‘Combat complaints’: 3 broker tips!

Recent data has highlighted the dynamic and trusted relationship between potential borrowers and their chosen mortgage broker.

The Mortgage and Finance Association of Australia (MFAA)’s Industry Intelligence Service report (IIS) showed almost 70 per cent of mortgages in Australia are now being written by brokers.

“The IIS highlights the continued customer focus of the industry, with brokers at the forefront in finding lending solutions for Australian homebuyers and business owners,” said MFAA chief executive Anja Pannek.

In that context, aggregator Connective Group has highlighted that — recent rate hikes aside — the last time the RBA increased the official cash rate was November 2010, almost 12 years ago. This means there’s a “cohort of borrowers and brokers that have never been exposed to this complex environment.”

It explained that when borrowers are stretched with rate hikes and increased cost of living, they continue to tap into the expertise of brokers to help them access competitive loans, quickly and easily. However, it can also prompt a higher rate of complaints, so brokers should “ensure they are protecting themselves during uncertainty.”

Connective’s Group legal counsel Daniel Oh and national risk and compliance manager Amanda Stirling have outlined three simple things brokers can do to protect themselves. These are “education, verification and record keeping”.

Proactive tips to keep brokers safe

According to the Connective Group, some proactive tips include:

Educating clients is a key obligation under best interests duty (BID), but it also cements a broker’s position as their client’s trusted adviser, Connective explained.

Brokers should provide information on anticipated repayments, so if rates continue to rise the clients are prepared. Always reiterate that rates are subject to change, it emphasised.

For clients seeking pre-approvals, ensure they are educated on changing servicing requirements, it stated. A pre-approval issued today does not mean a client will be guaranteed approval in several months’ time.

Also, review clients from 18 months ago who locked in on incredibly low interest rates and start communicating now. It explained that “mortgage shock” is not unwarranted and these clients may experience a big jump in their repayments when the loan rolls off that fixed rate.

Documentation and verification are key to protection

Verification is a pillar of responsible lending, but it doesn’t just apply to supporting documentation, Connective stated.

The aggregator advised brokers to think broadly and take steps to verify a client’s response in the needs analysis compared to what they say during the interview.

Brokers often experience situations where the client states they require an offset, but also require a lender who will loan the most amount, it explained. When cost of living is increasing, brokers should question whether there are enough funds in a client’s offset account to make that loan more competitive than a base variable loan, it explained.

Ultimately, brokers should document any discrepancies to protect themselves.

Note taking in multiple forms

In terms of record-keeping, this protects brokers in the event something goes wrong.

Connective outlined that record-keeping is something that brokers are aware of, but it’s even more crucial in times of market uncertainty.

Notes do not always mean an email; it can be voice notes or a text message.

The most important thing is that it’s documented, and it can be evidenced, Connective highlighted.

Deep investigations and regulatory form

Mortgage Business asked Mr Oh and Ms Stirling what feedback they'd had thus far from brokers in the current changing-rate environment which they found alarming, and the percentage of brokers who were not documenting enough.

"We haven’t seen a noticeable change in our brokers’ behaviours with regards to documentation and quality of their notes. However, in the current environment where rate hikes and rising inflation are putting pressure on household budgets, we do think there will be an upward trend in the number of enquiries from customers on brokers regarding their existing loans and brokers should be ready for this," they explained.

"Brokers should ensure their record keeping is up to scratch. Heightened vigilance and focus now will help them respond if they receive these enquiries in the future.

"The real driver of change in our sector in recent years has been a number of deep dive investigations and regulatory reform.

"The regulatory landscape has changed significantly over the last 12 years evolving from the National Consumer Credit Protection Act (which represented hard-coded legislative steps for demonstrating compliance) to a principles-based approach of ASIC’s Best Interest Duty. 

"These changes - coupled with investigations from ASIC, ACCC and the Productivity Commission in addition to the Hayne Royal Commission - have shaped the landscape and the challenges brokers face and support they need.

"We always urge brokers to ensure they understand what actions they need to take, and what tools they need to ensure they remain compliant, and this remains as true in the current environment as ever," they explained.

"We recognise the challenges of the current environment for clients and are encouraging brokers to maintain their detailed approach to how they do business.

The recent advent of Best Interest Duty 

"Connective has always had a very strong focus on compliance, it’s one of the reasons so many brokers choose us as their aggregator. We have always  encouraged our brokers to keep detailed notes so that should they receive a complaint from their clients, they’ll be able to show that they followed the right processes and delivered the best outcome for that client.

"It’s not a case of there historically being a lack of solid documentation, it’s more about focusing on how to efficiently expand on steps they already undertake especially with the recent advent of The Best Interest Duty.

"We’re expecting the industry could see an upward trend in complaints over the next 6-12 months from clients who are rolling off their fixed rate loans onto loans with much higher repayments.

"There could be some gaps in the client’s knowledge about the impact when the loan switches to variable or what options are available to them.

"That’s why it’s so important for brokers to document their conversations so they can point directly to what was discussed.

"Brokers have had to adapt to such a volume of change and disruption in recent years, which has been consuming, so we’re focused on supporting brokers by providing access to the right information and resources to support them through any change," they explained.

[Related: ‘Records broken’: Broker market share hits 69.5%]