The time it takes for a lender to approve a loan has always been important, but when the coronavirus hit Australian shores and borrowers sought to refinance their loans and take advantage of low interest rates and cashback offers, turnarounds blew out exponentially. Over the past year, turnarounds have gone from bad to worse. Annie Kane takes a look at the issue and what is being done to rectify them.
Turnaround times for mortgages has always been an important part of the home loan experience. Wait too long for an approval and it could impact a home buyer’s ability to complete the purchase of their dream home.
Given the current record-low interest rate environment and the fact that many Australians have been reviewing their living situations and finances since the COVID-19 pandemic hit (in many cases, bumping up their savings and taking advantage of government support measures to increase home ownership), mortgage applications have continued to break records month on month, leading to delays in loan processing.
While delays across the board are one thing, a major issue that has reared its head again recently is the disparity between the time taken to approve loans through the direct channel (i.e. through a bank branch) and those being lodged by brokers, even if they’re for the same product.
Reflecting on the issue, the managing director of the Finance Brokers Association of Australia (FBAA), Peter White, notes that “an anticompetitive environment is creeping in and favouring branch processing times over brokers”.
He tells The Adviser that “certain major banks claim that over 60 per cent of loan submissions are incomplete and are pushed back to brokers to fix the issues, plus they claim greater complexities with meeting best interests duty”.
Moreover, the CEO of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, suggests that the primary reasons cited by the lenders for delaying broker turnarounds include:
“Other obvious factors appear to be the existence of cashback offers, which many lenders continue to offer but seemingly do not have the capacity to cope with,” he says.
Mr Felton adds that while the differential between channels was one issue, the second issue “compounding the problem” was the public narrative from the major bank CEOs that the differential “is perhaps not that significant”.
This came to a head in April of this year, when the House of Representatives’ economics standing committee hearing for the Review of the Four Major Banks and other Financial Institutions asked the CEOs of the major banks about their turnaround times for home loans (see page 24 for more).
For example, the CEO of the Commonwealth Bank of Australia (CBA), Matt Comyn, said that while turnaround would be “within two days, certainly in the proprietary [channel]”, in the broker channel, he said it would be “slightly longer than that at the moment”.
“For the best part of 18 months, up until the end of last calendar year, we wouldn’t have been too far out of that, a couple of extra days [for broker channel],” he said.
However, reports from individual brokers, and several research/data reports from the broking industry suggest that broker turnarounds are taking far more than “slightly longer” than the direct channel, and are often taking more than four times longer.
According to Momentum Intelligence’s Broker Pulse survey, which asks brokers about their mortgage experiences each month, it was taking the lending market an average of 11.5 days to approve loans in April 2021.
In fact, the Broker Pulse data shows that the lending market has not approved broker loans in less than a week since the COVID-19 pandemic began (the average lender turnaround was 6.6 days in February 2020).
The Australian Finance Group (AFG) Index also demonstrates that brokers are experiencing long delays. According to the index for April 2021, lender turnaround times surged to 27.1 days in the third quarter of the 2021 financial year.
According to the aggregator CEO, David Bailey, this is “the highest [turnaround times] have been at any point over the last three years”.
Moreover, Mr Felton highlights that Connective data has also shown that brokers were waiting a median of 23 days, or more than three weeks, for unconditional approval, “which means that half of all broker customers are waiting longer than that, which is simply not workable for our industry”.
He says: “We were dismayed and disappointed to hear the CEOs of the majors talking about approvals for broker customers ranging from ‘slightly longer’ than the branch network to ‘an average of around 12 days’.”
“This is simply not what is happening, as brokers will be aware and as our industry data clearly shows… We need all stakeholders to understand the seriousness of the situation, the reasons why it is occurring, and for the banks to resolve it once and for all,” he tells The Adviser.
Mr Felton adds, however, that while the turnaround issue “could be viewed as a complex one with various contributing factors”, there can be “little justification for the entrenched differential that has existed between branch and broker turnarounds for many years without being addressed”.
“Banks need to resource broker approvals appropriately, and once and for all address this longstanding issue in a meaningful and lasting manner to remove the competitive disadvantage that brokers continue to face,” he emphasises.
Achieving channel parity
Indeed, channel parity can be done. According to Suncorp Bank’s head of broker partnerships, Troy Fedder, the bank has deliberately aligned its broker and direct processes “so that customer outcomes are equal and there’s no differing time frames”.
He says: “If a customer wishes to engage direct or via a broker, their experience and outcome should be no different. There is no differentiation in turnaround times between our broker and direct businesses. This is a deliberate strategy.
“Just as Suncorp grows with the support of our customers, our broker partners will grow if we deliver consistency together. It’s a true reflection of how Suncorp values our broker relationships.”
