Are Mortgage Brokers honest with home buyers and refinancing homeowners?

Mortgage brokers are in the firing line of late, and now Westpac bank and the Commonwealth bank are putting pressure on accredited mortgage brokers, telling them that if they don’t have a certain number of loans settle with them within a 6 month time frame, they will lose their accreditation with the lender.
The mortgage brokers have responded by saying that their “Independence” is in jeopardy, because many brokers will bow to the pressure and set loans for clients for the home buyers or refinancing homeowner with these lenders, rather than the best loan for the customer.
In my prior article I was a little harsh on these brokers, and this brought up the question of honesty of the Mortgage brokers.
So here is my revised take on this important topic.

The Mortgage Brokers Intent indicates his or her honesty.
Honesty should not be taken on a legal or literal definition of the relationship between the mortgage broker and the lender and the home buyer or refinanced homeowner, but on the intent of the mortgage broker when they are helping their customer select the best loan for them.
If the Mortgage Broker has the intention of always selecting the very best mortgage lender and mortgage loan product for their customer, then its obvious that the mortgage broker can be considered an honest mortgage broker.
If the Mortgage broker explains to the client that they are offering a no cost loan service to them, because the lenders are paying them a commission for introducing the loan to the lender, they are being honest with the customer in my view.
If on the other-hand the mortgage is selected favours the mortgage broker and his or her own personal interest, then the mortgage broker would have to be considered dishonest in my view.
Banks and other mortgage lenders that offer lenders inducements to put loans through them, compromise the brokers’ impartiality.
So do lenders that force lenders to have sales targets. Doing so in my view makes mortgage brokers appear commission representatives of the lender.
That has to be a bad thing for the mortgage broker industry and the customer than place their trust in a Mortgage Broker to do the right thing by them according to Mr Mortgage.

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 federal government to take over consumer credit regulation

Will the Fed abolish interest-rate caps on pay day lenders?
Many feel that scrapping interest rate caps will leave low-income earners vulnerable to rip-off interest rates.State-based rate caps that stop lenders charging exorbitant interest are likely to disappear once the Federal Government takes over regulation of consumer credit, raising concern about the impact on low-income borrowers who have no choice but to use high-cost "fringe" lenders.
The Federal Government is expected to rely on its "responsible lending" laws, due to take effect from November, rather than maintaining the interest-rate caps that apply in NSW, the ACT, Victoria and Queensland.
There seems to be a presumption that a Labor Government will dismiss the important protective measure of capped interest rates out of hand.
In my opinion is this pure speculation, and I am confident that the social justice values of the Labor party will shine through, and any changes required to the Legislation will be made to protect the most venerable in our society short term credit to struggling low income earners is a high risk business, where both the capital and the interest are at risk.
So it is expected that these loans charge a higher interest rate.On the other hand, even a high interest rate is not enough to offset the risk, and fees and charges, that increase on defaults, should be part of the compensation mix.
These loans are usually small, and are usually paid within a month or so, a higher interest rate is not a burden. They become a burden when the interest rate balloons and the borrower cannot repay, said Mr Mortgage. "So yes, there needs to be room for hardship rules to govern the conduct of payday lenders."
Teresa Wilson, who chairs the Australian Microfinance Network. says "The Government has indicated that it's not keen on interest-rate capping, apparently because here will be a “responsible-lending requirement” attached to credit contracts and I think it's relying on that to minimise exploitative lending practices.
Teresa feels that the Government needs to look closer at using an interest rate cap as part of the responsible lending law.
Mr Mortgage says “that as long as the borrower has free access to the Courts to claim financial hardship, then the Government may be enough to protect low income earners and pensioners. On the other-hand, if course actions were to become wide spread these actions could clog the courts and legal system and only the lawyers would benefit.”
“Also, Teresa has not mentioned pawnbrokers, and these seem to be able to lend at higher rates and not be affected by credit laws” To me this is a big loophole that needs to be addressed.
"Low-income earners, unable to access credit from mainstream lenders because of "rigid" lending criteria, have little option but to pay high rates if they need a short-term loan to cover a large energy bill or to replace a broken-down fridge, " Teresa Wilson says.
The situation is no better or worse as mainstream lenders tighten their criteria in the wake of the credit crunch, she says. That's because credit assessments are based purely on income rather than looking more broadly at ways to help them. "It has been demonstrated that people on low incomes can repay loans as long as the loan product is structured so as not to set them up for failure," Wilson says, adding that it requires reasonable interest rates, reasonable repayment schedules and some flexibility in the product."
"It's about looking at capacity to pay in a real sense and structuring the product so it's affordable," she says.
I think that we all need to realise that predatory lending practices that caught so many home buyers in the US , have led to the failure and closure or merger of many banks and mortgage lenders in the US.
In Australia we are better than that. Any contract has to face a fairness test. On that point alone any predatory loan would fail, be unlawful and as such unenforceable at law. The Problem is that most people are unaware of this.” Says Mr Mortgage.
A National Australia Bank project that is testing what the break-even rate for small loans really is say its 28%, about the rate of so called “interest free loans”.
One thing that can be agreed is that yes, we need small loan and cash flow lenders and payday lenders, because they serve a necessary function. What we don’t need fringe lenders who are charging annual interest rates up to 240 percent and up to 480 percent are preying on people who can least afford to repay. We hope that Ms Wilson's concerns are addressed for the sake of borrowers of small loans.

