The Mortgage Brokers Association (MBA) is holding lenders’ forums, which include the main home loan lenders and insurers, with the aim of developing an industry protocol to reduce the amount of loan "shopping" or "farming."
That’s when a broker puts in applications to several different lenders for the same loan. The big concern is that the practice creates unnecessary work at a cost to both the broker’s and the lender’s business.
At the recent MBA conference, immediate past MBA chairman Rob Tucker estimated this practice was a large part of the reason that between 40% and 60% of approved loans aren’t being drawn down.
Current chairman Brian Berry says drawn down rates of individual brokers can be as low as 30% with some institutions "which is atrocious."
One possible solution could be that lenders adjust their service standards and remuneration to certain criteria including draw down rates. "It could bounce back on mortgage brokers who do shop loans and don’t have good ratios," Berry says.
For Berry, the issue is part of increasing his industry’s level of professionalism.
"It’s all about taking control of your client and being certain of your product knowledge and guiding the client as to which will be the best deal for them before you actually make an application," he says.
But sometimes loan shopping is in a client’s best interests and can’t be avoided. "If the time frame is very short and it’s a marginal deal, you might have to go to several lenders."
But in such cases, the broker should inform the lenders of the circumstances so everybody knows where they stand, Berry says. "They prefer to know what they’re up against."
Clients may actually ask for the loan to be shopped to ensure they get the most out of a competitive market. This has been particularly the case in the last few months. "Everybody’s looking at increasing market share and they’ve been waiving up-front fees, contributing to legal fees and even discounting interest rates for decent loan amounts," Berry says.
"It’s not that sustainable in the long term and it’s been quite a difficult period for brokers to operate in because the clients are aware it’s very aggressive. They’re asking you to shop it more than they would normally."
