Speaking after the release of the Australian Securities & Investments Commission's (ASIC) Review of mortgage broker remuneration on Thursday (16 March), chairman Greg Medcraft told ABC’s program The Business that “the bottom line is that brokers deliver great consumer outcomes”.
When asked by host Elysse Morgan about the report’s finding that brokers “generally provide bigger and riskier loans” than those coming directly through lenders, Mr Medcraft responded: “One of the observations was that loans [written through the broker channel] are larger, [and] generally a lot of time interest only… [but] I think you need to think about looking at what the banks are showing in terms of the results of their mortgage portfolios before you can really draw any conclusions from that statistic.”
When asked by Ms Morgan whether mortgage stress would “pop up in areas of broker activity” should interest rates go up, Mr Medcraft stated that it was “very hard to call”.
He said: “[I]f the lending has been in a higher loan-to-value or interest-only loans, that could be an area of more stress. But that is possibly because people who are looking for these sorts of loans go through mortgage brokers, but it depends… the channel shouldn’t necessarily be blamed.
“What we have to remember at the end of the day, the lenders themselves are still responsible for the lending. Let’s not get away with the fact that the lenders still are the responsible parties doing the lending. Let’s not blame the brokers. They [the lenders] still are responsible, they still have responsible lending obligations. So, let’s look at, not the channel, but back to where the lending occurs, that’s most important.”
Indeed, the ASIC chairman later highlighted that ASIC was taking Westpac to court over responsible lending practices, and was “in talks with 11 other lenders”.
He said: “Usually, when we’re talking to lenders that usually means that we think that they might have broken the law… We are looking, we believe there could be problems but at this stage until we actually charge someone, there can be no inferences drawn...
“It’s actually about a shot across the bow – saying we’re out there, we’re looking, [if] you do the right thing, there’s nothing to worry about. But we’re doing our job, we’re out there, the cops on the beat and making sure that people can have trust and confidence.”
‘Brokers deliver great consumer outcomes’
Touching on the broker proposition, Mr Medcraft said: “One thing I want to underline on that report is that we have had some findings that are available to the public, we’ve got some proposals, but what the bottom line is, is that brokers deliver great consumer outcomes, they deliver competition, and yes, there’s some fine tuning, but generally – the result, I believe is very positive.”
Touching on ASIC’s recommendations to government, the chairman said: “What we’ve said in this report is that clearly, remuneration structures drive behaviour, and we said three things. One, the basic standard commission structure is OK, but needs fine tuning. Perhaps to think about the issue of looking at how you pay; perhaps rather than paying on amount, pay on LVR/the risk. Secondly, we’ve said that volume bonuses should be looked at and probably got rid of, because it’s not fair… and doesn’t necessarily result in maybe good consumer outcomes or a level playing field in terms of competition.
“We don’t necessarily want volume, we want good quality loans,” he said.
Remuneration report recommendations
ASIC’s report into broker remuneration was released on Thursday and made six main proposals to “improve consumer outcomes and competition in the home loan market”.
- changing the standard commission model;
- moving away from bonus commissions and bonus payments
- moving away from soft dollar benefits;
- clearer disclosure of ownership structures within the home loan market to improve competition;
- establishing a new public reporting regime of consumer outcomes and competition in the home loan market; and
- improving the oversight of brokers by lenders and aggregators.
Several industry heads, including the MFAA and FBAA, have voiced their support of the report recommendations, with Anthony Waldron, executive general manager for NAB Broker Partnerships, also stating: “We support the report’s findings that increased transparency for consumers is a good thing, which is one of the reasons we have never paid volume-based incentives on mortgages.
“We will continue to work with industry and government to ensure customer outcomes are strengthened and to build greater trust and confidence in the mortgage broking industry.”
Likewise, Mortgage Choice chief executive officer John Flavell welcomed the report, especially noting that ASIC recognised the “important role” brokers play in “promoting good customer outcomes and driving competition in the home loan market”.
“We have had a look at ASIC’s report and it is obvious that the regulator believes mortgage brokers provide a tremendous amount of value to consumers,” Mr Flavell said.
“In addition, they believe the logic behind the current commission model, which involves an upfront and trailing commission payment, is sound, but believe there is the potential to make some subtle changes around the fringes of the current remuneration structure.
“We have supported ASIC’s Review of mortgage broker remuneration investigation from the beginning, and have worked closely with the regulator throughout the process,” he said.
“We look forward to continuing our work with the regulator and conducting ongoing consultation with the Treasury over this next period.”