Getting a loan post RC

Hi all,

I was speaking to my broker yesterday about the impact of the RC on obtaining credit and we went through a few interesting discussion points.

The main one being the impact of the recommendation of fee-for-service provisions in obtaining a loan. Essentially the commission recommended that up front commissions be replaced by a fee, paid by the customer, to the loan provider. However, it will need to be a level playing field so the entire broker and second tier lending market isn’t wiped out, which means that there is a very real possibility over the next few years that we could face paying not only your broker a few thousand dollar to obtain a loan, but for those who go direct, also to the bank.

The irony of this is that the customer will be now be paying the lender a fee to essentially walk through the door where they never have before. Imagine walking into a Telstra shop to buy a mobile phone plan and being charged a fee to discuss the different plans and sign up...and then pay for the plan ongoing.

What’s even more ironic is that the person (taxpayer) who walked through the door paid for the investigation into the activities that resulted in them actually having to pay more, even though the investigation was designed to make the customer better off.

The big banks are laughing, they wanted to reduce broker commissions and they will certainly do that. Even better for them, now they will more than likely charge up front fees to the customer that they’ve never been able to charge! They will now be indirectly keeping the fee they used to pay brokers and the customer will wear it.

Who really wins in this modeling?

- Andrew

 

A lot has already been said in other posts but it’s very unlikely fee for service will ever pass.
It’s the one recommendation that didn’t get the tick of approval and as others have said the “3 year review” which just a token suggestion so it wasn’t completely ignored. Once the dust settles I think fee for service will die off.

No one in their right mind could EVER think it’s a good idea! It would basically become a new and improved version of LMI where LVR is irrelevant. Want a loan? BANG 5k fee
Want to refinance because your bank just decided to raise rates for the hell of it? BANG 5k fee
Want to refinance and your LVR is 10? BANG 5k fee.

Oh but don’t worry they wil capitalize it into the loan so you can pay interest on it.
Will never happen.

The new reality is the loss of trail and likely even Heavier compliance and auditing. Whilst on the surface it seems this doesn’t effect customers it does. Brokers are already leaving the industry and will continue to do so meaning their will be a much smaller number in the years to come.
Smaller network of brokers means more work for those that stay but remember this doesn’t mean they are making more money...quite the contrary! Their working double as hard to make what they make now.
How do you think this will effect customers? You have less brokers working harder..
Through no fault of their own, customers will start to go back to the branches and give them more power.

The banks HATE 60/40 introduction as it means brokers have the upper hand. The loss of trail is going to 100% shift the power back and in the process bury a number of smaller lenders. Watch the shenanigans they get up to when we are back to 70/30 banks way.

 

CBA
NAB
ANZ
WBC

 

In a way i agree. Sales agent represents the vendor and is paid by them. Buyers agent represents the buyer and is paid by them. Similarly PMs represent lanslords best interests not the tenants. Yet broker represents client but paid by bank?

 

Consumer always have the power, not the banks or the brokers. In this day and age, u can always get a loan directly from banks online and bypass all the mortage broker b.s., u can sell the house urself and bypass all the REA bs, u can buy a house urself and bypass all the buyers agent bs. Most consumers are just too lazy and prefer to pay for these services.

Way i see it mortgage broking is just a miscellaneous industry one doesnt need to use when buying a house so no need for all the hoohah

 

ummm yeah nah.

 

And then people can do everything on their own, no need for cleaners, taxi drivers, lawyers, engineers, doctors, etc. Oh no, people are too lazy huh.

 

Interesting. To hear some people speak, you'd think that property managers work for the tenant. Many skip periodic inspections, are reluctant to increase rent in line with the market, side with tenants for unreasonable repair requests...

Of course this isn't always the case and I've got some excellent PMs managing my properties, but it's not hard to find other examples.

The counter argument that the broker is working for the bank who pays them is simply this...

Putting the clients interest first is simply good business. Most mortgage brokers are small businesses that rely heavily on referrals. Referrals only occur when clients are happy with your service and that doesn't happen if you're not putting your clients interests first.

If you need an example of this, you might recall a broker that promoted himself very heavily on the Somersoft forums a few years ago.

 

I completely agree with you. Theres also good and bad operators in every industry.

However, if the process was that because i have a couple mil debt and had to pay someone to come over and tell me what my options were going forward, then i reckon I'd do just that. And I'm sure I'm not the only one.

 

I think this is a point missed quite regularly. Someone mentioned here previously comparing a mechanic that suggests changing out a perfectly good engine at a regular service. Won't last long.

 

Agreed.

Overall I think most brokers genuinely try to put clients interests first.

One of the RC recommendations was to create a legislative requirement that brokers must act in their clients best interests, with civil penalties if we don't.

Industry representatives have stated that we doesn't have a problem with this. I certainly don't. The problem is, how do you define, "Client's best interest?" Many will argue that it means the lowest rate in the market, but that's only a small part of any given recommendation and often it's the deciding factor between two choices, but not how you bring it down to those two choices.

