What does a Mortgage Broker do...(not facetious question)

[Indifference]

I view my Mortgage Broker much like my Accountant. Neither does anything that I could not possibly manage myself, however, the time it would take me and the risk that I would miss something is extremely high by comparison. This would be a direct expense to me, whether I was aware of it or not is another matter.

My Broker consolidates each lenders requirements and packages up any application according to my needs and the lenders expectations. This is more than simply passing on the documents/info. I expect my broker to be the "eyes & ears" of the lender through having a clear understanding of the particular lenders requirements and matching them to mine. The Brokers I have used have indeed done this and it has saved me heaps of time and $.

As has been mentioned, the advice and 'extra' service I have received from my dealings with Brokers has been extremely positive. How many lenders will sit down with you for 3hrs on a Sunday afternoon, at your house, help prepare your application, consolidate your financial information, and provide non-biased advice (in my experience) on what products are most suitable for your needs...... I know that the Brokers I have dealt with do alot!

my 2 cents....

 

[josko]

Hi indifference,

Sounds like you have a good broker there and an appreciative understanding of the extra time he/she puts in.

Good for you!

Regards Jo

 

[Casserole Dish]

Hi Lee, I spent time trying to sort out a loan for our IP directly with the banks but it was truly not wise. We were about to sign over our PPOR mortgage to CBA (and would have ended up cross-collaterised) when I got on this forum and found me a good MB.... namely Steve (Bradsdad).

Well he was great! and if you want me to further expand on that, give me a PM.

MB's do all the hard work and then the bank checks it themselves. The banks ended up ringing my husband's work to confirm pay etc.

 

[Hoffy]

yes Richard, thats where fee for service comes on doesn it, comm isnt the only way to make a buck, and quite we also do our share of pro bono work

ta
Rolf

how many brokers work fee for service??? Less than 1% in my experience.

But hopefully that will change into the future. Certainly brokers will agree if they want to be viewed as a profession, not a conflicted sales force.

Brokers serve a useful purpose for many clients, but don't fool yourself into thinking that they don't suffer from the same conflicts of interest that plague the financial planning industry for example.

Their aggregators specifically cease dealing with certain lenders or loan products that don't pay them a clip.

So if you think you are going to a lender because they can "shop you around" for any available loan then you are very sadly mistaken. The best loan for you may not be available through your broker because the bank isn't paying comm.

Best to do your own homework.

 

[Rolf Latham]

Hiya Hoffy

Where we need to place business where a comm isnt available, then a fee for service will generally be charged, equivalent to the usual commission paid.

Objectively, its not possible, nor viable to work with the +- 700 or so "lenders" in Australia.

A broker is NOT obliged to only work within the panel of the aggregators lender, indeed many brokers have at least a dozen lenders outside of those panels that are used irregularly and have direct accreditations with.

In general, but not always, the FNQ Banana growers employees Credit union may have the cheapest loan product...................but is that really what you want or need ?

ALWAYS, if a client comes to me and says I need the cheapest loan rate, I will always recommend an Internet only lender to them. I cant add value to such a request..................

The core issue is that most (I literally mean most) borrowers dont actually know what is "best" for them, how then do they seek out what is best in terms of loan or structure without someone in some form of advisory capacity.

Structure and product mix needs to come before pricing, the general public are educated to work it the other way, and its usually "education" by second or third tier lenders,and sadly, many "advocates" that are responsible for this.

I dont believe the resi loans market is ready for a fee for service only brokerage because its not possible to make a dollar in a mirco to small mortgage broking biz by charging less than $ 1000 per transaction as the system stands today. I know many small sole operators would argue with that, but I dont know any business owners where the COST of running a deal through form aquisition to payment is much less than that.

Fee for service in Australia as a general concept for many services is still a long way off being a succesful or acceptable concept. A good example is the medical system.............look at how many GPs bulk bill even though they reasonably cant run a decent business from that. Another is Real Estate........many flat fee business out there, but they have such a small market share even though in theory they should romp it in.

There are many reasons for this anomaly im sure ? I dont know what they are, nor what the answer is.

I dont disagree that there is some element commission bias in broking, objectivley though, if your panel extends to + - 95 % of Australian mortgage business written, and those lenders pay "similar" commissions, i doubt that the majority of people would see this as a challenge ?


ta
rolf

 

[Bradsdad]

Passed onto the lender in full for a full-doc loan. The MB should though ensure they pass muster before recomending a lender though. Different lenders will allow different items to be added back which the MB needs to be aware of or able to check on before ant recomendations are made.

