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NEW ECOMMERCE STANDARDS GET MORTGAGE BROKERS OUT OF COMMISSION BLACK HOLE Mortgage brokers will now be able to reconcile ‘commission black holes’ as not-for-profit group, LIXI (Lending Industry XML Initiative) launches new ecommerce standards that will enable brokers to track commissions electronically for the first time. LIXI developed Credit Application Language (CAL) to allow home loan information to be standardised and transferred electronically. Previously every lender used ‘manual interfaces’ with information passed on paper and re-entered at every stage. “Tracking commissions is a major problem for mortgage brokers, especially small companies and sole operators,” says LIXI board member, Phil Naylor who is also CEO of the Mortgage Industry Association of Australia (MIAA). “It requires a level of financial complexity that many small businesses can’t support.” “Payments are received from multiple lenders and aggregators each paying the broker in a different way. Commissions can be made up of upfront fees, trailing commissions and/or bonus payments. Worse every lender provides payment details in different formats. Not even those using Microsoft Excel supply information in the same way. “Brokers involved in developing the standards indicated they couldn’t reconcile one month’s payments before the next arrived. While discrepancies may be small, they can add up to thousands of dollars over the lifetime of the loan,” said Naylor. Software providers NextGen.Net and Fusion Operating Systems have both designed products using CAL to assist brokers trade electronically with lenders. NextGen.Net’s products have been rolled out through Mortgage Choice, Aussie and the Australian Finance Group. E-commerce is still in a fledging state in the residential loan industry. St George Bank recently adopted NextGen.Net’s system to allow electronic exchange with brokers. The new standards also allow lenders to electronically instruct valuers, brokers, settlement agents and title insurers cutting out a potential ‘bottlenecks.’ “Every loan transaction involves up to nine parties including brokers, lenders, valuers, insurers and settlement agents. Much of the data required is still exchanged via fax and phone creating a high margin for error,” says Socrates Vasiliadis, Executive Officer, LIXI. “Automating the loan process isn’t simply a case of getting consensus from the lenders. It is vital to bring third parties into development of the standards if ecommerce is to be truly effective.” While automation offers initial business benefits, it is consumers who will ultimately reap the rewards of faster approvals and, possibly, cheaper loans. “In Canada, automation of the mortgage industry led to reduced interest rates. With all brokers able to quickly access a range of loans, the industry became transparent. Lenders couldn’t compete on price any more and had to focus on service,” says Vasiliadis. Already the benefits are being seen in Australian market. A research study commissioned by LIXI found that brokers and lenders using CAL compliant systems had halved approval times (from 13.4 to seven days) and processing cost (from an average of $734 per application to just $213). With electronic transactions accounting for 21 percent of loan applications,
LIXI’s research indicates that electronic transaction will
grow to 35 percent this year, “In Australia, LIXI estimates automation will reduce industry costs by more than $10 million per year,” says Vasiliadis. CAL has already been adopted by more than 55 LIXI members and is supported by a further 60 associates, including Aussie, Mortgage Choice, Commonwealth Bank of Australia, ING Bank, Westpac, ANZ, Adelaide Bank, Perpetual, Allette Systems, Lending Technology Services, Mortgage Choice, Pioneer Mortgage Services, PMI Mortgage Insurance, GE, Smartline, Loanmart, Gadens and the Australian Finance Group.
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