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.

Credit Cards: CommBank launches the first prepaid travel card

Commonwealth Bank last week launched the first multiple currency prepaid travel card.
AUstralia's Commonwealth Bank, in conjunction with MasterCard, launched the Travel Money Card last week, the first prepaid travel card that enables travellers to lock in the exchange rate of up to six prominent currencies on one card, providing anyone who travels with a highly convenient, cost effective and secure way of spending and accessing money overseas.
Available at any Commonwealth Bank branch in Australia, the Travel Money Card is accepted at more than 28 million locations worldwide, including more than one million ATMs, wherever MasterCard is accepted.
Commonwealth Bank Executive General Manager, Retail Products, Mr Michael Cant, said the card would change the way people transact while travelling.
"We are committed to offering products and services that make banking easy for our customers. The Travel Money Card is cost effective, accessible throughout the world and has the flexibility to load and transfer between multiple currencies, which has never been seen before," Mr Cant said.
"The Travel Money Card can be loaded with US dollars, British pounds, Euros, Australian, New Zealand and Canadian dollars so people don't have the hassle of changing money at their destination and can better manage their spending given the card is prepaid and the currency locked in.
"This is a great option for anyone who travels, from backpackers, business and seasoned travellers, or parents preparing their children for their first travel experience," He said.
Mr Eddie Grobler, executive vice president, MasterCard Australasia said that the Travel Money Card provides a global payment solution while travelling.
"MasterCard prides itself on offering its customers convenience and peace of mind when it comes to travelling internationally, and that benefit is now extended to Commonwealth Bank Travel Money Card customers.
"A world first for MasterCard, travellers can now access multiple currencies on the single card and know the card will be accepted across MasterCard's vast global network," Mr Grobler said.
The Travel Money Card enables people to avoid fluctuating exchange rates, international transaction fees and keep track of their spending with 24/7 phone and online support and via SMS alerts. The card attracts a flat ATM withdrawal fee. There is no fee when using the card in-store, online or over the phone, at Point of Sale (POS) merchants, and transferring between currencies on the card does not attract a fee.
Other features of Commonwealth Bank's Travel Money Card include:
*Customers can load their preferred value up to AUD$25,000 or foreign currency equivalent
* Valid for up to three years and reloadable online via BPAY, over the phone, or in any Commonwealth Bank branch in Australia
* PIN protected and signature enabled
* Back-up card provided in case card is lost or stolen. The card is not linked to a personal bank account
* Flat purchase fee of AUD$15.00
* ATM withdrawal fee of AUD$3.50 or foreign currency equivalent
* Users can keep track of their spending from anywhere in the world with support online, over the phone and via SMS alerts
* Those purchasing the card do not have to be an existing Commonwealth Bank customer.
Story from Rick Adlam Mr Mortgage, supplied by the CBA