Putting our clients first
As a mortgage broker, we help clients source mortgage loans that best suit their personal circumstances and financial goals and aspirations.
We spend many hours going through detailed questions with our clients so that we fully understand their current financial situation and what type of loan they are looking for. It is a legal requirement under the Corporations Act. However, it also helps us put together a selection of mortgages we are confident will meet our clients’ needs.
We go the extra mile in servicing our clients. We are eager to help them find the right mortgage loan and, ultimately, to see them get the keys to their new home. We travel to see our clients in locations that suit them and at times that are most convenient to them – even if it means going to other regions and meeting in the evenings or on the weekends.
When we sit down with our clients, we spend at least an hour to an hour and a half compiling all the information we need. In this way, we build a comprehensive and accurate picture of their financial situation and the type of loan they need.
As the appointment, we collect all the documentation the lenders need for verification. It includes proof of income and employment, outstanding liabilities, bank and credit card statements, superannuation statements and insurance policies.
Included in our discussions are what you plan to do with the property because this will also inform what type of loan you need. We discuss your personal financial plans, including any lifestyle, education or motor vehicles you are planning to invest in over the next few years. We need to take these anticipated expenses into account when calculating the loan repayments you will be able to afford over the term of the loan.
When it comes to the nature of the loan, we discuss all the available options and other considerations we need to take into account. These include:
- Fixed interest rate or variable rate
- Interest-only loan or principal and interest loan
- Redraw option
- Full and partial offset accounts
- Loan portability
- Access to branch networks
- Access to ATM networks
- Lender package benefits
- Credit card fact sheets
- Extra repayment options
- Early repayment options and penalties
- Rate Lock
- Internet banking
- Interim securities
- Family pledge/guarantees
We use all the information we collect in this first meeting to compile a detailed record of the client’s financial situation and loan requirements. Then we can begin the process of researching and finding the most appropriate and competitively priced loan for them.
The specific loan details vary from lender to lender, with each lender offering a range of solutions that meets different borrowers’ needs. These include:
- Clients who are casually employed or are temporary contract workers
- Newly self-employed clients
- Low income, self-employed clients making use of add-backs
- Low Documentation (Low Doc) loans
- Loans with a low deposit where a First Home Owner Grant (FHOG) and/or rental statement is taken as evidence of 5% Genuine Savings
- No deposit using a family pledge/family guarantee
- Debt servicing using a combination of employment income/Centrelink/Child Support
- Use of overtime, bonuses and/or allowances to service the debt
- Debt servicing by fully maintained motor vehicle add-back where possible
- Complex lending that involves companies and trusts
- Security limitations based on postcode/location, property type (vacant land, rural versus urban properties, duplexes, strata/community/group title versus freehold, 99-year leases), property size (less than/ greater than 10 hectares with/without sealed roads and electricity supply), hobby farms versus commercial/Agri-lending
- Non-conforming options for lenders who are credit impaired
- Construction lending usually encompassing two components: the vacant land purchase and then the build process.
- First home buyer’s assistance.
- Self Management Super Fund (SMSF) lending
Our Obligations As A Mortgage Broker
We are legally obliged to do the following:
- Provide our clients with our latest Credit Guide. It contains essential information about our services, our legal obligations and their consumer rights.
- Anti-money laundering/counter-terrorism documentation
- Details of directors/trustees/beneficial owners when a client is borrowing through a company or a trust.
- Conduct a credit check. While this is not mandatory for a mortgage broker, it is prudent and will influence the size and nature of the loan a lender will extend to a client.
- Conduct a full living expenses assessment based on the client’s transaction account/credit card statements on average over the past three months. We then sort the expenses into about ten (10) categories as per the lenders’ requirements.
- Research and develop a shortlist of loan options based on what our panel of lenders have to offer.
- Calculate, consolidate and present all the expenses associated with the property purchase (i.e., stamp/transfer duty, registration fees, solicitor’s costs, and other general costs).
- Calculate the client’s borrowing capacity so that we can determine the maximum loan the client would qualify.
- Compare different loan products.
