Major changes to clawbacks and cashbacks occurred this week, in what is welcome news for mortgage brokers.
Self-employed lending specialist Rate Money announced earlier in the week a new product line that has no fees for borrowers and no clawbacks for brokers.
This was followed by CBA updating its policy on the clawback of broker commissions.
Add in eight banks dropping their cashback offers and the RBA pausing the cash rate, and it’s shaped up to be a positive week for many the industry.
Norman Isaac (pictured above left), executive mortgage advisor at Organic Home Loans, said Rate Money’s new product line was a “step forward for the industry”.
“We welcome the move by Rate Money and hope that more lenders jump on board, as it’s a great initiative that has the potential to kickstart positive changes within our industry,” Isaac said.
The new product line, Rate Money House Money, is available from July 3 and covers both full-doc and low-doc owner-occupier and investor loans and is available at 30 locations across Australia.
Throughout his 17 years in the industry, Isaac said he had seen an array of changes over time.
“Look at where upfronts and trails were back then and getting rid of third establishment fees. Look at how much we’ve transitioned,” he said.
But Isaac said one thing the industry hadn’t moved towards was abolishing clawbacks.
“As an industry we’ve been advocating for a long, long time that it is quite an unfair process. It’s been especially tough over the last 18 months with lenders enticing customers to refinance with cash rebates,” Isaac said.
“We now know that the average loan term for a refinance has dropped significantly because of this shift in the market and we’re left to wear the clawback through no fault of our own.”
John Radicchi (pictured above right), general manager at Great Home Loans, agreed about the positives but said a broker’s best interests duty to their customers was “always going to be the driving factor when choosing a product”.
“Having said that, if there’s multiple lenders that have similar products and interest rates, and you’re able to offer the right product with no fees associated for the application and there’s no clawbacks for the broker, why wouldn’t you go for it?” Radicchi said.
CBA’s ‘token gesture’
Speaking to Australian Broker’s sister publication MPA, CBA confirmed major changes to its clawback policy in a move that could shake up the financial services industry.
Starting from October 1, the first-year clawback for new applications will remain the same.
Brokers will continue to earn 50% of the upfront commission after one year. The remaining 50% will be paid out over the second year in a monthly gradual straight-line approach. The clawback percentage will then decrease every month until month 24.
The CBA spokesperson confirmed that changes had been made following feedback from brokers and aggregator partners.
However it has not been warmly received by some in the industry.
Radicchi said the change was “marginal”.
“It’s a token gesture and it’s a very poor response to the clawback issue especially with all these lenders offering huge cashback incentives over the past year,” Radicchi said.
Radicchi said that “it’s not that much different from what it is now and expressed his disapproval to the first-year clawback remaining the same at 100%”.
“I could understand three months but a year? So many things can happen in a year. Especially now with interest rates going up the way they have been, there’s going to continue to be people who don’t understanding the difference between what they pay now and what they will pay.”
Still, while Radicchi said the first-year clawback “is just crazy”, he admitted that it could force other lenders to change.
“Clawbacks will have to go eventually but it’s going to take years for it to take effect,” he said.
What will drive change?
While both brokers agree that the changes are positive, they also believe there is a long way to go.
While most major lenders have ended cashbacks, 15 still offer these incentives at the time of writing – with the highest offer being $10,000.
Radicchi said when you added in “unnecessarily complex” loan discharge forms and retention strategies by lenders, he would find it difficult to compare the plight of brokers to other industries.
“Why are they penalising brokers? They are offering up to $4,000 in cashbacks for a refinanced deal, and yet they can’t afford to give up clawbacks to a broker who worked hard to get the deal in the first place,” Radicchi said.
Isaac said in the past change had always come from smaller lenders and he expected the future to be the same.
“I come from an era where things were changing, and banks were never the ones who pioneered change. Look at the days when Aussie and John Symond burst upon the scene, a lot of the change happens from the smaller end of town,” Isaac said.
“The majors eventually change because they are left with the fact that they better start competing with these smaller banks and non-bank lenders.”
What do you think about CBA’s and Rate Money’s announcements? Comment below.