Mortgage Shopper

Mortgage Brokers: who do they work for, the client of 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 accreditations 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 pay 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. So no broker can claim to be independent of the banks. They are 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 venders 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 brokers 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.

Local mortgage lender scores Jerry Sienfeld to write and star in ads

Funny Money talks to home buyers 

Comedian and Sitcom Star Jerry Seinfeld is to appear in TV commercials for the NSW and QLD mortgage home loan lender Newcastle Greater Building Society. Billy Connelly did it for ING Bank, so the formula seems a sound one.

Follow the Dollar

Apparently Jerry likes the smell of money. This will be the third ad he has done, with the other two being for Microsoft and AMEX credit cards. OK, Microsoft is not a bank, but in the US right now that’s a good thing. Then again Microsoft is as safe as houses and does have a license to print money with its grip on desktop office suite products.

No ones saying how the wealthy comedian's fortunes have fared in the US credit crunch, but “safe” investments like banks and financial firms have been hit hard in the US mortgage meltdown, so who knows?

So is this a coup for a Newcastle financial services provider or just a sign of how far former stars will travel to get a pay-check these days to pay the mortgage and put food on the table in these uncertain times. 

Well, not far apparently. The 15 commercials were filmed in the US in Cedarhurst, Long Island, which had road lines and street signs replaced to make it look like Newcastle, [yes, I seen ads like this, where you think “I didn’t know that we built homes here like that”.] 

The home loans lender wanted a celebrity for a new customer testimonial campaign where punters explained why they liked it more than a bank. 

"We didn't want any old celebrity and Seinfeld was on top of our list - but we never, ever expected him to say yes," spokesman Craig Eardley said. 

"We emailed a proposal to his manager and followed it up with a call - and they said, 'Yes'.

Seinfeld co-wrote the scripts, which see him standing outside a branch and doing the same style of monologues that featured at the beginning and end of his long-running sitcom. 

The multi-million-dollar ad campaign featuring Jerry Seinfeld for the mortgage home loans provider will only shown in the Newcastle regional New South Wales and on the Gold Coast area in Queensland, Australia

Federal Government to take over consumer lending law

Will the Australian Government scrap interest-rate caps on pay day loans and small short term loans?

Many feel that scrapping the interest rate caps set in most State credit laws will leave low-income earners vulnerable to rip-off interest rates of predatory lenders. 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.

US and UK mortgage lenders green with envy as Australia's 'big four' Banks rake in the profits

As US and UK Banks and and Mortgage Lenders Fannie Mae and Freddie Mac struggle to stay afloat in the continuing Global Recession and mortgage meltdown, they must be green with envy of the privileged existence of Australia’s 'Big Four' Australian banks as they continue to rack up healthy profits. 

The Australian bankers at the top end of town at the CBA, the NAB, the ANZ and Westpac will tell you that they are better managed and regulated than their counterparts in America and Britain, and that is indeed true. As Warren Buffet once said, ‘all boats tend to rise on a rising tide, but you get to see who’s swimming naked when the tide goes out’. And American banks have been swimming naked for years in the home mortgage loan area especially.

Also Australia’s Rudd Government has played a beautiful hand in softening the blow for all Australians with a raft of stimulus packages that are starting to buoy retailing and the housing sector, so that many Australian’s are asking “what recession?”  And incidentally I believe that the opposition Liberal Government will suffer in the next election because of their continual attacks against these brilliantly managed packages. And the packages are only just starting to take effect. And a lot of the credit must go to the wonderful Australian Public servants in the Treasury for their modelling of these plans.

In my view Australia has a better set of values when it comes to social justice and fairness for the individual. We are not hung up on the notion of “invisible hand” economics, and Australian Governments of both colours proactively manage for better human outcomes. Great job Kevin Rudd!

The Reserve Bank of Australia has also played its part by reducing mortgage interest rates to historic lows, and the result is that there are no tent cities in Australia, unlike in American cities as homeowners are tossed in the street by desperate bank foreclosures because people were unable to meet their mortgage commitments. This has to be the dumbest thing any bank could do, as it has wrecked home values, and undermined the US bank’s collective security [mortgage property held as security]. Many of these loans were clearly unfair, and were not ever going to be repaid without hardship. But again the US legal system does not seem to operate with a sense of equity or fairness. In that I mean that a mortgage contract that is unfair cannot be challenged in law as it can in Australia. Or am I missing something as 10,000 families a day are being forced out of their homes?

