ASIC permanently bans Perth mortgage broker

ASIC says it has permanently banned a former Perth-based finance broker from engaging in credit activities.

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ASIC found that the broker engaged in misleading conduct by providing false income supporting documents to Westpac Banking Corporation Limited in support of home loan applications for three of his clients in 2015. Only one of the three loan applications was approved.

At the time, the broker was operating his own finance broking business through his own credit licence under the trading name Active Approvals. His credit licence was cancelled in April 2016 at his request.

ASIC Deputy Chairman Peter Kell said the banning reinforces the strong message to any broker considering engaging in misleading conduct.

‘ASIC will not hesitate to permanently remove those who engage in misleading conduct from the industry,’ Mr Kell said.

The broker has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

Background

Since becoming the national regulator of consumer credit on 1 July 2010, ASIC has investigated in excess of 100 matters relating to loan fraud and has achieved many enforcement outcomes against the offenders.

The outcomes range from undertakings by persons to voluntarily leave the industry, to bans and prosecutions. To date, ASIC has banned, suspended or placed conditions of the licence of 77 individuals or companies from providing credit services (including 33 permanent bans).

Through the Office of the Commonwealth Director of Public Prosecutions, ASIC has also brought criminal prosecutions against 14 credit service providers; with 12 having been convicted of fraud or dishonesty offences relating to the provision of false and misleading information/documents to lenders in client loan applications.

HSBC To Make Broker Channel Comeback

From Australian Broker.

HSBC has announced it is returning to the broker channel in April 2017, ten years after exiting the third party mortgage distribution sector and selling its broker-originated loan book to RESIMAC, according to the Australian Financial Review (AFR).

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The news comes as a surprise to some, given the bank’s ten year hiatus, but less so for others, given HSBC has been missing out on a big piece of the home loan pie for the last ten years, with mortgage brokers now writing over 53% of all home loans in Australia.

In her role as head of Mortgages, HSBC’s Alice Del Vecchio is steering the bank’s re-entrance into the third party distribution network, after six years in mortgages at HSBC and a previous role as the national head of mortgages at Aussie.

HSBC has already deployed existing staff to the emerging third party division, the AFR has reported, and it is also hiring business development managers ahead of the April launch date.

HSBC made the news in 2015 when it scaled back its lending to property investors in the wake of APRA’s decision to apply growth caps on investor lending at the end of 2014.

The bank ultimately stopped lending to new to bank property investors, however having decreased its investment loan book by $470 million over the past 12 months, HSBC now appears to be relaxing its clampdown and focusing on growth through distribution.

APRA’s latest lending data shows HSBC’s loan book to be valued at $10.2 billion, with over 50% of this attributed to owner occupiers ($5.5 billion). $4.7 billion is attributed to investors. To put this into perspective, Citigroup has $7.1 billion in housing loans and ING Direct has $39.4 billion.

HSBC recently announced the opening of a private bank in Australia aimed at wealthy customers whose companies already use the corporate or retail bank.

HSBC’s local boss Tony Cripps said this move illustrated the lender’s focus on Australia as a “priority growth market,” according to the AFR.

Connective to partner with Virgin Money

From Australian Broker.

Virgin Money has announced a partnership with national mortgage aggregator Connective. Starting from November this year, accredited brokers across the network will be able to offer Virgin Money home loans to clients.

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Johnny Lockwood, the general manager of lending, cards & deposits for Virgin Money, said that the differentiated products could benefit both brokers and consumers alike.

“We see that our ongoing treatment of customers is very important for our broker partners as well,” he told Australian Broker. “We want to make sure there is a rewarding and ongoing experience for the customer so they are happy with the decision that the broker has assisted them to make and actually give them some repeat business.”

As for the engagement between the aggregators, brokers and Virgin Money, Lockwood said his firm was a true ‘partnership business’.

“For us putting the focus of our mortgage distribution into the third party market really gives brokers the confidence that they are going to be a very strong focus for us now and continually into the future.”

