Mortgage Brokers: who do they work for, their customers or the Bank?

As Australia’s major banks are putting the squeeze on mortgage brokers to extract more deals out them, we need to ask the question “Do mortgage brokers work for the benefit of their client or the Banks? You may not like the answer.
Mortgage brokers can’t get you a loan for a lender that they are not accredited for. And right now Westpac and the Commonwealth Banks are starting to make brokers jump through performance hoops, in order to retain their accreditation's with them.
The false assumption

Some in the mortgage broking industry claim that their “Independence” as a mortgage broking professional is in jeopardy due the pressure put to them by the major banks. This assumes that the mortgage broker is independent of the banks. This in my view is a false assumption.

What is more, if any mortgage broker claims to their client that they are “Independent”, they are guilty of deception and misleading the client by making fraudulent statements.
How can that be you might ask?
That's easy. Determine who the principal is and who the client is and who the customer is. A principal in an agency is easy to spot.
They are the one who pays the agent.
Who is the customer?
Easy they are the ones who buy the product or service from the agent.
Who is the client then you might ask? Good question!
It can’t be the customer, because in the relationship, the customer is the one who pays for the goods or services.The client pays the agent for bringing buyers and seller together. When a home buyer pays all the money to the lender, and the lender pays the broker, then the client in my view is the Bank!
Why do I say this? Because the mortgage broker is paid by the banks, not the client.
So the mortgage broker is dependent on the Bank or Non-bank Mortgage Lender for his livelihood.

IMHO no mortgage broker can claim to be independent of the banks, unless they
charge a fee from the customer [borrower] and reimburse all commissions [paid to
them by the bank] to the customer.

Mortgage brokers do the opposite. They are completely dependent on the Bank.
Mortgage Brokers also have to ensure that they look after the best interest of the lender.
Can you see anything wrong in this?
Yes, the mortgage broker appears in fact a [non-exclusive] commission agent of the bank.
He or she only gets paid if they bring a deal to the lender that settles.
The banks of course will argue that “No”; they don’t employ the broker as an agent. He or she is merely an introducer to the lender.
If, just for the moment, we take a look at Real Estate Agents and their relationships with buyers and vendors of property we can see that the real estate agents principal is the vendor [seller], because [in most situations in Australia] the seller is the one who hires the agent to effect the sales, and the seller also pays the commission on success to the real estate agent.
Real estate agents in effect work for the seller to market and sell them property on the seller’s behalf. They have the skills and knowledge to get the best possible price in a given market to affect a good outcome for the seller.
What is the difference with a bank hiring a mortgage broker to sell their loans? I can’t see any. Maybe I have missed something in the home loan or real estate business, so if I have please explain it to me. Until that happens [I’ve been waiting eight years now] I am convinced otherwise. And I will stick with my long held view, that mortgage brokers are the agents of the banks that they represent.And that brings up a question, and the question is this. What’s wrong with that? Nothing I say. As long as the client is made explicitly aware of this fact, by the broker in a statement, or in writing, before transacting a loan.
Mortgage Brokers get angry when you tell them this.

This notion will rile the many honest brokers who work hard to get the best deal they can for their client. But that is not the point. Yes, most brokers are honest, and will work to get the best loans for their customer [let’s stop calling them clients, OK in case we give someone the wrong impression.But that is not the point. The point is they don’t have to be honest. They can if they wish sell the customer a worse than optimum loan for their needs. We have all heard of brokers who hire sales people and tell them to sell a particular loan, when they know that this is not best loan or outcome for the client, but benefits the mortgage broker instead.
What is needed is legislation that clears the air on these points so that customers know where they stand on this point, and who is the mortgage broker really working for. Any Mortgage Broker that tells you that he or she is independent, should be given a wide berth, or reported to the Office of Fair Trading as far as I am concerned.

Are Mortgage Brokers Honest?

The notion that mortgage brokers will lose their independence if the banks make them sell a certain number of loans is rubbish. To use the real estate agent analogy again, if you give the agency to a real estate agent, who then uses your home as a way to sell other people’s homes instead of yours, is he or she being honest with you, the client and principal? And can you sack the agent if they don’t perform? Of course you can!Mortgage brokerage need to take a good look at themselves, and start being more honest with their customers, and maybe they need to start with themselves and the relationships with their lending panel.The final question about honesty is what is implied in a name. Does broker imply an agent client relationship? If it does maybe it should be replaced with Mortgage Introducer. That is a more honest name in the opinion of Mr Mortgage.