Govt’s $4bn Injection Good, But Home Loan Market Still Under Threat

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More needs to be done to revive long-term confidence and competition in Australia’s non-bank mortgage market despite the Federal Government’s rescue package, according to Loan Market Group.

The Federal Government announced on Friday that it would enter the home loan market by investing $4 billion in residential mortgage-backed securities.

Jennifer Nielsen, Chief Executive of Loan Market Group, which includes X Inc Finance, said the move was a good first step in bolstering competition in the home loan market.

“But it shouldn’t end here,” Ms Nielsen said. “A more formalised, long-term solution is vital to protect households and the broader Australian financial system from further severe shocks.”

Ms Nielsen said the creation of a permanent Government-sponsored but independent mortgage body was a “sensible step”.

She said that while not a direct participant in the debate, mortgage brokers had a vested interest to ensure that all Australians had fair access to decent mortgages and rates. She called on the industry to support the creation of a Federal Government-backed securities market.

“By putting in place a long-term mechanism for regulating and controlling the supply of funds domestically, the Federal Government has a unique opportunity to ensure that households and the broader financial system are protected from current and future credit crises,” she said.
Ms Nielsen said the current lack of liquidity was undoing the significant advances made in the past decade in lender competition and innovation, particularly in the way home loans are offered and managed

“If the current situation continues, thousands of Australians who would ordinarily be capable of servicing a mortgage would be unable to secure a home loan,” she said.

A number of mortgage managers and specialist lenders had exited the market, meaning entire consumer groups such as mature people (reverse mortgages and non-conforming) and small businesses (low-doc loans and non conforming loans) had lost the opportunity to borrow funds.

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6 COMMENTS

  1. I agree with Ms Nelsons comments about the need to do more and the fact that some segments of the market are finding it harder to borrow funds BUT…
    The non conforming and Low doc and No doc clients do still have the opportunity to borrow funds.
    There are a number of specialist Brokers around that, like Mortgage Now ( http://www.mortgagenow.com.au )still have specialist lenders available that can do straight asett lending (no doc) and self certified lending ( low doc) as well as a full range of non conforming products that can assist borrowers that have impared credit or that may be behind in Mortgage Payments.

    Whilst things are definately tighter now than they were this time last year, Clients with special needs need to find a broker that understands those needs and can still get them back on track.

    If your Aggregator or lender cant help, Keep looking as there is help out there.

  2. Recently, we have had a few clients sell up their properties in the last couple of months as a result of ‘tough times’. As all loans happen to have been funded in the last 12 months we have been penalised and had to pay back 100% commissions (at the rate of 0.7%) and therefore our cash flow has been heavily affected… to the point I’ve had to use my personal ‘line of credit’ just to survive. At the moment, we get paid… we spend the money running our companies and then we have it taken away from future commission payments with any WARNING.

    Some BDM’s receive a bonus depending on loan volumes achieved by their brokers… do they have to pay this back???

    The only solution I can think of is if we put all our upfront commissions in a trust account and not access that commission until our client has passed the ‘test of time’ test. Actually, the banks could just hold off payment for the first 12 months.

    Speaking to hundreds of brokers at recent broker events… every single one of us believes this is an abuse of power. We find this to be unfair and cruel.

    Some other important issues, concerns and thoughts discussed were

    The recent reduction in commissions… at a time when lending and property activity is less then ever before.
    Australia is facing a possible recession… and we get 30-40% of our income was ‘taken away’ from us without consultation or reasonable thought. We also have kids and mortgages.

    Banks have never been in such a comfortable position with their balance sheets and profit and loss statements. This is evident with a numbers of lenders together spending billions of dollars recently buying each other and continuing to do so. Did all bank employees and executives take a 30% cut??? I don’t think so!!!

    TRAIL – this is the biggest asset Mortgage and Finance Professionals own. It has been chopped up and fried in ‘dirty used black oil’. Brokers can’t believe that some banks now refuse to pay it at all in the first year, such as the CBA… or that it’s been cut to 0.15% by most other banks.

    Then there’s some lenders such as the NAB that require us to sell life insurance, financial advice and other products that we have no experience, or expertise in to keep earning higher commissions.

    At the moment there are 3 mortgage managers that have stopped our trail payments. (Mr Homeloans alone have been stripped of over $100k in yearly trail payments as a result of this happening. Basically we had to start again. Thankfully we have an ‘expensive’ but fair legal process. One that we will begin in the near future… once we find a law firm that will act for us for less then 50%).

    The only time brokers hear from member organisations such as MFAA, FBAA, COSL and professional indemnity insurers is when they send us their yearly invoices. We don’t have an independent voice. And these days aggregators and most successful ‘non bank’ lenders are either partly or fully owned by the banks anyway! All this has resulted in brokers being last in line… bottom of the food chain. (When we were seeking help regarding the sudden collapse of our trail book… we were told that there is nothing anyone could do. Even the lenders funding these loans (who are still paying trail to the mortgage managers) didn’t want to know about it).

    Member Organisation mentioned above need to take a stand against lenders. They need to communicate with brokers and take on board what we are saying. They risk another ‘independent broker organisation’ being set up by brokers for brokers. Considering that over 50% of loans are obtained via brokers the banks should also listen to what we are saying.

