Lenders offering high proc fees risk hurting brokers

Hardly breaking news. 

However, a little more interestingly, it also found that lenders offering the highest procuration (proc) fees tend to be rated as average or below average performers by brokers. 

Increasing proc fees to help grow lending volumes has long been a weapon of choice in the sales and marketing arsenal of lenders.

But with growing competition in the sector, have high proc fees also become a modern day ‘inconvenience fee’?

A way for lenders who know that their processes are not up to scratch to funnel a little more commission to a broker to say sorry for the additional hassle of playing business with them?

Mortgage brokers may as well pack up and go home if customers no longer trust them to do what’s in their best interests. 

The truth is we’ll need to do more work to further understand this, but in the meantime, brokers really cannot afford to be complacent. 

And here’s why. One review written by a mortgage customer about a specialist mortgage lender recently described this lender as a “mortgage provider from hell”.

Among their issues were dissatisfaction with the lender's surveyors, “who consistently undervalue properties”; solicitors and fat fees are the root causes behind this customer’s dissatisfaction.

But also included in this customer review is the following statement: “Avoid, avoid, avoid. They pay high commissions to brokers to push them to clients.”

Let’s just take it as a given that the broker placing this case did so because they believed that this lender offered the best option for their customer, based on their own experiences and knowledge of the market.

But clearly this case did not go all that smoothly, and the fact that the lender chosen by the broker offers higher than average proc fees has created the perception that something untoward may be at play. Even if these concerns are groundless, it’s still a rather risky scenario for brokers to find themselves involved in.

While it’s fair to say that customers do not know the ins and outs of proc fees, and the vast majority really are not all that interested, when things do wrong, customers will naturally look for the most compelling explanation.

After all, why else would a competent broker place a case with such a bad lender? 

Rather than a threat to brokers, could this actually be an opportunity?

For example, brokers could choose to share lender performance data with their customers. It may well be that placing a case with a slow lender is best for a particular case.

Telling customers this would ultimately strengthen the trust between brokers and customers.

At a time when the pace of change and innovation in the industry is accelerating, trust will continue to be at the heart of every successful financial relationship.

Mortgage brokers may as well pack up and go home if customers no longer trust them to do what’s in their best interests. 

And nothing risks damaging the trust between customer and broker than the whiff of something untoward.

With brokers compelled to deliver a service that puts the needs of customers above all others, placing or attempting to place business with poor performing lenders that also offer high proc fees, may prove to be a very risky business. 

Mike Fotis is the founder of Smart Money People