No I have not forgotton about the final part in this 3-part series on “What The Banks Don’t Tell You”. I do apologize on the long lapse as we report on one major development after another in the mortgage industry, starting with the sudden rate reprieve in SIBOR (sliding 25 basis points) back in April, next some gimmicky promotion from lenders, sudden drop in new jobs number in US to 38,000 in May, aggressive push for fixed rates in June holiday period, to the now post-Brexit moods on the ground. It has been an eventful three months.
Earlier in the 1st two parts, we have spilled the beans on two major themes we feel that most homeowners may not be aware of – banks’ cost of funds and board rates. In this final episode, we are goig to talk about another touchy topic – the bank’s salesperson, also known as mortgage specialist or mortgage banker.
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Before I start let me first qualify just like in all industries be it real estate, insurance, 2ndhand car sales (seemingly the worst reputation), or even your highly regarded private banking, there will be good salespersons and then there will be rogue salespersons. We do work closely with our carefully-selected team of mortgage specialists and you can bet that we look for people who share in our core values of doing long term business and always recommending what is in the best interest of clients.
The reason why we need to highlight this as one of the things banks do not tell you is this – when it comes to more complex financial or intangible products, as most people generally lack the skills, resource and time to do research on the topic, they do accord a lot of weight to what the bankers recommend. In fact for some strange reasons, they tend to overcompensate for it and trust everything that their bankers tell them believeing in the “wisdom” of professionals. So much so they forgot that these bankers are afterall salespersons, with a target to be met every quarter, whose performance will be measured by their management. In addition, certain product objectives might be set at times where management may direct their sales team to market “higher margin” products, via both stick (product sales targets) and carrot (sales commissions) approach.
Look we are not saying that all mortgage specialists or mortgage bankers will then go out and push for the highest margin products with total disregard to what is truly good for their clients. To be fair, even if some of them do genuinely believe that a particular home loan offers the best total value proposition that matches the need of the client, he would still be unable to recommend it simply because it is offered by a competitor bank! Every lender will have its own business strategy, focus, target segment and product objectives. That is why we believe in the long run, with advent of internet and comparison sites, and a highly educated population, mortgage intermediaries will gradually replace more and more the role of mortgage bankers who are confined to limitiations of one bank. We only need to look towards more matured markets like in UK where big lenders formed dedicated networks to service the needs of intermediaries who bring bring them well-qualified and targeted customers and submit the cases directly to the credit deparments within the banks. Over the last 4 years, with consolidation of bank branches and introduction of stricter mortgage rules, it is now estimated that over 60% of all mortgages done in UK are brokered rather than direct to bank. And this number is set to grow with the introduction of MMR (Mortgage Market Review) measures implemented since 26 April 2014. These intermediaries comprise of mortgage brokers, IFAs (Independent Financial Advisors), insurance agents, property agents or wealth managers.
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Some might argue that mortgage intermediaries might also go the way of mortgage bankers – peddling the highest margin product to the client instead of a needs-driven approach. Well I guess a lot depends how these companies want to operate and serve their clients’ interest in the long term. To me it is penny wise and pound foolish to try and pull the wool over clients’ eyes, if the mortgage consultant’s objective is relationship and repeat business, unlike those of mortgage bankers. In fact this is exactly what prompted Australian Securities Investments Commission (ASIC) to start a probe last year into the fees that banks downunder pay for mortgage referrals. The question asked is whether there is a lack of transparency and that such fees do not serve the best interests of consumers. To this end I fully embrace the notion that this distributor fee paid by lenders be “fixed” at a mutually acceptable level that sufficiently compensates for the work of a professional mortgage consultant, yet at the same time provides sufficient costs savings to a lender that justifies not hiring more in-house mortgage people or putting in more branches and training hours.
Yes we do have targets as well as a mortgage intermediary, but of a completely different sort and nature. Unlike big name lenders with deep pockets, every single sales lead is precious to us, and we are measured on how much we can nurture it into a profitable stream of revenue over a customer’s lifetime – Customer LifeTime Value (CLV). To achieve the highest CLV, we first need to win the trust of the client that we will always put his or her interest first. There is simply no shortcut here – we do not want clients to remember us for recommending the wrong product!
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While professional mortgage distributors like us are paid our rightful due for all the hard work we do in providing updated rates, analyzing & explaining packages from various lenders, it is highly arguable if other “introducers” like property agents etc. deserve the same fee. This is something that lenders need to review at some point as property buyers become more net-savvy and discerning in the next 10 years and more will go online to make mortgage decisions instead of relying on convenient recommendations from their realtors, who are really more adept at property transactions than loan structuring.
To summarize, as things stand today, we believe homeowners need to put on the same level of alert when they approach a mortgage specialist from the bank today just like when they approach any other salesperson in a “selling setting”. Understand the constraints of product range within one company, and understand that whatever the saleperson says or claims, it is motivated to make you buy from his or her company. And before you sign on the dotted line to refinance home loan, you ought to check what the rest of the market has to offer and find yourself a trusted and independent mortgage consultant that you can work with in the long run. That would truly be the smart way to leverage!
At MortgageWise.sg, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into market developments & helping clients track interest rate movements. Make a difference to the way you plan your mortgage today by consulting with a professional whose insights, experience and independent advice you could benenfit from, instead of going directly to the banks for their “standalone” views. We strive to become your first-choice mortgage partner and the creditable distributor of home loan Singapore.