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The Royal Commission - what it means to home loan owners

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The Royal Commission - what it means to home loan owners

Postby maverick » 08 Feb 2019, 10:06

This is in the off topic area, so it is voluntary if you read it.

The RC was set up to investigate banking misconduct. It found banking misconduct from the banks and said they would be punished. They then released a set of recommendations that will destroy the mortgage broking industry, recommendations that were an almost word perfect copy of what the CBA CEO said he would do. You can see the conflict of interest already.

You may have never used a broker or may never use a Broker, but 20 years ago, before the Broking Industry existed, Banks were making 2 - 3% more profit on each home loan. So without Brokers, right now, everyone woudl be paying 2 - 3% more on the their home loans. By pushing Brokers out of existance, a number lenders will disappear and the Banks will again have the majority. With less or no competition, they can do what they want with rates. The Big 4 colusions still exists and it will only get worse.

I have been a Broker for 17 years, I make good money, I work hard for that money. I have helped people on the forum obtain finance and also given a lot of free advice to other members. I don't charge a cent for my service. I believe I am the same as almost all other Brokers, working for the best result for the consumer and keeping competition alive and rates lower.

If you have a moment, I would really appreciate if you could sign the attached petition and also send a letter (via the link) to your local member. We need to keep the Broking Industry alive. It is not just about me, it is about the best interest of every home loan owner in Australia.

If you are into social media , please share on Facebook as well.

I can explain in far greater detail if anyone wants to know, about the ramifications and how it will cost 25,000 jobs across the industry.

Thank you.

Petition: https://www.change.org/p/federal-treasurer-josh-frydenberg-save-the-mortgage-broking-industry/

Local Member letter: https://www.brokerbehindyou.com.au/
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Re: The Royal Commission - what it means to home loan owners

Postby Reeling » 08 Feb 2019, 10:22

Hey Pete.

In terms of your comment regarding the banks being able to revert back to the old days of creaming off 2-3% more...Where do you stand on the non-bank lenders (like Reduced Home Loans) who now operate in the Home loan industry and are, in my eyes, a direct competitor to the banks?
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Re: The Royal Commission - what it means to home loan owners

Postby maverick » 08 Feb 2019, 10:37

There are plenty of lenders out there and plenty who have/will fall by the way side.

For a PAYG borrower borrowing less than 80%, borrowing is easy. For many borrowers, they don't fit that category, which is where I come in.

Not everyone is electronically/technicallly savy and have the knowledge or inclination to do the work themselves, or find out what other optiosn there are. Lenders like Reduce Home Loans have a place in the market, same as U Bank and other "IT" Lenders. But it all comes back to who funds the lender.

Wizard was at the mercy of the big lenders for a while, as they purchased wholesale funds, then retailed them at a lower margin. Banks started raising wholesale funds, so Wizard went the way of obtaining their funds, independant of the banks, which resulted in them staying viable, as a non bank lender and a Broker. I don't know who funds Reduce Home Loans or what the future holds for them.

60% of all home loans are now originated through a broker, and the market share is growing constantly, that must tell people something about what consumers actually want.
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Re: The Royal Commission - what it means to home loan owners

Postby Reeling » 08 Feb 2019, 11:21

Thanks Pete.

I appreciate not everyone will be in the position of <80% LTV and with that obviosuly comes the extra risk. I have only recently become fortunate to be able to class myself in this category. My point about mentioning the Non-Bank lenders is that, so long as their funding doesn't (in part or in whole) come from banks, then they should be able to continue to put downward pressure on the home loan prices and reduce the increasing interest rates that you are suggesting will happen without the presence of the brokers.

I'm new to the game, but my understanding was that non-bank lenders would not have been around in the times when banks were charging that 2-3% more??

Please don't think I completely agree with the outcome from the RC, I'm just intrigued
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Re: The Royal Commission - what it means to home loan owners

Postby maverick » 08 Feb 2019, 11:53

I do not believe the portion of the smaller non bank lenders who can/will remainn will have enough clout to put pressure on rates. There are not enough of them and they are too small. It will still depend on their funding source as to whether or not they can remain competitive.

This is an interesting read (to some of us) from a Politician that gives a better perspective.