But if all of the above were the real reasons, then why are Australia’s lesser privileged, regional and smaller and newer banks not in the same rosy financial position?

Like the Queensland real estate marketing of the 1990’s, where a two tier market was created that devastated many out of State real estate property investors sucked into the scam, there is also a two tier banking system in Australia that favours the big four Australian Banks, and that is at the core of their amazing performance in the financial crisis.

The latest official statistics on bank performance by Australia’s banking regulator, APRA, show a widening gap between the major banks and the rest.

The profit margin for Australian banks last year was 23.2 per cent, but the four major banks operated at a 30.6 per cent margin, while the other domestic banks ran at just 12 per cent.

Clearly, Australia’s Regional Banks, recently formed banks from building society roots, and Credit Unions, and non bank mortgage lenders are disadvantaged. And this needs to be addressed in Australia. 

Rick Adlam is Mr Mortgage

Mortgage lenders OK with RBA leaving interest rates on hold

Australia appears to have escaped the worst of the world financial crisis and the recession we had to have seems to have evaporated.

The Reserve Bank of Australia in deciding to leave interest rates unchanged at 3 per cent, when the board met today at its June meeting has basically acted on the buoyant retail sales, new home sales and good employment data as well as the recovery happening with our trading partners.

The Rudd government must be dancing in the corridors of Parliament house. Expect them to make the Liberal opposition pay now for its criticism of the stimulus package handouts, and first home owners Grant boost, which saved the building industry from decline and job losses. The Retail industry must also be thankful as the stimulus reaped them a record April shopping spree. Things are looking good.

The decision to keep interest rates at its 45-year low is good news for the housing industry, home buyers and mortgage lenders because there is money to throw at any weakness the RBA board sees later in the year.

In a statement released this afternoon, Reserve Bank governor Glenn Stevens said there was evidence emerging the global economy is stabilising.

"The turnaround is clearest in China nd some other emerging countries [from the recession]," he said.

"Recovery in the major countries is likely to take longer to begin and be slower when it does occur."

Mr Stevens said although the effect of low mortgage rates was yet to be seen, future rate cuts were possible if the economy continued to deteriorate.

"The prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy, if needed."

The Reserve Bank cut the official cash rate by 25 basis points in April ending 425 basis points worth of reductions since September.

The central bank has since indicated it is in no rush to lower rates further as it assesses the impact of its easier monetary policy stance and the Federal Government's stimulus packages.

The stimulus packages have worked their magic and have lifted the retail industry, with figures out yesterday showing consumers spending a record $19.4 billion shopping in April.

Is Australia building a housing bubble that is yet to burst?

Australia’s housing market has fared much better over the past several years compared to the US or even the UK property markets, and for some that means that Australia’s housing bubble burst has been postponed to a later date. The signs are that the market is heating up due to the housing construction industry being a key a growing Australian economy. And our economy looks in better shape, and do our banks, who continue to lend money to homebuyers, although at lower Loan to value ratios than in the past.

Home mortgage interest rates in Australia are at their lowest since records were kept so home ownership for those with secure incomes is more affordable than for the last 5 years. THe Beserve Bank of Australia has hinted that they have more to slice off the rates if it proves necessary to stimulate the economy further. They are also mindful that a over heated housing market will not be in anyone's interest.

First-home buyers are swimming in the cash streams created by the tripling of the First home Owners Grant for new homes, and this has boosted a flagging home construction industry in the wake of the economic downturn.

With the recent extension of the First Home Owners Grant boost to the end of the year, we can predict that the building boom will continue til then at least for the first home Buyers. And hopefully that will translate into the second home market picking up. 

This all sounds great so where’s the problem I here you ask.

Well here’s the problem. The New First Home Owners Grant Boost is expected to be reduced in January 2010. And on top of that interest rates are expected to rise.

Will the new home owners be able to cope with these new repayments, especially the ones that were shoe horned into tight loans to begin with. These will become the new mortgage stressed depending on how high those rates do go.

Should rising job losses continue into next year one could expect a glut of homes on the home market and that would mean lower home prices, because homes would be less affordable, and the grant would be less meaning secondhand buyers would have a lower grant and this would mean they would have to save more, and put off the purchase till the deposits were saved.

My personal view is that this is unlikely, as these owners will have to live somewhere and rental accommodation has become scarce in Most Capital cities, so they will somehow find the money to stay in their homes, and economise in other areas to do that.

