Brokers need flexible commission model, says non-bank boss

TheAdviser – James Mitchell 

The CEO of an award-winning non-bank lender has revealed why the group allows its broker partners to choose how they are remunerated.

Mortgage Ezy chief executive Peter James told The Adviser that, amid ongoing speculation around remuneration reform, it is important to remember that mortgage brokers are small business operators.

“Each small business has different needs,” Mr James said. “One of the big things with remuneration is flexibility. In our program, a broker can take a higher upfront and a lower trail or a higher trail and a lower upfront. They can even take it all as trail, depending on the needs of their business.”

Mr James explained that Mortgage Ezy allows brokers to change their commission structure on a deal-by-deal basis. Brokers are also able to discount their commission for their clients.

His comments come after ASIC chairman Greg Medcraft made some startling remarks last week about the broker commission model as he understands it.

Mr Medcraft suggested that the current broker remuneration structure could be tempting brokers to place consumers in larger loans than necessary, and revealed that he would be tempted to do so if he were a broker.

In a statement reported by media and confirmed by ASIC, Mr Medcraft said: “The mortgage commission is based on [the fact that] the larger their loans, the more you get. So, logically, what would you do? It’s human behaviour. I’d do it.”

However, Mortgage Ezy’s general manager of operations, Joanna James, said that she is seeing more and more instances of brokers reducing their commissions in a highly competitive market.

“I actually see brokers discounting their commission to set the loan for the client and do the right thing. At least once a week I will see those conversations happening,” she said.

“We understand that some brokers are playing in very competitive markets. If they are competing with an online discounter, for example, they have the power to dial down their commission with us and still set the deal.”

One of the biggest bugbears for brokers is getting paid on time. It is not uncommon for brokers to wait up to three months to be remunerated. The Mortgage Ezy chief said that the non-bank pays all of its broker partners on the day of settlement.

“Most of these guys are small business owners with wages to pay, so we make sure that they are paid on the day of settlement,” Mr James said.

Mortgage Ezy was ranked the top Mortgage Manager in Australia in the 2017 Momentum Intelligence Third-Party Lending Report – Non-Bank Lenders, partnered by The Adviser.

 

 

Mortgage rate hikes pressure income

Mortgage rate hikes pressure income

14/06/2017 Michael Roddan – The Australian 

 

 

 

 

Constant interest rate increases made by the banks to shift borrowers from interest-only loans to principal-and-Interest mortgages are squeezing incomes at a time of record-low wage growth and exploding household debt.

Since mid-2015, Australian lenders have pushed through seven rounds of interest rate rises independently of Reserve Bank moves.

While owner-occupiers have suffered rate increases in the order of 40-basis-points over that period, borrowers with interest-only loans have borne the brunt of higher rates.

Interest-only loans are now on average about 70-basis-points higher for owner-occupiers and 100- basis-points higher for investors than if the rate had tracked the cash rate. The increases are set to continue, as banks encourage borrowers to switch to principal-and-interest loans as a response to the prudential regulator’s derisking of the overheating east coast property market.

A requirement by the Australian Prudential’s Regulator’s Authority to cut back interest-only loans and reduce lending to investors has caused the rate rises as banks seek to reduce demand for riskier loan products.

Although ANZ passed on a five-basis-point rate cut to owner-occupiers paying principal-and-interest on Friday to offset a 30-basis-point rise on interest-only loans, the changes are the equivalent of an eight-basis-point rise across the whole mortgage book.

Macquarie analyst Victor German said the push to encourage borrowers to switch to principal-and-interest loans was “another hit to household disposable income.” A borrower making the switch would see their monthly repayments increase by about 40 per cent, which German said “will ultimately lead to further reductions in disposable incomes and put even greater pressure on highly indebted households.’

For the most indebted 10 per cent of households in the country, many of which are on interest-only loans, the switch to higher repayments would reduce disposable incomes by up to 6 per cent, Mr German said. Westpac is currently defending allegations it failed to properly assess borrower’s ability to repay loans at the end of the five-year interest-only period.

Interest-only loans, where the principal is not paid down for about five years, is currently account for about 40 per cent of all loans written. APRA is trying to reduce that to below 30 per cent. With the restrictions placed on all banks, Mr German said other lenders would be forced to follow ANZ’s rate rise to prevent customers from simply jumping ship.

Over the past two months, rates for investor and interest-only borrowers at most banks have risen by as much as 56-basis-points, according to new research from Rate City.

It comes in a period of stagnant wage growth and exploding household debt, mainly driven by surging house prices. Australians are also eating further into their savings, which is an unsustainable driver of economic activity.

Shaw and Partners analyst Martin Crabb said the level of savings was “plummeting” as household mortgage repayments rose above the long-term average. “We were saving an annual $107 billion back in 2012; today it is $57bn.” Mr Crabb said.

The average level of interest payments as a share of household income over the past four decades was 7.7 per cent. “Today is it 8.5 per cent”. Mr Crabb said.

The latest monthly survey by Digital Finance Analytics found 24.8 per cent of households were suffering mortgage stress in May, an increase from 23.4 per cent in April. Households are “stressed” when income does not cover ongoing costs.

According the CLSA analysis, every 10-basis-point increase in variable mortgage rates takes about $1.4bn of discretionary spending out of the economy.

Morgan Stanley analyst Richard Wiles said home loan repricing was likely to continue. He forecast that the banks would push through two rounds of rate rises to offset the cost of the banks levy and APRA’s new rules for larger capital reserves, which are expected to be announced in the next two months.

