With the exit of exit fees will we see the exit of smaller lenders ?

[Rolf Latham]

The ban on mortgage exit fees has passed into law, Treasurer Wayne Swan announced yesterday, calling it “a victory for Australian families”.

“This critical measure will help boost competition in the home loan market over time, by giving consumers greater freedom to walk down the road if their bank isn't doing the right thing by them,” Swan said.



Maybe Im a bad guy here, but this new piece only reinforces that gov are either ignorant of reality or are favouring BIG banks, neither if which is very tasty.

Any mortgage backed lender that only does mortgages is DEAD and buried unless they have sensational sales people.

Long live the big 4.

ta
rolf

 

[Bigtone]

The ban on mortgage exit fees has passed into law, Treasurer Wayne Swan announced yesterday, calling it “a victory for Australian families”.

“This critical measure will help boost competition in the home loan market over time, by giving consumers greater freedom to walk down the road if their bank isn't doing the right thing by them,” Swan said.



Maybe Im a bad guy here, but this new piece only reinforces that gov are either ignorant of reality or are favouring BIG banks, neither if which is very tasty.

Any mortgage backed lender that only does mortgages is DEAD and buried unless they have sensational sales people.

Long live the big 4.

ta
rolf

but the general public think it is great and the govt look they are doing something to hit the big bad banks.

in reality of course the big 4 are thrilled, most dropped the exit fees already as they know the others will not be able to compete and market share will be coming there way

after the responsible lending laws that achieve the opposite of what they are supposed to you can't really be surprised by this complete lack of knowledge of the industry by the govt

 

[Mick C]

I think the smaller lenders will try to adopt; but it will be hard.
I already seen one smaller lender get rid of most of it's exit fee; but instead has increase the application fee slightly ( not sure if their allowed to do this or not though) - overall still a decrease in fees and a better rate....


Regards
Michael

 

[Piston Broke]

Gee Rolf, what are you so unsecure about?
You don't have good salespeople capable of retaining customers?

 

[Marty McDonald]

The exit fee issue is a direct result in my opinion of the thousands of complaints against the old rams (rhg), ge, macquarie and other lenders who left their borrowers stranded either paying 9% or more or coping $7k + exit fees.

Something had to be done. Maybe a maximum exit fee would have been a better solution, similar to maximum % rates allowable. I know people signed the contracts but still think the lenders broke their implied contracts by jaking up rates by so much.

Smaller lenders need to morph into balance sheet niche lenders rather than trying to compete on price with small margins using the banks money. It's a basic business principle to specialize. There are lots of niches avaialable to target such a small business
credit, lo doc loans with no lmi, development finance, cash out, alternative documentation, loans to professional investors etc etc.

 

[Dazz]

I know people signed the contracts but still think the lenders broke their implied contracts by jaking up rates by so much.

On what page of the Contract does the 'implied contract' start ??

 

[cu@thetop]

On what page of the Contract does the 'implied contract' start ??

Page 1- it is implied that any exit fee will be a genuine pre-estimate of loss and not a fee which is a penalty but most consumers don't have the funds or motivation to litigate the matter.

I agree that exit fees were in part the bread and butter for many smaller lenders and their removal will lessen competition in the long run.

Want no exit fee? solution- a variable loan and don't exit before 3 years.

Do all borrowers have ADAH disorder and can't stay with the same bank longer then 6 months?

 

[Ausprop]

who left their borrowers stranded either paying 9% or more or coping $7k + exit fees.

9% and $15k is ok, it's when you hit 11% and $30k exit it gets testing

I know people signed the contracts but still think the lenders broke their implied contracts by jaking up rates by so much.

I often wonder at what point something would give... the dodgy banks went a couple of % points over the majors but what was to stop them going 5, 10, 100% additional? at what point would someone say enough is enough?

perhaps the real issue here is that the rate in the loan contract should need to be stipulated...not just "we shall charge you a rate of whatever we feel like on the day and if you don't like it then you will pay us $30k"

 

[Rolf Latham]

Something had to be done.

Indeed something needed to be done..................baby now very dry and sitting on the pavement.

As mentioned a max fee part related to the actual DEEMED cost would have been much smarter rather than this approach which will have 2 effects long term. Less competition and a loss of employment in the non bank sector.

I was never a big fan of insured and securitised money, partly because of the defs, but nmainly due to a bunch of other reasons.

Certainly in our pool, clients eneded there because they needed to be there, and there are risks with second/ third tier lenders.

I know many people in My industry are stoked and flapping around over the refinance and churn opportunites this change will bring on the short term.

Loss of choice always means less effective competition, and thus a consumer that is worse off, and so the broking industry will be too.

What bugs me is that gov ignored their own advisers, treasury told them it will likely force up end costs...............


ta
rolf

 

[Rolf Latham]

Want no exit fee? solution- a variable loan and don't exit before 3 years.

Do all borrowers have ADAH disorder and can't stay with the same bank longer then 6 months?

Well, yes, but the average loan life is now 34 months .............................

that means either

people are being fleeced and loving it, or defs arent really an issue in most cases

ta
rolf

 

[Gremlin]

perhaps the real issue here is that the rate in the loan contract should need to be stipulated...not just "we shall charge you a rate of whatever we feel like on the day and if you don't like it then you will pay us $30k"

If only such a product existed, where the rate was defined at the start of the loan for a pre-determined period of time, where regardless of fluctuations in the variable rate your rate remained fixed and both you and the lender had the certainty of payment...