In regards to a MB not having ALL lenders available, I do agree (sorry Richard). I say this as although a deal could say be passed on to BOQ (for example only) for no renumeration, I couldn't BOQ recomended BOQ as I don't have access to their policies and servicing. In saying this, if a client came to me with a scenario that BOQ were offering them, and I believed the offer met the clients needs and was competitive from the panel I have available I would have no qualms about advising the client to take it up. As most MB's on here would attest to, doing the right thing by the client is paramount. This way the client will usually come back one day for something else.


Hope that helps a little and answers your question.


Regards
Steve

 

[Piston Broke]

Its trying to work out what the client actually needs, compared to what they perceive they need...............that leads to some interesting long discussions.

Fact is the vast majority have absolutely no clue what the client really needs, nor the experience to recommend anything and just repeat what taught in an accreditation course that a monkey can pass. More so those franchises imo.
Which is why they are face regulation which is (and won't be) nowhere as rigorous as it should be.
So just like "Financial planners" they are 90% form filler commission sales people.

Of course most MBs that post on this forum are experienced RE investors, and like most RE investors are in the minority.

 

[bdc]

Well said PB, not that I've had much experience, but i've seen a couple offer terrible and downright weird advice over the past 12 months.

 

[StuartW]

Great post Rolf!

I think you sum up really well.

However, your comments are limited to "good" brokers - not the norm! Last week I recomended a mortgage manager who I have zero relationship with and zero commission. It was a $2.5m+ deal so I kissed goodbye a sizebale commission (> $10k). I don't tell you that to "sound good" - not at all (I have never actually advertised that I am a broker here on this forum). I tell you this to demonstrate that there are some very good brokers out there are they are VERY valuable! The "average" broker - not that valuable at this stage.

90 % of our task is not related to interest rate, fees and charges or indeed much to do with variable costs.

Its trying to work out what the client actually needs, compared to what they perceive they need...............that leads to some interesting long discussions.

Sometimes that approach costs you the business, but id rather walk than have to face the tears of a poor product choice down the track.

ta
rolf

 

[RumpledElf]

I dont believe the resi loans market is ready for a fee for service only brokerage because its not possible to make a dollar in a mirco to small mortgage broking biz by charging less than $ 1000 per transaction as the system stands today. I know many small sole operators would argue with that, but I dont know any business owners where the COST of running a deal through form aquisition to payment is much less than that.

I'd happily pay $1000 if some mortgage broker could hook me up with a lo or no doc bridging construction loan, just to save us the pain of moving twice. I'd imagine there's virtually no point in getting an ongoing commission for a loan that has a life of less than 3 months.

The alternative is simpler, doesn't really need a broker for and will leave us with an extra IP but has the hassle of moving twice and a long drive to school for a few months, so we're leaving this one as late as possible.

 

[LeeJ]

* Many * great replies - thanks all. (I started the thread).

One of my initial questions was:
"Do their 'connections' with lenders mean you have a better chance of securing a loan?"... I'm not sure it has been addressed (though could be wrong).

Let me expand - when going for car finance (I have leased about 8 cars privately and business) I have found that approaching a lender direct - say Esanda - gets you nowhere fast - stupid staff (sorry) - high interest - even though have perfect record with previous leases (yes I have shocked at indifference).

When getting finance thru car dealer - "bing-bidda-bang" - all done in no time and reasonable terms.

So does this apply to Mortgages?

Direct approach - snoozeville
Thru MB - done deal

 

[tobe]

Yes. Not necessarily through their connections, which makes it sound like some kind of mafia thing, rather their product and policy knowledge, and therefore being able to show a clients finance application in a format required by a specific lender.

 

[Piston Broke]

*
One of my initial questions was:
"Do their 'connections' with lenders mean you have a better chance of securing a loan?"... I'm not sure it has been addressed (though could be wrong).

Here's the deal: 95% of MBs do not have any direct connections with lenders imo.
they have a connection, who has a connection who goes to the lender.
As I posted to Rolf:

Good experienced brokers like yourself don't have much competition out there I'm discovering as many are PTers doing it for a few extra $$ with limited experience and less customer service values.

The original Q of what they do is simple.
They do all the research and find what you want and/or need.
Want the cheapest rate no frills?
A good MB should have 3-4 options with pros & cons of each.
Want an LOC with transactions?
A good MB should have 3-4 options with pros & cons of each.
A good MB knows the long term consequences of your decisions, a noob only knows how much comm he/she's getting and what's written on the brochure.

