CBA Now Increasing Rates

No, I find it interesting however. Seems things really do come full circle

 

not sure what happened there...

Euro that's not they way I saw it back then. Some things have changed for the better but some haven't.

1) There was / is no visibility on rates being paid after settlement with non banks. With the Big 4 at least most loans are tied to the Standard Variable rate so you have a visual on what people are paying years after you wrote the deal as long as you know what discount they started on. The bait and switch game hasn't really changed and the non bank are particularly poor in this regard. Release a new sharp product fill up with customers then bring out a new product and slowly trickle the rate up on the older loans / back book. All lenders do it but the NB's were / are worse for mine as they don't have a SV that they stick to.

2) Back then the non banks had very nasty early payout fees. 1-2% of the original loan amount in the first 5 years was common which was thousands of $$. See above bait and switch tricks. The last thing we wanted to do was put someone in a loan without a way out. Thankfully this is no more. I believe I was one of the few brokers at the time that was in support of abolishing these fees. The NB's were squealing like stuck pigs which said a lot.

3) You can generally renegotiate on rate after the loan has settled with a bank and cant with non bank I find. This stops the need to refinance.

4) The funding and ongoing viability of all NB's in that period was a real concern. RHG / GE anyone remember that? After seeing what was going on in the world we had little choice but to take the government guarantee! Our clients felt the same.

 

Securitisation and non banks is why you have a job. Its why other brokers have a job. Its why clients dont pay 6 and 7% above the RBA cash rate. Its why product innovation occurred. Brokers and consumers abandoned them - and 2nd tier lenders ( not just non banks) even though AOFM made cornerstone investments in their RMBS and even though they kept their rates lower than the majors throughout the GFC... It was Bankwest that got into trouble and were swallowed. not resimac . St George who got into trouble and swallowed, not firstmac. Suncorp who were all but swallowed by ANZ but thwarted by the ACCC at the last post . RAMS and GE Money (Wizard) were the only two "non banks" who had trouble during the GFC.

Do brokers turn to clients now and say - Dont use CBA. Dont use Westpac. They look good now, but they will hike your rate in a few months, and you wont be able to refi out or access equity? Nope - of course they dont. Not even after we KNOW what the banks are doing, and will keep doing. This isnt the first example of them behaving this way, after all. It's happened MULTIPLE times in past years. So it's just flat out weak of us to use the "oh the non banks might do the dirty on you" argument as an excuse not to have supported them. Its completely hypocritical. The big 4 banks have been far worse culprits.

In any event, my broader point was that when we hand any business, within any industry , a monopoly like position, whether deliberately or through circumstances that seemed justified at the time - such as you are suggesting - we cant then ask Govt to intervene because those big boys then bully us around after they have the monopoly position. The way to keep the big boys honest is to support other lenders more. Its called competition. Petrifies them. But Australian consumer and advisor apathy is why these things are now happening.

Banks everywhere else in the world have accepted lower ROE's . Australian Banks can just raise taxes (I mean rates) to protect their ROE's.. They can do it any time they like, and they can put any spin on it that they like, and we just wear it. Apathy. If the banks believed there would be consequences to their behaviour, their behaviour would change. It was only a few months ago they all went to canberra, copped a few days of media knuckle slaps, and here we are- back to business as usual.

Its pretty far gone now. They have such a dominant position that consumers and brokers would have to make a prolonged and concerted effort to embrace the 2nd tiers and non banks in order for the banks to pay attention... and if that hasnt happened by now, it wont ever happen. With all due respect, there are thousands of brokers out there writing nothing but Big 4 every day. They are nothing but Big 4 mobile lenders/order takers. So with that being the case, no one should complain when the next 20 or 30bpts "surprise" comes along . Its our own doing.

 

You make some good points as always Euro but I'll have to agree to disagree on a lot of it.

The big 4 gouge less than the non banks I believe you just don't here about it as much when a non bank "reprices" their back book.

