Mortgage broker cashback.

I think the OP is not arguing the point that every broker should offer a cashback. He is just trying to find one who does. And looks like he is not after any advice, just needs someone to submit an application.

 

Dont get me wrong im the first person to complain about the USA....there are a lot of messed up things here about the property market - but my point still stands.

ALL markets are becoming more efficient - its life....its good.

 

You comment re: 2-3% commission of the sale price doesn't relate to mortgage brokers though so it's irrelevant, brokers don't make that much, not even close.

 

Those US agents ( or any agents for that matter) dont have a 2 year claw back sitting over their heads though. Brokers always have clawback sitting over their heads...which makes the situation a little more difficult to offer cashback.

Say I receive comms of $1500 for example. Then I give $500 or $750 as cash back to a client for example.... then they refinance 6 months or 9 months or 12 months later via another broker in order to get another cash back. I, however, cop a claw back rather than a cash back.... and pay back $1500 of comms to the lender. Now I'm out of pocket $2000 or $2250. Does anyone expect the client is going to give me the $500 or $750 back?

I'm not flat out against cash backs per se..... one might use them here or there if one needs work, but I do think they are dangerous because of how broker remuneration actually works. I think its important to at least understand that the broker stands to be fleeced twice if the client is a ruthless rate chaser and habitual refinancer. Once by the lender and once by the client. And when rates constantly move around as they do, and today's best rate can easily become tomorrow's mid table rate .... that means that for a client intending /willing to show zero loyalty to a broker and jump from deal to deal as they see fit.... clawback needs to be considered in the cash back conversation, is all.

The brutal reality is that while most people SAY they value service and responsiveness and what not... when the rubber hits the road they rarely show loyalty where money is involved.

There's no other business model out there that I know of where you are paid months after doing the work , and then have a 2 year period before you truly know the money is yours to keep. So before you give away money that isn't 100% yours to give away for 2 years... pause and think

 

It isnt quite that simple I'm afraid The broker would still have to do the same amount of compliance work. The broker would still need to produce a preliminary assessment and credit proposal, and the broker would still need to do the same amount of data entry and loan follow up .... the brokers compliance obligations and overheads don't magically disappear because a client believes themselves to be well researched .


Anyway...if someone wants to do the deal on the terms required, all good. But I don't think too many here in other types of employment would give part of their income away to clients... and I we suggest most would have two words to say if they were ever asked to ... The first word begins with F and the 2nd word is OFF

 

Most brokers I know receive enough grief when people utilise their time and then run off to another broker or a non-broker lender when they had ample time to be upfront. Why would they want to also throw in negative cashflow chasing potential business that isnt based on any sense of loyalty. Brokers earn a good % of their $$$ from trail and this is also at risk for rate chasers.

A broker cannot "just" submit a loan application. If a taxpayer hands me a draft tax return and asks me to lodge for $80 I wont . Yes I have been asked many times. My job involves more than entering data

 

I think if you have a legal agreement signed then wouldn't the client have to pay back in case they refinance withing the clawback period.

Agree with this.

Again i agree that the broker have to do the work, but the point is that if a broker is happy to do the work for less money and wants to give away a portion of income then its upto the individual broker to do so. There is nothing right or wrong in this.

Its upto an individual as to how they value their time and how they run their business. Its 100% ok if you dont want to follow a particular business model but if someone else is following a business model different to yours then he/she is not wrong.

 

The legal agreement consists of clients signing a quote with clawback section on it, the issue is if the client refuses to pay the broker the clawback then the costs of recovering the money are usually more than the clawback itself, let alone the TIME it takes to do so. The Lender takes the clawback from the Broker whether they like it or not and then it's up to the broker to try to get the money from the client.
I agree with you that it's up to the individual broker to decide if they want to do this and there's nothing really 'wrong' with that but just google Refund Home loans - their business model was cashback from the upfront commission and it didn't last long.

 

Add to all this the new legislation that states that mortgage brokers won't be able to charge clawback fees in the near future. This sort of model becomes even more unsustainable.

I have occasionally done rebates many years ago. I haven't done any stats on this but I suspect in upwards of 90% of those deals cost me more money than I made due to a clawback or something else. The reality is that people who think it's okay to take part of your income for work done are also the same sort of people to not value your efforts and to refinance the moment a better offer comes along (incurring a clawback).

I refuse to deal with people who ask for a rebate simply because I know I'm probably going to work for nothing in the long run. The rebate would only be throwing good money away on top of that. I'd rather spend my time and resources on someone else.

