Associations call out majors for turnaround channel conflict

Earlier this month, the CEOs of the Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Westpac and ANZ told the House of Representatives’ standing committee on economics that turnaround times are currently within one or two days in the proprietary channel but, on average, between 10 and 12 days in the broker channel.

However, industry data shows that turnarounds are slower than those stated. Indeed, Momentum Intelligence’s Broker Pulse survey for March 2021 found that CBA’s average turnaround for broker-lodged loans was 12.7 days; NAB’s was 9.4 days; Westpac’s was 13.7 days; and ANZ’s was 16.4 days. (However, it should be noted that all four have seen their turnaround time improve over the last few months, following long delays in January 2021.)

The issue is not isolated to major banks, however, with some non-major banks also seeing their turnarounds blow out. Recent AFG data shows that the median turnaround time for lenders on its panel was 27.1 days for the quarter ending 31 March (a three-year high), for example.

The heads of the FBAA and MFAA have both stated that they are “seriously concerned” that the blowouts in turnaround times seem to only be impacting broker-lodged loans (and not proprietary loans), adding that brokers are being “unfairly penalised”, which could amount to a competition issue.

Moreover, the two association heads added that the recent commentary from the big four bank CEOs drastically understated the extent of the delays in approving third-party loans and failing to provide clarity around what was causing the issue.

FBAA response

The managing director of the FBAA, Peter White, told The Adviser that the broker association had voiced its concerns to government and was exploring whether it could amount to a competition issue.

“The disparity [in turnaround times between the two channels] is, and always has been, completely unacceptable and the explanations are without any reasonable factual foundation of truth.

“This is an anti-competitive practice that completely disadvantages consumers and only advantages the banks’ proprietary branch networks.”

Mr White told The Adviser that “certain major banks claim that over 60 per cent of loan submissions are incomplete and are pushed back to brokers to fix the issues”, while others had claimed “greater complexities with meeting best interests duty”, he said.

“However, this is BS, as that obligation is on the broker (not the lender), so this is where an anticompetitive environment is creeping in and favouring branch processing times over brokers,” Mr White said.

“We have expressed strong concerns about this to government, and we are currently exploring options of taking action via the ACCC,” he told The Adviser.

Mr White added that the FBAA had been working on the turnaround time issue since last year, “when times blew out through COVID and offshore processing collapsed”.

“We were assured things were being corrected to compensate for this and for time frames to realign. Obviously, as we are now in 2021, this didn’t happen – and we have been researching exactly why.”

Mr White said the FBAA had waited to make public comment on the issue until its research had concluded, saying “it was important to us that we were informed before we made more public comments”.

He continued: “The data from our findings are being discussed at the highest levels in government and public office, as the banks generally were not interested in doing any more than what they were (which was nothing). Keep in mind this is primarily the domain of issues in major banking.”

Mr White concluded that brokers should look at all “options” to ensure they are working in the best interests of their borrowers, including “considering taking their business elsewhere”.

MFAA response

The MFAA has been working on the issue of turnaround time channel conflict for some time, stating earlier this year that “clearly, there is a problem”.

The CEO of the MFAA, Mike Felton, has now said that the industry is confused and concerned by the statements of the CEOs of the major banks at the recent hearings, stating that they were a “gross underestimate of what brokers are experiencing, and [are] in no way supported by the data”.

“We are obviously concerned that the leaders of major lenders are promoting these turnaround times, when most customers applying through brokers – who represent approximately 60 per cent of all Australians seeking a home loan – are experiencing nothing of the sort,” Mr Felton said.

He added that the impact not only affected broker customers, but also consumers who were unwilling or unable to borrow through the branch network of the four largest banks (for example, those with no local bank branch).

The MFAA CEO continued: “Beyond the disadvantage to Australian consumers, when ‘time to yes’ in the branch is one to five days, and around 23 days through a broker, it makes it incredibly difficult for mortgage brokers to compete, which poses risk to the broker channel and competition in the home lending sector.

“And reduced competition inevitably results in higher prices and interest rates for consumers,” Mr Felton said.

He continued: “For brokers and their customers, this is not a level playing field, and the evident prioritising of customers who come through their own branch network is having a massive competitive impact. 

“In today’s extremely competitive housing market, waiting more than three weeks to be approved is a nightmare for customers who are trying to bid on a home and secure finance,” the CEO added.

While acknowledging that record volumes of home loan applications had impacted turnaround times, Mr Felton added that “the data suggests that mortgage broker customers have consistently borne the brunt of any resource shortages”.

“We understand that absolute turnaround times may vary with volume, and that processes between channel may differ, but this incredible differential between the major lenders’ approval times in the branches versus their approval time for the broker channel is significantly undermining the mortgage broker offering,” Mr Felton said. 

According to the head of the broker association, the group has been in “regular contact” with the major lenders and was “calling on lenders to meaningfully and permanently address the differential between branch and broker turnarounds as a matter of urgency”.

Brokers assist 60 per cent of all new mortgage customers – customers who should not be disadvantaged by the banks. Mortgage brokers must be allowed to compete fairly with the bank branch, or competition in the entire home lending market faces significant risk.

“We will continue to raise the issue with lenders and other key stakeholders until it is resolved,” Mr Felton said.

Find out more about the turnaround time issue in The Adviser’s short explainer video, below.

[Related: Industry should demand ‘meaningful action’ on turnarounds]