Commissioner Kenneth Hayne’s recommendations in his final report into misconduct in the banking industry have immediately jeopardised the survival of more than 17,000 small businesses across Australia.

That’s the number of mortgage brokers who rely on upfront and trailing commissions paid by the lender to survive. Take those commissions away and make the mum and dad borrower pay, and you will decimate the industry.

That’s tens of thousands of jobs, millions of dollars in tax revenue and much less competition for the big banks.

The recommendations have also put in jeopardy more than 100 small lenders in Australia — lenders that have shifted into regional areas to partially fill the void left by the big banks moving out. Those small lenders, including regional banks and credit unions, rely on mortgage brokers to reach customers. The consequences of Hayne’s mortgage broker industry recommendations will be far-reaching for small businesses, consumers and our economy. And they won’t be positive.

There are several flaws in the royal commission report relating to the home lending market. Hayne shows little knowledge of how the mortgage market works.
The first flaw is a lack of understanding about what a mortgage broker does to earn their upfront and trailing commissions. A mortgage broker helps a customer select a home loan based on their financial situation, needs and ability to repay the loan. They compare loans, help the customer negotiate a lower interest rate, and use their knowledge and contacts within the industry to find the most suitable deal.

Once the customer has decided on the best loan for them, mortgage brokers help customers fill out the loan form, liaise with solicitors before settlement and often do a full assessment of the creditworthiness of the borrower. They are regularly responsible for chasing documents, such as pay slips, to verify eligibility. Then they submit the form to the lender. Once the lender approves the loan, the mortgage broker assists with the loan documentation and liaises with the lender, solicitors and anyone else involved in the transaction to allow the customer to get the money. No one else in the home lending sector provides a single co-ordination point for all this.

Knowing what is going on in the market is very important if the customer wants the best deal. Which bank has the best deal for fixed-rate loans this week? What lender is looking for long-term home loans? Who wants to lend to agribusinesses? Mortgage brokers know what’s going on in the market. Consumers don’t.
I can’t imagine someone walking into Commonwealth Bank and being refused a loan, only to hear the customer service representative suggest they go down the road to ANZ.

If the government undermines the mortgage broker community, there will be far fewer loans provided. Almost 60 per cent of us use a mortgage broker. Take that service away and fewer people will buy houses. The Reserve Bank has already said the economy is vulnerable to shocks in the property market.
The second flaw is Hayne recommends that borrowers, not lenders, pay the upfront fee. It means the borrower will pay the fee twice. At the moment, the mortgage brokers receive a commission paid by the lender and the customer gets the loan. Under Hayne’s recommendations, the borrower pays the fee and the bank gets to pocket what it used to pay the mortgage broker. Hayne didn’t tell the banks to reduce interest rates to make up for the additional money they’ve made on the home loan.

So customers will pay twice — once when they set up the loan and once when they pay the interest on the loan.

The only way around this is to force the banks to refund the fee to the borrower, or to have them charge a lower interest rate, at least for the first year. Hayne wants to punish the mortgage brokers and reward the banks.

The third flaw is that forcing the borrower to pay the upfront fee to mortgage brokers means families will take longer to buy a house. It’s already very tough to save for the deposit and have enough for stamp duty, administration fees, legal and other fees. Adding another cost upfront will put home ownership out of people’s reach for longer, particularly first-home buyers.

The fourth flaw in the Hayne commission’s recommendations on mortgage brokers is critical. If you undermine the mortgage brokers’ viability, smaller lenders lose access to customers and will start closing. The only winner will be the big banks. Already the number of small lenders is shrinking. Excluding the big five banks — ANZ, Commonwealth Bank, NAB, Westpac and Macquarie Bank — there is half the number of lenders available to home loan customers than there were 12 years ago.

Regional banks and credit unions haven’t got the money to open branches in Sydney or Melbourne, or regional Western Australia or far north Queensland. They don’t need to because mortgage brokers do the job for them, helping them reach thousands of customers.

If mortgage brokers become unviable, so, too, do dozens of lenders. Market power shifts back to the big banks and interest rates will go up. Customers lose out.
Just look across the ditch. No trail is available to mortgage brokers in New Zealand, but the upfront payment is almost twice as much as here. It’s not because the mortgage brokers are greedy. It’s because they need that much upfront commission to stay afloat.