What I will do however is be responsible for my statements and recommendations. If I make a mistake, I'm happy to compensate the client for that regardless of the cost. If I misquote a fee or I think something is being charged unfairly by the bank, I'll start by trying to get the bank to correct the problem, but I'll cover it if the bank won't. As long as clients are dealing with me fairly and honestly, I want to do the same.

 

Ye i've read about them but at the same time I personally know a broker who have been operating the commission sharing model for almost 15 years now and still doing fine.

Is there any way of refering or reporting these customers to a credit reporting agency ete.?

Ye i think brokers will hav eto be more carefull if they offer any rebate etc. One way to come over the issue of clawback is that broker can offer to pay a rebate at the 2nd anniversary of the laon.

 

That the same guy who dosen't know how to run a valuation through St George?

 

My earlier post offered a rebate on the 2year anniversary. The only way I could see it working.

 

I think its not that he didnt know how to run a valuation, its me being anxious and asking the question on this forum before waiting for his reply (as the time was running out).

I was going to go direct through STG initially. But if i can get some extra cash by going through this broker (and the broker is happy to do this) and still get the same deal as i was getting directly with the bank then i dont think there is anything wrong in this or i'm loosing anything.

 

See @Lindsay_W 's response.... you can put those arrangements in place but really... good luck.

And as @tobe has suggested , you'd be better off with an agreement to pay the cash back 2 years and 1 day after the loan settles. Unless the broker is happy to wear all the risk of being double dudded it's the only safe way for the broker to run a cash back business model...

These refund type arrangements were feasible once, when lenders had big exit fees/deferred establishment fees.... they went the way of the dodo after the GFC... and brokers wear all the risk now. Borrowers can refinance as much as they like with no penalty whatsoever, other than a very modest discharge fee and possibly a new app fee and some very modest transfer fees.

That's about it in a nutshell. Its not like brokers charge a fee ... this is a FREE service .. people seeking a cash back are disrespecting your value and unless you are desperate for work they are probably best avoided... there's no way this approach is financially viable beyond one off's. And like I said previously ... anyone asked any of you who work as non brokers to do the same with your salary and the response would very likely begin with an F and end with an F... and you can bet those asking for the cash back would say it loudest and least politely if the shoe was on the other foot !!!!

I already said this Agree completely.... just pointing out the risks

 

No, doesn't work like that.

 

Good on you, @Peter_Tersteeg. My experiences make me hard to believe that a mortgage broker does the best for you.
A mortgage broker I worked with in the past (well, he called himself financial advisor) sure only worked in his own best interest rather than mine. It was my first purchase and I was naive to trust him with everything he said.
1. He pushed me to a bank which wasn't offering the best rates. I assume because he made more commissions there.
2. He got me a fixed rate loan on an off-the-plan block of land. I paid almost 0.75% more than the typical market rate for a year and also eventually paid the exit fees of close to $2000.

Now, I'm dealing with another one to get a pre-approval for a loan. He quoted me 3.18% with a certain bank. I was offered 3.12% directly by another bank. When I told this to him he said he will negotiate with the bank. He then came back to me with 3.07%. I may be wrong, but, given the situation, it makes me believe that he wasn't offering me the best rate to begin with in order to get a better commission. Now, what is the point in using a mortgage broker if I myself have to talk to the banks to get the best rates? While I'm not the person who would jump boats to take advantage of the slightest difference in interest rates, I still want to get the best rate possible when taking out the loan.

 

@fwmonger I can't really too much about the first person you mentioned, but it kind of sounds like they're primarily a financial planner. The mortgage broking sounds more like an add on. I'd suggest that a fixed rate for land you may want to later build on is a bad strategy as it commits you to that lender whereas you should have better flexibility to move if you later need it.

I don't think you're getting a raw deal with the current broker. The problem is that brokers negotiate with the banks and 3.12% is a fairly good deal in most cases. A second bank hears this and offers a (marginally) lower rate to get your business. The first bank then realised they're going to loose the business so they make another offer matching the second lender. The broker's not really at fault here.

The commission a lender pays is not affected by the interest rate a lender offers. Personally I know roughly what lenders pay, but I'd have to look it up to be specific from one lender to the next and I suspect most brokers are the same. I'd prefer you're happy with the loan and the advice and bring repeat business than make a few extra dollars on the commissions. Happy clients are far more profitable in the long run.

In an ideal world lenders would be open and upfront about the best deal they can offer. Instead they wrangle and make offer then counter offer. Lenders pricing practices are deliberately designed in favour of their profits. It wouldn't be a stretch to think that had you not gone to a broker the first offer would have been 3.40% and the second would have been 3.35% (I see this all the time).