ASIC review on mortgage broking industry

Discussion in 'Loans & Mortgage Brokers' started by Elicon, 24th Feb, 2017.

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  1. Elicon

    Elicon Well-Known Member

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    hi guys,

    Given the continued delay in this review being completed by asic and being someone wanting to enter the industry do any brokers out there expect significant changes to the current commission model?

    Looking forward to people's thoughts.
     
  2. Ross Forrester

    Ross Forrester Well-Known Member

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    I honestly do not see a problem with mortgage brokers.

    The word "broker" clearly indicates what they are doing.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes I expect commissions to drop significantly.
     
  4. Elicon

    Elicon Well-Known Member

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    That would cause two things to happen.

    One being brokers go out of business and two the banks get even more control and drive decline rates through the roof to control the investor property growth market. This would be a massive call if It's done.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Banks will be pushing for it to happen and will possibly collude to make it happen. Also it will happen I think because average loan sizes keep growing with the growth of property.

    Back around 2008 they cut commissions - trails halved.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    The top of the banking pyramid would like the consumer to pay for the 3rd party model, that on average accounts for more than half of new mortgage business to the same banks :)

    I expect that ASIC will see right through that noise,and we will be steady as she goes, with the exclusion of some obviously questionable remuneration models, most of which are gone already in advance.

    ta
    rolf
     
  7. Richard Taylor

    Richard Taylor Well-Known Member

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    Could see trail commission disappear as per the UK model and agree with Terry upfront amounts will fall.
     
  8. Redom

    Redom Mortgage Broker Business Plus Member

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    This is how i think it may play out:
    • I don't think the review will do or say too much. My thoughts on video below.
    • Once it comes out, it will tinker around the edges (e.g. soft remuneration, incentivising volume for short periods, etc).
    • It may have a general line about best practice is to have uniformity between commission models between lenders - promotes integrity within the industry.
    • Banks will take this point as an opportunity to sit down and review their models (i assume they may have already done this).
    • Banks are already signalling a shift in the broker channel - Narev's comments earlier last week about brokers costing more, encouraging greater share through retail channels, etc - all warning signs and an indicative communication strategy.
    • Banks to drop commissions on their own accord, hide behind this review.
    • Perhaps a 20% drop, and a uniform drop amongst the big 4, with the others to follow thereafter.
    • Trial commissions to remain in place (albeit at different rates possibly). ASIC i don't think will say this is a bad thing. They may say brokers need to justify they are communicating with their customers, etc. But dropping it altogether goes against some of the financial stability principles. Incentivising over trialing commissions over long horizons promotes loan quality.
     
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  9. Elicon

    Elicon Well-Known Member

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    Redon, I think you are on the money here mate!!
     
  10. miximitosis

    miximitosis Well-Known Member

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    Is the 20% drop purely a guesstimate or have you heard information that leads you to believe it will be a reduction in this vicinity?
     
  11. beachgurl

    beachgurl Well-Known Member

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    I was at a seminar last year where the speaker had spent time in the U.K. He said that broker's in the U.K. we're suffering but worked out that churning customer loans means they can continue to earn what they previously did. So the average loan duration is considerably shorter than that in oz with a lot of pressure for clients to refinance on a regular basis.
     
  12. Redom

    Redom Mortgage Broker Business Plus Member

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    Guesstimate.
     
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  13. euro73

    euro73 Well-Known Member Business Member

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    Standard practice in the UK now is to charge a fee of @ 500 pounds for all applications, and to churn loans every 2-3 years.
     
  14. Corey Batt

    Corey Batt Well-Known Member

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    Do you know if the applications are the same level of complexity and compliance over there compared to Aust? I'd say for similar here we would be needing a bit higher fee for service than the UK's to justify nil commissions in Australia.
     
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  15. euro73

    euro73 Well-Known Member Business Member

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    Oh I believe they still get an upfront, but they supplement it with the fee...
     
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  16. MJS1034

    MJS1034 Well-Known Member

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    As an outsider looking in I find it strange that they are looking at Mortgage Brokers commission compared to let's say a real estate agents commission who are getting paid double what brokers do.

    No offence to agents but IMO Brokers play a much more important role in the industry and are taking on more risk and should be paid accordingly.

    An agent selling your house worth $500k would get commission of say $7500 approx where a broker writing a $500k loan would only receive $3500 approx? Plus say $60 month of trail?

    The trail obviously dwindling down over time in line with the loan being paid down. If trail were to be scrapped I can't see Mortgage Brokers being an option for a career anymore.

    Just my two cents and I'm possibly way off the mark.

    Cheers
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Compare the commissions of agents and brokers to the fees that a conveyancer earns. That is why I as a lawyer don't do conveyancing, but do broking instead.
     
  18. MJS1034

    MJS1034 Well-Known Member

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    If the trail stopped would you still do broking over conveyancing?
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yep
     
  20. Frazz

    Frazz Well-Known Member

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    From UBS regarding CBA 1H17 result. Expect the trend to continue

    "Better branch mortgage sales - less reliance on brokers

    We were very pleased to see an increase in CBA's proprietary mortgages. During 1H17 branch mortgage sales rose 13% after being flat for three years. In the Retail Banking division the proportion of Broker sales fell to 43%, from 46% in 2H16 (46%, down from 50% across CBA, including BankWest). This is the first reduction in CBA's reliance on brokers since FY12. CBA attributed this success to extra branch lenders, better analytics (leads) and higher conversion rates"


    Source: https://neo.ubs.com/shared/d1oSVpw2LNRae/?off_id=AC201702E213466777W1327049515&ma=X596C59316151655A&camp_id=EM:UNKW:2017-02:15:C
     

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