The mortgage broker industry has come under fire recently in the Banking Royal Commission with a disproportionate level of attention received instead of the commission focusing on banks reported and proven misconduct. Major bank CEO’s have tried to divert attention from their own legal issues, by misleading the commission with uneducated information about the mortgage broker industry.
Mortgage brokers are banding together to inform our local MPs and Senators about how significant changes to mortgage broker remuneration structure will be to the detriment of our industry, but more importantly, consumers. We’ve sent letters asking for support to Lucy Wicks, Emma McBride, Senator Brian Burston, Senator David Leyonhjelm, Senator Jenny McAllister, Senator Arthur Sinodinos, Senator Concetta Fierravanti-Wells, Senator Doug Cameron, Senator Kristina Keneally, and Senator Marise Payne.
We hope they take the time to read the letter and they consider the outcomes of changes and their ability to influence decisions made about our industry in the future.
I am writing to you as a small business owner in your electorate, seeking a meeting with you to ask for your support in preserving our industry.
My husband, Zac and I, run Mint Equity, a multi-award-winning mortgage broker business based in Somersby. For the last four years, we have supported first-home-buyers, existing home owners, investors and small to medium businesses make some of the biggest financial decisions of their lives.
As you may know, our industry has come under recent scrutiny via the Royal Banking Commission, ASIC Broker Remuneration Review and the Sedgwick Report. There has been a variety of incorrect information published through the media, which may lead to significant changes in our industry – to the detriment of both our industry, but more importantly, consumers.
If you’ve never utilised the services of a mortgage broker, you may not know the benefits consumers receive from our free services. In Australia, there are 27,000 mortgage brokers working with consumers to find a finance solution to suit their family’s needs. Mortgage brokers are accredited with multiple lenders, in fact we have 40 on our lender panel, which means customers who come to Mint Equity have a wide variety of options to choose from, rather than just one suite of products from an individual bank.
55% of home buyers utilise a mortgage broker to source their home loan and only 1% of consumer credit complaints to the Financial Ombudsman Service between 2013 and 2017 were about Mortgage Brokers.
Mint Equity provides a free service for consumers as we are remunerated by the lender, if the loan settles. That means that we will work with the customer from their initial thoughts of buying a property or refinancing, assess their borrowing capacity, source lender options for them that suits their needs, take them through the application process through to settlement. In some cases, this process can take up to 18 months from the initial enquiry as we also help them prepare for building up their deposit to save on fees like Lender Mortgage Insurance (LMI).
But, I want to tell you what my husband Zac really does for his customers.
Zac was the first person our client calls when her and her husband decided to get a divorce and need to split their property assets. He tells her everything is going to be ok when she cries on the phone, and he battles with the bank’s credit policy ‘interpretation’ to make sure she can pay out her husband’s share so she can keep the house her 5 year old son grew up in.
Zac was the broker who helped a Terrigal family buy a home in Dubbo and secure one of the country’s smallest home loans of $38,400 after being turned away by their bank because the loan size was too small to be bothered with.
Zac visited a client at their home at 7.30pm on his birthday to discuss home loan options for 2 hours, because that’s the only time the client’s can see him after putting their baby to bed.
And when a bank’s credit manager declines a home loan application citing a ‘non-disclosed change in circumstance’ for a husband and wife because they had an IVF related bank transaction – Zac demanded the bank reverse their decision citing discrimination. Just imagine if consumers had to disclose their natural procreation activities or IVF enquires in order to secure a home loan. Zac fights for our clients against unethical decisions by banks.
What we do is more than just the marketing spiel. And we aren’t the only mortgage brokers who become a trusted confidant with our clients and are the shoulder to lean or cry on during their biggest financial decisions.
So, why am I contacting you about changes to our industry? When banks are under pressure, like they are now with the Royal Banking Commission, they tend to point their finger at something else to take the focus off their own misconduct.
Just last week, Matt Comyn, CEO of Commonwealth Bank choose to pass comment on how commissions should be paid to mortgage brokers at the Royal Banking Commission, rather than addressing CBA’s misconduct. When there is a lot of noise, the true stories can be lost.
We’ve always been open about how we generate our revenue. For a mortgage broker arranged home loan, banks and lenders calculate an upfront commission based on the loan amount that is drawn down at settlement. In addition to the upfront commission, in some cases (not all), an ongoing payment (trail) is made for the life of the loan.
However, if the loan is discharged (paid out) within 2 years, most lenders ‘claw back’ the upfront commission paid. That means, if the consumer sells their property or pays off the loan within that time frame, the commission paid to the mortgage broker has to be paid back to the lender, resulting in either no payment or only a small percentage of the original payment. Also, if the consumer goes into arrears on their home loan, all payments stop. However, we actively manage arrears directly with the customer to reduce the risk and/or duration of arrears.
Currently there are discussions around changing the way mortgage brokers are paid. Suggestions include changing to a flat fee from the lender regardless of the loan amount, removal of trail commissions and a consumer paid fee to use a mortgage broker.
What isn’t common knowledge, is we are one of the few industries where we can complete 90% of the work and never be paid. And even if we are paid, that money can be taken back from us if the client sells their property, refinances elsewhere or pays off their loan within 2 years.
The way we are remunerated now, enables us to survive the swings and roundabouts. We can continue to support the big loans, little loans, straight-forward loans, complex loans and the clients who change their mind or circumstance.
Making the consumer pay for mortgage broker services, a flat fee payment or removing trail commissions will detrimentally affect our industry and consumer options. For example;
If trail commissions are removed, how will a mortgage broker be able to afford ongoing services to clients after settlement like top-up loans, product switches, renegotiate interest rates, remove guarantors from loans, ensuring off-set accounts are set up, guidance on lending options when their personal circumstances change etc.
Changing the way we are paid only benefits the bank’s profit margin. Consumers receive better interest rates via a mortgage broker than direct with the lender.
In this tight credit market, what was once a straight-forward home loan application now becomes complex, requiring brokers to spend 3x more time on each deal. Reducing broker revenue will see many exit the industry, leaving consumers with fewer options, even if they choose to pay a fee.
As banks continue to close branches and send credit departments offshore, the broker network becomes increasingly important, particularly for regional consumers.
If you applied the same remuneration suggestions to say the real estate industry, it would mean a real estate agent could only charge a flat fee regardless of the property price and that the buyer (not seller) would have to pay the fee in addition to the property price, conveyancing and mortgage costs. Could you imagine what that would do to the real estate and property industry?
Zac has worked for banks for 23 years, and we started Mint Equity 4 years ago because he didn’t agree with the way the big banks were driving revenue to the detriment of the consumer – everything that is coming to light in the Royal Commission at the moment.
Mortgage brokers give consumers more choices and support without adding to their own costs. We are very passionate about what we do and how our industry should be reflected, supported and remunerated.
I would welcome the opportunity to meet with you to secure your support for our industry and the existing model.
Director, Mint Equity