Banking Royal Commission Reports & Government reponse

Discussion in 'Loans & Mortgage Brokers' started by Peter_Tersteeg, 4th Feb, 2019.

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  1. Harry30

    Harry30 Well-Known Member

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    Peter, Regarding 1, if the banks don’t pass on this savings, they have effectively increased the price to the consumer of ~$5,000 (as example, depends on size of loan). You cannot just implement a price hike like this in an open market and not experience any impacts. Other loan originators and aggregators (and some banks) will enter this market and undercut these rates and aim to bid these excess profits away. Consumer are savvy and compare rates all the time, and will readily move to banks that do pass on the savings. I certainly will be.
     
  2. Harry30

    Harry30 Well-Known Member

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  3. Terry_w

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

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    I think Macquarie owns a large chunk of a few aggregators.
     
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  4. tobe

    tobe Well-Known Member

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    Theoretically. But it’s not just about price. It’s about access. There’s lots of factors that impact access. Credit policy, advertising and availability to name a few examples.

    If it was simply about price everyone would already have their loans with UBank or another online lender.

    If it was just about price why do the big four still have branches?
     
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  5. Harry30

    Harry30 Well-Known Member

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    How would Macquarie compete without the use of brokers? They don’t have a significant branch network. And that goes for the majority of banks outside the big 4, all heavily reliant on brokers. I just cannot see how the RC’s recommendations on brokers can be made to work, particularly for the smaller banks. Outside the big 4, would be interested to know what proportion of loans are originated by brokers. Across all banks, I think it >50% so must be higher for the medium sized and smaller banks.
     
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  6. Terry_w

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

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    they would need to employ 'mobile bankers' and start a large advertising campaign i guess.
     
  7. Harry30

    Harry30 Well-Known Member

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    I largely agree. It certainly is not just about price. As you say, if that was the only factor, we would all be with U Bank. That said, I would argue price still plays a big part. If bank A starts charging (eg) a $5,000 fee to originate, Bank B thinks, let’s try to get some market share from Bank A, and cuts the origination fee by 50%. Bank A responds by also utting. A reasonably competitive market ensures banks cannot just ‘increase price’ or in this case fail to ‘pass on savings’.
     
    Last edited: 14th Feb, 2019
  8. Harry30

    Harry30 Well-Known Member

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    Probably Terry, but those arrangements are arguably not cheaper for the bank and in truth not much different to the current model. So, the RC’s recommmendations are maybe neutral at best if they can reorganise. The industry will not take this lying down. And by that I mean the small and medium banks, not the brokers. Some of these banks are regional players and have political clout. What business wants to have >50% of their distribution network put in jeopardy.
     
  9. tobe

    tobe Well-Known Member

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    In this scenario the bank your with increased rates. Sad face emoticon. There’s another lender undercutting them with better rates. To move now costs money, an upfront loan arrangement fee that could perhaps be capitalised to the loan. With that new fee, and discharge fees, state taxes to register a new mortgage etc. how long would it take to be in front with the new lender?

    In 15 years broking I rarely dealt with refinancing for a better rate. Most people don’t go to the trouble of changing lenders on price alone. They want to buy an investment property, consolidate credit cards, holidays, move, new car etc. rate is certainly important, but we aren’t ‘economic man’. We are just people and mortgages and all that paperwork is boring and isn’t worth doing just to save a small amount per month.
     
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  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I expect not, and in case the broking biz would be run in a diff silo ( guessing )

    They own Vow, which is an up and coming, they have pulled their white label product.........that says volumes about where their focus is going to be, and seeing they have no real direct sales force they have chosen their box to date.

    ta
    rolf
     
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  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    CBA Investors advisory board perhaps ?

    ta
    rolf
     
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  12. Harry30

    Harry30 Well-Known Member

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    I just refinanced 2 loans. Price was as not the only issue, but was a factor. I got a cheaper rate with both loans. All I am saying is that the consumer has some power here, if they go to the trouble of using it. If the banks think they can just introduce a huge upfront fee, not pass on the effective savings. and not lose business to other operators in the market place, they are kidding themselves.
     