    It was outrageous that the Australian Government encouraged and justified to the banks that it was ok to take a share of the RBA cut. This caused confusion to me… how did the RBA justify a 1% cut.. not knowing how much of the pie the banks will eat? Surely there was no way that this cut had anything to do with inflation. It was more the government protecting their newly acquired lending stocks.

    The Government has pledged 4 billions dollars to the non bank sector. We all know the majors will get their hands on the chunk of this money. (I also believe this figure will be increased in the near future).
    The Australian Government has recently guaranteed all bank deposits for 3 years. Another form of protection against their banking stocks. Why was Mr Wayne Swan blasting the banks earlier in the year when they kept raising their rates? He even went as far as naming the banks at the time… and encouraged customers to shop around.

    A spokesman for ANZ, Paul Edwards was quoted in January 2008 as saying “We are committed to passing on reductions in wholesale interest rates when market conditions ease and more normal conditions return,” This has NOT occurred. So much for commitment.

    Brokers have had to release receptionists, office staff and down grade their premises just to survive as a result of commission claw backs and commission cuts.

    Unless things change immediately, brokers don’t see a bright future, let alone a future at all.

    Banks need to change their attitudes… as brokers are beginning to assess other options… such as ‘white label products’ and non bank lenders… although after GE’s immoral activity today watch out with white label too.

    Banks need to eliminate ‘commission claw backs’. This is outdated and used in the wrong way. The only way I can see this happening fairly is if the same broker refinances that loan. If the client sells up or refinances in the first 12 months… we shouldn’t be punished.

    These are clawback commission structures now with the majors..

    Anz

    100% clawback within 12 months
    50% 12 to 18 months
    25% 18 to 24 months

    Bankwest

    100% clawback within 18 months

    CBA

    100% within 12 months
    50% 12 to 18 months

    Homeside

    100% upto 12 months
    50% 13 to 24 months

    Westpac

    100% within 3 monts
    90% 4 months
    80% 5 months
    70% 6 months
    60% 7 months
    50% 8 months and so on

    Increase commissions NOW at least back to industry standard 0.75% upfront and 0.25% trail. There were many instances recently where the banks collectively raised interest rates, almost monthly in 2008. Surely, just surely our commission reductions weren’t necessary and if I’m crazy and I’m wrong, well the banks just recently raised their rates by another 0.20%. However… this was hidden. Everyone just thought of the 0.8% cut the banks passed on and therefore they were relieved. Why has all this occurred, why have most banks recorded record profits in recent times and we are still getting paid a poor 0.50%/0.15%???

    The industry needs to be more regulated and monitored. The brokers doing the right thing should be rewarded. We have survived until now… We deserve a break!!!

    Brokers want a written guarantee that lenders will continue to pay trails for any new loans in the future. Otherwise… we do not have enough security.

    Brokers believe that banks think ‘the less brokers the better’.

    Banks continue to offer cheaper products via their branches. Many brokers have had to compete against a branch of the same lender they intend to lodge a loan to. Branches are able to offer less fees and rates without too much fuss. Some banks have been blunt… such as Bankwest and are offering their best product only via their branches. Their excuse is they were overwhelmed with applications. If that’s the case… give us access to the product and pull it from your branches.

    On a positive note:

    Banks have come to the table with online lodgment software, BDM support, loan processing systems and great products.

    The property market is looking good for brokers, who have stood the test of time. The banks need to continue supporting brokers… and should start including brokers in their million dollar marketing campaigns. Life insurance and Superannuation organisations are doing this all the time. This makes sense… considering that it costs the banks less to obtain a customer via the broker channel, as an alternative methods such as clients walking into the branches.

    Tips from brokers for brokers:

    Only deal with lenders who are accredited members with your aggregator.
    Revise all commission and agreements you have with lenders and have them checked by a Lawyer.
    Lobby with your Aggregator to take a cut with their commission and/or fees.
    Brokers should always have the clients best interests at heart, however if two lenders offer the same rate, go with the lender who is still paying 07%/0.25%.
    Stick to the lenders who don’t have a ‘commission claw back’ clause. (as you can see at the moment there are none).
    Write to MFAA/FBAA demanding more support and representation.
    Consider charging clients a small administration fee to help cover your costs. Most clients will not have a problem with this… as long as it’s structured and fair.
    Keep in constant touch with all your clients.
    Educate people as to the importance of acquiring the services of a Mortgage Broker and point out the benefits of using a broker. Such as… us having a range of products from all the banks, us having the ability to negotiate rates and fees etc.
    Brokers should try to maintain a ‘lifelong’ relationship with their clients. This will help stop them going direct to the banks. Think about when you find a great Lawyer or Mechanic or Accountant or Doctor. You normally remain their client for life… if they are able to service your needs.
    Educate yourselves more in terms of regulation, marketing, products and customer service.
    Demand marketing material from your lenders to display and pass on to clients. This is to the lenders advantage as much as it is to brokers.
    If we do not change our attitudes and get together to fight against the banks… we will be eaten alive. So take action now.

  3. Hmmm… ok Ali… Wasn’t this the same speel you went on about with GE Money not passing on the interest rate cut?

    I think your comments have very little on the actual story at hand.

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