 

Mortgage Ezy steps in for foreign buyers

Mortgage Ezy is the latest to lend to foreign buyers, with a $500 million offer

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Australian Financial Review

Australian independent non-bank lender Mortgage Ezy is the latest to join the growing list of alternative financiers providing funding to foreign property buyers.

The group has a $500 million commitment from a warehouse facility of an international bank to provide loans using a securitised model.

“It will be the first of its kind in that the whole pool will be only for non-resident borrowers and there is strong evidence to suggest that a bond such as this will have strong investor interest and will be able to be securitised,” Mortgage Ezy founder Peter James said.

“However, even if the bond is not taken to market when we reach that limit, we will have up to an additional $3 billion to lend out before we reach ultimate capacity and have to securitise.”

About $100 million in loans have already been approved since February, representing only the “tip of the foreign buyer lending iceberg”, Mr James said. He estimated the size of the foreign lending market in Australia to be about $1.5 billion a month, especially after the big-four banks departed from foreign lending.

Mr James said $500 million would be exhausted in the next three months given present appetite of the market.

Mortgage Ezy has strict lending criteria – borrowers must not have purchased more than 10 per cent of a building, have enough funds in the bank locally or overseas and the right visa class.

Loans are capped at a loan to value ratio of 75 per cent, at interest rates of 4.79 to 7.95 per cent, depending on each application. The higher the LVR the higher the interest rate but a 75 per cent LVR is maximum.

Only properties in metro capital city areas would qualify.

Ensuring the sales entered into by foreign buyers are settled is paramount to ensuring the market does not “slump”, Mr James says.

The Chinese capital restriction was the only thing stopping them from settling their acquisitions, he said.

“If foreign buyers left, they may cause a slump in property prices and confidence in the market overall. In addition our reputation in Asia will be severely damaged,” Mr James said.

“Chinese buyers are generally very wealthy individuals but most of them are self employed … and even if they can’t get money out of China, their family and network of friends will rally to bring the money together. You will need a catastrophe like values to halve for them to walk out of a sale.”

WRITTEN BY

by Su-Lin Tan

Australian Financial Review

Number 1 Mortgage Manager 2017

2017_SEAL_Mortgage Managers-01

 

Mortgage Ezy is off to another flying start to the year after taking out Best Non-Bank Lender in the Australian Lending Awards for a second year in a row to now being ranked number 1 Mortgage Manager 2017 as voted by the huge representation of Broker  from around the country in TheAdviser Third Party Lending Report.  Like always Mortgage Ezy was up against some stiff competition with the likes of Australian First Mortgage, Better Mortgage Management, Better Choice Home Loans, Future Financial and Loan Avenue but came out the clear winner.

TheAdvisers Third Party Lending Report is the industry leading report into broker’s perceptions and opinions of the non-bank lending sector and individual lenders within that sector. The Third Party Lending Report selected 8 of the highest ranking factors to shape the research survey. In addition to this brokers were asked a standard NPS question including:

  • Product pricing and policy
  • Product range
  • Turnaround times
  • Overall quality of BDMs (access to BDMs, BDM proactivity and effectiveness in solving any problems).
  • Credit assessment staff – access to and ease in dealing/communicating with credit assessment staff.
  • Client support – effectiveness in servicing your clients post-settlement.
  • Training and education – provision of training, whether product-specific, compliance or other.
  • Commission remuneration and structure – simplicity of structure to qualify for the maximum available remuneration and overall amount of commission paid.

“We would like to thank all the brokers who participated in the national survey and look forward to continuing to build stronger partnerships with all of our brokers with the determination to offer the very best products and service unmatched in the market place”. – CEO Peter James

Mortgage Ezy claims their place at the elite lenders table, winning Australia’s best non-bank for the second year in a row!

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Mortgage Ezy, formally known as the industry underdog,  has now secured their right as an industry top dog, on par with the big boys taking home the Best Non-Bank Award at the Australian Lending Awards last night. Winning  for the second year in a row Mortgage Ezy was up against Stellar Household names La Trobe Financial and the global Pepper Group. Mortgage Ezy is now officially Australia’s top Non-bank lender for 2017.

The Australian Lending Awards recognise the nation’s leading lenders across retail, wholesale and third-party segments. By surveying 8,000 consumers and over 500 brokers, they represent Australia’s most robust assessment of which lenders truly excel across all aspects of their operations.

RFi Group’s CEO Charles Green said; “In what is the most highly contested event in the Australian lending industry annually, we are delighted to congratulate the winners at this fantastic event tonight. These awards directly reflect the skills and achievements of the banking and finance professionals who operate in the highly competitive, dynamic and forever evolving lending industry. It is always a tight race, with high stakes and the winning finalists can be enormously proud of their achievements in coming out on top this year.”

In an heart felt acceptance speech General Manager Operations, Joanna James said “I have to thank all the people over the many years that have believed in us.  We also know that in accepting this award there is a great responsibility for us to provide a very  important counter point in this market, to stand up for and speak up for what we believe in, to fight for independence and to promote diversity. I have to tell all that I’m so privileged to work with an amazing group of people, that every time we ask them to give more of themselves, they do, because they care about what they do, and they care about the people that they do it for.

In 2016 Mortgage Ezy increased its broker numbers by more than 42% on the previous year and a 124% increase in its lending volumes. When asked how this was achieved CEO Peter James explained:

“We have been able to achieve these results by building genuine partnerships with our brokers offering them more than just lip service with choices unmatched in the market place, along with our traditional loud and proud marketing campaigns, lightning speed turnaround times and a determination to offer the very best service to our brokers and customers.”