Also in my opinion the broker market evolved side by side with the non bank securitisation market but they are not the same thing and one wasn't reliant on the other. All brokers needed to take off back in the 90's was more than a few lenders to support them. This came from overseas lenders (ING in particular), Nab and ANZ who were underweight in home loans, Regionals (StG and Bankwest), Mutuals, Insurance companies etc. The non banks were not really a big part of it. Aussie and Wizard et al were direct to the consumer not through brokers.

Banks overseas have lower ROE because there are more lenders with scale competing. This is what we really need here some big ugly foreign banks willing to properly invest and get the scale here to handle a decent amount of volume. Citi & HSBC have never really had a red hot go. I cant work out why.

All that aside things change and its the only constant as they say.

 

@euro73 What do you personally think is the reason that brokers didn't support the non majors post gfc and to a lesser extent now?

 

Apathy. They dont like to hear it - in fact it makes them very defensive and touchy - but you have to have worked with the aggregator broker culture to understand how truly major bank lazy, most of them are.

This isnt specific to non banks. Whether you are discussing ING, Suncorp, Bankwest, Adelaide, ME, BankSA, AMP, etc - all failed to get much from brokers. Even when products came up #1,2 and 3 on software , they still sent 85% of business to the big 4.

Then they took a big commission and trail haircut - still nothing changed, even when their incomes were savaged.

When branches steal clients - nothing changes.

Now they are seeing their clients being gouged or snookered - and nothing will change now either How do I know? Because these rate rises arent new- the banks have been at it for several years and their volumes have increased rather than decreasing.

Apathy. Sorry it offends. But the evidence is there for all to see. When over 85% of all loans go to 4 lenders... what do you think is the reason?

 

Interesting.

I ask because I personally have no bias towards any one lender on my panel. Maybe because I didn't work for a bank prior?

 

Perhaps there's another reason 85% of all loans are at the major 4 ?
They arent cheaper. They arent the only lenders offering I/O. They dont have servicing calcs that embarrass everyone else....

 

The reason I use the banks and not the non bank lenders is 2 fold
a) offset accounts
b) securitsed lenders mortgage insure everything so extra hurdles to pass even when the lender pays for the LMI.

 

I simply cannot understand why people deal with the big 4. I have never had a loan with any of the big 4 and I never plan to.

I just contacted my broker for another loan. New broker so I had to explain that I won't deal with the big 4. The big 4 have a near oligopoly because consumers create it.

 

I've had exposure to both big-4 and non-banks / Tier #2-#3 smaller banks over the years and it really is a mixed bag. Neither group of lender-types can be painted with a broad brush.

Some are good; some not so good; just depends on the features/benefits that matter most to you and your situation

 

85% total but only 45-50% of total loans written are by brokers. So out of the brokers share it's actually less going to the majors. Something like 70% -80%. Clearly still a big chunk but without brokers the number going to then majors would be higher again.

Now why do brokers still send ~75% to majors. Some apathy perhaps but ultimately the consumer is making the decisions too. If I present 3 options 1 major bank, 1 mid tier bank and 1 non bank the latter would usually not get the nod.

For me it's also about consistency of offer. Small lenders come in and out of the market, often don't offer upfront valuations, don't really have any systems in place for brokers to do variations post settlement, can often have stricter credit policies (lmi and ultimate funder).


What about AMP this week. 0.30% ? And no more IP refi. Similar to CBA but the increase is significantly more. This is what I was saying earlier the smaller lenders don't get the media heat but do the same or worse than the majors.

If the non banks are such shining lights of competition why do they always just match what the majors do? Euro you said the other day the majors gave brokers a commission haircut back in the day. Correct but what did the non banks do after that? Matched them of course! They are ultimately price takers not price makers.

Ps my final thoughts on the matter.

 

I'll add to what Marty just said.

I have been a Suncorp customer since 1980. They were really fast to increase their rates back in the day and the last one to drop them, sometimes two or three months after official rates dropped. In 1988 they were a lender that solved a problem we had, and lack of knowledge kept us there despite their propensity to increase rates every few months.

In 2010 when we bought our first IP, the local franchise broker offered us a range of lenders, the one with the lowest rates I had never even heard of. So we went with NAB instead, Home Loan of the Year winner. Perhaps he recommended Firstmac, I don't recall exactly. But I can assure you that following the US issues with Freddie May and Fannie Mac or whatever they are called, I wasn't touching a company with a similar-sounding name.

