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Brokers forced to make hard decisions on expenses, serviceability

by James Mitchell6 minute read
Mortgage broker

Mortgage brokers in their first two years in business have been presented with realistic and difficult questions on their own moral compass by one of the industry’s leading loan writers.

Speaking in front of hundreds of brokers at the The Adviser’s New Broker Academy in Sydney on Tuesday, industry veteran and House + Home Loans founder Rael Bricker gave a thought-provoking presentation that encouraged the audience to decide how they would approach ethical questions.

Mr Bricker explained a scenario before asking brokers in the audience to vote “yes” or “no” by holding up green or red cards.

“You’re sitting across from your clients, a married couple. The wife is pregnant. Can you use her income for servicing?” Mr Bricker asked.

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Brokers were generally split 50-50 on this scenario, with half the room believing the pregnant client’s income could be used for servicing and the other half saying it could not be used.

“Now, while you’re doing your KYC, the woman says it is her first pregnancy and she’s really excited, she hasn’t had a day of morning sickness and she’s feeling fantastic. She intends to go back to work after three months,” Mr Bricker said. “Can you use her income?”

The majority of new brokers in the room voted “yes”.

“The conversation continues with the client,” Mr Bricker went on. “She says it is actually her third child. After the first two, she went back to work after six weeks. Can you use her income now?”

The veteran broker continued: “You have to find your own path in terms of these ethics. You need to find out where you are positioning yourself.”

Mr Bricker used a second example that incorporated social media to probe the audience on whether they would ask further questions about a client’s living expenses.

“You follow a number of people on Facebook and some of them may or may not be your clients. You notice that every week one of your clients posts pictures of them at a different bar, drinking champagne and enjoying themselves,” Mr Bricker said.

“Then you get their loan application and they’ve listed their living expenses as $1,000 a month. Here is the challenge: do you accept that or question them further?

“This is information you have discovered from another source. How do you deal with that?”

The exercise comes as the third-party channel faces ongoing scrutiny around customer living expenses and incomes used for serviceability. The major banks and many other lenders are now requiring more detailed information from customers in order to satisfy their credit criteria. Meanwhile, banks have been introducing new debt-to-income requirements amid APRA concerns around Australia’s high levels of household indebtedness.

While new-to-industry brokers are navigating these issues, they are also posing a challenge for more experienced industry professionals.

Earlier this month, Aussie Parramatta franchisee Ross Le Quesne told The Adviser that the changes in the lending landscape have sparked fear and confusion.

“The market is definitely different. I think there is a lot of fear in the market at the moment because, with the things that are coming out of the royal commission, it means that [lenders are] being very conservative from a risk profile.

“No one is prepared to go outside the lines. So, the number of documents that we are getting asked for, as brokers, has significantly increased [because] the banks want to dot the i’s and cross the t’s of a lot of their files.”

He continued: “I don’t think the banks even know what documents they want right now. You can practically tear up their checklists because they are coming up with all this stuff that is not even on their checklist.

“This is what is frustrating and challenging for brokers in the market right now because it is an unknown. As soon as we know exactly what we need to provide and our systems and processes can change to be able to provide that on a consistent basis, then it will set in to the new normal.”

New Broker Academy 2018

Rael Bricker will be sharing more of his tips for new brokers at the New Broker Academy event held at Melbourne Convention and Exhibition Centre on Thursday (14 June).

The free-to-attend event aims to equip new brokers with the knowledge, skills and networks needed to succeed and future-proof their career.

The Adviser’s New Broker Academy 2018 will also visit:

• Sofitel Brisbane Central on 19 June
• Pan Pacific Perth on 21 June
• Adelaide Convention Centre on 26 June

Places are limited, so secure your spot for New Broker Academy 2018 now or refer a colleague, peer or friend who would benefit.

[Related: Rising star shares his tips for success]

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James Mitchell

James Mitchell

AUTHOR

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

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