Hayne has got these recommendations wrong. The Coalition government and Labor are blindly walking into a huge trap by abolishing trailing commissions. Bill Shorten and Scott Morrison need to consult with the industry before making these sweeping changes or they risk enormous fallout.
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Re: The Royal Commission - what it means to home loan owners

Postby peatop » 08 Feb 2019, 12:23

Pete i agree almost totally with what your saying, however do you seriously believe that the 2 major parties don't know what the intended outcomes of recommendations?

Like you and most of the people around our age, we had the big 4 and the state owned banks when buying our first homes, we were told why we shouldn't get a loan, told we don't really fit the criteria, they made us feel little and worthless, when i said never mind, i will build my house with cash the same way i bought my property they then said oh oh no we can help.

I remember very well when brokers started appearing, intrest rates dropped, people started getting treated like real people, and the aussie battler started buying houses, boom for the economy, this was a previously unobtainable situation of a low income family being able to buy a house.

I urge everyone to sign the petition, if you dont think it will affect you? Think again
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Re: The Royal Commission - what it means to home loan owners

Postby Outback Yak » 08 Feb 2019, 13:04

Good luck Mav... petition signed. :thumbsup: I dislike the banks intensely because of my experiences growing our family business in the 80's and 90's. The hoops we had to go through were onerous and collateral demands were ridiculous whilst the Bonds and Skase types would spend lavishly on bank bosses who would throw hundreds of millions of dollars at them....only for those businesses to collapse. Then in the subsequent fallout it was businesses like ours that felt the pressure to repay loans, increase repayments, etc.

The banks are a long way removed from the Sunday ritual I vividly remember as a young boy in the early 60'3 when our local bank manager would visit my dad at midday every Sunday, have 2 scotch and sodas, talk business and go home when the wrestling finished at 1pm. Oh....the good old days :lol:
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Re: The Royal Commission - what it means to home loan owners

Postby Franko » 08 Feb 2019, 22:18

Done Pete, it just does not seem right. Like any industry there are people doing right and people lining there pockets with 100 dollar bills. Seems they may have lost the fight but not the war.
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Re: The Royal Commission - what it means to home loan owners

Postby shane » 08 Feb 2019, 23:49

I recently concluded the refinancing of my home loan. I'm reasonably financially literate and did a lot of research into the pros and cons of using a mortgage broker before doing so. What I found was that there would be no difference in the rate or fees I would have to pay if I used a mortgage broker compared to going straight to the bank. But by using a mortgage broker what I had was an advocate on my side who understood the home loan market, could identify the best deals and was able to expertly navigate what was a complicated loan approval process. Maverick was my chosen mortgage broker and I couldn't be happier with the professionalism he showed in acting on my behalf and the result that he obtained. :clap: :up:

The Royal Commission has chosen to focus on the mortgage broker industry and the perceived perverse incentives that aspects of commission remuneration could generate. But in my opinion they have totally missed the mark. Instead of trying to wipe out mortgage brokers they should focus more on the negligent loan approval processes and lack of due diligence shown by the banks. If the banks do their job properly in the first place, then using a mortgage broker is a lower risk, lower overall cost and much better way for people to deal with a bank loan process. Hopefully our politicians listen to common sense and don't implement this part of the royal commission recommendations. I've gladly signed the petition.
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Re: The Royal Commission - what it means to home loan owners

Postby Fish Grylls » 09 Feb 2019, 07:02

shane wrote:What I found was that there would be no difference in the rate or fees I would have to pay if I used a mortgage broker compared to going straight to the bank. But by using a mortgage broker what I had was an advocate on my side who understood the home loan market, could identify the best deals and was able to expertly navigate what was a complicated loan approval process.


There is only advantages from a consumers side to using a broker. Case in point when we negotiated a loan our broker with one simple phone call obtained a much better rate from NAB than our local NAB manager was prepared to give :wtf: . Our broker convinced us in the end to take the loan with a smaller society which has saved us thousands. Without brokers the already powerful banks would be more powerful and the consumers will be the losers.
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