Loan fraud linked to lack of income security

The fact that most brokers get paid by commission rather than earning a regular salary has not only caused challenges for new entrants to the industry, but it has also led to some bad practice in recent times, according to industry stalwart Stephen Dinte. While more seasoned brokers have the experience and the trail to fall back on when sourcing new leads, many new to industry brokers often have to take on full-time employment elsewhere while establishing their broking business.

This is a major problem. Given that staying on top of compliance requirements and changing lender policies is an absolute must, mortgage broking is a time-consuming role, he said.

“Keeping up with all the changes in this industry is a full-time job,” he said. “If you wanted to become a plumber or an electrician, you’d get a weekly wage. It wouldn’t be great but at least you’d get something coming through the door. There is no path like that in this industry.”

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He said much of the fraudulent activity that occurred amongst brokers was linked to desperation.

“A lot of the fraud that goes on, a lot of the shenanigans, is because these brokers have to write the loan for the reason that they won’t eat next month, or their family won’t eat next month, if they don’t,” he said. “That sort of fraud stuff can creep in. Sometimes it’s on purpose, sometimes it’s accidental and they don’t even realise.”

A recent report from financial crime watchdog AUSTRAC found that loan application fraud was banks’ second most commonly reported fraud – one that often involved fraudulent identity documents and forged or altered payslips. The report referred to several cases of fraud enabled by brokers, including a large-scale operation involving “high-level document forgery.”

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One example involved a syndicate of lending managers and mortgage brokers suspected of altering information provided by mortgage applicants, resulting in hundreds of fraudulent loans, most of which were held by major banks.

Dinte said many brokers also took on clients that could be considered “really desperate cases” because they needed the business.

“The older, more established brokers are able to look at those sorts of potential clients and say, ‘look, I’m really sorry but I can’t help you’,” he said. “Being undercapitalised is one of the biggest challenges.”

The other major challenge that new brokers face is simply getting clients and differentiating themselves in the market, he said.

“As I often say to new brokers, why is somebody going to choose you?” he said. “Is it your good looks? Is it the colour of your hair? Why would they pick you over any of the other 12,000 brokers that are out there on the basis they all offer the same stuff?”

He said he was a great believer in niche marketing. He referred to a broker he knew some time ago who only dealt with people in the medical profession.

“He went the full nine yards,” he said. “He only dressed in expensive suits, he wore a Rolex, he drove a Mercedes. He put himself visually at the same level as these top medicos.

“This broker used to go to the hospitals and if your first operation of the day was at 6am, he would say, ‘I’ll meet you there at 5am’. The loans that he wrote back in those days – he’d be writing $2 million and $3 million loan when the average broker was writing $200,000 loans. He was doing this consistently month after month and he had a great business.”

He said the reason niche marketing was such an effective strategy was because it gave the broker insights into whatever client they chose to deal in. In other words, the broker could become an expert on that type of client as well as the lenders with the most favourable policies.

“If you’re only dealing with one type of client, you become bloody good at that because you know all the ins and outs of that profession,” he said.

This also enables the broker to put forth really good applications because they have insider knowledge into the way those types of clients operate and get paid. He said hard work was also important.

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“My niche market back in those days was in construction loans,” he said. “I dealt with the salesmen who worked out in display homes for the builders. I would go around to all the villages over the weekends and visit all of the guys and girls working in the display homes. I got to know the product that each builder had, I got to know the salesmen very well.

“In a display village they start at 10am so I would get there around 9.30-9.45am and help the first one I went to put out all his signs. At the end of the day, wherever I was, I would help that guy close down. I became very well known that way, but it was hard work.

“During the day I’d go visit a salesman and I might make a cup of coffee for him because he had been so busy. Nothing about finance broking, I wouldn’t ask them to send me clients. They knew I was there. I was helping them and if there was anyone around who needed finance, it would be, ‘oh look, talk to Stephen.’ And that’s how I got all my leads.”