How much brokerage???

The MFAA (Mortgage and Finance Association of Australia) which is one of the two associations that brokers are required to be a member of responded this morning.

CBA Proposals Focused on Profit, Not Customers
https://www.mfaa.com.au/sites/defau..._focused_on_profit_not_customers_(FINAL).pdf?

 

If fee for service pans out, the industry will shake out significantly. Those that are left will be providing a service vastly different than currently, servicing those who can't get a loan by rocking into a branch, or charging for advice similar to the way an accountant does.

It'll take some getting used to but I'm confident that the industry will re-birth and grow back even better than before.

Have you ever rocked into a branch for strategy advice? Risk management? Got quirky income? Defaults? Need someone to hold your hand through a purchase? You're not going to get any of that at a branch - all you get there is a loan. Handling the application itself is a small part of our service so I'm confident that once the dust settles, our business will continue to thrive - but possibly looking quite a lot different than it does now.

 

I know its insane. Like asking the fox how to fix the problem of the missing chickens

 

That's a good start

 

As was the previous CEO of CBA - it seems to be ingrained in their culture.

I would love it if all brokers - Australia wide - boycotted - or striked against CBA - surely they are not that special in terms of rate or policy that they couldn't be matched or bettered by another lender.

 

What would your business look like tomorrow if you got rid of all your trail and had to charge an upfront fee for service? How much would you charge? as much as the current upfront comms? I think if upfront comms and trail disappear so will majority of the brokers currently in the industry, just my opinion.

 

I'd charge per hour, similar to an accountant. Some things are quick and cheap, others not so much.

It makes sense in some ways - some people might just like recommendations and off they toddle and do the deal direct. Others may need full service with structuring and multiple properties with a portfolio that needs lots of behind the scenes work ongoing - they might pay a subscription for ongoing service.

I don't think trail will suddenly stop - only new, is that correct?

 

I thought the reason the broker channel was originally encouraged was because the banks could reduce their own staff & branch numbers - their own costs?

And looking at Matt Comyn's claimed numbers compared to what the MFAA is quoting, it seems like a huge discrepancy (even allowing for costs). The same numbers have been repeated in another article, this one says "each" again:
CBA's top 200 mortgage brokers were earning $2.5 million a year. Each.

Love how Comyn points out that brokers are earning more because of increased house prices - what about the banks, insurance companies, state governments and so on?!

 

Really... most of my appointments go for around 2 hours. Of which the actual application/loan is approved within 15-30mins.

 

This is the same bank that is profiting off the increase in loans as well. Madness.

 

I think the smaller lenders used the broker channel because of the lower costs involved. The larger lenders got on board to get a piece of the action. A bit before my time though.

All lenders with a serious branch presence have been reducing their branch footprint quite steadily. This has been happening for decades and continues to this day. A recent report published indicated that broker origination costs about half of what branch origination does (sorry, I don't remember the specifics).

Every year industry magazines publish a list of the top 100 brokers, complete with stats and interviews. The actual figures of the top brokers are published. I can conceive that there may be broker businesses earning $2.5M per annum, but 200 is a stretch and but there is no chance they're individual brokers.

 

Its is clear then that there is much more compliance, documents to collect and forms to complete in broker space then Brady. Honestly couldn't do in 2 hours no matter how vanilla.

 

Bank employees should be terrified of these suggestions. The mortgage broking industry directly employs about 30,000 individuals. Can you imagine what would happen if half that figure turned up tomorrow at the banks looking for jobs? Especially those that are multi skilled not just in loan writing, but running a small business and everything that entails?

Nobody's going to get fired strait away, but salaries would stagnate. KPIs would skyrocket. Bonus' would disappear. The low end of the bank sales pool would be retrenched over time and nobody would have a need to hire them elsewhere.

 

Bear in mind you have one bank to choose from - quite a bit of time goes into strategy, research and so on. If I only had CBA, I could probably do the odd application in two hours too. Not many though - some take that long just to go through living expenses.

 

Trail will go as well, existing probably stay but no new.
Don't know why someone would go to (and pay) a broker to get a lender recommendation to then go direct or how a broker could recommend a lender without at least doing a servicing calc and gather information about them etc. just can't see that happening in any meaningful capacity.

 

Customer gets knocked back by bank. Is stuck. Goes to broker, pays for specific recco's but is on a budget so can't afford full service. Goes direct to bank for application. Definitely a market for that. What's their alternative? Trash their credit file trying 5 banks themselves?

What about the person who needs help with specific structuring? No lender will do that - paying a broker is no different than paying an accountant for tax advice.

At this point, we don't know what people will pay for because they simply don't have too. When that's not an option, some people won't pay, but many will.

 

Well they don't have to apply with every lender and see if they get knocked back, they can request a serviceability assessment.

Yes but you were talking about getting a lender recommendation then going direct - the person who needs specific structuring would most likely use a broker for the full deal. Unless you're saying you would advise them of the structure and send them to each separate lender direct?

 

If cost was an issue, then yes. Of course I'd rather not, I'd rather see the whole thing through and investors may be willing to pay for this, especially with complex portfolios. But some won't - the same way some won't pay a BA because they're happy to the work themselves if it saves a few $$'s. Maybe they simply don't have the money, too - home buyers particularly I think will fall into this category.

It's a more tailored approach than saying it's gonna cost you $4k but if you can't pay then see ya!

 

Bold move by CBA to take on the broker industry, very meticulous and clever in his design, wording & intent. Clever soundbites to make sure it inspires outrage by consumers on mass.

Dangerously for brokers, if anyones going to have success at it, it's the head of CBA - biggest bank, biggest presence, biggest player. I suppose we'll hear more in coming days and it just won't be CBA that's firing at the industry.

They clearly want change, their motivations are obvious and spoken for above, but that doesn't mean CBA won't get an outcome. I think they think they can do it too, otherwise it doesn't make sense to infuriate 30% of your new business origination with some of what he said (why outline the plan to move to lender fee for service?).

This is the beggining of a campaign to reduce the size/influence of the broking industry (CIF isn't enough, they want more). Yesterday was a clear marker. What they want will pretty much wipe the majority of the industry out.

 

@Jess Peletier the question is though, how much of your current trail book can you honestly say would not have been able to go direct to bank?

Putting aside the no doubt far greater experience and personalization you offer. Purely based on your trail book, how many of these clients would have been approved at the branch?

I don’t know your book but I would argue it would be well in excess of 50%. So whilst existing clients who have dealt with you will likely come back. I imagine it will be very difficult to charge someone 2k for your advice. I don’t know many...if any people that charge that much for advice. Your heading towards Tony Robbins figures...

And how long before the Big4 simply take on more non conforming loans? They will have massively increased profits to give them a luxury of a little more risk. They will simply have a “special” space and rate accordingly.
They will go after the entire market.

If the RC passes the recommendations then I think @Peter_Tersteeg has perfectly captured what will happen. I think most brokers will leave, many will just end up working at the banks as a lot (@Brady excluded ) have far greater lending knowledge and experience.
It won’t be pretty.