This means that Virgin Money won’t lose sight on the broker channel even once the firm does get a direct channel up, Lockwood assured.

To this end, the lender was expanding its BDM team into Queensland and Western Australia to support brokers on the ground, he said.

Currently, Virgin Money has two BDMs in NSW and one in Victoria with plans to further expand this footprint later on.

“It’s key for us that our aggregator partners such as Connective have people they can talk to face-to-face when they need to.”

He said a key focus was to support customers through a nationwide network of brokers that expanded beyond just the Eastern Seaboard.

Finally, Virgin would work together with the Connective network and their focus on digital marketing support for brokers through various activities and training days, he said.

“Virgin Money is traditionally a direct digital business and we have a lot of expertise in the digital marketing front. That’s certainly something that we can assist our partner brokers with at various times throughout the year to enable them to get the best out of their customer network as well.”

Glenn Lees, CEO of Connective, welcomed the partnership and what it could bring to their network of brokers.

“We’ve been really impressed with Virgin Money’s innovative and collaborative approach and their commitment to providing our members and their customers with a strongly differentiated product offering. It’s great that our members will now be able to harness the power of the incredibly strong Virgin brand.”

Westpac closing branches as brokers take over

From The Advisor.

The big four bank has closed 173 branches over the last 12 months as it ramps up to drive more business through the third-party channel. You can read DFA research on the growth of the broker channel here.

The JP Morgan Australian Mortgage Industry Report – Volume 23, released yesterday, noted that Westpac was rationalising its branch footprint and improving systems to support the group’s multi-brand strategy.

“Over the last 12 months, Westpac have closed 173 branches (from 1,261 to 1,088) and have improved growth by increasing broker flow modestly from 47 per cent to 49 per cent,” the report said.

“The rationalisation of the distribution network (and ultimate culmination of heritage St.George and Westpac systems nearly 10 years after the merger announcement) should see a ‘cheaper cost to serve’, and allow system growth while protecting margins,” it said.

Commenting on the bank’s decision to close branches in favour of the third-party channel, JP Morgan banking analyst Scott Manning said that while the physical cost of distribution was not actually that high, Westpac’s branches were far less profitable than some of its peers’.

Digital Finance Analytics (DFA) principal Martin North, co-author of the report, highlighted that when it comes to distribution and weighing up branches against brokers, cost is not the key issue.

“It’s not so much a cost question,” Mr North explained, “but more a customer-driven issue. Customers are voting with their feet and choosing to go to mortgage brokers for their mortgage needs, which the banks are now adapting their strategies to,” he said.

“The broker channel has a big influence and we expect it to be a bigger influence going forward.”

Westpac’s decision to reduce its retail footprint follows similar measures taken by ANZ, which were highlighted in JP Morgan’s previous mortgage report back in March.

The report found that despite being the smallest of the four majors in the domestic mortgage market, ANZ has been successful in achieving the same dollar growth in mortgage balances since 2010.

“We believe a key driver of this result has been the success ANZ has had with the broker channel, with originations rising from ~40 per cent of flow to ~50 per cent of flow since 2010,” the report said.

Importantly, the report noted that ANZ has been steadily reducing its branch presence since 2011.

“ANZ is in the unique position where it has consistently grown its loan book above market for the last [few] years at the same time as it is actively reducing its branch presence and increasing its broker presence,” Mr Manning said at the time.

“That is acting as a bit of a business case potentially for other banks to follow,” he said.

“We have previously highlighted our concern for Westpac in particular where they have quite a duplication of their branch presence across different brands.”

At the release of yesterday’s report, Mr Manning said Westpac must work to remove duplications arising from its multi-brand strategy in order to streamline mortgage distribution going forward.

FBAA defends brokers against mortgage survey

From Mortgage Professional Australia. The Finance Brokers Association of Australia (FBAA) has defended the broker channel against claims by a UBS survey indicating some brokers are advising clients to misrepresent figures on their applications.

