As refinancing activity continues to dominate the lending landscape, the Mortgage & Finance Association of Australia (MFAA) has stepped up calls for lenders to make discharge processes easier for brokers and their customers.
MFAA CEO Anja Pannek (pictured above left) said that while this is not a new issue, the current economic environment and increasing interest rates alongside heightened levels of refinancing activity has brought these issues “clearly to the fore”.
“Now, more than ever it’s vital that a borrower’s ability to switch home loans is made as efficient as possible,” Pannek said.
With PEXA data showing over 800,000 fixed rate loan terms due to finish this year, and with a further 450,000 expiring in 2024 and beyond, the mortgage cliff is fast approaching for many borrowers.
Many are facing 3%-4% increases on their loans and over 100 lenders to choose from, so it makes sense for homeowners to shop around for the best deal possible.
Steven Zahos (pictured above right), director of Sydney-based brokerage ZT Finance, said his biggest pain point is conflicts around the different processes from lenders for refinancing, discharges, and rate reviews – which ultimately leaves clients “very confused and frustrated”.
“Clients come to us to engage the process from start to finish. As a broker, we should have the responsibility to communicate with their bank to get them a rate,” said Zahos.
“If the solution is with the same bank, fantastic. But if not, we should be able to move them across in a quick manner to save them money without the hassle.”
But according to Zahos and the MFAA, that is not happening, with different processes set between lenders.
“We hear anecdotally from our members around lengthy discharge timeframes – of up to four weeks – and particularly in the case of refinancing, discharge forms not being readily available or easy to find, for either brokers or their clients,” Pannek said.
“In many instances, lenders require a customer to call through directly to obtain a discharge form and some lenders even preclude brokers lodging discharge forms on the behalf of their client in conjunction with facilitating the client’s refinance.”
Layers of retention strategies
In 2020, the ACCC’s Home Loan Price Inquiry report recommended that a time limit of 10 business days should be imposed on lenders to complete the discharge authority.
However, the MFAA has observed that lenders are instead using the discharge timeframe to engage in retention activities, for example offering discounts and cashbacks, which delays the process.
“This creates a poor experience for borrowers, and also happens after a broker has worked with their client and determined that the best option for their client is to move to a loan that better suits their needs,” said Pannek.
With mortgage brokers bound by Best Interest Duty (BID), Zahos said most brokers just want to provide the right solution for their clients but find it difficult to provide this service as they don’t get “clear information until the eleventh hour”.
“There are many situations where if [the] bank just gave the right interest rate – their best rate – a month ago, we could have retained the client with the same bank,” he said.
“Right now, it takes us four to six weeks to get to the end, and suddenly, the bank has provided a better rate. Not only is that wasting everyone’s time, but that client has lost six weeks’ worth of interest savings as well.”
Zahos said that this occurs “across the board” and lenders “don’t discriminate” about the type of client, whether it be those refinancing for the first time or borrowers with 10-plus year mortgages.
“Lenders are getting crafty with their retention strategies. They have analytics that organise people into the retention layer when a discharge form gets submitted – and only then do they get the right price,” he said.
One of the recommendations of the Home Loan Price Enquiry Report was that lenders should be required to provide a standardised discharge authority form to borrowers to complete, which should be “easy to access, fill out and submit”.
The report further commented that “lenders should adopt an identical standard form template, rather than agreeing to common criteria and continuing to design their own forms”.
Zahos said that while the form is generally the same between lenders, the process can vary.
“We have a few banks where you need to ring and get a unique identifier number. They ask you the questions, you put your code in, and then it’s ready to refinance,” he said.
“Some lenders have their own policies on a certain time frame that’s not adhered to. Others you can email them, but some want two pages, and another wants six with a completely different set of questions. We have a panel of more than 30 lenders and there definitely isn’t a uniform process.”
Opportunity for policymakers
While the implementation of the ACCC’s recommendations have not been implemented through regulation, the MFAA acknowledged that some lenders have been proactive in improving the discharge process for borrowers and mortgage brokers assisting their customers.
But Pannek said there is “significantly more to be done” and that “there is benefit” in this being addressed proactively by lenders.
“To support competition, we believe lenders have the opportunity to further implement the recommendations proactively through self-regulation to drive material improvements for the benefit of borrowers. In the absence of material improvements, there is a clear opportunity for policymakers to step in to give effect to the ACCC’s recommendations,” Pannek said.
“We have highlighted this through our submissions and in discussion with the ACCC and Treasury. We will continue [to] keep the ACCC and Treasury abreast of the impact on borrowers resulting from poor discharge processes.”