Save the Mortgage Broking Industry

Rod Cross from Regional Finance Solutions Coffs Coast puts together his views on the latest surrounding the Mortgage Broking Industry

If you haven’t already done so, you can register your support for mortgage broking by joining 68,000+ happy customers who have already signed the petition here

Our office consists of 5 team members, 4 of whom are self employed. We provide a complimentary and extensive service to borrowers seeking mortgages, personal loans and business loans and have done for the past 4 years. We buy local, shop local, live local and support locals.

The Hayne Royal Commission has now released its report into my industry, with recommendations of sweeping reforms. With respect to Mr Hayne:

  • Since the introduction of the mortgage industry, average home loan margins have reduced by around 3% (refer RBA data) thanks to the advent of new competition, enabled and empowered by this channel
  • Non bank lenders, providing specialist loans to borrowers shut out by the Big 4, have sprung up, enabled by the mortgage broker distribution channel. This has helped more Australians realise their home ownership dreams
  • By March 2017 there were 16000 mortgage brokers in Australia (MFAA Industry Intelligence Service). With average gross annual income per broker of $133,407 this represents a $2 billion industry – $213 million in GST alone
  • Recent industry surveys (MPA) suggest that 80% of consumers are satisfied with the way in which brokers are remunerated and that 56% of consumers would not use brokers if a fee for service program were implemented
  • 60% of all mortgages in Australia are now written by mortgage brokers, suggesting that customers see a considerable value in the services of our industry
    Hayne proposes: “The borrower, not the lender, should pay the mortgage broker a fee for service”

In no real-world environment does this benefit the borrower by adding a cost to the process. Hayne’s recommendation that lenders introduce a fee commensurate with what a broker would charge for dealing with them direct is naïve in the extreme. To think that banks would introduce this and that it would be effectively policed by a regulator? The refusal of consumers to pay an additional fee would:

  • Consolidate power back with the Big 4 Oligopoly
  • Reduce competition in the marketplace
  • See brokers leave the industry in droves reducing employment and a considerable chunk of tax revenue

“Trail commission should be prohibited”

Hayne comments that brokers do no more work once the loan has been settled. I would love to see Hayne spend time in any mortgage broking business to understand just how much of our work is involved in providing ongoing service to our clients. This service includes dispute resolution/mediation; arranging for consents; arranging amendments and variations to loans as requested; assisting with repayment changes and general enquiries; arranging releases and settlements of loans. Approximately 1/3 of my day is given to servicing existing clients. The provision of trail ensures continuity of service to clients. It has proven to prevent mortgage churn whereby mortgages are refinanced to the next institution to continue to generate upfront income. The prohibition of trail implies that banks should reduce their interest rates overall as there is no ongoing service requirement. Removal of trail will not aid consumer outcomes – it will be profit absorbed by the banks.

 

For many established brokers trail income is a fundamental component of their business, helping to employ staff and pay fixed overheads such as rent.
The removal of trail income would see commercial vacancies rise, along with unemployment, as overhead costs would be trimmed to compensate. Further, the decision would see value and wealth eroded from mortgage broking firms, the majority of whom are small, family owned businesses.
Since the advent of the Royal Commission, the entire industry has already taken steps to clean up its act in terms of evidencing serviceability and enhanced scrutiny.

 

Like any industry, the finance sector has had its share of wrong doers and incompetent practitioners. The majority of these are found out very quickly and exited from the industry by regulators, lenders and aggregators. The examples of poor practice in the industry were alarming, however the mortgage broking sector has not been accused of systematic rorting of the system or wrongdoing.

 

The vast majority of participants are doing the right thing by their customers and suppliers (the lenders). To wipe out an industry and several thousand small businesses is a heavy handed response indeed.

 

If there are concerns that any particular lender is favoured over another, then the solutions are quite obvious:

  1. Seek out and penalise those brokers that are merely fronts for a particular bank
  2. Mandate that a flat rate of payment (upfront and trail) be applied to the industry across the board on a product basis

 

It is apparent that Hayne’s sole terms of reference to the mortgage broker role was to question Commonwealth Bank CEO, Matt Comyn. The Commonwealth Bank has arguably been the biggest loser out of the growth of mortgage broking – its home loan market share has shrunk as brokers and consumer have had greater awareness of the myriad of other options that are available in the marketplace. At the same time, the Bank has increased its reliance on brokers given the market share generated. This has lead to conflicted viewpoints within the Commonwealth Bank and a relationship with brokers that ranges from adversarial to considering each other a necessary evil. This is the prism that Comyn’s views need to be considered through.

 

If you are concerned about a credit crunch, wait until there are no more mortgage brokers. If you are concerned about the concentration of power into the Big 4 banks, wait until there are no mortgage brokers. If you don’t want to see income margins rise in favour of the Big 4 banks, watch what happens when there are no mortgage brokers.

 

If, however, you would like to see competition maintained, the best interests of consumers looked after and the broader economy continuing to perform then the Hayne recommendations really do need to be considered in light of this.

 

If you haven’t already done so, you can register your support for mortgage broking by joining 68,000+ happy customers who have already signed the petition here

 

What I would love to see is ASIC funded sufficiently (by the industry) to actually audit random files of every broker to confirm that they have acted with the customer’s interest at heart, and with integrity, with ASIC issuing a certificate of compliance on an annual basis.

– Rodney Cross
Regional Finance Solutions Coffs Coast

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