4.10 per cent per annum).

The Basic 3 year fixed rate will drop by 27 basis points to 4.28 per cent per annum (comparison rate 4.32 per cent per annum).

The variable rate on new investor property loans for the Basic loan will reduce by 40 basis points to 4.57 per cent per annum (comparison rate 4.61 per cent per annum).

The Basic 3 year fixed rate for new investor property loans is reducing by 45 basis points to 4.57 per cent per annum (comparison rate 4.61 per cent per annum).

Investor and Owner Occupied Loans Rotate

Australian Finance Group has  released its Mortgage Index for the final quarter of 2015.

Investors have continued their retreat from the market with the latest figures showing investor lending had fallen from 40% of total loans processed early in the calendar year to 31% in the last quarter. Gains in both refinancing (36% to 38% of total loans) and upgrader (30% to 35%) categories led to a 7% lift in the total number of home loans processed by AFG for the December quarter compared to the same lending period in 2014.

The figures were led by upward swings in Victoria of 17.69% and New South Wales at 12.23% with a surge in South Australia of 13.41%. These positive results offset a flat market in Queensland at 0.85%, and a decline in the Northern Territory -21.7%, in a comparatively smaller market. WA dipped, -9.55% reflecting a cooling housing market in that state.

AFG General Manager Sales and Operations Mark Hewitt said the final quarter of 2015 painted a fitting picture of the year that was. “2015 was a year of adjustment for both borrowers and lenders. A shift in requirements for lenders set down by regulators saw many changes to lending policy and interest rates resulting in a level of confusion amongst borrowers. This has made the role of the broker even more important for Australians looking to buy homes.

As foreshadowed by AFG’s Competition Index late last month, the number of people keen to fix their loans is on the rise. A long period of low interest rates has many people predicting an upward swing may be on its way in 2016.

As the year drew to a close fixed rate lending lifted by nearly 3% to 14.2% of the product mix. This figure, as a percentage of AFG’s overall volume saw its first increase since the final quarter of 2013.

Major banks reduce maximum loan amounts

In the September 2015 edition of the Property Imperative, DFA highlighted the impact of reductions in loan values being offered, as lenders tightened their lending criteria and affordability guidelines. This trend has been confirmed in more recent media reports, and will potentially make it difficult for some refinancing borrowers to get the loans they need, and further dampen property demand and prices. It will also make the on-ramp for first time buyers even steeper.

According to Australian Broker,

“Major banks have significantly reduced the amount they are prepared to lend home buyers, a new analysis by leading brokerage Home Loan Experts has revealed.

A couple with a combined income of $120,000 purchasing an investment property can now borrow up to $80,000 less from a major bank than they could a year ago, according to the calculations published in a report by the Sydney Morning Herald.

Investment property buyers aren’t the only ones affected either. The maximum loan size for the same hypothetical couple buying an owner-occupied home has fallen by up to $65,000, according to the Sydney-based brokerage’s calculations.

According to the Sydney Morning Herald report, the calculations were based on the borrowing power or maximum loan amount for a couple earning $60,000 each, with two children. The comparison compared December 2014 with December 2015 and included Commonwealth Bank, National Australia Bank and Westpac. The broker was not able to access comparative figures for ANZ from 2014.

Commonwealth Bank, for example, would have lent $640,000 as a housing investment loan a year ago, compared with $560,000 now — an $80,000 reduction.

Westpac would have lent the couple buying an owner-occupied home $645,000 a year ago, but this amount has fallen to $580,000 — a $65,000 reduction.

Home Loan Experts mortgage broker Christina Parnham told the Sydney Morning Herald that the maximum loan amount has been reduced because banks are requiring borrowers be tested against how they would cope with higher interest rates.

“You’re going to have to be able to service the loan at about 7.5 to 8%,” she said.

At the same time, Farnham says banks have adopted more conservative assumptions about living expenses”