Westpac's Mortgage Processing Costs Still Too High, Say Lenders
Sydney Morning Herald
Monday July 6, 1998
Lenders have hosed down speculation that Westpac Banking Corporation's Adelaide-based mortgage processing centre is set to receive an inflow of work from small operators, claiming that the bank's processing costs are still too high and turnaround times are too slow.
Westpac hoped the centre would become a source of income by charging fees to lenders who used the service to process home loan applications, but had struggled to achieve economies of scale, analysts said. Cheaper back-office costs would flow through to cheaper loans for consumers, they said.
Bank of Queensland's managing director, Mr John Dawson, said the up-front and continuing costs of using the mortgage processing centre were too high. "They haven't achieved the scale needed yet. It's better, but it's not there yet. [Its pricing] will improve when there's some competition," he said.
Mr Dawson predicted cheaper back-office costs, which could flow into lower costs for customers, would occur only when National Australia Bank improved its back-office processing.
NAB has purchased the United States-based mortgage processing unit Homeside and will use the technology in Australia to process mortgage applications.
Almost all lenders have said they are willing to contract out their back-office processing if it means cost savings.
FAI Home Loans outsourced its back-office processing to Westpac last month, creating cost efficiencies for the mortgage originator, said FAI's managing director, Mr Mike Halloran. It means FAI can offer better deals to customers.
Commonwealth Bank's Mr Michael Ullmer has previously said that Westpac's cost of processing is well below the Commonwealth's.
Aussie Home Loans's Mr John Symond said he was considering using Westpac's centre but that it was just one option. At the moment Australia's biggest mortgage originator uses Macquarie Bank to process its applications.
A leading banking analyst said neither Adelaide Bank nor Bank of Western Australia was interested in using Westpac's mortgage processing centre.
"Customer service levels are not adequate, the regional banks said. They want two-day turnaround times, which Westpac can't do," the analyst said.
Westpac spokesman Mr Owen van der Wall said the bank was happy with the centre's progress.
"We continue to improve our efficiency. We'll make it more attractive and efficient. We continue to talk to third parties and we're confident with [our] ability to compete," he said.
A leading analyst said the centre, opened in June 1995, had struggled to attract lenders because it was too expensive and had run into problems in its first three years. But it was improving and would eventually provide Westpac with substantial income.
© 1998 Sydney Morning Herald
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