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Why risk fees 'don't make sense'

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Australian Broker | 23 Oct 2013, 08:00 AM Agree 0
A 28-year veteran of the industry has lashed out at the charging of risk fees and says brokers need to start asking questions
  • Brisbane Broker | 23 Oct 2013, 09:30 AM Agree 0
    How does LMI provide a consumer benefit ?
    You say it protects borrowers from lender recovery actions. Don't you think the LMI provider will pursue the borrower for any losses ?
  • Broker Tony | 23 Oct 2013, 09:34 AM Agree 0
    This article is little more than an advertorial for La Trobe. I totally agree that risk fees should only apply in lieu of the higher interest rates or as a genuine substitute for LMI (self insurance). However the assertion the borrower gets a benefit from LMI is simply wrong. The bank may not pursue a defaulting borrower because they will be paid out but the LMI certainly will. The benefit to the client of receiving funding that would otherwise not be available is no different in my opinion whether it is LMI or a risk fee that has induced the lender to assist. There is a place for specialist lenders and they need to make a profit to cover the inevitably higher arrears and generally shorter term loans. As a broker we need choice and an opportunity to resolve our client's problems and then migrate them back to a mainstream lender in the future. This is win/win for all concerned.
  • Bank said no | 23 Oct 2013, 10:03 AM Agree 0
    When Latrobe offers a 90% loan for people who are one day out of bankruptcy I will care about their opinion about risk fees at high LVR's
    Clients are happy to pay it and higher interest rates because they have no other choice.
    Why doesn't LaTrobe give them a better option?
  • Brisbane Broker | 23 Oct 2013, 10:03 AM Agree 0
    what La Trobe is talking about, they do not charge risk fee however they have application fee of 1.25% and on top valuation fee. From my point of view is same as application fee of + risk fee.
    i think that all CEO's from big financial institutions thinking that we brokers are stupid people.
  • David | 23 Oct 2013, 10:19 AM Agree 0
    Agree with the Brisbane Broker. All LMI covers is the shortfall to the lender. The borrower is inevitibly persued under the covenants of the loan contract/mortgage that are assigned to the LMI Insurer before they pay the shortfall. They don't persue everyone, but you can bet London to a Brick they carfully assess the likelyhood of getting blood from a stone. The benefit that the borrower gets is up front - without LMI they would never be able to borrow such a high LVR. This is a beat up.
  • Smoke & Mirrors | 23 Oct 2013, 11:28 AM Agree 0
    LaTrobe do not have a Risk Fee BUT they have a percentage% based application fee that is NOT payable at application stage ONLY at settlement! Risk Fee / Application and the same????
  • Observer | 23 Oct 2013, 11:42 AM Agree 0
    His statements are wrong on so many levels.
    1. LMI does not protect the borrower it protects the lender. Any inference that the Insurer will not seek recovery of the loss from the borrower is simply wrong - it happens all the time.
    2. The inference that a broker recommending a loan with a risk fee will automatically be in breach of the NCCP is hogwash. Brokers (and lenders) who can demonstrate that the loan is "not unsuitable" for that borrower have done all that they are expected to do under the legislation.
    3. O'Neill is inferring that Risk Fees came about as a response to the banning of exit fees. Wrong again. They coexisted before the ban. Where is his evidence?
    4. As Brisbane Broker says they charge up front fees as well they just call it someting different.

    Basically an advertorial for La Trobe who seem to be having trouble competing.
  • melbourne broker | 23 Oct 2013, 11:51 AM Agree 0
    i'm absolutely sick of every possible scenario been twisted into some sort of conflict of interest for the broker. Absolutely sick of it.
    Give any commentator an issue, and they'll find a way to make it the liability of the broker.
    Fine then, im guilty, my client paid a risk fee, come an get me.
  • Country Broker | 23 Oct 2013, 12:09 PM Agree 0
    Agree with ALL Of the above comments , let me add one extra , I just refinanced a client out of a Latrobe Commercial Loan. The fees to discharge the loan were higher than normal , including legal fees which were high. Client agreed to pay them but is now seeking legal advice to see if he can reclaim the fees he believes are excessive ( clients words not mine) , why is Australian Broker publishing articles like this?
  • Joseph investor | 23 Oct 2013, 01:18 PM Agree 0
    @Brisbane based Broker
    It’s an interesting enough point about risk fees that we should be asking about for our clients. I object to any view that a broker could become conflicted by any such a fee. When I recently compared a loan of $320,000 at 80% of valuation between Liberty, Pepper, Redzed and La Trobe I found total savings of $1,737.50 at La Trobe (including their upfront Fee) when compared to Redzed and Pepper, and saved $2,737.50 by not using Liberty. La Trobe got the loan for all the right reasons and it benefited the client to avoid the risk and equalisation fee proposed by other lenders.
  • Doug | 23 Oct 2013, 04:06 PM Agree 0
    The point about comparing Risk Fees to LMI is simply being misunderstood. I thought La Trobe are saying LMI protects the borrower indirectly in that the lender will not make a loss unless the LMI claim is voided which is rare. Secondly as an old mortgage insurer I know that LMI providers only peruse generally less than 10% of all borrowers post mortgagee in possession proceedings for shortfall and therefore this results in the indirect benefit for the consumer. Perhaps what should be occurring is if borrower refinance these risk fee loans within the first two years then part of the risk fee should be refund just like the mortgage insurance premiums are, if these risk fees do the same thing ...that is give high LVR loans out that otherwise would not be made. A valid debate to be had by industry.
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