In 2000, after a twenty year career in banking, I was offered the opportunity of a lifetime. A new mortgage brokerage said my skill set and experience were just what they were looking for and offered me a competitive base salary, a share of commissions, a fully maintained vehicle and qualified leads to build the business. After a year, I would be made a full partner and gifted the equity in the business.
It all sounded too good to be true. And so began a new career as a mortgage broker.
First step was accreditation. I expected some scrutiny, but it was just a few simple tests, an occasional interview, and that was it. I was fully accredited. Yes, my experience and background was considered, but everyone had to pass the tests. The typical test involved reading a booklet and answering a few basic policy questions. Child’s play that my six year old daughter could have passed.
I was up and running. My only lending tool was a software application that spat out a summary of all eligible loan products after I’d tapped in a few basic client details. Very prescriptive stuff, no credit analysis needed. Fill out the application form and send it off to the lender and that was it. Most of my dealings with the lenders were touting calls, encouraging me to push their products and pointing out ways to maximise commissions. I was ‘encouraged’ by the partners to prioritize prospects in terms of viability as a deal and the amount of commissions.
It reached the point where the partners were asking me to exclude lower commission products from the loan calculator, so they weren’t even displayed as an option. The so called qualified leads were also encouraged to look at properties well beyond their price range by two of the partners (who had their own real estate businesses) on the understanding that financing could be arranged.
Properties within their target price would have allowed them to borrow through mainstream lenders at reduced rates and on favorable terms. This tactic pushed them towards the higher risk low doc/no doc (aka sub-prime) loans. Not good and a disaster waiting to happen, as Australian interest rates were at near 30 year lows. An increase of say 50 basis points would have rendered the mortgage unaffordable. Foreclosure territory. Win-win for the partners, who could use their real estate leverage to facilitate a sale, not very good for the borrowers.
The lesson is that mortgage brokers are not independent. They receive varying commissions and inducements from lenders to write business. Do your own homework and stick to your guns when it comes to what you consider an affordable mortgage payment.