2008: When banks independently all decided to make a similar decision

This week five years ago is when independent mortgage advisors were in the middle of getting some harsh news, some lenders were pulling out of the market completely, others were informing us of 50% cuts to procurement fees.

Fair or unfair? In light of things like Croke Park it would be seen as totally unfair, you’d never get any other industry that takes a 50% hit like this as fast (and then there is the separate issue of lending dropping 95% on top of the 50% reduction).

Brokerage has already been down the path the public sector are on. I recall sitting across the table from PTsb chief David Guinane who in late 2007 called in the broker bodies and informed them that they were getting a reduction that they might not be happy about, but that this was not something we could negotiate.

There was talk in brokerage of boycotting both them and Irish Life in return, and while we were still debating about what to do all of the other lenders moved almost at once. And that is the problem with rejecting the deal on the table, is you then roll the roulette wheel which cost almost everybody in my industry their careers.

When it comes to job losses, our firm reduced headcount by c. 70%, and most of the independent mortgage intermediaries (our former competitors) have closed down (the list is long, REA, Mortgages Direct, Simply Mortgages etc.), the banks pushed instant job losses into a particular distribution channel rapidly, waiting years more to take similar medicine within their own walls.

Another part of me believes that the world will turn the way it does, and that being upset doesn’t fix anything, the better solution is to find a way to remain profitable, make the difficult decisions early and often, adjust and try to persevere.

Within that though is the vista of the time line which gives context to this. It is as follows:

The first movers were Bank of Scotland Ireland who
From: HomeLoansCC [mailto:HomeLoansCC@bankofscotland.ie]
Sent: Tuesday, April 15, 2008 10:01 AM
To: HomeLoansCC
Subject: Bank of Scotland Ireland Homeloans – Broker Update

This was where Bank of Scotland announced a restriction on lending, repricing of all products and a 50% cut in procurement fees, there was a pdf attached. These were the first steps towards their extraction from the Irish market.

Three days later Ulsterbank joined them.

—–Original Message—– From: (Ulster Bank) [mailto:brokerconsult@ulsterbank.com] Sent: 18 April 2008 13:12 Subject: Ulster Bank Communication >

Dear Broker, > > I am writing to advise that with effect from 30th May 2008, Ulster Bank RI > will be withdrawing fully from the Broker market. A decision has been > taken to grow our mortgage business via our Retail Branch network. > Mortgages remain an integral part of our product offering and we will > continue to offer mortgages through our 131 retail branches across the > Republic of Ireland.

Then on the 25th of April BOI owned ICS followed suit

Sent: 25 April 2008 15:30 To: IMB Subject: FW: ** BREAKING NEWS FROM ICS ** 25042008 / 2.30 / FRI
Dear Business Partner, Over the coming days you will receive your ICS Appointment pack which contains our Terms and Conditions and also our Terms of business.A/ Broker Commission;
Commission Payable as follows ; Mortgage Volumes up to €6.5m will attract 0.55% monthly in arrears on completed business
Mortgage Volumes over €6.5m will attract 0.65% monthly in arrears on
completed business

AIB also did the same thing, again coincidentally on the 25th of April 2008

23rd April 2008
Dear Broker
In light of the difficult market conditions that emerged during the latter part of 2007 and which have continued into the current year, we wish to advise that AIB Bank is restructuring its Intermediary remuneration package.  However, AIB remains committed to the Broker market and we will continue to keep our Intermediary remuneration under review in the context of the prevailing market conditions.

With effect from close of business on Friday 25th April, commission payable by AIB will be 0.50% of the value of the mortgage amount drawn.

First Active coincidentally joined the foray on the 25th of April (same as ICS and AIB)

As per previous communications First Active commission will be paid as usual for all mortgages where the loan offer issues on or before 01-05-08.
(ALL DOC’s MUST BE RECEIVED IN FIRST ACTIVE BY COB 28th APRIL).
After this date, all loan offers issued will be on the new commission rate of 0.5%.

This post is relevant today not only as the fifth year of the crisis that was meant to pass quickly trundles on, but as a lesson to people who reject a deal on the table. You should only do that if you know there is a better one waiting.

Comments

  1. M. Bailey

    Well Said Karl, the bankers should have all been Jailed, how dare they treat you that way, it was anti competitive the Kartel that they had, you were ENTITLED to your commission payments, they broke every rule in the book, you should have really issued proceedings against them, now that would have shaken them up, but finding a good reliable solicitor, now that would have been a tough one.

  2. Anne Marie

    Hello

    I have amortgage of 117K on my home I am considering a split of 50/50 until the end of the term ( in 10 years time). I wil then owe 60k . But , at that point I will be able to sell a second property which will then be fully paid off . I am doing this becausse right now, life is difficult. all I am doing is paying bills, not living. I don’t have family so I dont have to worry about ‘leaving something to anyone’ or ‘supporting anyone’…Does what I am doing make sense, financially? Alternatively, the bank can wait for their 60k until I die and then they can take it from my ‘estate’. I welcome your comments

  3. Hi Anne Marie,

    It’s kind of hard to determine the right thing to do without knowing more. Normally that kind of advice comes after a consultation, I would suggest you talk to somebody you trust or get some professional advice.

    Sometimes it’s the best answer, other times it isn’t, it also depends on what happens to the ‘split’ portion, if it’s attracting interest you could get to the end of your mortgage and see that you lose out but that had you arranged things differently in the past it wouldn’t have had to be that way.

    So to summarise, you need to tell me more or talk to somebody!
    thanks for dropping by
    karl

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