Brokers Under The Microscope At Senate Standing Committee

From Australian Broker.

Lender-imposed conditions that brokers write a certain number of loans per month or year to retain accreditation need to go, said Peter White, executive director of the Finance Brokers Association of Australia (FBAA).

Speaking in front of the Senate Standing Committee on Economics in a government inquiry into consumer protection in the banking, insurance and financial sector on Wednesday (26 April), White said these restrictions – called minimum volume hurdles – were reducing a broker’s ability to write loans for whatever lender they desired.

“What that creates is a very bad consumer outcome because a broker can only give guidance on loans for lenders that they’re accredited to,” he said.

These restrictions mean that while a broker may be doing the right thing for the borrower with regards to the panel of accredited lenders they have access to, there may be another outside that scope which is more suitable.

“Unfortunately they can’t reach into that because they are constrained by the aggregator’s agreements and those accreditations. That’s generally restricted because they don’t have volumes to reach that lender,” he told the panel.

“Those sorts of things need to go.”

White also criticised elite broker clubs, saying he would outlaw them if he could. With brokers given access to better speed of applications, this was “unreasonable” and “completely unfair” to the borrower.

“You have an innocent borrower at the backend there. He’s sitting behind a broker who may only give a specific lender one deal every three months,” he said. “That gets penalised because they don’t have the volume. It’s got nothing to do with the borrower.”

When asked about soft dollar benefits, White said that these incentives needed to become more transparent although completely outlawing them may not be the best solution.

There was also nothing wrong with the current base model of commissions that brokers are paid today, he said, referring to the FBAA’s global research that found Australian brokers were paid below the global average. As for trail, this provided a number of positive consumer outcomes when it was introduced.

“With trail being brought into place, that was there to minimise the outcome of churn and also to provide a greater level of service to the borrower that wasn’t necessarily being provided by the banks.”

The FBAA’s research showed that taking away trail led to higher upfront commissions, a greater level of churn, and sales of additional products that may not be acceptable in the market.

Finally, White expressed his opposition to the fixed upfront commission recommended by consumer advocacy group CHOICE.

“The baseline of lending is very standard,” he said. “But it’s the knowledge and capabilities of what adds onto that to make it appropriate to that borrower’s specific needs or their lending structure. That becomes quite a significant skill set and it’s not the same.

“If you do a mum and dad home loan for example, that’s a very different transaction to doing development finance and working through feasibility studies and presales and all the research and due diligence that goes into that.”

Although these are generally higher loan sizes, the amount of work definitely increased as well, he said.

Separately, ASIC said Improved tracking of broker data is required

Difficulties by lenders to compile clear, robust data on brokers has prompted the Australian Securities & Investments Commission (ASIC) to call for improved systems that allow banks and non-banks to track and report on broker activity.

Speaking in front of a Senate Standing Committee on Economics in a government inquiry into consumer protection in the banking, insurance and financial sector on Wednesday (26 April), ASIC deputy chair Peter Kell said that collecting data for the regulator’s recent Review of Mortgage Broker Remuneration was a challenge.

The main difficulty was that some lenders could not track simple issues such as the loans that were originated from and the amount of remuneration paid to each individual broker. Certain lenders also had no way to track the soft dollar benefits offered.

“One of the recommendations we have made is that this information should be provided through a new public reporting regime of consumer outcomes,” Kell said. “[This will] require lenders to set up systems to allow them to track this [and] also provide some transparency in the market.”

Kell emphasised that these gaps in information were not as a result of any unwillingness by the lenders to provide data. However, “it was apparent that the systems that some of the lenders had in place were not as robust and didn’t give them as clear a picture as I think they themselves would wish,” he told the committee.

The exercise was a “wakeup call” for some of the lenders, he said.

ASIC recommended a public reporting regime to eliminate current issues with the non-consistent structures between lenders with different systems, metrics and numbers.

“Having a public reporting regime is a good discipline to ensure that this data will be collected going forward,” Kell said.

However, the challenge for ASIC now is determining how to compile the collated information in a manner that both the industry and the public can see.

Federal minister urges brokers to identify red tape challenges

From The Adviser.