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The FBAA’s Peter White said the survey claimed that about 6%, or 84 of the 1228 borrowers surveyed said the broker directed misrepresentations in loan applications.

According to the survey, 60% of the borrowers in the sample secured their mortgage from a broker, slightly higher than the nationwide figure.

UBS stated that participants were surveyed anonymously and said, “given the large number and spread of participants, these findings are statistically significant with a 95% degree of confidence”.

The report also stated, “If anything, we believe this data is likely to understate the level of misrepresentation as some respondents may not feel comfortable stating they were not completely factual and accurate even in an anonymous survey.”

But White has questioned the accuracy of the whole survey, saying the amount of people purportedly surveyed represents only an estimated 0.09% of all mortgages settled over the two year time period, and a number of the figures in the survey were inconsistent with APRA data and Industry data.

He also said there was “zero credibility” in the claim of a borrower who admits to falsifying documents.

“Let’s be honest – if you are admitting to misrepresentation on a legal document it’s very easy to blame someone else and claim they made you do it.

“This really should not be taken seriously, particularly with the stringent regulations around the broking sector and responsible lending criteria which brokers adhere to.”

White said the FBAA would not tolerate any unethical behaviour and that there was no incentive for brokers to misdirect clients.

“Our own data tells us that only a miniscule percentage of our members have had action taken against them and that overall, brokers are doing the right thing.

“I believe that not only are these figures wrong but that they are based on claims that can never be verified.

“It is a shame for the industry that this sort of misinformation is publicised but I am confident the regulators, the industry and the public know the truth.”

Mortgage Broker Commissions On The Up

Mortgage Brokers earnt more than $1.1 billion in new commissions in the last year, as their share of new loans continues to rise according to the latest results from the Digital Finance Analytics Mortgage Industry Model.

The model tracks new loan approvals and channel mix and estimates the commissions earned by brokers from lenders.

The share of loans originated via brokers has reach 50% across the market (some say it is even higher, as much as 60%!)

broker-shares-dfa-sept-2016APRA publishes ADI specific data showing that foreign subsidiary banks originate close to 70% of their loans via brokers, other domestic banks, around half, just above the average of the big four, with credit unions and building societies lower.

broker-shares-apraBrokers can earn an upfront commission on each new loan, as well as a trail. According to a recent MFAA document:

Lenders usually pay upfront and/or trail commissions in respect of the loans, mortgage brokers originate. The upfront remuneration offered by lenders is mostly uniform at 0.65%, and trail remuneration also uniform at 0.15% for the life of the loan. Lenders vary in their application of claw-back, ranging from 12-24 month terms as well as their introduction of trail payments (delayed until the 13mth).

The MFAA would like to note that broker remuneration provided by lenders has reduced over the past ten (10) years from a mostly uniform offering of 0.70% and 0.25% for upfront and trail commissions

There are however some variations between lenders in the absolute percentage applied, reflecting commission tiers, targets and other factors. It is hard to get solid industry data because commission arrangements are bi-lateral commercial agreements, and often not fully disclosed.

However, using data from a range of sources, taking into account commission rates and new loan volumes, we have an estimate of the monthly flow in new commissions earned.  Commissions have been rising in line with loan growth (as it directly related to the size of the loan) as well as rising third party origination. Some lenders have tweaked commission structures recently to incentivise specific types of loans.

broker-commissions-apra So, we estimate over the past year, $1.1 billion of new commissions were paid to brokers. A relevant statistic given the current broker remuneration review by ASIC.

NAB launches overhauled broker offering

From Australian Broker.

One of Australia’s biggest banks has revealed an overhaul in it broker offering that places a strong emphasis on customer service and reducing channel conflict.

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NAB today officially launched its updated broker offering, which now means NAB borrowers introduced through the broker channel will have the same access to NAB services and products as any other customer.

Through the NAB broker platform, brokers now have access to four more home loans; NAB Choice Package, NAB FlexiPlus Mortgage, NAB Tailored Home Loan and NAB Base Variable Rate Home Loan, as well as 10-year interest only periods for investment loans.

