In a nutshell the mortgage broker’s role is to help you choose and then submit a home loan application. It is not the broker’s role to order valuations (although lenders are forcing that on brokers) nor is it the broker’s role to co-ordinate settlement … that is the job of your conveyancer/solicitor (although they often make a mess of it).
Under the National Consumer Credit Protection Act (NCCP) licensed mortgage brokers and their credit representatives have a clear legal obligation to only arrange finance that is “not unsuitable” for your needs. Exactly what this means can be a subject on its own however basically your mortgage broker can’t arrange a home loan that:
- you can’t afford to repay
- will cause you financial hardship or could lose you your home
- will cost you more than your existing loan – in either fees and/or interest rates
Under the law your mortgage broker acts as your agent and should act with your interest in mind. However here was have a conundrum as your mortgage broker is typically paid a commission by the lender and does not usually charge you for the service. Not all lenders offer the same commission and some have generous bonuses on volumes etc. Meanwhile lenders don’t hesitate to insist that mortgage brokers comply with their requirements and procedures … such as conducting identification verification or ordering valuations. Now this suggests that in this role the broker is acting as an agent of the lender … something the courts and most lenders will deny.
Obviously there is great potential for a conflict of interest to develop and the NCCP also states that there must not be a conflict of interest … not even a disclosed conflict of interest. This places most brokers in difficult territory as they often can’t afford to lose access to a lender otherwise they can’t service their existing clients and so they need to place deals with these lenders even if they are not offering the best deal.
Most mortgage brokers receive all or part of the commission and so they must be influenced by the commissions being offered. However some innovative mortgage brokers such as Peach Home Loans deliberately offer their broker staff no incentive to suggest one lender over another. They do this by paying their staff on a flat hourly rate basis with the only bonus based on whether the client is happy with the outcome after settlement. If they lose accreditation with CBA for example Peach simply pays CBA’s retraining fee in order to get their staff re-accredited.