The federal Minister for Small Business, Michael McCormack MP, has said he is “in awe” of what brokers do and is urging them to email him to highlight any areas where bureaucracy can be reduced.

Speaking at a breakfast meeting hosted by the Mortgage & Finance Association of Australia (MFAA) in Sydney yesterday, the small business minister and representative for Riverina, NSW, said that government “values what [brokers] do” and wanted to help reduce the “burden of bureaucracy” on small business owners.

He said: “What really struck me from the people [I met today] is the fact that your sector does face challenges. There is no denying that… You are facing many challenges and also many opportunities in what you do every day, driven by housing affordability, driven by the banking sector, driven by regulation and government — but also driven by such things as innovation and the need for your sector to get onboard.”

He continued: “I am in awe of what you do. I know how hard it is. I don’t just say that lightly [and] I don’t just say that because I’m the minister of small business, I truly am in awe of what you do…

“You’ve taken the leap of faith to be your own boss, to be someone who is the master of their own destiny and that takes a lot of effort and work.

“I know, and my government knows and appreciates, what you do. Not just for the small business sector but what you do for your customers, your consumers — those people who need finance, those people who need good advice — and that’s the sort of thing you people are doing each and every day.”

The minister added: “You’re starting very early in the morning and finishing very late at night and sometimes when you get home you’ve got more paperwork, courtesy of our government, and that’s what we’re trying to cut through as much as we can; that regulation over-reach.

“That’s why we’re trying to cut through some of the bureaucracy. And if there are examples in your sector, in your industry, of federal government bureaucracy paperwork that you feel is a little bit onerous or a little bit replicated in some other areas of state, please let me know.

“It’s not hard, just google my name and flick me an email or flick it to your industry body. Because we want to lift the burden of bureaucracy, as much as we can as a government, from you.”

Noting the MFAA’s earlier statement that there were 17,000 mortgage brokers in Australia, Minister McCormack said that although a “mere handful” were at the Sydney event, they were a “very important handful” given the fact that Sydney is “a driver of much of Australia’s economy”.

He explained: “What you people do for your customers here in Sydney is so, so vitally important. You’re assisting with not just home loans mortgages but financing many small businesses. This is as many bank branches reduce their retail footprints… making brokers the only source (in some areas) of financial services for what, I would say, is a growing customer base. That’s one of the reasons why your industry is so strong and we as a government want to make it stronger…

“Brokers now do more than half of all home loans and that is exactly what our government wants to see – you people ‘having a go’. And it’s important that its incumbent on government to make policy setting as easy for you to be able to actually have that go, to back yourself to do what you have done so well, for so many years.”

Brokers ‘generally get it right’

Taking a moment to drink some water, Minister McCormack noted that he was drinking from the same glass that MFAA CEO Mike Felton had used and joked: “If you can’t trust a mortgage broker, who can you trust?”

Continuing on the theme of trust, the minister touched on the recent ASIC remuneration review.

He commented: “This was finalised last month and what they found is that, as you would know, current ownership remuneration structures could create conflicts of interest and lead to poor outcomes for consumers. and of course, none of us want to see poor outcomes for consumers, not least of which government, but also not least of which you, the people in this room. Repeat customers, repeat businesses are what makes your small business great.”

Noting that the review didn’t recommend government action, but instead asked the industry to provide feedback, he said he “agreed wholeheartedly with that approach”.

“The government values this industry very, very highly. We put you up there, we really do. And I do personally, and I know people in this sector from my dealings over the years… that you people generally get it right. You generally get it right 99.9 per cent of the time. So that’s across industry models across Australia [and] is pretty darn good. The government wants to help you, and I know you want to help yourself, so I encourage that you engage with the review process.”

He concluded: “More transparency leads to better outcomes to consumers and that makes your industry more sustainable.

“Ultimately, it’s the best outcome for everyone and that’s how the industry will continue to grow and that’s what the government wants.”

Banks exposed to mortgage broker risk

From Investor Daily.

The Australian mortgage market’s heavy reliance on brokers increases system-wide bank risk, warns Spectrum Asset Management.

In a ‘Spectrum Insights’ article released recently, Spectrum Asset Management principal Damien Wood put forward his views that the third-party channel is a significant risk that could spark problems for Australia’s banks.