Upfront and trail commission is offered on the expanded suite of home loan products, while brokers also have access to a wider range of credit card offerings.

Steve Kane, NAB broker offering general manager, said today’s launch is a significant step for the bank and signifies the final step in an ongoing process to strengthen the connection between it and the broker network.

“We had the Homeside brand that didn’t really resonate and put a hurdle in front of brokers when they were talking to their customers. We made a decision to move to NAB Broker and remove the Homeside brand, but the operation stayed the same,” Kane told Australian Broker.

“This is the final stage of that journey, which is really about using the full power of the NAB brand, all the process and services of NAB and all the channels of NAB to support brokers. This is really as much a statement about launching NAB back into the broker market,” he said.

As well as allowing broker clients access to a wider range of products, Kane said the new NAB Broker offering will have a strong emphasis on customer service, which will hopefully lead to a stronger broker–client relationship.

“The position that brokers are now taking is… more and more a long term relationship, rather than transactional one,” Kane told Australian Broker.

“A significant number of brokers are now looking at the whole lifecycle of the customer and part of this rebrand is talking about the broker as a trusted adviser and we’re talking about broking for life.

“We need to be able to offer a holistic range of products and services to support the brokers in doing that, rather than just a mortgage.”

Kane said a new initiative, where select NAB Branches will have staff dedicated solely to broker introduced customers, will hopefully achieve that goal as well as helping to reduce channel conflict.

Under the initiative, brokers can refer their clients to a NAB branch, where dedicated broker channel staff will ensure their accounts and other facilities are set up properly. Those staff are not on a sales incentive program meaning brokers don’t have to fear losing the client.

“The broker is in charge of the products they want to sell the customer. We’re not trying to say we’ll take it all over. What we’ll be doing is ensuring all their accounts and facilities are set up correctly,” Kane told Australian Broker.

“It’s not about competition between channels; it’s targeted at customer service. But it’s not targeted at customer service to the detriment of the broker channel.

“We will always respect the primacy of the broker-client relationship. If a customer came in and said I want a transaction account, we might set them up for that, but on their file brokers can indicate they have a financial planning business or whatever else we won’t do anything that conflicts with that.”

ASIC on mortgage brokers’ interest only loans

ASIC says the volume of interest only loan approvals rose significantly in the June 2016 quarter. But Australia’s home loans industry has improved its performance over the past year, adopting better ‘responsible lending’ practices, though there is still room for improvement.

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ASIC has released its report (REP 493) ‘Review of interest-only home loans: Mortgage brokers’ inquiries into consumers’ requirements and objectives’ on the responsible lending practices of 11 large mortgage brokers with a particular focus on how they inquire into and record consumers’ requirements and objectives.

It also examined how the changes implemented by lenders in response to the findings from ASIC’s report into interest-only home loans from 12 months ago last year (refer: Report 445) have flowed through to mortgage brokers.

Since the release of Report 445 in August 2015,

  • the percentage of new home loans approved by lenders which are interest-only has decreased by 12%; and
  • the amount that can be borrowed by an individual consumer through an interest-only home loan has decreased, as lenders have adjusted their assessment of consumers’ ability to repay, in line with ASIC’s recommendation in Report 445.

Information provided by the mortgage brokers showed that for the six months from July 2015 to December 2015,

  • the number of new interest-only home loans fell by 16.3%, with total value of these loans reducing by 15.6%; and
  • the percentage of interest-only loans with a term greater than five years reduced by more than half, from 11.2% to 5.1%.

Almost 80% of applications reviewed included a statement summarising how the interest-only feature specifically met the consumer’s requirements and objectives. This compared favourably with Report 445’s finding that more than 30% of applications reviewed showed no evidence the lender had considered whether the interest-only loan met the consumer’s requirements.

‘It is vital that mortgage brokers understand consumers’ requirements and objectives to ensure they are not placed in unsuitable credit contracts,’ said ASIC deputy chairman Peter Kell.

