The Mortgage and Finance Association of Australia (MFAA) has branded a report in the Australian Financial Review (AFR) – which questions the ethics of mortgage brokers and likened some to a Ponzi scheme – as a “serious allegation”.
The AFR report, titled ‘Uncovering the big Aussie short’ claims mortgage brokers in the western suburbs of Sydney encouraged the undercover hedge-fund manager and economist posing as a low income couple to lie on loan application documents about the deposit for a house and about income.
Jonathan Tepper, economist and founder of Variant Perception, wrote in a report, “we asked if the bank would call our employer, and both reputable and disreputable brokers said banks rarely verified payslips”.
John Hempton, Bronte Capital’s chief investment officer added that they were also told the checking of documents was sometimes done by Indian call centres.
Tepper and Hempton also claimed they encountered many investors who were able to get revaluations on their properties to increase their equity for speculative purposes.
According to Hempton, in north-western Sydney they met one mortgage broker who told them which of the big four banks would revalue properties quickly.
“They wanted to put you in 10 to 15 apartments. The only way they could do that was getting the bank to revalue the property so you could borrow more money. They were acute about which banks had bad practices,” the AFR report quotes Hempton.
Siobhan Hayden, the chief executive of the MFAA, says this sort of behaviour has no place in the mortgage broking industry and she is calling on the AFR to provide the names of the offending brokers.
“The practices of brokers are well documented and require the provision of supporting upfront documents such as payslips, group certificates, tax returns and identification check as part of the upfront application. Lying has no place in this industry and we take swift action if members are acting unethically. It should also be noted that brokers who act outside of the law represent an incredibly small portion of the industry,” Hayden said.
“We call on the AFR or the research firm provides the names of these mortgage brokers, as the MFAA has a strict code of practice and ethics attached to its membership. If these are MFAA members we would initiate a full investigation and work in partnership with the industry regulator, ASIC.”
She is also condemning the authors of the report, Tepper and Hempton, as well as the AFR for not seeking out either industry body for comment.
“We would have hoped that with any story of this nature the industry body would have been contacted to seek commentary and supporting data for validation. The article is based on invalid research samples sizes and infers that overseas outsourcing of administration is somehow inferior. Both sides of the story should be told.”
Hayden also pointed to the ‘Observations on the value of mortgage broking’ report, commissioned by the MFAA and prepared by Ernst & Young, which showed that 92% of consumers who had used a broker were satisfied with the experience, stating that the convenience and access to a range of suitable deals were the best qualities.