Mr Wood noted that while high levels of household debt and interest-only mortgages have received plenty of attention, Australia’s preferred home loan channel is also a cause for concern.

“Spectrum sees another potential source of pain for Australian banks – the heavy reliance on mortgage brokers,” he said.

“Around half of the mortgage market originates from brokers. These agents can be far more financially motivated than bank branch employees to sell mortgages.”

Mr Wood likened the risks associated with Australia’s use of mortgage broking to the pre-financial crisis in the United States, where he said controls and borrowers’ best interests are “subordinated behind brokers’ financial gain”.

“System-wide, this high reliance on brokers is a concern. At the individual bank level, it may also be a key differentiating factor in a bank’s financial health should Australian mortgage losses start to rise,” he said.

The crux of Mr Wood’s argument came down to remuneration. He argues that brokers are primarily motivated by commissions, unlike bank staff, who, he says, are motivated by a “broader range of benefits – cornerstone of these factors is a career as a banker”.

Mr Wood said that the downside for a mortgage broker, if bad loans are written, is some foregone trailing commission in the future.

“However, the downside for a bank employee is job loss and potentially lost hopes of continuing in the field of banking,” he said.

Mr Wood fears that the “extensive use of mortgage brokers and embellished loan applications” will cause financial pain among lenders when borrowing conditions in Australia deteriorate.

“At Spectrum, should we foresee mortgage stress rising, we will look to further scale back our underweight position in Australian banks,” he said.

In an effort to compare the current Australian home loan market to pre-GFC America and the era of ‘liar loans’, Mr Wood pointed to a 2016 UBS study in Australia that found 28 per cent of mortgagors claimed to have factually inaccurate applications.

“The ratio rose to 32 per cent for those using brokers. What is worse is that the study found 41 per cent of those who lied in their applications did so at the encouragement of their brokers!” he said.

“Of course, many brokers are honest and we suspect the bulk of the borrowers using them are creditworthy. Banks, however, are leveraged around 15 times. It takes just a small amount of mortgage losses to make a big dent on profits.”

The UBS report was condemned by the FBAA when it was first released in October last year.

The FBAA’s Peter White questioned the accuracy of the entire survey, highlighting that the number of people purportedly surveyed represented only an estimated 0.09 per cent of all mortgages settled over the two-year time period.

He also pointed out that the study’s figures were inconsistent with APRA and industry data, and emphasised that there was “zero credibility” in the claims of borrowers who admit 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,” he said.

MFAA boss rejects Sedgwick review, slams commission reforms

From The Adviser.

The association has warned that Sedgwick’s recommendations will give the banks “complete oversight” of brokers, erode independence, and further empower the major lenders.

The Mortgage & Finance Association of Australia (MFAA) has expressed serious concerns with some of the themes outlined in the Australian Bankers’ Association’s (ABA) Review, conducted by Mr Stephen Sedgwick AO, into commissions and payments, calling on banks to align with the “well-considered ASIC process” that is currently underway.

The association stressed that ASIC has recommended that the framework for the industry’s incentive structure should largely be left in place.

MFAA CEO Mike Felton said that while the ABA Review made a number of observations and recommendations regarding the third-party channel, it did not present realistic solutions.

“This is a review commissioned by the banks that aims to deal with the banks’ reputational problems, but as far as the broker channel is concerned does not create better consumer outcomes,” Mr Felton said.

“We are frustrated that this Review claims to be focused on a ‘customer-centric’ view. Brokers and aggregators already have a customer-centric view. Indeed, they are dependent on a relationship model and must focus on their customers in order to survive,” he said.

“The Review’s recommendations on the third-party channel appear to be based mostly on anecdotal evidence from its members. It is unfortunate that the Review process did not include meaningful consultation with the broader industry in developing this report.”

Mr Felton said there is no evidence provided in review that links consumer detriment to the current remuneration structure.

“This lack of poor customer outcomes has likely driven ASIC’s recommendation to leave the current commission structures in place, with a view to reviewing them again in four years to determine if consumer outcomes were affected by the potential conflicts identified by its Report,” he said.

“This was supported by comments made by ASIC chairman Greg Medcraft after the Report’s release, in which he said that brokers deliver great consumer outcomes, and that lenders are still responsible for lending.”