I have used and will continue to use an experienced MB when I think necessary.
They can also save a lot of time and hassle.
A couple time I just picked up the phone and said:
"I have 20%, want to by for XXX, can you get the best rate from the 10 largest lenders?"
MB "Sure"
"Just call accountant for my details, he's expecting your call"
No hassles, no fuss, funds available in 2 weeks.

which makes it sound like some kind of mafia thing, rather their product and policy knowledge, and therefore being able to show a clients finance application in a format required by a specific lender.

Call it what you will, but nothing beats personal contact & long term relationship.
Now more than ever as people move to email comms.
I've had many bankers bend rules for me over the years while sitting at the same desk with them.
And I've had MBs directly contact lenders on my behalf to achieve results.

 

[Bradsdad]

* Many * great replies - thanks all. (I started the thread).

One of my initial questions was:
"Do their 'connections' with lenders mean you have a better chance of securing a loan?"... I'm not sure it has been addressed (though could be wrong).

Let me expand - when going for car finance (I have leased about 8 cars privately and business) I have found that approaching a lender direct - say Esanda - gets you nowhere fast - stupid staff (sorry) - high interest - even though have perfect record with previous leases (yes I have shocked at indifference).

When getting finance thru car dealer - "bing-bidda-bang" - all done in no time and reasonable terms.

So does this apply to Mortgages?

Direct approach - snoozeville
Thru MB - done deal

Being "connected" doesn't really have any impact on your chances of approval in my opinion when it comes to the residential stuff with mainstream lenders. The reason being is that the decision making process is usually based on credit scoring and is automated. Certain deals may get uplined to the lenders credit area for consideration but the client doesn't usually meet with these people.
It's more a case of a MB being able to address problems before they arise through experience or having alternative solutions available through their panel of lenders.

 

[Piston Broke]

Direct approach - snoozeville
Thru MB - done deal

utter baloney!
Either your dealing with woodducks, or you are the woodduck. (or an MB )
Banks are doing their best atm to cut out MBs, did I mention I paid no fees going direct for my last loan and a refi? Not even valuation fees.

 

[LeeJ]

Piston Broke

Maybe I am a woodduck Certainly when dealing with car finance people direct I have been dealing with feathers - wish I could get past them and onto someone more senior though that's probably more for fleets.

Anyway you seem to be a very experienced mortgage obtainer (I am not - yet) - do lenders like say banks know about or can find out if one has accounts/loans with other banks? For example if I have an overdraft at another bank (I am thinking about telling a small lie to improve my chances)

 

[Piston Broke]

Jus lemme clarify the by "woodduck" I mean target.
I can generally obtain with a pretty secure financial backing for my type of deals that don't involve >85% LVRs.
And rarely do I not have at least 10% immediately available deposit anything.
The latest one was a low-doc for 60% of valuation, no questions ask, they did'nt care what I was even using it for. And no BASs or financials.

I'll go to a bank or MB, tell them what I got and what want.
If they appear not to understand or start making out as if it's too difficult, I just move on to another MB of bank.
The auto brokers make a lot more comm and are happy to take your biz and do whateva to make it happen. And they are generally much more experienced than the resi MBs.
I've dealt once with Esanda and hopefully never will again.
There's a reason and a high price the $$ are easy to get.

How do i present financials? I don't.
I simply say "I will get my accountant to send you the paperwork, here's his details."
Can they see other loans? I asuume they'd show up on your credit check, so yes.
Do they care at 60% of valuation (or 80 with LMI)?
Nope, not much.
Bottom line is it depends on the details of the deal your proposing.
And I have spent a lot of time looking at it from the banks perspective.
Hence I don't want from them, I give to them.

More senior?
I posted before about how Westpac has a new "local branch manager" program.
So go to your local branch and ask for the manager.
If they say "we don't have at this branch", you can ask "do you know which one has?"
Or just go to another one, till you find one.
Simple as that.

 

[Marko Legija]

I prefer to spend a few hours doing the research myself and pocketing the commission that I would have paid. When you divide the commission by the number of hours you 'worked', the $ earned per hour comes to hundreds of dollars or even thousands.

What gets me is that people are prepared to work for someone for $35 an hour but when it comes to earning or saving some real coin than they decide to pay someone else handsomely. It aint rocket science, all the info you need is available on the web.

If a mortgage broker charged per the hour than only maybe would I consider them, only for unique circumtances though.

 

[JamesGG]

If a mortgage broker charged per the hour than only maybe would I consider them, only for unique circumtances though.

The main problem with charging by the hour, in any service industry, is that it encourages inefficiency and dishonesty by the provider. It's fairer for the cost of a particular service to represent the value provided, I think, regardless of how much time is used to provide that service.

 

[Rolf Latham]

Hi Marko

Always good to do the research .....

On an average sort of loan, how would you go about pocketing the commission you would have paid ?

ta
rolf