ANZ, NAB and Suncorp were the only companies we had any experience with, so those were the only ones Mr and Mrs Don't Know Any Better would consider.

 

I'm referring to aggregator volumes. Not total volumes. So its 85% . And yes, without brokers, just about everything would be major bank loan , but then again, the rate gouging would be worse than it is too , if there was literally no competition.

Look, this is my entire point. @Redwood had suggested Govt intervention was required to restrict banks from doing as they please without fear of consequence. I'm suggesting Govt has no place in this and consumers and brokers should use competition to achieve it. I'm further suggesting that largely, consumers and brokers have created this situation for themselves, so consumers and brokers can undo the problem for themselves. . Majors in Australia have an almost monopoly in resi mortgages because it has been given to them by the people who decide where the business goes. Those same people (consumers and brokers) are the ones able to do something about it.

The semantics about up front vals, ease of top ups etc... all side shows. In the end all those excuses lead to further tightening of the banks monopoly position, which only leads to more profiteering. If you truly want the banks to fear there will be consequences for their greed or gouging, then show them there ARE consequences for their greed. Alas, you'll find most brokers just wont even try.

 

When I do a loan for a client I don't think about macro economic issues such as what percentage of loans are with the big 4 etc. I just think about what is best for the client.

 

Did a loan recently with a smaller lender, auswide. Placed it there because they are one of the last lenders to do 95%plus lmi for fhb. Anyway, spoke to the bdm about processes, wanted to get everything upfront and get an idea of timeframes. Bdm asked me to email support docs to him to check, fair enough, couldn't give me an eta. Next day all good submit the loan. In total 6 people looked at the loan. triage (which is common) a credit liaison, a quality assurance person, credit manager and lmi. 2 weeks, nobody could give me an accurate timeframe which really upset the client. There's no website tracking so it's phone calls to a call centre everyday and no contact with anyone working on the loan.
Just as the Docs went out they increased variable rates. Sitting down to sign docs, the offer contract includes an 'estimate' of legal fees and other guff that was difficult to explain to the client.

Really really painful.

I'll know how to better manage client expectations next time, and there will definitely be a next time because smaller and non bank lenders need to differentiate themselves with policy, not rate. Auswide has this, at least until their book fills up with 98% loans.

Having the best honeymoon rate in the market isn't going to help, I remember when firstmac put that out. It was a great loss leader to get people interested, but I didn't write one.

 

My experience with similar type lenders too Tobe. Longer document checklists, more strict assessment criteria and SLOW with loan approval by committee. And no real appetite for risk of any type.

It's not a side issue. I would happily support a non major lender that ticked the boxes but I'm yet to find one. Advatantedge is closest thing I've found so far and are in my top 3 lenders at the moment at least but not really non major as owned by nab!

 

Aggregator volume for majors is well less than 85% I believe. This from major aggregator AFG for the last qtr of 2016.

"The latest AFG Competition Index shows that overall mortgage sales for the majors and their subsidiaries has decreased by 8.1% over the last quarter and is now sitting at 64.1% of the market"

Looking at other info from brokernews etc the market share figure seems to fluctuate between 65-75%.

 

Ok, so even at 75%, the story remains the same. Even at 65%. 4 lenders out of 40+ lenders with 65% or 75% or 85% is the same issue. @Redwood had suggested Govt needs to intervene to stop the banks being naughty. I'm simply arguing that a little more competition and a little less apathy all around towards the power of competition, would do the trick more effectively.

We can all pull up examples of a deal that was hard work with a non bank or 2nd tier, just as we can all pull up examples of majors making life hell as well. But the fact remains, consumers , and brokers - who like to say they support or dont support certain lenders , which infers they influence the decisions made by their clients - just dont embrace alternatives enough as they could or should. There are plenty of clean vanilla deals that could just as easily go outside the big 4 , just to keep them a little more honest. But they don't . In the end , its in the interests of clients and your loan book to diversify more