While the ABA Review assumes consumer detriment as a result of anecdotal evidence, Mr Felton pointed to MFAA data, which demonstrates that consumers are very happy with their brokers. The industry grew by 4 per cent in 2016, and 92 per cent of consumers reported they were ‘satisfied’ or ‘very satisfied’ with their broker’s performance, according to a 2015 Ernst & Young study.

“The data shows default and other metrics are closely aligned with outcomes driven by lenders’ staff,” Mr Felton said.

The MFAA boss further highlighted that the Sedgwick review recommends changes that go significantly beyond those recommended by the ASIC report, seeking to adjust or remove current incentives for mortgage brokers and potentially implement a lender fee-for-service approach.

“The ASIC Report does not recommend removing the link between loan size and commission, nor a fee-for-service model nor removal of trail commission — with good reason. A single, lender-funded, fee-for-service is likely to lead to a degree of standardisation of all fees, which ASIC is not calling for,” he said.

“It may also be considered anti-competitive by the ACCC, and therefore would not be able to be implemented. Ultimately, ASIC concluded these actions are not required because they do not create better consumer outcomes.”

The Review, which was released yesterday and included 21 recommendations, suggested that banks adopt, through negotiation with their commercial partners, an ‘end to end’ approach to the governance of mortgage brokers that approximates as closely as possible a holistic approach broadly equivalent to that proposed for the performance management of equivalent retail bank staff.

In effect, broker commissions would be governed by similar principles that banks would apply in assessing performance against a scorecard for their staff.

“Some commentary has questioned the role of ABA or the banks in this matter,” Mr Sedgwick noted.

According to Mr Felton, the Sedgwick review is essentially recommending a consolidation of power to lenders, giving them complete oversight of mortgage brokers.

“This would lead to a reduction in independence, would do little to enhance competition and tip an already precarious power balance further towards the big four and away from consumers’ interests,” he said.

Mr Felton said he believed the Review sought to re-interpret the ASIC report, providing unnecessary solutions to issues that ASIC had already reviewed and put aside.

“What really matters, in terms of remuneration, is the ASIC process and the regulatory outcomes from it. ASIC’s approach is considered and well-informed, and is based on extensive data and consultation with all parties,” he said.

Major banks to change broker commissions

From The Adviser.

Australia’s big four banks will make significant changes to the way mortgage brokers are remunerated after they agreed to implement all recommendations of the Sedgwick review.

The final report of the Retail Banking Remuneration Review conducted by Stephen Sedgwick AO, released yesterday, made a number of recommendations relating to mortgage broker remuneration. These will see volume based incentives and ‘soft dollar’ payments scrapped, and for banks to cease the practice of increasing the incentives payable to brokers when engaging in sales campaigns.

The review also recommended that banks adopt, through negotiation with their commercial partners, an ‘end to end’ approach to the governance of mortgage brokers that approximates as closely as possible a holistic approach broadly equivalent to that proposed for the performance management of equivalent retail bank staff.

In effect, broker commissions would be governed by similar principles that banks would apply in assessing performance against a scorecard for their staff.

“Some commentary has questioned the role of ABA or the banks in this matter,” Mr Sedgwick noted.

“However, banks have a legitimate interest, especially because they both provide the funds that support the operations of mortgage brokers and bear the risks (financial and potentially reputational) if a loan is inappropriately large or inappropriately structured,” he said.

“Ultimately, a commercial negotiation would be required to establish such arrangements and preserve the financial viability of the mortgage broking industry.

“In broad terms, average remuneration per brokered mortgage may not be dramatically different to the current remuneration, but the risks (perceived and actual) of poor customer outcomes would be reduced. I would envisage that some form of trail payments would continue, with trails under existing arrangements ‘grandfathered’.

“To be clear, it is a fundamental principle of this recommendation that, in any new arrangements, competition should be preserved and the viability of the mortgage broking industry maintained. It is for this reason that client funded fee arrangements are not supported by the Review.”

Mr Sedgwick strongly encouraged ASIC to participate in the transition, particularly in light of potential issues with banks adopting the recommendation.

“I therefore propose that the banks with a significant recourse to the mortgage broker channel move to investigate and, as soon as possible, adopt an alternative payment system with strong oversight by ASIC,” he said.