He continues: “Suncorp and our brokers have the same pricing, credit policies and consistencies to effectively minimise any channel conflict. Consistency is key, and I’m committed to a consistent policy, backed by the bank’s executive team to make processes easier for brokers to do business with us to create a faster-time-to-yes mentality.”
Mr Fedder tells The Adviser that despite the “exponential growth in home loan application volumes”, it had deployed more team members into operations and support roles to speed up turnaround times and recently amended its expense verification process, requiring customers to provide less documentation in loan applications.
“It means a faster time to yes for our brokers,” he continued. However, Suncorp hasn’t been immune to longer turnarounds amid this competitive market, with its time to yes also increasing in recent months.
“We have more work to do, but I’m committed to delivering improvements across our entire home lending portfolio to make it even easier for our brokers and their customers,” he says.
Open banking to the rescue?
While inroads have already been made in the last 12 months when it comes to enabling third parties to utilise technology to overcome some of these delays (for example, by utilising digital signatures on documentation via secure portals, and enabling remote verification of identity), the big pain point that still causes many delays is the verification of expenses from the third party (see page 26 for more).
The collection and analysis of sensitive bank data has always been a pain point in the mortgage process.
For customers, it’s a nuisance to be finding, printing and posting/emailing bank statements (not to mention the security risks involved with that).
For brokers, waiting for the customer to collect all of this information and then comb through it to understand discretionary and non-discretionary spends is also time-consuming.
By the time it gets to the lender, though, the lender also then goes through the expenses again to ensure the borrower can afford the loan and to comply with ASIC’s guidance on responsible lending. This is the case even if the borrower is an existing customer of the lender of choice.
In this day and age, where technology is so ubiquitous, it is often a surprise to borrowers that this expense checking and verification process is so manual and clunky.
Moreover, given the fact the courts have said that lenders don’t need to be forensically checking expenses in this way (as outlined in the famous ‘wagyu and shiraz’ case), the federal government has been seeking to relieve this burden by scrapping the responsible lending laws entirely. While the proposal has been debated, denigrated and delayed several times – there may be other, more imminent, solutions at hand.
Speaking to The Adviser, NextGen.Net’s chief customer officer, Tony Carn, suggests that open banking might be the key to relieving these headaches, therefore reducing turnaround times in the broker channel.
He explains: “A lot of the commentary from the banking industry is around the fact that they’re able to approve loans in branches faster because, a lot of the time, they have access to existing customer information. We’ve heard that it is a challenge to expose existing customer data to a broker, from a compliance perspective.
“One of the great areas of opportunity going forward is open banking. This is government-backed technology, which provides access to open data, irrespective of where a customer banks.”
Mr Carn says that he believes open banking was the key to helping create a more even playing field in turnaround times, as it empowers borrowers to share their data with trusted partners and could remove the need for banks to verify the data they’re receiving.
While open banking has been ramping up for the past year (customers of the four major banks were able to start sharing their banking data from July last year under the Consumer Data Right [CDR]), currently, the rules do not permit the disclosure of CDR data by an accredited data recipient (ADR), such as a bank, to other parties that the consumer may wish to share their CDR data with (such as mortgage brokers).
In their initial format, the CDR rules outline strict parameters by which consumer data can and cannot be shared – largely due to security/risk concerns.
However, following engagement with industry, it was noted that it was “critical” that a broad range of recipients should be able to engage in the Consumer Data Right scheme in order for it to “achieve the competition and innovation objectives of the regime, and for the CDR to support Australia’s digital economy”.
As such, the Treasury is consulting on new draft rules that would enable consumers to give brokers (and other “trusted advisers” such as accountants, financial planners and lawyers) access to CDR data.
The proposed draft rules would therefore enable a person to “conveniently and securely share their banking data to a residential mortgage broker to help find them the best mortgage to purchase a property”.
As well as expanding who CDR data can be shared with, the new draft set of rules will also enable consumers to share “insights” obtained from their CDR data, which could help speed up loan processing.
The Treasury said the new draft rules would help verify a consumer’s identity, their account balance, income level and expenses in a more secure and efficient manner.
Mr Carn tells The Adviser: “The benefits of open banking are not solely about the collection of the data, it’s also about the ability for a lender to rely on it. There is already data collection via screen scraping, for example, but the reliability of that data for a lender (in a prudent and comprehensive credit process) is close to zero. You don’t see regulated lenders relying on that data to assess a loan application, they are still needing to validate what they’re being told.
“Whereas, in an open banking situation, that is pre-validated information.”
