Why supporting brokers after the Royal Commission is so important to keep competition.
Article by our Director, Graham Lee.
WHAT MORTGAGE BROKERS DO
The Client Interaction
We assist clients to find a suitable lender that will loan them the funds they require to fulfil their goals and objectives. In an ever-changing lending policy environment, we help people navigate the myriad of obstacles that preclude them from having all the available options. That is, we work hard to provide them a solution from a selection available based on their scenario. We ask them many questions to fully understand their existing situation (legal requirement under the Corporations Act) before we can give advice.
We often see clients in the evenings or on weekends when it’s most suitable to them. We usually drive to their homes sometimes up to an hour away in regional areas. Despite being separated from our own families at these times, we show our clients great enthusiasm when assisting them with their dreams and aspirations. We usually have robust conversation that takes a good hour or hour and a half, at the same time completing all the necessary questionnaires and client profiles to get as much information as possible about them.
We also usually ask for a heap of verification documents such as payslips, PAYG summaries, employment contracts, existing liability statements, bank transaction account and credit card history, superannuation statements and details of existing insurances that the lender will also require.
Some of the things we discuss are their plans for the purchase property (i.e. convert to investment in the future, whether to hold it or look to sell at some point and if so what’s the timeline), future plans for other large expenses such as a motor vehicle, holiday, future school education costs as this may impact on ability to make repayments. We discuss their general knowledge of and feelings about the following options: –
- Fixed rate vs variable
- Interest only vs principle and interest
- Redraw option
- Full and partial offset accounts
- Loan portability
- Access to branch networks
- Access to ATM networks
- Lender package benefits
- Credit card fact sheets
- Extra repayment options
- Early repayment options and penalties
- Rate lock
- Internet banking
- Interim securities
- Family pledge/guarantees
- A range of other factors
We then go back and complete a diary note of the conversation as soon as possible, in as much detail as possible so there’s no chance we can forget anything that was discussed as this is critical for product selection.
We take what we have collected at that interview and we go away and research and investigate the options available to them.
Each lender’s policy is different and so we need to navigate our way through our lenders policies to find solutions to the following scenarios: –
- The casually employed or those employed on temporary contract
- Newly self-employed
- Low income self-employed using add-backs
- Lo Doc lending
- Low deposit using FHOG and/or rental statement as evidence of 5% genuine savings
- No deposit using family pledge/family guarantee
- Servicing by using a combination of employment income/Centrelink/Child Support
- Use of overtime, bonuses and/or allowances for servicing
- Servicing by fully maintained motor vehicle add-back where possible
- Complex lending where companies and trusts are involved
- Security limitations based on postcode/location, property type (vacant land, rural vs urban, duplexes, strata/community/group title vs freehold, 99-year leases), property size (less than/ greater than 10ha with/without sealed roads and electricity supply), hobby farms vs commercial/Agri-lending etc.
- Non-conforming options for the credit impaired
- Construction lending usually encompassing two parts – the vacant land purchase and then the build process.
- First home buyer’s assistance.
- SMSF lending.
Under Law, we also need to fulfil our other mandatory lending obligations and keep a record on file of the following: –
- Provide clients with an up-to-date copy of our Credit Guide containing important information about our services, our obligations under law and their rights as consumers.
- Anti-money laundering/counter-terrorism financing identification collection requirements.
- If borrower is a company or a trust, we need to conduct a search to determine directors/trustees/beneficial owners.
- Conduct a credit check if required (not mandatory for the broker to do but prudent).
- Conduct a full living expense assessment from their transaction account/credit card statements averaged over the past 3 months, and sort spending into around ten categories in line with the lender’s requirements.
- Researching from a panel of lenders to develop a shortlist of options. This is achieved by calling the lenders policy and scenario lines, speaking to and emailing the lender’s business development managers, and by analyzing and researching downloaded copies or online versions of lender’s policy manuals.
- Conduct a Funding Position calculation showing all the expenses associated with the purchase (i.e. stamp/transfer duty, registration fees, solicitor’s costs and other general expenses).
- Conduct a Borrowing Capacity calculation showing the approximate upper limit of borrowing.