CBA looks set to move quickly on the recommendations, with chief executive Ian Narev confirming that the bank will implement many of the recommendations by 1 July and will have “all changes in place” by the following financial year.

CBA group executive retail banking services Matt Comyn said the changes will involve significant reform.

“The recommendations affect all of our customer-facing teams, including branch, call centres, and mortgage brokers. Implementing them will require extensive consultation across a range of stakeholders, which we will commence immediately,” Mr Comyn said.

ANZ also confirmed that it will implement the recommendations.

“ANZ will work with both the broker industry and relevant regulators to implement the recommendations,” the bank said.

Meanwhile, NAB chief customer officer, consumer banking and wealth, Andrew Hagger, said the group is strongly committed to improving customer outcomes and building trust in the banking industry.

“These recommendations are a significant step for the industry and will require focus, discipline and strong leadership to implement them,” he said.

“In October last year, NAB committed to the Sedgwick reforms and now that we have the final recommendations our focus is to implement them well ahead of the 2020 deadline.”

In relation to the recommendations that impact third parties including mortgage brokers and aggregators, NAB agrees with Mr Sedgwick that any changes to their remuneration structure should be “viable” and “competitive”.

“We see mortgage brokers and other third parties as an important part of the future of our business. We will be working closely with the industry, Treasury and with the regulators, ASIC and the ACCC, to make sure we get the right result for our customers and the industry,” Mr Hagger said.

NAB does not pay volume-based incentives on residential mortgages to mortgage brokers

Broker numbers growing 6 times faster than lending

From Mortgage Professional Australia.

Risk of saturation in NSW and Victoria as broker numbers surge ahead of lending growth, new MFAA report reveals

Broker numbers grew by 6.4% in the six months to September 2016, whilst the value of new loans grew by just 1.1%, according to the MFAA’s latest Industry Intelligence Service Report.

The IIS found that in New South Wales the market actually contracted, by 4%, whilst broker numbers grew by 5.5%. In Victoria lending grew by 1.7% but the number of brokers increased by 7.5%. Growth in lending was concentrated on Tasmania (17.9%), South Australia (9.8%) and Queensland (8.3%), in the latter two cases outpacing the growth in brokers.

Over the period of study, from April to September, the share of loans written by brokers actually fell from 53.7% to 53.6%

The MFAA’s findings suggest broker-broker competition in NSW and Victoria is set to increase. Over the period of study, from April to September, the share of loans written by brokers actually fell from 53.7% to 53.6%, indicating new brokers entering the market may not be able to simply take market share from banks. Overall Australia now has almost 16,000 brokers.

Brokers are already being hit by such competition, the IIS data suggests, as 18% of brokers failed to settle a single loan in the six-month period, up 2% on the preceding six months. Presenting the results to brokers, MFAA head of marketing & communications Stephen Hale commented that: “I must admit that is something that certainly would be concerning. When you’re heading towards one in five not settling a loan, we’d have to ask ‘Why is that happening?’”

Hale suggested the result could be due to new-to-industry brokers who were yet to perform as well as experienced living off trail commission. In a separate finding, the MFAA reported that conversion rate for new loans had fallen by 7% and was now on average 73%, driven by conservative lending policies and more inexperienced brokers entering the market. Furthermore, the rate of broker turnover now stands at 8.6%.

More encouragingly, the number of female brokers is growing faster than that of male brokers, at 8.7%, suggesting broking is moving towards a more even gender balance. At present women make up 28% of the industry.

‘Tweaks’ to broker commissions not going far enough, says CHOICE

From Mortgage Professional Australia.

Consumer group sets out views on remuneration, soft dollar benefits and ‘not unsuitable’ obligations in exclusive interview with MPA

Brokers remuneration is “adding fuel to the fire” of Australia’s overheated housing markets and “needs to change”, according to consumer advocacy group CHOICE.

In a frank interview with MPA, head of campaigns and policy Erin Turner said that ASIC’s Review into mortgage broker remuneration showed how percentage based commissions encouraged consumers to take out bigger loans, putting them at risk: “we’re definitely taking a position that the current structure is unsuitable and it needs to change.”

