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MFAA Prosper : Mortgage and Finance Brief 10
Most non-bank lenders have annou nced new mortgage fees as well as changes to their rates and r ules in response to the ban on mortgage exit fees that became law on 1 July 2011. However many smaller lenders report they are still unsure how the ban will impact them long term. Some are still str uggling to find a new competitive business model. With all this uncertainty, there is a good chance that some lenders will adopt clawbacks on broker commissions. "In the past, lenders perhaps considered their relationship with the broker and might have been less likely to enforce clawbacks," says David Holmes, chief executive officer of Pepper Home Loans. "I think that will change now." Holmes says Pepper did not use clawback provisions very often -- the company had only enforced clawbacks three times in the last two years. "We have a very flexible policy on clawbacks," he says. "We only enforce them if the broker has done the wrong thing and used us for short-term or bridging-type finance." Homeloans Limited has been very upfront with its new clawback policy, which effectively replaces its banned exit fee. "Our clawbacks will be directly in line with those most commonly accepted in the broker market," says Tony Carn, Homeloans' general manager third party sales. "For loans repaid within 12 months, upfront commissions will be subject to a 100% clawback, while 50% will be applied to loans repaid between 12 and 18 months. "Commission levels remain unchanged." Almost all lenders have also changed their fee str uctures. Aussie Home Loans has increased the application fee on its entire Optimizer range from the cur rent $250--$500 up to $600. ME Bank has introduced two new ser vice fees -- a $150 valuation fee and a $150 solicitor 's fee. Greater Building Society has also introduced a $500 application fee. "We've had to increase our up-front fees after we removed ou r DEFs," says Holmes. "The really disappointing thing was that we were no longer able to offer a rate discount for loyal customers. "We gave bor rowers a 1% rate discount off the standard variable rate for 12 months if they stayed with us for three years. "We just can't offer that now and it is disappointing because that was a genuine benefit to bor rowers that has disappeared from the market." Kevin Sher man, the managing director of MyRate.com.au, is also u nsure what the changes will mean for his business, which operates directly to the consumer online. "Our competitive proposition was simple and effective," he says. "A low rate and no fees except early exit fees. "We are in wait-and-see mode right now. We want to keep ou r low-rate, no-fee philosophy, but the ban has caused complications with that. "We have increased rates by four basis points and may need to add a fee, but I don't think that would be competitive for us. The big banks can reprice -- it's not easy for us." However, some are seeing the changes as an opportunity. Tony Carn believes the ban has allowed his company to become a "tr ue alternative" to the banks. "The removal of DEFs eliminates consumer uncertainty and places Homeloans on an equal footing with the banks," he said. "There is cu rrently a lot of competition in the market and a lot of banks are offering very attractive headline rates. "But it must be remembered that behind most great interest rates there is often a sizeable an nual fee -- and that can mean that the real cost to a borrower is greater than it seems and often increases over time. We are offering loans without ongoing costs." Competition in the mortgage market has been a hot political topic since the global financial crisis delivered most of the lending market to the big four banks. Despite the refor ms since, the latest data indicates that the big four are more dominant than ever. In May, CBA, Westpac, NAB and ANZ increased their share of the market from 80.4% to 82.1%, according to AFG. With NAB's online brand UBank still offering the market leading rate with no application or administration fees, and ANZ offering an 80 basis point discount on one of its standard variable rates, how can a small lender compete? "Losing a customer early, gaining another one -- it is all swings and roundabouts for a big bank," says Holmes. "But for a non-bank lender, we need to recover costs if a bor rower leaves very early. "A new approach and attitude to clawbacks will clearly be a strategy for lenders -- and a challenge for brokers." Lenders sharpen their CLAWBACKS With no more mortgage exit fees, non-bank lenders are warning of a new approach to broker clawbacks. By Jason Bryce "In the past, lenders might have been less likely to enforce clawbacks. I think that will change." 18 | Mortgage & Finance brief News analysis
Mortgage and Finance Brief 09
Mortgage and Finance Brief 11