A man who received a bill for $ 2,500 from his mortgage advisor after refinancing his loan was waived the fee when he complained – but the industry says reclaims are real costs for brokers that customers should understand.
When he moved in 2018, the man asked his mortgage advisor to arrange a home loan for him.
At the beginning of 2020 he wanted to refinance himself in order to benefit from the low interest rates.
The advisor prepared a breakdown of the refinancing costs for the client, but there were delays in getting bids from banks as the advisor was particularly busy. Instead, the man turned to another advisor to take care of the refinancing for him.
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A few weeks later, he received a bill for $ 2,500 from his original advisor, which said the bank had reclaimed their commission because the loan had been refinanced within 24 months of it being granted. She was entitled to reclaim this from the customer in return for a recovery fee.
The customer complained to the Financial Services Complaints Ltd (FSCL) dispute settlement system.
He said he received a copy of the mortgage advisor’s terms and conditions, but didn’t know the fee could be this high.
He found the section of the agreement that stipulated recovery was so vague that it was unfair for the advisor to enforce it.
He was also upset that the mortgage advisor had given him a breakdown of the refinancing cost but hadn’t mentioned the recovery fee. He found it inappropriate for the advisor to tell him his bank’s default fees but not the advisor’s own recovery fee. He said that if he had known about the claw back fee it would have influenced his decision to refinance.
FSCL said the consultant was entitled to a fee, but the terms of the engagement were too vague to be enforceable.
“The clause did not specify how much the recovery fee could be or how the fee would be calculated. It simply said that the advisor would be entitled to an early repayment fee if the client repaid their loan in full within 24 months. For all [the client] knew it could be a fee of $ 25 versus $ 2500. ”
The advisor agreed to waive the fee.
Katrina Shanks, chief executive of Financial Advice New Zealand, which represents mortgage brokers, said the repayment fees for the advisor were real costs that they could get back from their clients.
When deals were made directly with banks, the banks sometimes reclaimed any offered cash contribution.
Sometimes clients had to make changes to their credit structures that were beyond the control of the advisor or that they could not have anticipated when the loan was granted, she said.
Edge Mortgages’ mortgage advisor Glen McLeod said reclaims are still not common enough.
“We’re one of the few, if not all, industries that work effectively for customers for free. The banks have a clawback clause, which means that we can reclaim 100 percent of our commission up to 18 months and 50 percent up to 27 months later.
“So when a customer buys a house and sells it for hundreds of thousands, we are reclaimed between 50 and 100 percent of our income, depending on the time frame.
“An attorney may get a double bite in the cherry on the cake for completing the transaction on the way in and on the way to a sale. In our order conditions we have the right to charge the client a fee. In some cases, this does not even come close to the commission we have been paid. Maybe $ 1,800 to $ 3,000, depending on the complexity of the transaction. In some cases, such as divorce or death, we waive the charge. ”
He said it has become more common since banks offered cash to trick borrowers into deferring their loans.
Bruce Patten, mortgage advisor at LoanMarket, estimates that up to 10 percent of the industry would ask for a clawback.
“But most of them don’t clear it up well enough. I don’t charge a fee as I feel that if I haven’t done my job properly or a client’s situation changes due to unforeseen circumstances that is just the cost of doing business.
“We also took advice from our lawyers that a fee may be charged, but it must reflect the workload of the advisor and not the amount received from the bank for providing the loan. Therefore, we set a maximum working time of six hours and a maximum of 1500 US dollars for all of our LoanMarket advisors. This must be done in writing to the customer and state the maximum amount that the customer can expect to pay. “