Turner praised reforms in the financial advice sector, where commissions have been banned, whilst noting that may not be the solution for broking. However commission is just one of several issues exposed by ASIC’s review, according to Turner: “I know there are some parties that are saying the sector only needs tweaks. I worry about that spin: I think the message brokers need to hear is this report is significant, this report has many major findings that the outcome this sector is delivering to consumers isn’t ok…we’re not talking about a tweak: we’re talking about reform”.

Soft dollar and volume-based incentives have come under fire from many, although CHOICE is not entirely opposed: “obviously there are some things that are perfectly balanced: education – and we’re not talking about an education cruise in the Caribbean for high-performing brokers – but genuine education programs.”

ASIC’s review also found instances of broking franchises sending disproportionately high numbers of loans to the lenders that owned those franchises, naming CBA-owned Aussie Home Loans and NAB’s aggregators. Turner suggested that, rather than through increased disclosure, such problems of vertical integration could be tackled by raising the obligations upon brokers.

“We have to lift the obligation on brokers and I’ve been surprised how open some consumers are to discussing this. A ‘not unsuitable’ loan isn’t what consumers expect they’re getting and I don’t think what a lot of brokers think they’re giving either”

CHOICE also called for more transparency of referral networks and broker cross-selling, possibly through ASIC’s separate shadow-shop of mortgage brokers later this year. CHOICE will be setting out their views and potential solutions in a submission to the Treasury by the end of June, after which the government will determine which suggestions become law.

Major bank reveals lack of ‘clarity’ around aggregator oversight

From The Adviser.

A big four bank has acknowledged that data quality and public reporting could be further improved in the mortgage industry, revealing it ‘does not have clarity’ around some aggregator data.

Speaking last week at the final leg of the second series of the Knowledge is Everything: ASIC Review of Mortgage Broker Remuneration — put together by NAB and Advantedge in association with The Adviser — NAB general manager for broker distribution Steve Kane touched on Finding 13 of the report, which notes that the regulator encountered “significant issues with the availability and quality of key data” from some participants.

According to the remuneration report, the lack of some data requested “affected [ASIC’s] ability to analyse the data for some of [its] core review objectives [and] raises concerns with the participants’ ability to monitor consumer outcomes in relation to their businesses”.

Some of the examples of the lack of data included an inability by a lender to “automatically track whether a particular loan was arranged by a particular individual broker or broker business”, which “increases the risk that lenders may be dealing with unlicensed persons” and “means that lenders have little visibility of patterns of poor loan performance connected to these individuals or businesses”.

At the NAB event, Mr Kane acknowledged that there was further work to be done in this area.

He said: “This is an interesting one. As a lender, we have lots of information on individual brokers and the loans they submit and we have lot of information about aggregators and their total portfolio… but we don’t have, for example, lots of information about any individual firms that operate (with many brokers under them) under that particular aggregator. That is just one example. So, we don’t have clarity around that.”

Mr Kane added that it is therefore “fair to say that the aggregators will be working much more closely with lenders around data” in the future.

The general manager for broker distribution went on to say that, through Proposal 6*, it was “clear that ASIC expected brokers to obviously adhere to NCCP, responsible lending and compliance issues around maintaining a licence, having your own ACL or being accredited under someone else’s’ ACL… [and that] the aggregators need to understand that brokers are actually compliant with all of those things… [and] actually be able to provide evidence of that and good consumer outcomes too”.

He added: “And they’re saying that the lenders need to do that as well…[they] need to ensure the aggregators have the proper information, proper record keeping, and proper understanding of the roles and responsibilities in relation to the legislation and good consumer outcomes.”

Public reporting regime

As well as improving oversight of brokers and broker businesses, ASIC has also proposed to Treasury that there be a new public reporting regime to “improve transparency in the mortgage broking market” (Proposal 5).

Specifically, this proposes that there be public reporting on:

(a) the actual value of remuneration received by aggregators and the potential value if all criteria for remuneration are satisfied;

(b) the average pricing of home loans that brokers obtain on behalf of consumers;

(c) the average pricing of home loans provided by lenders according to each distribution channel; and

(d) the distribution of loans by brokers between lenders to give consumers a better indication of the range of loans that brokers within the network offer.

