Rather than base the trail commissions it pays mortgage brokers on loan volumes, fledgling mortgage financier New Zealand Mortgage Funds is basing them on quality, says founder Sean Davis.
He is weighing into the recent debate over whether sourcing mortgages through brokers may be no longer cost efficient for the lenders.
Davis agrees with Mortgage Choice managing director Miranda Caird, that brokers shouldn’t expect to be paid unless they are adding value to both the lenders and their customers.
He will pay trail commissions to those brokers with a 65% application-to-settlement ratio. "We think 65% is reasonable and easily achieveable – sometimes the situation is outside of the broker’s control; borrowers may play the brokers," says Davis, who used to be a broker himself.
Setting volume targets as most lenders have "makes it unrealistic for the smaller broker who wants to remain independent. You only have access to one or two lenders," he says.
He also questions the value of aggregation for aggregation’s sake within mortgage broking. "It doesn’t add value to us (lenders) or the borrower. From what we’ve seen, they just seem to be allowing the broker to remain in the industry." He also worries that brokers can lose their identity within aggregate groups.
NZ Mortgage Funds, which only lends through brokers, pays all brokers the same commissions, regardless of whether they’re individual operators or part of a large group.
That is, an upfront 0.6% of the loan amount. As well, his firm doesn’t charge application fees itself but allows brokers to charge application fees of up to 1% of the loan amount. He says very few charge that much, but that he thinks they should be entitled to more commission for the more complicated deals. And the trail commission of 0.15% of the loan amount is paid subject to the broker’s settlement ratio.