- Conduct a number of servicing calculations with different lenders to ensure we only recommend lenders that it will work with.
- Prepare a Product Comparison comparing different loan products.
- Produce a Preliminary Assessment – a summary of everything and the basis for decisioning (and forward to client if requested).
- Create a Credit Proposal Disclosure (after the loan product is chosen)
With the exception of point 12 above, once we have all the above on file we then communicate back to the client what our recommendations are and demonstrate this with a comprehensive document that compares products side-by-side and provides a comparison of the savings from one lender to another over any given period up to 30 years, taking into consideration all of the fees and interest costs over that period. It also contains detailed information about the loan product features which should align with the client’s objectives stated in the previous questionnaires/client profile which we can further detail to our clients the benefits of these features in how they relate to the client’s stated objectives.
At that point, a lender and products are chosen – usually decided by the client but with our guidance and taking into consideration all factors including the lender’s service level timeframes to pick up and assess the application against the timeframe allowed to settlement. We then conduct a final servicing assessment based on the lender’s servicing calculator to make sure it would not fail servicing and create the required Credit Proposal Disclosure document mentioned in point 12 above, which outlines all the details of the loan chosen, the upfront fees payable and interest rates, the monthly repayment, the commission payable to the broker in dollars, and any fees payable to a referrer (if applicable). The client needs to sign this document and we must provide them with a signed copy and a record of that date it was provided. We then need to create a new diary note with the details of the discussion and the reasons that led to the clients choosing that particular lender and how the choice aligns to their stated objectives (i.e. articulate why the chosen lender/loan product is “not unsuitable” under the National Consumer Credit Protection Act).
Finally, we can then commence putting together the loan application by entering the data into an online platform, a process which usually takes around 3 – 4 hours including uploading and appending supporting documentation to the application, as well as importing emails into our CRM, for our own compliance records. Before populating the application, we need to make numerous file notes for the assessor assessing the application, so that he/she can understand aspects of the application that may be unclear or ambiguous. We also need to order an upfront valuation via the lender’s portal.
We then need to meet up with our clients again to get the loan application signed, collect any last items required to support the application, and have a discussion around insurances to ensure that the client is aware of the consequences of taking out a loan and the impact it may have on them financially in the circumstances of an unforeseen event occurring. Once we have everything, we can then upload the signed application and the remaining documents and proceed to lodge the application to the lender.
Once approved, we liaise with the lender regarding the issuing of loan documents and then meet up with our clients a final time to get everything signed and witnessed. But our job is not finished there. We need to facilitate any further requests from the lender/ assessor (and there are usually a few) with the applicants and liaise with the solicitors/conveyancers (or the outgoing lender in the case of refinances) every step of the way up until settlement. We are usually the main point of contact in coordinating whatever is necessary to ensure a smooth and timely settlement.
Where there is an accountant or financial planner referrer involved, we bring him/her up to date with everything along the journey as well to ensure we are following any specific requirements on their side from an accounting/tax perspective.
There are numerous additional functions that we also perform post settlement as follows:
- Call clients after a month to ensure that the first payment has gone through successfully and ensure that there are no issues. Deal with any issues that arise.
- Call/meet with clients after 12 months to ensure they are happy and there are still no issues. Deal with any issues that arise.
- Call/meet with clients at fixed rate/interest only expiry to explore changes in their circumstances and arrange restructure/re-fixing/refinance of existing facilities.
- Regularly email clients with property/debt/market ideas, concepts, strategies and tips to help them manage their affairs better.
- Regularly email clients to educate them on regulatory/market changes which may or may not affect them. Contact those that are personally affected and explain how the changes affect them.
- Periodically reprice loan accounts and advise clients of new discounts applied to their loans.
- Initial set up of repayment account, set up of redraw, internet banking/offset account linkages etc.
- Follow up clients in arrears – organize payment plan to the lender. Brokers do not get paid trail for loans that are in arrears so it’s in our best interest to minimize this.
- Full or partial security releases and swaps due to sale, divorce or release of guarantor.
- Loan restructure or refinance due to sale, divorce, marriage or restructure of finances for tax reasons.
- Co-ordinate signed invoices and lender paperwork for progress draws as required at every stage of the construction process.