Touching on this proposal, Mr Kane said that one such solution could be that brokers give their customers “information that says ‘I’ve settled 50 deals this year, I’ve used this number of banks, I’ve obtained this amount of finance and this has been the price on average I’ve achieved for the customer’. It could get down to this level, which is very important in terms of disclosure to the customers,” he said.

“This all goes to the governance of oversight perspective, which is really now starting to say: ‘Do we, as an industry, have a clear understanding of all of the consumer outcomes that brokers are providing to their customer? Do we have proper understanding of whether NCCP responsible lending is met at every instance for the customer? Do we have a robust process to identify when a broker has done wrong thing and therefore the accreditation has been removed from lenders and aggregators? Do we have a clear line of sight and understand what the process is for those people? Do we have a much stronger regime in relation to a register of all of these ‘bad apples’ and how do we go about doing that? How do we go about ensuring that the end consumers know that they are not to be dealing with those people?’”

Mr Kane concluded: “When it comes to governance and oversight, it really is about accountabilities and responsibilities and understanding that disclosure to the customer about all the facilities that are available to them.

“So,” he said, “you can see that there is going to be far more reporting available to the public around these things.”

“Governance and oversight will play a much bigger role and therefore there will be much more work an information sharing and much more collation of performance and outcomes for consumers.”

The Knowledge is Everything: ASIC Review of Mortgage Broker Remuneration — put together by NAB and Advantedge in association with The Adviser — also revealed that the big four bank believes that Australian brokers could achieve up to 73 per cent market share if reaction to the ASIC remuneration review is “right”.

NAB’s executive general manager for broker partnerships, Anthony Waldron, told brokers that the industry reaction to the current consultation on the ASIC report could further boost the third-party share of the market by improving trust.

Mr Waldron said that there is an “opportunity” if “industry can react and get this right”.

He explained: “It’s the opportunity for more people to understand what brokers do, it’s the opportunity to build trust even further in what you do. And if we can do that then we won’t be talking about 53 or 54 per cent of mortgages going through the broker community, we will be talking about more like the numbers in the UK where it is already in the 72 or 73 per cent.”

*Proposal 6 of ASIC’s Review of broker remuneration states that the regulator expects lenders and aggregators to improve their oversight of brokers and broker businesses, for example by using a consistent process to identify each broker and broker business (such as the use of the Australian credit licensee or credit representative number where relevant, or a unique number provided by the aggregator).

Majority of brokers expect more out-of-cycle rate hikes

From The Advisor.

A recent survey has revealed that 85 per cent of brokers believe there are more out-of-cycle rate hikes in the pipeline, which will create challenges for existing mortgage holders.Online mortgage marketplace HashChing undertook a survey recently, which found that the majority of brokers see further out-of-cycle rate increases on the horizon.

The survey’s results come after a series of lenders have lifted their home loan rates over the past couple of weeks.

The big four moved first, with Commonwealth Bank the last of the majors to announce changes when it revealed on Friday (24 March) that it would be increasing interest-only investment home loans by 26 basis points.

Other lenders have since followed suit, with a range of non-bank lenders and specialist lenders alike moving to increase rates, particularly for investment lending.

Commenting on the findings of the survey, former CEO of the MFAA and current chief operating officer of HashChing Siobhan Hayden emphasised that brokers believe these rate increases are likely to continue.

She highlighted that for consumers, the impact of this trend continuing is that they will potentially be paying more than they need to.

As these challenges arise for existing mortgage holders, brokers are uniquely positioned to help their clients, Ms Hayden told The Adviser.

“Rather than have customers set and forget their loan, they can engage with brokers to understand their current position, and whether there are better offerings for them in the market,” she explained.

She highlighted the value that brokers can bring to consumers, particularly in such an environment, “Consumers that don’t understand our sector may look at their first priority as being the interest rate. [For example,] when a customer starts talking to a broker on a Tuesday of the week but wants to go to auction on a Saturday, suddenly the turnaround time for pre-approval is far more important than whether you get a 3.7 or 3.8 per cent interest rate.

“There are so many more variables that come into play, and that’s that value that brokers provide.”