The government itself has highlighted this benefit of open banking, outlining that the new “insights” rules would “facilitate a safer and more efficient way to confirm details to support a loan assessment, minimising the need for an applicant to manually collect certain information and provide it to the credit provider, or even worse, provide their bank account password to the provider in order for the provider to ‘screen scrape’ that information”.
Mr Carn states: “The roadmap to embedding that into the broker process is absolutely critical, because this is about access to data. And, from 1 July, there’s going to be a lot more of it there, with the next phase of open banking coming into effect [for more products at non-major banks].”
He suggests that while he expects the first loans that would benefit from the new open banking amendments would be “simpler application, simpler borrower, simple transaction types which are, in many cases, already getting really fast turnaround times in the proprietary channel”, and “accelerating that” to broker channel and more complex types of borrower.
The chief customer officer adds that open banking would not just benefit turnarounds by reducing wait times and verification checks of expenses, but also with reducing the need for supporting documentation (and the delays that come with that).
“There’s a clear path forward to approve and ultimately, with open banking, we look to a world where the reliance on supporting documents should be next to nothing at future point in time. Open banking is going to revolutionise that.”
What the ACCC says
Given the fact that the majority of mortgages lodged in Australia come from the broker channel, the differential in ‘time to yes’ between direct and broker channel is not only a frustration for more than half of all Australian mortgagors, but also undermines the service offering that brokers provide.
The Adviser reached out to the Australian Competition & Consumer Commission (ACCC) spokesperson to ascertain whether the disparity could amount to a competition issue for the channel.
A spokesperson for the ACCC said the body “cannot comment on specific situations or complaints”, but added: “A business (such as a mortgage lender or mortgage broker) will only breach the ‘misuse of market power’ provisions of the Competition and Consumer Act if it has a substantial degree of market power and engages in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market.
“Whether conduct breaches the misuse of market power provisions of the Competition and Consumer Act will depend on all the circumstances.”
What are the associations doing about it?
Given the major implications that turnaround time delays have for the broker channel, we asked the two mortgage broker associations, the FBAA and the MFAA, what their thoughts were on the matter, and how they were working to address the issue. Here’s what they had to say.
Finance Brokers Association of Australia
The FBAA has led the way on this issue since last year when times blew out through COVID and offshore processing collapsed. We were assured things were being corrected to compensate for this and for time frames to realign. Obviously, as we are now in 2021, this didn’t happen and we have been researching exactly why.
It was important to us that we were informed before we made more public comments. The data from our findings are being discussed at the highest levels in government and public office as the banks generally were not interested in doing any more than what they were (which was nothing).
The disparity is, and always has been, completely unacceptable, and the explanations are without any reasonable factual foundation of truth. This is an anticompetitive practice that completely disadvantages consumers and only advantages the banks’ proprietary branch networks.
We have expressed strong concerns about this to government, and we are currently exploring options of taking action via the ACCC.
Keep in mind this is primarily the domain of issues in major banking. There are many options a broker can use to facilitate the best interests of their borrowers, and they should look at all those options. They should consider taking their business elsewhere, but unquestionably without breaching best interests duty.
Mortgage & Finance Association of Australia
Lender turnarounds continue to be a top priority for the MFAA, and we have met, and are actively working, with lenders, aggregators, brokers, regulators and government to discuss this critical issue and the impact it has on brokers and their ability to compete.
My discussions with lenders have revealed that the majority of them are implementing changes and applying significant resources towards solutions to improve the current turnaround situation, although some say that the current record broker volume is masking much of the benefit of the actions they have taken.
While the changes being made are pleasing, it is clear that long-term structural change is required to provide a more permanent solution and one that not only reduces the differential but eradicates it and achieves lasting parity between first- and third-party turnarounds going forward.
Brokers and broker customers are being penalised, which is causing difficulty for customers that do not wish to, or are unable to, go to a branch. For brokers, it’s a tough ask to have a customer wait three, four or more weeks for finance approval in this market when they are trying to purchase a home.
We believe that customers introduced to the bank via a broker should not be disadvantaged in their timely access to credit and should have the same service levels as those who go into the branch, especially in 2021, with all the technology we have at our fingertips.
Brokers simply cannot compete if their customers are being forced to wait weeks for approvals on relatively simple loans. A threat to the broker channel is a threat to competition in the home lending sector. And reduced competition is never good for consumers.
Major change is needed for a long-term, sustainable impact on turnaround times.
The MFAA has played an important role in elevating the dialogue on this matter and ensuring that it is getting the appropriate attention it deserves within lenders, aggregators, regulators and government.
Apathy at any level right now on this matter poses risk of a potentially less competitive and smaller broking industry in years to come, which would come at a great cost to consumers and their access to credit.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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