- Put together a preliminary assessment for the client. It summarises all our findings and details the basis of our recommendations, then forward it to the client if requested.
- Complete a Credit Proposal Disclosure after choosing the specific loan best suited to the client.
After we have completed all these steps, we set up a second meeting with the client to present back to them our loan recommendations. During this meeting, we explain why the loans we are recommending are best suited to their needs. Our research and reasoning are captured in a detailed document that compares all the loan options available on a line-by-line basis. It also identifies the benefits they offer the client based on our assessment of their needs. It also quantifies the potential savings of one loan against another, taking into account all fees and interest charges throughout the term of the loan.
Based on this, the client, with our guidance, chooses the loan offer they would like to pursue and the likely timing of the process to settlement. After we capture the details of the loan selected, the upfront fees payable and the interest rate the lender will charge the client on the loan in a Credit Proposal Disclosure document. Also included is a servicing assessment generated by the lender’s servicing calculator.
The client needs to sign this document then we provide them with a dated and signed copy of it to keep. After the meeting, we document the details of the discussions with the client, how and why they chose the loan and why it meets their identified needs. We also need to document why the loan satisfies the National Consumer Credit Protection Act’s requirement that the lender and loan product is not “not unsuitable” loan.
With all the information we have, and the necessary documentation and legal requirements dealt with we can now put forward the formal loan application to the lender. We also provide any extra information that will help the loan assessor clearly understand all the specifics of the client’s financial circumstances and needs. This is usually done online and involves uploading the client’s information, loan specifics and supporting documentation, a process that usually takes about three to four hours. In parallel, we populate our customer relationship management with the details of all email and verbal interactions we have had with the client, per our internal compliance requirements.
Before submitting the local application, we meed with the client again so that they can sign the online application. At the meeting, we also discuss insurance and spell out what the implications of the loan are for their finances. We also consider what they can put in place if there are unanticipated changes in their financial circumstances that could impact on their ability to service the loan. Once completed, we upload the signed application and proceed to the final step: attaining local approval from the lender.
Once the loan is approved, we have our final meeting with the client to sign and witness the loan agreement, as well as satisfying any outstanding requirements from the lender. This happens relatively often. Then it’s our job to oversee the conveyancing process with the solicitor or handle any legal obligations that may be required by the outgoing lender if the loan is being refinanced.
This coordination process is a critical part of our journey with the client. It needs to be done as seamlessly, smoothly and as time efficiently as possible so that settlement can be reached painlessly. At this point, we also liaise with the client’s financial planner or accountant to ensure they are apprised of the details of the loan being extended and how this will affect their finances and tax situation.
We are not paid directly for the many functions we fulfil on behalf of our clients once the loan has been settled and it is these that are funded by the trail commission we receive from the lenders. These client engagements and services include, but are not limited, to the following:
- Following up with a client to check that the first payment has been collected without any issues. If it has not, we resolve these issues for the client.
- Meet the client a year into the loan agreement to take stock and ensure the client is happy and, if not, resolve these issues.
- Meet with the clients who have fixed interest or interest-only loans that are due to expire and discuss any changes in their financial situation and whether they want to restructure their loan, re-Fixed it or refinance it.
- Send regular, informative emails to clients about personal finance topics, including on the property market, strategies to improve their finances and debt trends and strategies.
- Keep clients abreast of regulatory and property market changes that could have an impact on them. If clients are affected, we contact them to discuss how they can deal with these changes.
- We periodically reprice loan accounts and advise clients of new discounts applied to their loans.
- We help clients with the initial set up of a repayment account, set up of the redraw facility and how to make best use internet banking by linking their accounts.
- We follow up clients who have fallen in arrears and negotiate a payment plan with the lender.
- We help clients set up full or partial security releases and swaps in the event of the sale of a property, divorce or release of the guarantor.
- Loan restructuring or refinancing due to sale, divorce, marriage or the restructure of our clients’ finances for tax reasons.
- Co-ordinate signed invoices, and lender paperwork for progress draws during construction as required at every stage of the construction process.
