Australian Broker TV

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Refund model gains new lease on life

The refund mortgage broker model is making a comeback, but is it something we'll be seeing more of in the future? We speak to Mathew Graham of Naked Mortgages and Doug Mathlin of FrontRunner Consulting for their thoughts on the revival.

Video transcript below:

Donna Sawyer, Australian Broker TV
Donna Sawyer:
 The refund model mortgage broker is experiencing something of a revival lately. Newly launched Naked Mortgages is one of a handful of businesses offering to return upfront commissions to clients.  Just don’t compare it to the now defunct refund home loans.  

Mathew Graham, Naked Mortgages
Matthew Graham:  For a start Naked Mortgages is online, refund was never online.  Refund was a franchise, Naked Mortgages is not a franchise.  We charge a fee for service, Refund didn’t charge a fee for service.  Now key to this is that we offer a 100% rebate of the upfront commission, Refund didn’t.
Donna Sawyer: Naked Mortgages CEO, Matthew Graham says his business model may be different, but it’s got a place in the industry just like any other.  
Matthew Graham:  We don’t set the commissions, lenders set the commissions based on what they think is fair value for the business that brokers bring to their organisations.  We just happened to build an online platform and a strategy and an efficient model which just maximises our potential to drive value to our clients and also do that at the right cost and there happens to be some left over and we give that back to our client.  So it’s, I don’t think it’s, I don’t think we are taking any value away from commissions at all.  I just think we are doing it a little differently and more efficiently.
Doug Mathlin, FrontRunner Consulting
Doug Mathlin:  There is a lot of very successful brokers out there who do not refund anything at all. In fact some of them actually charge their clients for their services and the clients actually get value for that.  So the key would be to provide enough value to your client who wants to borrow money or deal or transact with you so that they feel like they are getting more than they actually paid or great value for the time they spent with you.
Donna Sawyer:  Doug Mathlin of FrontRunner Consulting Group questions the financial viability of the refund model.  
Doug Mathlin: There is a few reasons why I don’t think this trend is going to continue in the mainstream. Yes, there would be fringe players that play in that space, but firstly the cost of doing business as a mortgage broker has gone up a lot in the last few years, but also the time it takes to process mortgage loans and actually complete a mortgage loan with NCCP and compliance requirements and so on, has also probably doubled.  Commissions have also come down in that time, so therefore the margin that a broker or participant has to play with is actually pretty small. Therefore I don’t think it’s financially very viable to be kicking back too much of your [probably] commission from a financial model perspective.
Matthew Graham: I think that you know what we are offering is a just a streamlined efficient business model which offers that better deal and we are able to keep the client happy, we are able to keep the brokers happy and more importantly our business model moves forward.
Donna Sawyer:  This is Donna Sawyer reporting for Australian Broker TV.