By Ryan Johnson
FINSTREET have announced it will release a new product line that has no broker clawbacks in a move that prioritises the role of brokers in the growing non-conforming market this year.
From February, the fintech mortgage manager directed by award-winning former broker Darren Liu (pictured above) will roll out the full suite of no-clawback products, including prime, low doc, construction, self-managed super funds (SMSF), specialist and non-conforming products.
Liu said the idea following feedback FINSTREET received from their broker partners last year.
“Everyone is asking for a no clawback product and we have listened,” said Liu in FINSTREET’s 2024 policy and product refresher webinar on Friday. “It’s something we are trying to build.”
“We want to be growing with our broker partners and take care of their interests rather than creating deals that solve the customer’s problem but mean our brokers don’t get any payment for the work they’ve put in.”
The no-clawback product suite launch will begin with a pilot program focusing on prime full doc and low doc loans.
Liu said for prime customer applications, a risk fee will be introduceds at 0.75%. However, for near prime and non-conforming clients, the rate will increase to between 1% and 1.5%.
“We are removing the upfront commission from our side. Instead of having the upfront commission inbuilt into the model, we are going to charge the customer for a risk fee,” Liu said.
“We can then keep paying our brokers the same upfront commission rate of 0.65% and 0.15% for trail.”
Liu said the customer rate for the same product would be 0.2% to 0.3% lower than what the usual rate would be, meaning they would be charged about two times of the rate difference as a risk fee.
Therefore, Liu said if the customer chose to stay with the product for two years or more, they would be “better off”.
“They wouldn’t usually refinance the deal,” said Liu. “The rate is lower than the competitors meaning it’s good for brokers as the customer is more likely to be retained.”
Even if the customer remained committed to settlement, Liu said there was no clawback on the broker.
“Upfront commission is collected from the risk fee already. We will collect the risk fee on behalf of the broker meaning everything will be settled at settlement and the fees would be deducted,” Liu said.
“We will just continue to pay both trail and upfront commission to the brokers.”
While FINSTREET are finalising the modelling and discussing whether the pilot can run for the first quarter, Liu said if they got volume on these products, they would look at lowering the rates even more in the second quarter.
“So brokers, please give us feedback on these products and let us know how we can improve them in the long run.”
Fresh from a 2023 that saw the launch of an AI-powered platform called FINSERV, the new year has started with a bang for FINSTREET.
“We’re just three weeks in and already we’ve had about $20 million in applications through all our broker partners in non-bank lending,” Liu said. “It’s proof that 2024 is going to be a great year for non-conforming lending as customers move from major banks to non-bank lending.”
The data vindicates FINSTREET’s annual focus: to get brokers up to speed about the different niche product options that are emerging.
Liu forecasted that SMSF, low-doc, and alt-doc lending would be significant areas of growth in the coming year.
“We've noticed many clients with credit risk and payment delinquencies, indicating a growing demand for non-conforming loans. It's crucial for brokers to prepare by expanding their panel of lending options to accommodate this market segment.”
Additionally, Liu said the trend towards smaller commercial properties presented a promising opportunity for brokers specialising in commercial lending.
“There's considerable potential for growth in this sector, and brokers should be ready to capitalise on it,” Liu said. “Overall, I recommend that brokers focus on marketing efforts or explore potential referral sources.”
“And as a partner for our brokers, we can share our insights on the deals we have seen our top brokers do and how your business or scenario may relate to that so you can get more opportunities out of it. We are quite flexible and can support a variety of scenarios, so give us a call.”