Mortgage advisers punch-up with ComCom takes a new twist

The dispute between mortgage advisers and the Commerce Commission over its insistence that borrowers be presented with three actual offers from three different lenders has taken another turn.

The Finance and Mortgage Advisers Association of New Zealand (FAMNZ) is putting together a proposal it hopes will get to where the commission wants with its directive and stop any further government regulations on how mortgage advisers should do their job.

While not outlining the proposal to TMMO, FAMNZ country manager Leigh Hodgetts says the commission asked for recommendations on solving the issue after a series of discussions.

Following a round of meetings with its members, lenders and the Financial Markets Authority (FMA), FAMNZ says the proposal will be put to the commission within the next few weeks.

Hodgetts says the commission is engaged and wants to get a good solution, so members are hopeful the problem can be resolved.  

The commission wrote to FAMNZ ast month demanding advisers submit applications to at least three different lenders for each of their clients, claiming it would promote price competition and choice for home loans.

If advisers didn’t comply, the competition regulator said it would “recommend government intervention”.

FAMNZ moved swiftly and blasted the commission for coming up with a “classic case of a solution looking for a problem” when nothing was broken.
Hodgetts says the insistence on three actual offers is something unheard of anywhere in the world that she is aware of.

“If the commission makes good on its threat, it will hurt consumers by driving up costs, blowing out application processing times and affecting customers’ credit ratings.”

Applications for about 60% of the main banks’ mortgages are handled through independent advisers, while about two-thirds of new home lending by value goes through advisers. In 2014, this was just under 30 per cent.

The three applications recommendation came out of the commission’s market study last year into personal banking services competition.

In February, former Commerce and Consumer Affairs Minister Andrew Bayly told the Financial Services Council last month at a breakfast meeting the Government would be implementing all 15 recommendations from the study, including the completed offers from three different lenders advisers will have to present to clients.

FAMNZ sought an urgent meeting with Bayly, but he has since resigned and it is waiting for the dust to settle on the appointment of new minister Scott Simpson.

Mortgage advisers told the commission during its study that mandating multiple applications per loan was not the right approach as borrowers didn’t only look at price, but also how much they could borrow, whether that could borrow on interest-only terms, whether lenders allowed loans on apartments and land and their different policies and procedures, such as early repayments.

They also pointed out in the past couple of decades the main banks have spent time persuading mortgage advisers that submitting multiple applications for the same borrower is unprofessional, time wasting and drives up costs.

Not buying it

Commission chairman John Small doesn’t buy into advisers’ claims the commission doesn’t understand what they do and is being unreasonable.
In a recent RNZ Morning Report interview he says mortgage advisers were consulted extensively during the market study and since then. “While we don’t have the power to force them to do anything we are trying to get a better result than the market has been delivering.”

He says when the commission talked to advisers they downplayed the price of mortgages and talked up the advice they provide. “What we want them to focus on is mortgage competition and I don’t think that is an unreasonable request.”

Part of the solution is upgrading technology at banks so it is easier for advisers to make portal-based mortgage applications because there is a fear that if three fully completed mortgage offers are not presented to borrowers one bank will get preference over another and then the market is not as competitive as it should be, Small says.

Serves no purpose

iLender founder Jeff Royle, who has been vocal on the issue, says the commission is only an advisory organisation and it can’t tell advisers what to do. “That’s for the government and will it come to pass? I hope not. And I am not saying that for any other reason than it serves no purpose.”

He says in the adviser space it is not a big deal to apply to three different lenders. “It’s a keystroke that adds about five to 10 minutes to the application process because all we are doing is changing the servicing calculator and a bit of wording in our diary note, but everything else is the same.

“The banks know that two thirds of mortgage applications they are processing are not going to go anywhere. It’s a fairly labour intensive process for the banks and it’s not cheap. So who is going to pay for that? Is it the adviser? No. Is it the bank? No. It will be the consumer. And for what? Just to satisfy the Commerce Commission?

He points out that the major banks don’t give pre-approvals with any price on them. “So, even if we had to obtain three none of them would give the borrower any indication of the interest rate they would be paying because the bank doesn’t know when the loan is going to settle. They can’t price it.”

Royle says there is definitely competition between the banks. He says the reality in today’s mortgage market is if, for example, he has a deal with ANZ for a client and then Westpac comes out with a market leading interest rate of say, 4.99% for five years, he can go to ANZ with a degree of confidence it will match that rate. “To me that is the free market economy in action.

“There is competition between the banks and that is where the commission falls flat on its face.

“Advisers have tried to educate the commission that often banks’ polices are more important to borrowers than price, particularly if they can’t borrow enough at one bank compared to another even though they have to pay a higher interest rate.”

He says a big part of an adviser’s job is to know and understand a client’s needs and then match them to an appropriate lender. In some cases there is only one appropriate lender.