Mortgage originators: Why we still need them

Big banks are trying to wean themselves, and us, off our dependence on mortgage originators. These are the people in between banks and property buyers who have carved out the role of shopping around for home loans. 

In return for sourcing a deal and processing loan applications for house-hunters, banks have been giving these intermediaries commissions which in some cases have been pretty hefty. For example, 2,5% of the value of a home loan was common in the property boom days. On a bond of R1m, that amounted to about R25 000.

But, thanks to far fewer mortgages being granted, banks have seen their revenues reducing along with the reduction in property sales in the past year or so. One way to counteract this has been to increase bank charges for customers. Another way has been to squeeze mortgage originators on their commission payments. 

The latest strategy by Standard Bank is to get originators to bid for business, and then give it to the three with the most competitive commission rates. Its aim is that next time tenders are asked for, originators will be even more aggressive in cutting their commission rates - and in this way the bank hopes to make this arena more competitive. This time Standard Bank left out ooba, the big originator owned by estate agencies like Pam Golding Properties and Seeff Properties.

Standard Bank's move, in theory, should be good for bank customers. After all, it must ultimately be the customers who pay for these commissions.

But, like the big life assurers that rely on brokers for business, when commissions to intermediaries are not paid this benefit does not seem to be passed on to the end client.

A Realestateweb visitor with the nom de plume Originator highlighted this point when asking, under the article Big bank dumps biggest mortgage originator: "It has been more than six months since originators' commissions were slashed by at least half. Have you enjoyed any drop in fees or interest from the banks?"

And, there is another problem. Banks, despite all the well-paid professionals within their ranks, are not known for giving customers good service. When it comes to their home loan departments, there is a perception they are not equipped to pick up the work they handed over to originators earlier this decade.

Said Realestateweb visitor @er about the matter: "All the banks used to have specialist home loan consultants who chased the process, did the forms and acted as the liaison with their respective home loans' departments -which are no more than factories. Then came ‘efficiency' consultants.... . .moreand all of the business school cost-cutting fraternity. The banks retrenched or allowed all of these specialists who did really good jobs to leave. That's when it got interesting because branch staff were not trained to pick up the slack."

Making originators all the more attractive for buyers, too, is the extra administrative rigmarole associated with the National Credit Act regulations and the ever-changing, fickle nature of bank credit criteria. A competent originator is invaluable for many in this era in which even self-employed professionals like conveyancing attorneys and doctors are easily shunned by banks - just ask many astute property investors who have found it incredibly hard to secure credit for obviously-good property deals of late. A top-notch originator knows, after sizing up an individual's financial position and the property under consideration, which bank is likely to agree to finance and, if there is more than one, which will give the best rate.

Some bankers argue, on the other hand, that many originators aren't particularly competent. They reckon some played a role in helping to amass the bad debts on their home-loan books.

Some ideas being discussed are that banks should pay lower commissions and also include a trailer commission, or one that sticks around for the life of the loan - with a view to ensuring originators are incentivised for helping to secure longer-term, quality business.

A much simpler approach, perhaps, would be for banks to move to a model in which buyers, rather than banks, pay for the services of the originator. This is a bit like what is expected of wealthier clients by their financial advisers these days. For R25 000 for every R1m of home loan, the buyer is likely to expect good service from the originator and will opt for an originator where his or her affairs are a bit more complicated and the originator can add value. Top originators will surely make good money, while the mediocre ones will fall by the wayside.

If an application is straightforward - for example, someone is a first-time buyer with a clean credit record and has a deposit for a property - it's quite easy, if time-consuming, to shop around on your own for a good mortgage deal and play one bank up against the other over discounts to the prime interest rate.

Maybe estate agents, who generally charge a commission of 5%-7,5%% plus VAT before they take the cream off the origination commission, should include an origination service for free on these average deals. After all, one could argue that this is part of finalising a property transaction. Without the home loan, there is no sales commission.

These won't be popular suggestions among originators who make easy money by processing the ordinary applications, the estate agencies which enjoy hassle-free referral fees from home loan commissions or market share-hungry banks. It is much easier to grease the wheel where the costs for the consumer aren't apparent, as life assurers will attest.

For now, though, these suggestions will likely remain a moot point. Until banks collectively boost their service to a level where they become known for efficiency and they treat their customers better by offering competitive discounts in return for cutting intermediaries out of the loop, consumers won't see any benefits in doing away with this relatively recent layer of mouths in the feeding chain.

Write to: jackie@realestateweb.co.za. Want to contribute a guest article on this issue? Send it to news@realestateweb.co.za.

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"Maybe estate agents, who generally charge a commission of 5%-7,5%% plus VAT before they take the cream off the origination commission, should include an origination service for free on these average deals. After all, one could argue that this is part of finalising a property transaction. Without the home loan, there is no sales commission."

