"The pendulum has swung too far"

When APRA announced that an increase to the serviceability buffer would come into effect from the start of November, brokers across the country knew they had work to do. Any borrower in pre-approval stage or not likely to reach settlement by the end of October needed to have their application revisited to ensure they would still service at the higher assessment buffer of 3%. But while this was no doubt a stressful time for many house hunters and brokers, it represented just one of three major challenges faced by brokers in an environment of increased regulatory scrutiny.

Top 100 broker Deanna Ezzy (pictured), of More Than Mortgages, told MPA these challenges were not new in the world of mortgage broking. She said the APRA change was one example of the ever-changing government regulations that brokers had needed to adjust to over time.

Read more: Pre-approved clients may be impacted by lending restrictions

“If an application wasn’t formally approved, a lot of lenders required us to re-do serviceability for every application in the system, using the new banks servicing models with the higher buffers,” she said. “Some clients didn’t service on the new servicing models, so having to go back to the client after the loan had already been submitted and tell them that we had to take their application to another lender, not only reflected poorly on us and created a poor client experience, but it was also a lot of re-work and administration at our end.”

The way that lenders processed applications also posed a major challenge for brokers, with applications “bouncing around from assessor to credit to higher credit, then to the BDM who needs to sign off on an escalation.”

“It’s exhausting, time consuming and often the application will be bounced around between different assessors, with each assessor asking for new documents,” she said. “Some lenders are worse than others.”

The third challenge brokers faced was a lack of common sense from lenders. She gave three examples of this at work.

* “One lender requires the broker to have met the client face to face in the last six months. For a lot of my existing clients, I’ve known them for 10 years. Their identity doesn’t change every six months. This creates additional, unnecessary time and effort for both me and my client.

* “Lenders not being open to workshopping a deal. There’s one lender in particular who instead of workshopping the deal, will just decline it. Then I’ll workshop it and answer a few questions, and it gets approved.

* “Asking for the same documents over and over again, taking days in between requests. This happens often.”

In terms of the factors behind these challenges, Ezzy said that while regulatory changes made seven years ago were needed, they had been taken too far.

“In my opinion, lending was too easy pre-2014,” she said. “In late 2014 everything changed and over the past six years the pendulum has swung too far the other way.

“Lending is now at a point where it’s not the norm for a broker to deliver a smooth, stress-free service to our clients. So, while I understand that ASIC and APRA needed to make changes, I also think it’s now too hard, and common sense has been thrown out the window.”

She said that the highly conservative approach towards serviceability taken by many lenders, such as shading rental income by 20-30%, adding 100% of investment property costs, using a 3% buffer on the interest rate and assessing credit card limits at 3% per month even if the credit cards are paid off in full every month, contributed towards an unrealistic position of the client.

“The fact is, ‘yes’, a client may go and max out their credit card at any time but really though? If they have 24 plus months of history showing they pay it off every month, why are we applying a $300 per month expense against it?” she said. “A client might go and pull all of their redraw out of a loan and bet it all on black at the casino, repayments might go up when the rate switches to P&I in five years’ time, tenants might move out - but at the same time, a PAYG client could lose their job or be made redundant the day after their loan has settled.

“There are so many unknowns about a client’s future circumstances - it’s as if the government is trying to protect everyone against everything, which is totally unrealistic at best and maniacal at worst.”

She gave a hypothetical of a client who wouldn’t service for a refinance to a cheaper rate based on travel expenses being too high despite having an unencumbered home, four investment properties at 40-70% LVR, $200,000 in savings and excellent credit rating and employment history.

Read more: Industry veteran on how current rules have led to “mortgage prisoners”

“Much of her expenses could be reduced, if required, to meet loan repayments, and/or she could use the savings in the bank, but brokers have been made to feel like if we get audited and there’s a discrepancy between her declared expenses and what comes through via bank statements, worst case scenario, we could lose our career and everything we’ve worked so hard for,” she said. “So now the client either must go away for six months and reduce living expenses, costing her $5,000 in additional interest, or the broker has to tell the client they can’t do the deal.

“How is this in the best interest of the client? Given the stability in her job, safety of an unencumbered home and $200,000 in the bank - where’s the common sense? Frustrating to say the least. I want to do what’s best for my client, but sometimes the government regulations hinder my ability to deliver.”

The best way brokers could overcome these challenges was to adopt a positive mindset, she said.

“Learn to be versatile and flexible with an ability to adapt quickly to an ever-changing environment,” she said. “Laugh a lot at the absurdity of it all and have a punching bag in the office plus a massage chair with a guided calming meditation on repeat in a set of Bluetooth headphones.

“I think having a strong and healthy mindset is paramount and just like you would get a personal trainer for your physical wellbeing, consider getting one for your mental wellbeing, that is, a business coach, a therapist - whatever it takes for you to maintain clarity in any given situation.

“Also, managing client expectations around what it’s like to get a loan these days. Especially for older clients that obtained loans in the ‘good old days’ of lending. Keep things fun with your team, or other people in the industry you’re working with and stay respectful of each other. At the end of the day, we just have to roll with the punches and if you are getting a bit battered, call time out, take a breath and jump back in the ring.”