So my advise to you is this. If you can afford to buy now, and you have job or income security, then buy your home now. Uncertainty in your life is something we all have to live with, but it’s a good reason to put off doing what you will have to do at some stage.

If on the other-hand you do have reason to fear you or your partner may lose your job, and you don’t have great prospects to get re-employed quickly, then it may be wise to sit on the fence and see which way the cat jumps.

Even is that is the case, maybe buying a secondhand home at a moderate price may be the best way for you to go. This will give you a quicker transition to home ownership, and lower repayments. It should also mean you are closer to the city cent re and work. This would also reduce transport costs and male it easier to make the repayments should the worse happen.

Fixed Rate Mortgage Loans die as cheaper rates of basic variable home loans wins over home buyers

The variable home loan is king in Australia and basic variable is moving ahead in the mortgage wars.

Australian Home buyers love affair with fixed rate mortgage loans is over, with mortgage brokers reporting less than 10% of their home loan approvals are fixed rate loans these days.

Variable home loans are king, and make up over 90 per cent of the residential lending market mortgage loan approvals.

The basic [no frills] variable home loan is ahead in the mortgage stakes with the majority of customers opting for lower rates over flexibility options.

Our experience is that in two or three years these people are back to us looking for the flexibility of the standard variable loan, says Gold Coast Mortgage Broker  Rick Adlam of  MrMortgage.com.au   

Basic variable loans have fewer loan features and less flexibility than a standard variable loan, says Rick, but in this climate “money talks”.

Fixed rate mortgage home loans have never been popular 

with Australians, and unless we see Federal backed mortgage industry 

like in the US, they probably never will be a popular mortgage choice.

Home loan mortgage rates on variable mortgage loans generally move in line with interest rates as set by the Reserve Bank of Australia (RBA), which has successively cut its official cash rate over the last six months over 4 percentage points.

The Housing construction industry is still moving steadily along on the Gold Coast thanks to the Rudd Federal Governments decision to Boost the First home owners grant back in October, and to extend this till the end of 2009. 

The basic variable home mortgage loan is the favourite pick of new home owners.

Australian homes are more affordable than 5 years ago, due to falling property values and mortgage interest rates rates

Is now a good time to buy a home? Some say so. The RBA say that a typical home worth a little over four times the average household's annual after-tax income This is down from almost six times, just five years ago.

Strong growth in incomes over the last three months, [despite rising unemployment levels] and a period of more sluggish median house price growth are working in the interests of first time home buyers.

But housing still remains expensive by historic standards. In the 1980s, it took just three times the average annual disposable income to afford a median priced home.

Australia

remains one of the least affordable countries in the world. In

Canada

the multiple is less than four. In the

United States

it has remained at about three times annual disposable income for the past two decades and precipitous house price falls in some areas of the

US

has reduced this even further.

The governor of the Reserve Bank, Glenn Stevens, said yesterday that the gradual improvement in affordability suggested Australian house prices were not heading for the same large price falls witnessed in other countries.

"In

Australia

's case, the ratio of the median dwelling price to average household income has declined quite noticeably since 2003, without a very large absolute decline in housing prices.

"This is evidence for at least the possibility that these adjustments can take place over reasonably lengthy periods and without being terribly disruptive to the economy."

Also working in favour of prospective home buyers has been the drop in mortgage interest rates to their lowest since the 1960s. Mr Stevens said this had already delivered a significant boost to household spending power. "I don't have much doubt that certainly for the household sector, this is an expansionary setting of policy."

Mr Stevens has also held open the possibility of further small interest rate cuts if needed to boost consumer confidence.

Lenders face Mortgage losses on the collapse of Raptis' Gold Coast projects

 27 lenders are owed a combined $940 million by the collapsed Gold Coast Raptis property empire.

Many of those lenders are expected to suffer substantial losses.

Raptis Group administrator Brian Silvia of BRI Ferrier yesterday said all Raptis's assets had been mortgaged to financiers, with the amount of funds to be recovered expected to hinge on the health of the property sector. 

"It's fair to say all the properties in the group are fairly heavily mortgaged and there will be a number of shortfalls to some financiers," Mr Silvia said. 

He declined to comment on which banks or financiers were most likely to be stung by the collapse. The ANZ, Westpac and St George are all understood to have lent money to various arms of the Raptis web of about 90 companies. 

Capital Finance Australia, an arm of global financier HBOS, lent Raptis up to $500 million in August last year. 

