It isn’t so much that the mortgage broking industry’s current commission structure is under threat but that too many mortgage brokers are expecting to be paid even when they aren’t adding value to both the lenders and the customers, Mortgage Choice managing director Miranda Caird says.
She was responding to comments by Roger Poulter of Mortgage Link, who also has a related firm providing home loans, Pacific Home Loans, that sourcing loans through mortgage brokers may no longer be cost effective for the lenders.
"It’s easy for someone to make that comment when they wear two hats – one wonders whether this is Pacific Home Loans’ strategy to reduce their own commission they pay brokers," Caird says.
Pacific Home Loans and other newer lenders wouldn’t exist without the broker network, she says.
"The issue is that nothing is cost effective unless there’s added value. Where the industry has gone wrong with trail commissions is that some brokers think it’s a given and that they don’t have to do anything for it," she says.
She suggests some of the aggregate groups of mortgage brokers which were created simply to meet banks’ volume requirements for trail commissions may be about to come unstuck.
The reason banks have been paying trail commissions is because they want brokers to ensure they retain loans on their books. A lot of the problems which have arisen are the result of brokers not doing the job properly at the loan application stage. "It’s about us working with the lenders to give them quality business," she says.
"The sooner the lenders set clear guidelines to brokers of their expectations, the better for the whole industry."
Caird also takes issue with Poulter’s suggestion that the Bank of New Zealand’s decision to no longer accept loan applications from brokers could be a case of the bank’s parent, National Australia Bank, experimenting to see whether it really needs brokers or not and that, if successful, other banks might follow.
Caird says that BNZ’s strategy is to deal directly with customers rather than with intermediaries in everything it does, including insurance and financial planning, not just with mortgages. It can afford this strategy because of the size of its own network, but other lenders don’t have that luxury, she says.
BNZ has never made any real investment into the mortgage broker network so its refusal to deal with brokers shouldn’t have any impact, she says.
