Mortgage lenders in Australia rarely deal with brokers that cannot submit a high volume of successful home loan applications to them each month. For example, a particular bank or non-bank lending institution might refuse to deal with an entity that cannot close at least one million dollars worth of mortgages with them on a monthly basis.
For most mortgage brokers this may not seem like a daunting task. One million dollars worth or home loans may constitute anywhere between one and five successful applications. Most brokers would be able to close at least that much business each month and would therefore be able to do business with the particular lender.
However a problem arises when the scope of the mortgage broker business model is considered in full. Brokers are in business to offer choice to their customers. In Australia, brokers offer mortgage products to their clients from up to around thirty different lenders. It is this choice that attracts customers to brokers instead of applying directly with a lender. A problem arises when each of the thirty lenders demand that at least one million dollars worth of business is closed with them each month. This would mean that in order for the broker to maintain a business relationship with all thirty lenders, they would need to close over thirty million dollars worth of home loans each month, evenly spread between each lender. This is an impossible task for even the best mortgage broker to achieve.
Aggregators solve this problem by acting as an entity between the lenders and brokers. An aggregator will have several brokers working for them – perhaps hundreds – and will allow them to submit their home loan applications through them. The aggregator will in turn send the applications on to the lenders. This business model ensures that more than enough applications are sent to each lender each month to maintain the relationships. The final result is that each broker working for the aggregator will be able to offer home loan products from the full range of lenders.
Mortgage aggregators are often found in the form of franchisors. The franchisor can have up to several hundred franchisees working for them. The franchisees will use the brand name of the master franchise and will often receive benefits such as training and software. It should be noted that while the franchise model is popular with mortgage brokers in Australia, not all aggregators are master franchises.
Because mortgage brokers receive their income by way of commissions awarded by lenders for successful home loan applications, it follows that aggregators receive a portion of the commissions for all loan applications put through them. Brokers therefore surrender part of their commission in return for the benefit of using an aggregator. There may be additional franchise fees payable if the broker is a franchisee, although this arrangement will vary from franchise to franchise.
In all, aggregators are a necessary part of the mortgage broking industry in Australia. They allow brokers to offer their clients a wide variety of lenders and home loan products and provide an umbrella entity that can assist brokers with training and support throughout their careers.