Struggling Gold Coast financiers City Pacific and the Octaviar Premium Income Fund (formerly MFS PIF) have about $75 million worth of direct or indirect exposure to Raptis. 

Octaviar is understood to be owed about $35 million by the crumbling Raptis empire, while City Pacific has a $25 million loan to a property development joint venture between Raptis and CIY affiliate CP1. 

City Pacific managing director John Ellis said City Pacific would have a "residual exposure" to the Raptis Group of between $10 million and $12 million, after the land associated with that joint venture -- now in receivership -- was sold. 

Separately, Mr Ellis said the City Pacific First Mortgage Fund had lent $17.9 million to SP Marina, another joint venture between City Pacific and Raptis. 

That exposure would be "reduced to nil" for the mortgage fund because an "alternate partner" had taken on Raptis's share of the development, Mr Ellis said. 

However, City Pacific itself had also provided a "loan facility" to SP Marina for $25.8 million. 

The parent company of the Jim Raptis-backed empire, the listed Raptis Group, collapsed on Monday for the second time in less than two decades. 

The collapse of the group -- one of the biggest developers on the Gold Coast, with projects such as the massive Southport Central -- follows the 1993 meltdown of the company in the last property slump, in which Raptis investors lost more than $65 million. 

Mr Silvia said Mr Raptis had provided him with a proposal to restructure the group and Raptis-arm Rapcivic Contractors, which collapsed in December. "Whether or not there is the potential to restructure at this stage I don't know," Mr Silvia said. 

He said Mr Raptis had claimed he was seeking to place his opulent Gold Coast home -- valued at about $12 million 18 months ago -- on the market. 

However, Mr Silvia said Mr Raptis said he had not yet seen the property listing and Mr Raptis had not told him he intended to inject the proceeds into Raptis Group.

Lenders face Mortgage losses on the collapse of Raptis' Gold Coast projects

 27 lenders are owed a combined $940 million by the collapsed Gold Coast Raptis property empire.

Many of those lenders are expected to suffer substantial losses.

Raptis Group administrator Brian Silvia of BRI Ferrier yesterday said all Raptis's assets had been mortgaged to financiers, with the amount of funds to be recovered expected to hinge on the health of the property sector. 

"It's fair to say all the properties in the group are fairly heavily mortgaged and there will be a number of shortfalls to some financiers," Mr Silvia said. 

He declined to comment on which banks or financiers were most likely to be stung by the collapse. The ANZ, Westpac and St George are all understood to have lent money to various arms of the Raptis web of about 90 companies. 

Capital Finance Australia, an arm of global financier HBOS, lent Raptis up to $500 million in August last year. 

Struggling Gold Coast financiers City Pacific and the Octaviar Premium Income Fund (formerly MFS PIF) have about $75 million worth of direct or indirect exposure to Raptis. 

Octaviar is understood to be owed about $35 million by the crumbling Raptis empire, while City Pacific has a $25 million loan to a property development joint venture between Raptis and CIY affiliate CP1. 

City Pacific managing director John Ellis said City Pacific would have a "residual exposure" to the Raptis Group of between $10 million and $12 million, after the land associated with that joint venture -- now in receivership -- was sold. 

Separately, Mr Ellis said the City Pacific First Mortgage Fund had lent $17.9 million to SP Marina, another joint venture between City Pacific and Raptis. 

That exposure would be "reduced to nil" for the mortgage fund because an "alternate partner" had taken on Raptis's share of the development, Mr Ellis said. 

However, City Pacific itself had also provided a "loan facility" to SP Marina for $25.8 million. 

The parent company of the Jim Raptis-backed empire, the listed Raptis Group, collapsed on Monday for the second time in less than two decades. 

The collapse of the group -- one of the biggest developers on the Gold Coast, with projects such as the massive Southport Central -- follows the 1993 meltdown of the company in the last property slump, in which Raptis investors lost more than $65 million. 

Mr Silvia said Mr Raptis had provided him with a proposal to restructure the group and Raptis-arm Rapcivic Contractors, which collapsed in December. "Whether or not there is the potential to restructure at this stage I don't know," Mr Silvia said. 

He said Mr Raptis had claimed he was seeking to place his opulent Gold Coast home -- valued at about $12 million 18 months ago -- on the market. 

However, Mr Silvia said Mr Raptis said he had not yet seen the property listing and Mr Raptis had not told him he intended to inject the proceeds into Raptis Group.