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  13. Harry30

    Harry30 Well-Known Member

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    Another thing I just don’t get about the RC recommendationnon on brokers. The RC was effectively arguing for a upfront origination fee. At the moment, nothing is charged upfront, and the cost of loan origination is incorporated (recovered) through the interest rate charged by the bank over the life of the loan. This model has developed largely because consumers absolutely hate upfront charges, and much prefer a payment spread over time. This seems to be all out the window now. Upfront charges for loans is someone much better for consumers according to the RC. Amortising costs over time (zero upfront) is of course the business model of the world’s richest company, Apple (probably not quite the richest just this week, I think amazon has that crown for the time being). Apple came out with the $500 IPhone many years ago. Microsoft and everyone said ‘No one in their right mind would pay $500 for an.phone’. Absolutely true, but Apple quickly fixed that. Just charge nothing upfront and build the cost into the monthly payment as part of the customer’s monthly phone plan. Problem fixed. Who says upfront charges are better?
     
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  14. albanga

    albanga Well-Known Member

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    @noogie60 but the point of the RC was a focus on the corruption of the banks which was to result in better customer outcomes.

    How can anyone think a trap fee capatalised into the loan is a good outcome for anyone? The nature of banking is sometimes other lenders have a better rate, sometimes they have a specific policy you need and sometimes you just get a better valuation. Under your proposed model every time you need to switch lenders then BANG 5k+ fee.

    I think the argument that banks will reduce rates because they are now getting an upfront fee is hysterical....because they have really proven themselves to put the interest of customers ahead of shareholders before...tell me again why we even had the royal commission :/
     
  15. Harry30

    Harry30 Well-Known Member

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    If I read it correctly, I don’t think @noogie60 was necessarily trying to defend the RC, but rather find a constructive way forward that retains brokers in the system. Something most of us want.
     
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  16. tobe

    tobe Well-Known Member

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    I agree, but I think there are very few redeeming features of the model proposed. Tohave a competitive open market lots of assumptions need to be made about costs and margins and then banks actually reporting and adhering to these.

    If there were such an easy alternative to the current model both the ASIC review, the ABA review and productivity commission would have already suggested them or at the very least explored them.
     
    Last edited: 14th Feb, 2019
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  17. miximitosis

    miximitosis Well-Known Member

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    Consider the following:

    • There has been a number of government funded reports completed (treasury, ASIC, productivity) which actually used hard data and an enormous amount of research to conclude that there is limited systematic issues with the current model
    • Smaller lenders are making grounds on market share
    • Net interest margins have been in steady decline since the inception of brokers in Australia
    • Broker market share is approaching 60% and <1% of dispute claims are against brokers
    • More and more consumers are turning to brokers
    Does that sound like a model that needs to be turned upside down on it's head to improve consumer outcomes?
     
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  18. Jane Ridder

    Jane Ridder Well-Known Member

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    Well put.

    It's probably mentioned on here before, however I read that many years ago when mortgage broking started up in Australia there was no trail commission, there was just an upfront fee paid to the broker by the bank. Then the banks decided to help their bottom line by reducing this upfront fee and amortising the difference over a number of years, in the form of a trail commission (or deferred upfront fee).

    During the recent RC commission hearings we saw the head of CBA, fool the commissioner into thinking that brokers do absolutely nothing for the trail commission they receive and that their trail should be stopped. It seems to have worked out well for them.

    Pretty clever seeing that the trail payment to the broker (deferred upfront) was the banks idea in the first place...
     
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  19. miximitosis

    miximitosis Well-Known Member

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    It was a fantastic play by the CEO of the bank who has most to gain from the demise of the broker channel.

    The sad reality is that it appears the Commissioner took this as gospel and didn't look further into the claims and/or unintended consequences of the changes.

    What I find astonishing too, is that mortgage brokers will be impacted by the report more than any other participant yet weren't given the chance to take the stand. It's like Joe Blogs telling a judge that his fellow competitor Bruce does x, y, z and the judge taking Joe's word for it and sentencing Bruce without a fair trial.
     
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  20. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    The whole thing stinks

    1) Hayne requested the commission change the terms of reference to include mortgage brokers.

    2) CBA CEO comments were used to frame the whole argument about brokers not producing good consumer outcomes. ASIC report ignored.

    3) Productivity commissioners report ignored.

    4) No changes to rules around introducer payments.

    5) No dismantling of vertical integration in planning / broking.

    6) No change to front line bank staff or executive remuneration required.
     
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