The trail commission, which is the only income we receive for these services, enables us to provide a full-service mortgage broking offering. It allows us to put our clients’ needs first on an ongoing basis given the regular commission payments we receive. It also discourages refinancing, namely churning, in the mortgage broking community. Were the industry move to a fee-paying model, brokers would be encouraged to refinance mortgages regularly to generate income to sustain their business. Brokers could justify these refinances relatively easily notwithstanding “best interest buy” regulatory requirement.
The Effect Of Competition
The mortgage broking industry is intensely competitive, and our competitors include not only our peers but also the banks. This competition, however, encourages brokers to provide the best service possible to their clients; otherwise, other broking firms will win over those dissatisfied clients. Within this competitive environment, regulators also protect the integrity of the industry by ensuring industry player subscribe to a code of ethics, become members of professional associations and meet mandatory professional development requirements (25 to 30 hours a year).
The statistics speak for themselves:
- 59.1% of borrowers now using a mortgage broker
- 96.5% satisfaction rate
- 0.5% of ombudsman complaints which is very small
- 79% of consumers happy with the existing remuneration model
Unlike the established banks, mortgage brokers are entrepreneurs with an innovative and ownership-oriented mindset. They embrace the ability of technology to improve service, accuracy, and efficiency and put the clients first because they are the reason for the business’s existence.
As a mortgage broker Melbourne, we pride ourselves on our ability to match solutions with a client’s need and aspirations. We rise to the challenge of winning over a new client each time we receive an enquiry for a mortgage loan and, as such, we are highly outcome-driven.
We believe in receiving fair payment for fair outcomes and are confident that the payment structure under which we currently operate as mortgage brokers achieves just that.
No Commission, No Competition
Moving away from the commission to fee-based payments for mortgage broking would have serious ramifications for the industry. Not only would it almost certainly destabilise and contract the size of the industry, but new entrants to the industry would need to accept lower levels of income for their broking services. Lower incomes would, in turn, require mortgage brokers to process far higher volumes of business to compensate for the loss of income and this would undoubtedly result in lower service levels.
Clients in Australia and other parts of the world have shown they are loathed to pay a fee for the services offered by mortgage brokers. A fee-based model in the Netherlands failed dismally, with the result that there are now half as many lenders than there were around 10 years ago.
The banks would be the winners in this scenario, probably getting back the bulk of the mortgage loan enquiries that have been the lifeblood of mortgage brokers to date. They would probably charge fees way above of the trail commissions currently generated by mortgage brokers for the services brokers currently offer. Their domination of the market would see the second- and third-tier lenders, who add diversity and competition to the industry and receive most of their business from mortgage brokers, come under pressure and ultimately disappear. Consolidations would become the name of the day, with smaller players absorbed by larger ones and the banks.
With less competition, banks would not be under as much pressure to offer the best interest rates and thus rates would rise on mortgages. Borrowers would thus be subject to higher interest rates, higher fees and less choice, with the banks in a win-win situation in contrast to borrowers, who would are worse off. Mortgage brokers came into existence for a variety of good reasons: they offer a wider choice of products than the banks, they are solution-oriented and they are client-centric because without their clients they wouldn’t survive.
A contraction in the mortgage broking industry would also have significant economic consequences. Some 27 000 people are employed or self-employed in the broking industry. These jobs would be at risk, adding to the unemployment rate and imposing a drag on the economy. Also affected would be the real estate industry, solicitors and conveyancers, outsource administration businesses and the property market in general. Smaller lenders, aggregators, industry bodies and third-party channel employees would also suffer. Finally, first time home buyers, and other lenders that don’t meet the requirements of a standard mortgage bond, would have a more difficult time securing finance. My unqualified guess is that this figure can conservatively be extrapolated to affect around 50,000 full-time jobs nationwide – a worrying number.
The old adage comes to mind, “if it ain’t broken, don’t fix it!”. Mortgage broking plays an important role in the lending value chain, widening the net of clients who have access to mortgage lending alternatives and offering clients variety and competitively priced loan alternatives. It serves the industry, the general community and the broader economy well and so surely the best way forward is to leave mortgage broking just as it is.