Right now we've got fairly clear indications that Commissioner Haynes, the government, media and consumer groups have no real understanding of how mortgage brokers operate and act. I do not want these people defining, "Best interest". If that's allowed to happen, you'll have mortgage brokers doing the very best they can, only to face legal action because the client saw a lower rate advertised for a loan they would never qualify for.

Something else worth considering, is there was no suggestion that banks need to act in the clients best interest around home loans. Isn't the banks misconduct the very thing that this royal commission was meant to be about?

 

You are in La La land if you think you can always a get a loan on line or directly at a bank. Unless your trying to get a very simple loan it is impossible to get a loan on line, they never have enough room to enter all the information and ask irrelevant stupid questions that cant be explained or ans werd in the format presented. All the people in banks who had an inkling of how business, tax, cashflow and finance work have retired or been moved anyway if they did know they wouldn't be wasting their life stuck in a bank. I have been knocked back by banks a few times and you cant be running around. going to different banks begging for money, whats that do for your credit rating ? I have got loans of brokers where the bank had knocked me back, one got a loan through by doing a low doc loan very easily, where the bank wanted a full doc loan from me. I have also got cheaper loans with the same bank by using a broker. Do individuals have the ability to put loans out to tender to a multitude of lenders like a broker can ? Banks know if a borrower is dumb enough not to use a good broker to get the most competitive loan they can gouge a little.

 

Yep! That was pretty much my point!

 

Banks pay brokers because the idea is its cheaper for them to do this than source and process their own leads.
The banks are simply paying a referral fee for the business and the idea behind trail is for the ongoing management of that relationship.
The banks are making a %#*£ load more from this referral than the cost to the broker.

In the example of a BA and PM well these are optional services so ofcourse the client should pay for them. Their is no other 3rd party involved who is also profiting from the deal.
REA’s are unfortunately not really an optional service but again who is the third party that is also profiting that should pay the bill??

I don’t think we are comparing apples with apples.

 

If the buyer had to pay the real estate agent costs I would imagine we would see it slowly become an optional service

 

If you seriously invested in property then you would understand that approach wouldn’t get you far. Probably a heap of crossed loans, declines with hits to your credit file. No thanks.

 

Brokers are probably like Menulog or Afterpay for banks. The initial period is good, it's extra business and a point of difference.

But over time you slowly start seeing more and more of your existing customers use the service and suddenly all your competitors are offering the service, so it's no longer a point of difference.

Now your roughly back to square one, but with a permanently lower margin, as someone else is taking a cut.

I think we will evevntually see the customer paying an upfront fee to fund the cost of service regardless of who originates the loan. I think the fees coming down/education changes will reduce the industry allowing for more volume per broker.

 

I do see the perspective here as yes, there is possibility that brokers will write the loan with the highest commission. All that really needs to happen to get around that is that every lender must pay a fixed percentage. But of course, the argument really is that brokers are writing higher loans than they should to get those commissions.

Overall I still think the consumer loses. It will lessen competition overall and be more expensive to get a loan. There's still a long political process to see out from now though to see any of this come to fruition.

- Andrew

 

I agree with this.

Whenever I've wanted a loan my broker and I explore all the options, the pluses and minuses and how it fits into my plan and current loan structure. I've never once had the feeling that I was being pushed to a certain lender or product so he can make commissions and often he's suggested a lower LVR for various reasons which actually lowers his commissions.

He's more interested in the long term relationship, not a short term up-front commission. He's helped me build a multi-million dollar portfolio and I couldn't have done it without him (or a broker like him).

I'm sure there are many brokers out there who just write loans for commissions but my hunch is that these would be the ones who are simply morally corrupt or the employee type of brokers who work for a company and have no real interest in longer term viability or security of their client.

It's a shame because many people on here have used brokers with great success and have full faith in their abilities and ethics.

- Andrew

 

Completely agree.

I can't thank my mortgage broker enough for all the good work they've done for me over the years.

I don't care a hoot what Hayne and his cohorts think is the best interest of customers. Their stupid proposal simply makes the life of millions of people much much harder. Isn't it obvious that Hayne is actually a wolf in a sheep's clothing, bent on helping boost banks' market share and profits at the expense of mortgage brokers and borrowers?

As an example, a few years ago I got a loan via my broker at a rate of 3.76%, a mate got a loan from the same bank (different branch, though) at a rate of 5.12%. Months later when we chatted over lunch together, he was totally shocked to discover the difference, and I gave him my broker's number. Next time we met he told me he switched to a different bank through the broker with a new rate of about 3.9%.

As a customer, who cares if banks need to pay brokers trail commission? I think the brokers deserve getting paid. They have spent many hours with us discussing our needs and financial situations etc, and helped us get the right loan within the right time frame. They introduced us to the bank as a new customer. For that loan, I spent a total of under 40 mins at the bank's branch to read and sign all paperwork.

Shouldn't a new RC2 be called to investigate how this dumb RC has been conducted?