Rate hikes will drive borrowers to smaller lenders, brokers say

Of the brokers surveyed by HashChing, 97 per cent believe that the out-of-cycle rate increases will drive borrowers to smaller lenders and non-bank lenders.

“I think there’s a couple of reasons for this,” Ms Hayden said. “In the retail space, consumers will obviously work with lenders that have a bricks and mortar location, which tends to be your majors. So, someone like Suncorp out of Queensland doesn’t have a strong footprint in all the other states, but the brokers provide that distribution for them, same with ING, and the Bank of Melbourne outside of Melbourne, etc.

“So, all the second-tier lenders, all the non-majors are ones where brokers provide a significant benefit in relation to distribution. So, when it comes to brokers assisting their customers, it’s a really good time to understand whether they’re an owner-occupier or investment customer, and then looking at what the current rates are available, and from our survey, brokers are interpreting that the second-tier lenders may be a stronger fit for customers at this current point.”

Further, the survey found that 77 per cent of brokers believe that smaller lenders will continue to offer rates below 4 per cent for owner-occupiers, but almost 93 per cent don’t believe smaller lenders will do the same for investors.

In light of this, Ms Hayden told The Adviser that brokers should be supporting their investor clients by looking at the full market available.

“[They can] better communicate to customers the current cap on investment lending, which is being applied through APRA. It’s a current market condition which is pushing interest rates up in that space, so it’s about engaging customers on that matter,” she elaborated.

Ms Hayden added that the current interest rate environment, along with tighter lending standards from APRA and ASIC, presents an important time for brokers to look at providing their existing customers with detailed communication about current market changes and re-engage with them.

“[Brokers] have a CRM and a full database of customers that they’ve worked with. They often do post-settlement engagement, including newsletters and RBA alerts, interpreting information of the current loans that they have with customers.

“Brokers should target communication to those customers that may be investor or owner occupied, particularly if the rate that they’re currently on are high, and look at what they’re currently doing and how they can better assist them,” she concluded.

Mortgage fraud increasing year on year

From Australian Broker.

The number of cases of mortgage fraud has been on the rise, with brokers warned to look out for falsified documents supplied by clients seeking unsuitable loans.

 

“Unfortunately, fraud continues to increase year on year,” said Paul Palmer, Connective’s compliance support manager, at the aggregator’s professional development day in Sydney on Thursday (23 March).

“The technological advancements of digital applications enable people to create documents or change existing documents to be more and more authentic looking.”

The aggregator has seen statements that lenders could only identify as fraudulent because they had no record of issuing them, Palmer said.

“Obviously, you can’t expect brokers to pick that up. Fortunately for us, most people trying to commit fraud aren’t that good. They always make spelling mistakes, a typo, or they get their mathematics wrong.”

As fraud investigations are inherently unpleasant for both broker and aggregator, Palmer urged a proactive rather than reactive approach.

To do this, he suggested brokers undertake all due diligence, meet required responsible lending obligations, cross check & verify all documents provided by the customer, and look for inconsistencies.

“We see a lot of differences in fonts, in key financial data, and also, as I said, a lot of mathematical areas. Run their payslips through the pay calculator and you’ll be amazed at how often that finds something.

“One of the biggest ones I found over the past 12 months is where there were two payslips and they forgot to change the accrued annual leave entitled from payslip to payslip; which we would expect to change. It’s a very common mistake.”

If it is impossible to meet the customer face-to-face, Palmer encouraged brokers to mitigate any risks by becoming familiar with conditions that lenders set up to accept remote broker-client meetups.

“From our perspective, a good thing is to get certified ID. Through Skype or Facetime conversations, get a snapshot of their ID. It fulfils an obligation to show you actually know who you’re dealing with.”

Finally, Palmer warned brokers to put themselves in the right mindset when it comes to fraud.

“Don’t think that you can’t get caught,” he said. “Unfortunately, there’s been a significant increase in the amount of referrals looking to give loans to mortgage brokers. In particular new-to-industry brokers have been targeted by people who have clients that can only service or get a loan through submitting fraudulent documentation.”

He urged brokers to do due diligence on their referrers as well.

“Make sure you’re comfortable with them as people, make sure they’re people you do your own business with yourself, and don’t trust anything they give you more than anything provided by your clients. In some ways, you need to be more skeptical.”