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.

First time home buyers record boosts Australia's confidence

In Australian Rules Football a team down on it's confidence can be sparked into life by a daring feat followed by an unlikely goal. Well it looks like first home buyers have been given the confidence to act in the shape of the extended First Home Owners Grant, and they in turn have passed the ball to other players in the Australian economy.
In the face of a global recession, and flat real estate prices, the treat of job losses increasing later this year they have kicked a goal in the form a record in numbers of first time.
This act of courage can only lift the confidence of other Australians and give them heart to set aside their concerns and get on with it, whatever that "it" may be.
In fact on the back of this, and the financial support that has been handed to all Australians that need it most by the Rudd Government, Australians’ confidence in the future have risen its best level in nearly two years.
In turn Australians have set record retail spending figures over the last few weeks. With major infrastructure works that the Government has planned to yet come on stream and with major trading partner China recovering faster that expected, Australia just may miss this whole Global recession thing all together.
Those that control the levers of power in Australia seem to have a grip on what to do next. They include Kevin Rudd, Wayne Swan, the Reserve Bank of Australia, and the Treasury public servants. Good on 'em!
Lets hope there are other players in Australia's economy who can go out against the odds and kick some more goals.
Rick Adlam is Mr Mortgage

Australian Banks play hardball to remain profitable

Be in no doubt. Australia’s big four Banks will tough out any criticism from the Prime Minister and Treasurer down to keep their profits at record highs, financial crisis or no financial crisis.
The case in point is that mortgagor homeowners are suffering more than they should because in the last eight months, the Reserve Bank has cut official interest rates by 425 basis points and our banks have passed on only 385 basis points.
A stable and secure banking is important to support the Australian economy, jobs, business activity and investment, our banks need to ensure they remain well-run and profitable, even if that means making unpopular decisions, says Australian Bankers' Association chief executive David Bell.
But the reality is that the strong Australian economy has protected the banks from the World financial crisis, because mortgage borrowers have kept their jobs and not become bad debts on mass for the banks, which in turn would have crippled the banks as their security would not have matched their loans outstanding.
The banks seem to think they are the saviours here, and are increasing their margins at the expense of their customers, says Rick Adlam from Mr Mortgage. Independent economists and commentators agree that Australia is weathering the current global economic downturn better than any other advanced economy. What has that got to do with the Banks? They seem to want to take credit where credit isn't due.
The IMF is predicting a 1.4 per cent contraction for the Australian economy which compares very favourably with the US economy, which is expected to slide by 3 per cent, and Britain which is expected to contract by 4.1 per cent. Forecasters and commentators also agree that the stability and security of Australia's banking system has played an important part in our economy's resilience, but the banks seem to want to overplay this into a self backslapping exercise. They may have played some part, but they were not the core reason. In fact the Banks that have got into trouble were the one's who bought into valueless US mortgage derivatives, offloaded by wobbly US Banks! That's why we are not getting the full benefit of the official RBA rate cuts.
And it's not the only recent crisis in which Australia has fared well.Just a year ago there were around 20 AA-rated banks in the world. Today, there are just eight and Australia has four of them - not a bad result when our country is just 2 per cent of the world economy. Australian Banks need to continue to make sound commercial decisions to ensure the long-term stability of Australia's banking system, which is in the interests of customers, shareholders and the Australian economy. This is not aligned with increased profits that they are reporting.
They don’t need to be increasing their profit margins in a recession at the expense of their customer base and especially high debt carriers like mortgage borrowers, says Rick Adlam at Mr Mortgage. And their needs to be a level playing field for the small regional banks and non bank mortgage lenders.