 

Related links

Articles:

It is not just Standard Bank  »

Big bank dumps biggest home loans' originator »

Comments

 

responses to this article

Estate agents work Sure, estate agents should assist with getting home loans. My experience is estate agents really do next to nothing in sales barring show houses. A little bit of work won't do them any harm. After all, their fees are the highest of any category of . .more investment service, even managing to charge more than banks on a Rand for Rand transaction. . .less by Allan Duff on September 18 2009, 15:14 Find this comment inappropriate? Report it

estage agents' commissions in South Africa are still several times higher than in the US and other markets. To understand how lucrative it can be, just look at the increase in EAB registrations over the last ten years (ok, also look at how many have lapsed . .more recently!) Intermediators in South Africa (insurance brokers, estate agents, mortgage originators and others) all take a bigger chunk of the value chain than is consistent with the value they offer. . .less by Clear Thought on September 18 2009, 16:47 Find this comment inappropriate? Report it

Well said Well written, at last someone who is unbiased, aware of the facts and tells it like it is. I agree that Originators' commissions were high in the past but feel since the cut in commission that they are more in line and that the introduction of trailer . .more commissions will be good for the industry as a whole. Glad you brought up Estate agents' commissions, 5%-7.5% now that's exorbitant for the amount of work done!And no mention is made to the general public that most Originators give away about half their commission from the banks to Estate Agents for just referring a client. . .less by Originator on September 18 2009, 17:02 Find this comment inappropriate? Report it

, Originators are merely middle men that dont have the clients interest at heart they chase comm and turn around time they basically sell ur bond to the highest bidder. by insider on September 18 2009, 18:53 Find this comment inappropriate? Report it

Self Serving Banks SA mortgage market is ripe for new entrants that can improve both on the service and a competitve offering. The big four banks are colluding on rate margins in this new credit market. Where is the intrepid Competition Commission when you need them. . .more Anyone with half a brain can figure out that the banks have colluded in raising margins and cost to the consumer significantly. Eisshh!!! . .less by Jenga on September 18 2009, 19:09 Find this comment inappropriate? Report it

Banks should pay you for a bond!!! Ten years ago there was no such thing as a bond originator. These companies came about because of the increase in the demand for property loans which banks couldnt handle. In a freemarket society where banks would actually compete for your business, the . .more bond applicant should be paid the 2.5 % origination fee instead. Why does a originator get paid money for doing something you could do. . .less by WTF on September 19 2009, 05:56 Find this comment inappropriate? Report it

Not a lot of value from originators Have just bought a property. My personal bank gave mortgage approval within two days. The mortgage originator proposed by my estate agent took about three weeks to get two quotes from banks that had higher rates than from my personal bank. What value did . .more the originator add - not a lot. . .less by Marc on September 19 2009, 06:58 Find this comment inappropriate? Report it

Originator ripoff Most people in this counrty wont see a salary of R25000 in a month! Yet these are the commissions earned on one deal! By simply faxing your payslip, bank statements and an application form - lets get real - this is clerical work! The value add does not . .more justify the exorbitant comms. Do the math and find out how long it would take you to pay off 2.5 % off the capital of your home loan! Most banks charge the same rates anyway, so its a farse that originators are trying to source the best deal - they have contracts to provide a certain amount of business to each bank per month! Originators are self regulated too! Not subject to the Code of banking practice etc. It's only a matter of time before they disappear altogether! . .less by lets get real on September 19 2009, 13:58 Find this comment inappropriate? Report it

bond originators If an Estate Agent has a property to sell, it should be his/her responsibility to find the cheapest bond for the buyer. Why not cut the sale commission from 7-00%-usually to be paid by the seller to say 3% and have a commission of 2% when the buyer is . .more granted a bond? . .less by erewhon on September 19 2009, 19:19 Find this comment inappropriate? Report it

After sales service? I bought my duplex and have never seen the agent again. Even when things, burst pipe and blocked drain, go wrong. He got his R25 000.00. How is it possible to make a comparison to an insurance broker that gets half the commission and has to live with, and . .more see the client and explain on numerous occasions, even put up with verbal abuse, when the markets go in the wrong direction. And then the broker can lose commission, due to clawbacks, when the client decides to withdraw his/her investment. Probably the crappest comparison ever made. You should know better. . .less by JDS on September 20 2009, 09:52 Find this comment inappropriate? Report it

Originators Like estate agents a specie that has no right to exist. by OJ on September 20 2009, 17:23 Find this comment inappropriate? Report it

@OJ Right on, Brother. And include Bruce. A famly affair, hell bent on self promtion..... by JDS on September 20 2009, 18:13 Find this comment inappropriate? Report it

@OJ Right on Brother. Between her and Bruce, non stop self promotion. by JDS on September 20 2009, 18:56 Find this comment inappropriate? Report it

Get rid of them They are duplicating what the bank in any case does by ea on September 21 2009, 12:50 Find this comment inappropriate? Report it

it's like the wh0re and the pimp - u get screwed by both while u'll enjoy only one.. siiiiiiiiiies by HoerRay on September 21 2009, 15:04 Find this comment inappropriate? Report it

Eventually! eventually someone see the light...in all other countries in the world mortgage origination are processed in just this way- the client pays for a professional service by professionals, not by every Tom D*** and Harry that jumps on the bandwagon...Estate . .more Agents' figures dropped from 90 000 to 25 000 since they need to requalify for a much more professional qualification by 2011 in SA, same will happen to mortgage Originators if clients actually pay directly for a professional service. . .less by Hurra! on September 23 2009, 18:47 Find this comment inappropriate? Report it

Keep up the good work (Keep up the good work!) I have found your Blog (article) on Google and read a few of your other posts.Look forward to reading more from you in the future. If you want, you are more than welcome to visit my website. . .more We are bond originators in South Africa, who is dedicated to procuring and arranging highly competitive mortgage lending rates to existing and new residential bondholders and we shall private a seamless transaction which not only results in substantial savings to the client, but which is also effective and convenient. Ps: Keep up the good work. ! Yours truly, Morne Prinsloo http://www.mortgagepluscc.co.za . .less by Morne on January 22 2010, 10:45 Find this comment inappropriate? Report it

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