Most dangerous words for brokers: I did not understand

by Adam Smith28 May 2012

An industry analyst has revealed that borrowers are woefully ill-informed about mortgage products, a fact that could find brokers under fire.

In a presentation to the MFAA Convention in Adelaide, industry consultant and Futurology principal Kym Dalton has pointed to results from his CreditEd borrower education software showing that consumers often fail to comprehend the most rudimentary principles of mortgage products.

Consumers tested by the software, aimed at educating borrowers on credit products, showed poor understanding of some of the basic features of home loan products. Of 680 mortgage holders surveyed, 50% did not know their current interest rate. More than a quarter were not able to define "equity", while nearly half did not know the definition of the terms "LVR" or "LMI". Twenty-seven per cent thought that home loans were non-recourse.

Dalton argued that brokers could safeguard themselves by better educating clients and ensuring their comprehension.

"What are the four most dangerous words in responsible lending? 'I did not understand'," he said.

Dalton urged brokers to confirm clients' comprehension of mortgage terms and products, saying that confirmed comprehension shifts responsibility onto the borrower and enhances trust between the broker and borrower. He argued that, in spite of the NCCP disclosure regime, "you can't legislate [people] to get smarter", and that brokers would have to take on the task of ensuring their clients were properly educated about credit products.


  • by rob 28/05/2012 9:50:57 AM

    I don't deny there are benefits to brokers and clients by taking an educational approach to mortgage broking. However on the first point of the article regarding the survey results I suggest that to publish the results without also publishing the wording of the questions is pointless and potentially misleading. For example a client does not need to know the definition of LVR, but they should understand the concept of debt as a percentage of property value...which they generally do!.

  • by Stuart 28/05/2012 9:53:39 AM

    What a ridiculous study. I am a little surpised that only 50% of clients know their interest rates. The reality is that whilst interest rate is the most important factor to a client taking out a loan, they rarely know what their rate is after 12 months with one or two rate movements.

    As to them knowing industry jargon, why would they. The reason they use a broker is so that we can explain these terms to them.

    Whilst these terms may have some meaning to someone taking out a mortgage or refinancing, they have no relevance to a normal home owner the second the loan is finalised hence they are quickly forgotten.

  • by Country Broker 28/05/2012 11:30:18 AM

    This study missed the point, yes borrowers are often ill informed and we need to cover this off by providing the relevant NCCP documents including the quote which I always go through in detail with the clients .
    what I have found is many client simply do not care! They want to know A; How much a week or a fortnight B; Do I qualify for the loan ? We as brokers must provide the documents under the NCCP and take the time to go through them with the clients , can I make them care or begin to want to understand them - NO ! I wish more cleints would.