What a shame. It strikes me that there'd be a market for these so-called fixed rate loans...

 

[Paul Thewlis]

The problem is the back end of the finance industry is more complex than the exit fee solution that has been implemented. No one would argue that having no exit fees is good for the consumer if all other factors stay the same. But they wont. There will be flow on.

In my view the big winners will be the big banks. They have have such large numbers of loans that they can average out the cost of exit across their loan book and fund it through a small increase in rate (by reducing discounts, which will be a hidden rate rise). That's substituting a possible cost for some borrowers and replacing it with a certain cost for all borrowers.

For small lenders each loan lost is more of a cost burden so they can't average the cost as easily. The result is charge everyone a higher establishment fee or charge higher rates. Therefore they are less competitive against the big banks. That's substituting a possible cost for some borrowers with a certain cost for all borrowers.

Competition is driven by consumer choice. Brokers are a key aid to consumer choice to switch lenders. But the big banks have a thing called clawback on commissions. That means that if a borrower exits the loan the payment to the broker who wrote the loan is taken back by the bank. So the broker is funding the exit cost.

At the moment most consumers don't pay fees to brokers, brokers get paid from lender commissions. So reduced exit fees equal more clawback, equals less economically viable for brokers, equals less brokers and/or more direct fee for service broking.

You might say that direct fee for service is more transparent but unfortunately people are not in the habit of paying for broking services when they can go to the bank for nothing.

Finally its worth noting that Australia is predominantly a variable home loan rate economy whereas other countries are fixed rate home loan economies. During the GFC this worked well for Australia. It made our market more flexible and able to adjust. Yes it passes some of the risk directly on to the consumer rather than the bank holding it all, but when other fixed rate economies closed up shop on home loan lending we were able to keep our home loan markets open for business.

Many people who had been in the finance industry for years were shocked during the GFC to find out how much they didn't know about how the back end of the finance industry works. For example, when you take out a 30 year home loan the lender doesn't have the funds in a 30 year facilty. They are continually rolling over those funds on the money market. In other words they are continually refinancing your loan as part of pool of funds and are exposed to fluctuation in the money market.

Sorry! Gone on too long here, but I get frustrated at the way the media forces governments into simplistic policy decisions.

 

[HLE]

I was at a MFAA function today and all the non-bank lenders were saying that they have strategies in place to change to play by the new rules. It will be interesting to see exactly how they do this over the coming months...

 

[Ausprop]

If only such a product existed, where the rate was defined at the start of the loan for a pre-determined period of time, where regardless of fluctuations in the variable rate your rate remained fixed and both you and the lender had the certainty of payment...

What a shame. It strikes me that there'd be a market for these so-called fixed rate loans...

yes a fixed rate low doc product would be awesome. but even a variable with a fixed rate margin would sort out the whole industry. what RAMS v1 did was criminal IMO. the rest of the dodgy lenders weren't much better.

the govt legislation should also allow a borrower to switch from a variable loan to a fixed rate product without the whole show and dance of applying for a new loan

 

[Dazz]

the govt legislation should also allow a borrower to switch from a variable loan to a fixed rate product without the whole show and dance of applying for a new loan

You dodgy borrowers are all the same....you want all the good stuff with none of the bad stuff,.


Give me your dross and I';ll lnd you some dosh...that should be the motto...why check all this cashflow nonsense. Banks huh - can't live with them and can't live with them.


Get a broker - they'll put you straiught - Rolfy baby is dodgy - nut nest of a nad nunch.

 

[Rolf Latham]

If only such a product existed, where the rate was defined at the start of the loan for a pre-determined period of time, where regardless of fluctuations in the variable rate your rate remained fixed and both you and the lender had the certainty of payment...

What a shame. It strikes me that there'd be a market for these so-called fixed rate loans...

they have a bigger sting if the market goes the other way though..............fixed rates arent suitable products for many regardless of the surety

ta
rolf

 

[Ausprop]

Give me your dross and I';ll lnd you some dosh...that should be the motto...why check all this cashflow nonsense. Banks huh - can't live with them and can't live with them.

but the variability of your rate or otherwise has nothing to do with your cashflow?

are you on the turps Dazz?

 

[Ausprop]

they have a bigger sting if the market goes the other way though..............fixed rates arent suitable products for many regardless of the surety

ta
rolf

suitable? I would be happy if they were available! It was very frustrating seeing how low fixed rates on full doc major bank loans were a few years back!

 

[Rolf Latham]

I was at a MFAA function today and all the non-bank lenders were saying that they have strategies in place to change to play by the new rules. It will be interesting to see exactly how they do this over the coming months...

out to lunch..................for a long time

Some of the ideas like a progressive return of a largeish entry cost wont cut it for most

ta
rolf

 

[Rolf Latham]

the govt legislation should also allow a borrower to switch from a variable loan to a fixed rate product without the whole show and dance of applying for a new loan

Most lenders already do, some of the ones that dont, they use it as risk management tool to rescore your deal, and if it dont work, then you can stay stuck at PI

ta
rolf