Who's to blame for application problems?

by Adam Smith14 Jun 2012

Are brokers unfairly bearing the blame for loan application problems? Andrea Cornish investigates submission quality and what all industry stakeholders can do to up their game

Submission quality is an issue that affects every broker. Even if you dot every i and cross every t, the possibility that the next broker down the line may not do their job correctly will have a negative impact on your business. Not only do poor loan applications plug the pipeline, but recent comments from CBA have indicated a failure to improve quality could result in downward pressure on commissions.

According to the Commonwealth Bank, it is a broker’s responsibility to know a lender’s loan products, credit policy and submission process to ensure their client’s financial and customer service expectations are met.

“It is also a broker’s responsibility to complete the application form accurately without spelling errors or omissions and to provide all required documentation at the time of lodgement. That documentation, of course, should accurately reflect data in the application i.e. total amount of income stated in application should be the same as the total income on payslips,” says Kathy Cummings, executive general manager, third party and mobile banking.

Naturally, the threat to commissions has all mortgage professionals concerned about quality. However, many are also questioning if the problem is completely one-sided.

Sarah Eifermann, principal of SFE Loans, acknowledges brokers have a responsibility when it comes to submitting quality loan applications. However, she notes that mistakes often happen on both sides of the channel.

“Lenders are always critical of brokers, you name the topic and they’ll find something to criticise. That said, brokers are heavily responsible for submission quality. A deal should be lodged with the application form completed properly and the required supporting docs provided to allow full assessment immediately of a deal. Sometimes this isn’t possible, especially if the lender orders the valuation, or decides it wants more income verification than the policy denotes. Much time is spent by brokers going back and having to argue with credit assessors as to just what their individual lender policy states. This happens fairly often, and then lenders say it affects ‘submission quality’.”

Pinnacle Capital’s Peter Goldberg agrees that lenders have some responsibility for channel inefficiencies.

“Lenders can share some of the blame with poor submission quality, as brokers who are outside priority groups may try to submit their deals as soon as possible to be in the queue for their deal to be looked at as soon as possible. This is particularly the case when lenders have irresistible pricing offers, and delays of over five to seven days can occur before a deal is initially assessed,” he says.

It isn’t just brokers who think lenders have a role in improving submission quality. NAB Broker distribution head John Flavell says he gets “disappointed” when he sees lenders finger-pointing at brokers on this issue.

“There’s not a broker I know of that is interested in having an application denied or drag on. And there’s not a lender I know of that is interested in having an application denied or drag on. We’re both after the same thing,” he says.

There are a number of ways that a deal can go pear-shaped.

“Unfortunately some brokers struggle at times to provide the basic information and regardless of the number of checklists and training and encouragement they keep missing some documents such as pay slips or tax returns etc. The fact is that some people who may be very strong in sales struggle with the paperwork side of things,” says Garry Driscoll, CEO of Mortgage Ezy.

Flavell argues that a big part of the solution is communication.

“It is incumbent on the lender to clearly communicate to the channel,” he says. “We need to explain to our broker partners how our procedures work and what we offer them to make their jobs easier. We need to provide the right tools and make sure brokers understand them.”

Another tactic, according to Driscoll, would be to simplify and standardise requirements across lending products. As well, he argues lenders should apply the same assessment standards across their lending team.

“A deal can go to one assessor and it is fine, but it can go to another one who comes back with a list of missing information required. Same deal different result.”

He adds: “The bottomline is that brokers who submit good quality submissions get their deals approved faster and are allowed more leeway than brokers who submit poor quality submissions, so there is a real incentive for brokers to get it right.

So what can brokers do to better their conversion rates? Recently, industry stakeholders floated the idea of a ‘Certified Practising Certificate’ to improve submissions. CBA indicated that a new more practical certification of ability was required, to ensure that the industry was ‘more sustainable’ in the long run through the creation of channel efficiencies. The MFAA acknowledged that it has been working on this initiative since 2009. According to CEO Phil Naylor, the association’s diploma requirement positions brokers as professionals, while a practical certification would ensure their competency.

However, some feel brokers feel they need to catch their breath before more requirements are introduced.

“I don’t feel the time is right to introduce a broker practising certificate when brokers are currently finalising diplomas for MFAA and bedding down new credit reform legislation in their business practices,” Goldberg says. “More onus should be placed on a lender and their business development managers to identify brokers who are providing consistent poor quality applications and to firstly reiterate to the broker the requirements expected by the lender and worse case to cancel that brokers accreditation if they continue to provide poor quality submissions.”

Mortgage Choice CEO Michael Russell also criticised the certificate as being overkill.

“Practical competency will continue to be managed by broker head groups and lenders. Brokers who continue to submit low quality loan applications to lenders and who consistently achieve sub-standard conversion rates are easily identified. Such brokers tend to be the subject of remedial action to improve their performance, or are managed out of the business. Maintaining high standards reflects an effective lender/head broker group relationship. The focus today and for the foreseeable future should be to ensure brokers are meeting their compliance obligations under the NCCP legislation.”