Over the last few months there has been a lot going on behind the scenes. Granted, there hasn’t been much going on in the interest rate front, other than upward movement of fixed rates of course and the demise of the 95% LVR, but things have been hotting up in another important area…. The Back Office.

One of the off shoots of the credit squeeze has been an increase in the number of applications flooding the major lenders. Borrowers seem to be deserting the non bank lenders for the perceived safety of the major banks.

Recently it was reported that Westpac and CBA between them have written almost 90% of the loan approvals over the last quarter. That’s a staggering amount of lending by any calculation and is a dominance over the market we haven’t seen before. Whether this result was from a desire by borrowers to be protected from media driven speculation over possible banking collapses or a genuine desire by consumers to lock in lower rates while they could is not certain.

It’s also debatable whether that movement away from non bank lenders was a good move from a finance market viewpoint, but that’s another issue. What we do know is that none of the major Lenders were prepared for this situation and the inevitable result was a slowdown of processing times.

One source in a major Bank admitted that while they could cope with 1500 applications per week, they were seeing that many come in per day. Such an avalanche was always going to cause problems for any processing system and so it has turned out to be.

Ordinarily any blow-out in processing times is quickly countered by the Lender bringing in more people, either in house from other areas or by hiring contractors. After all isn’t customer service high up on the list of priorities? This time though things were different. Weeks passed, the situation grew more grim and brokers were left to ponder what was going on. We heard of measures that were being implemented, systems that would help and overtime being contemplated but still the times got worse.

I wondered why a customer focused industry would allow this to happen. I thought about the consequences of not releasing money into the market and the effect on the economy. I thought of the Banks levels of funding and perhaps they were trying to prolong the time left before they ran out of funding, a bit like the buffer we insist our clients have. In fact when some Banks moved their servicing calculator rates upward, the very same calculators that determine what you can borrow, I was convinced we were seeing something significant. However, the Banks representatives kept us in the loop as far as the action they were taking and promised reduced delays.

Interestingly, the smaller non Bank Lenders began to make up ground based on their small turnaround times. It was common to receive emails from them spruking 24 to 48 hr turnaround times. This was clearly a challenge to the major Banks.

So it was all the more surprising to see the times blow out further to extraordinary levels. At one point it was almost 3 weeks before an application would even be looked at by a credit assessor! I remember vividly negotiating to get an urgent application moved to the top off the pile only to be told that of the files on the assessor’s desk, 9 out of ten were going to miss settlement.!

For borrowers who had bought properties on a short timeframe there were many nerve wracked moments before they could be sure that their application had been given Unconditional Approval.

One thing to keep in mind is that currently there is a trend by Lenders to stop processing Pre Approvals until they can get back to a reasonable processing time again. This may have an impact on your plans to take advantage of the softening property market. I urge you to talk to us about your plans now, so we can put actions in place to avoid any hiccups.

I think it’s important to remember that Investors Direct enjoys Priority Broker status with most Lenders because of our long standing commitment to quality and also due to the sheer number of loans we put through. They realise the value of our business, and more importantly our clients, by looking at our deals faster than smaller broker groups.  Mostly we were able to minimise the impact of the slow turnaround times by advising our clients of the appropriate action before it got out of hand. Sometimes that was as simple as moving to another Lender. Sadly a minority did get caught up in the worst of it mainly due to limited alternative options.

Even though each Lender took steps to correct their individual problems, it was a bit like trying to steer a large seagoing oil tanker, even though you turn the rudder there is a long gap before the thing starts turning around. It is just a matter of time.

Happily I can report that turnaround times have fallen dramatically in the last couple of weeks and we are certainly in sight of a return to the good old days of quick responses. While some Lenders are still struggling to improve I have no doubt that they will also get back to normal by the end of June.

I guess that the lesson to be learnt here is how important it is to use a Broker who has the support and confidence of Lenders. When times are tough you want to be able to rely on a Company that has the staying power to see it through.

This article was written by Vincent Power, Mortgage Finance Strategist of Investors Direct, an award winning Mortgage Company specialized in strategies and finance for residential property investors since 2001.  Investors Direct is the finalists in the 2008 Australian Mortgage Award for Brokerage of the Year (Over 12 Staff Category) & Best Customer Service from an Individual Office..