‘ASIC is pleased that our concerns about interest-only loans and responsible lending are being acted on by the home lending industry, but there is still room for improvement.’

ASIC identified practices that place brokers at increased risk of non-compliance with their responsible lending obligations, and identified opportunities for brokers to improve their practices. Key compliance risks identified included:

  • Policies and procedures—Mortgage broker policies and procedures provided only general information, rather than tailored information on specific products and loan features that may impose increased financial obligations or restrict repayment flexibility (such as interest-only home loans);
  • Recording of inquiries—Record keeping was inconsistent and in some cases records were fragmented and incomplete;
  • Explaining the loan choice—More than 20% of applications reviewed did not include a statement explaining how the interest-only feature of the loan specifically met the consumer’s underlying requirements and objectives. The level of detail in these statements varied considerably and in some cases, where an interest-only loan was specifically sought by a consumer (including where this option was recommended by a third party, such as an accountant), the reason for this was not clear;
  • Consumer understanding of risks and costs—In some cases, where the potential benefit of the interest-only loan depended on the consumer taking specific action (for example, allocating additional funds to higher interest debt), it was unclear whether the consumer understood the potential risks/additional costs if the specific action was not taken.

The report details steps that mortgage brokers should take to improve their current practices, including:

  • Ensuring they understand the consumer’s underlying objectives for requesting specific loan products and features;
  • Recording concise summaries of consumers’ requirements and objectives and the reason why a particular product, features and lender was chosen;
  • Providing a statement summarising the broker’s understanding of the consumer’s requirements and objectives, which could also include the reason a particular loan is suggested, for the consumer to confirm before obtaining a loan.
  • Where the potential benefits of a loan feature might require the consumer to undertake specific behaviour, ensuring consumers were aware of the action they needed to take to obtain the potential benefit, as well as the potential costs should this action not be taken.

Former AUSSIE mortgage broker false loan applications

ASIC says a former mortgage broker with AHL Investments Pty Ltd (trading as Aussie), has admitted through his solicitor to eighteen charges brought by ASIC. The charges related to the submission, by Mr Nair, of loan applications and supporting documents which he knew contained false information, to secure approvals for home loans from Westpac, National Australia Bank, and ANZ.

ASIC’s investigation found that between September 2012 and June 2014, Mr Nair submitted eighteen loan applications totalling $5,594,559 containing false borrower employment documents. Of the eighteen loan applications, twelve were approved and disbursed, totaling $3,721,684.

Mr Nair received commission on those twelve loans of $7,583.49. In addition Mr Nair received cash payments totalling $2,500 from two of the loan applicants upon approval of their loan applications. Mr Nair therefore received a financial benefit of $10,083.49 as a result of the approved loan applications.

The eighteen loan applications ranged in value from $10,000 to $490,875.

Mr Nair appeared before the Downing Centre Local Court and through his solicitor admitted to providing documents in support of loan applications that were false or misleading.

Mr Nair next appears  in court on 30 August 2016 for sentencing

The Commonwealth Director of Public Prosecutions (CDPP) is prosecuting the matter.

Background

Mr Nair was authorised to provide credit services as a credit representative to consumers from 1 July 2010 to 7 July 2014, when Aussie terminated his authorisation.

Mr Nair received his commission through Smee & Pree Nair Enterprises Pty Ltd (ACN 091 014 756) a company controlled and owned by Mr Nair.

Mr Nair was charged by ASIC under section 160D (and the former section 33(2)) of the National Consumer Credit Protection Act 2009 in relation to his conduct whilst he was engaging in credit activity on behalf of Aussie. Section 160D (formerly section 33(2)) makes it an offence for a person engaging in credit activities to give false or misleading information or documents to another person. He appeared in Court and pleaded guilty to the charges on 5 July 2016.

Mr Nair faces a maximum penalty of one year imprisonment or a fine of up to 60 penalty units (which in the case of sequence 1 equates to $6,600 and in the case of sequences 2 to 18 equates to $10,200), or both, for each charge.