photo credit: bb_mattToday’s guest post comes from an anonymous senior industry executive (so anonymous, not even we know the true identity!).  Due to the controversial views expressed in this guest post, we will be heavily moderating comments, so please do remember our comment rules!  Enjoy.

Brokers are threatened by big bank dominance, however should they band together they’ll be in a stronger position to secure the longevity of the industry, writes a senior industry commentator.

With the market in such a state of flux it’s tough to call what next month will bring, let alone six to twelve months in to the future. Nevertheless I think you can draw some pretty firm conclusions on the future shape of our industry based on well founded assumptions about past behaviors.

Let me put my comments into context.  I have worked for major banks, non-bank lenders and mortgage managers over many years and I am still heavily involved in the mortgage and mortgage broking industry.

I’ve been on the asset and liability committees of major lenders where they debate mortgage pricing, margins and profitability.
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Ross Begley, formerly founder and director of Choice Aggregation Services (Choice), today revealed a new internet-based business generation platform that delivers brokers qualified appointments rather than simple leads.

moneyQuest - established by Mr Begley in January 2007 and the genesis of the new platform -  represents a new breed of innovative mortgage brokerages focused on gearing members with resources and capabilities to compete in a rapidly changing mortgage market.

The company has aggressive plans to expand its broker network to 50 in the short-term across all Australian states based on this new, fresh take to generating broker business.
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The head of a independent mortgage broking group plans to more aggressively market the fact it is not linked to a lender following confirmation today that Commonwealth Bank will buy a third of Aussie Home Loans.

Loan Market Group chief executive Jennifer Nielsen said she was developing a marketing strategy to emphasise the broking group’s independent status.

“It’s time that started to be emphasised because clearly there’s a difference,” she said.
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Mortgage brokers are there to help you find the most appropriate home loan - you just need to ask the right questions, according to the Mortgage and Finance Association of Australia (MFAA).
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National Australia Bank Ltd will cut its mortgage broker commissions and introduce a gradually increasing trail fee in the expectation brokers develop longer-term clients.

NAB’s move follows recent cuts to brokers commissions by Westpac Banking Corporation and St George Ltd.

NAB has rejigged its commissions, hoping brokers will move to an advice-based model rather than being focused on initial sign-up sales volumes. Full Story

With Australian banks moving to cut commissions, the Finance Brokers Association of Australia (FBAA) believes brokers are being unjustly targeted to carry the burden of the ‘credit crunch’.

FBAA National President, Peter White, said that while he accepts margins on loan products have taken a ‘hit’ due to the increased cost of funding, it’s unfair to single out brokers and expect them to take all the ‘pain’ so the banks can continue to post record profits. Full Story

BankWest will reduce its distribution to just 17 brokerages and will break ties with all other groups within 28 days.

Mark Reid, head of retail sales with BankWest, told Mortgage Business that the move was part of a strategy to improve distribution efficiencies and third-party relationships. Full Story

The Commonwealth Bank of Australia (CBA) this afternoon revealed changes to broker remunerations after weeks of discussion with aggregation groups.

The new structure, to be phased in over the coming months, will see brokers forego the first year’s trail commission, with payment settling at 0.20 per cent - down from 0.25 per cent.

Up-front commissions will also be trimmed from a maximum 0.70 per cent to 0.65 per cent. Full Story

The Finance Brokers Association of Australia (FBAA) urges Australian banks not to cut commissions and turn their backs on a financial model which has served them well over the years.

FBAA National President, Peter White, said those banks considering cutting commissions should consider the implications of such action in the broader scheme and to not prioritise the protection of short-term profit ahead of abandoning a financial model that has delivered for them time and again. Full Story

Moves by some banks to reduce commissions to mortgage brokers will not check the growth of the increasingly important service the industry is providing to mortgage-paying Australians, according to Loan Market and X Inc Finance, Australia’s fastest growing mortgage broking group.

Jennifer Nielsen, Loan Market and X Inc Chief Executive, said her group was discussing the issue of commissions with all lenders, reinforcing to them the value of forging long-term relationships with mutual customers or borrowers.

“Lenders need to look beyond merely the commissions that they pay mortgage brokers for service and focus on the true value that a mortgage broker provides,” she said. “Research has consistently demonstrated that the people who use mortgage brokers are typically time poor, higher-value customers who invest more over the medium to long term.

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The majority of US subprime loans made were originated through brokers, according to a report by the Center for Responsible Lending. The report, Steered Wrong: Brokers, Borrowers and Subprime Loans, scrutinises broker practices and loans and concludes that broker originated subprime loans have higher costs on average than loans originated from banks and other lenders.

The report’s authors analysed 1.7 million mortgages originated between 2004 and 2006 and found significant differences between broker and lender pricing on loans, primarily on mortgages for borrowers with weak credit histories.

“During the first year of the loan, borrowers with credit profiles in the subprime range pay statistically more for brokered loans than they would have if they had obtained their loan directly from a lender. Over a four-year period, a typical subprime borrower pays $5,000 more, and over the 30-year life of the loan, the cost gap grows to almost $36,000,” the report says.

The report states that borrowers generally do not pay more for prime loans from brokers and, in some cases, borrowers with high credit scores received modest savings on fixed-rate loans from brokers.

The report examines the causes of the higher loan costs from brokers.
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