Major bank CEO defends brokers

Mr Falinski questioned whether issues raised by the commission (regarding misaligned incentives and alleged “misrepresentation” in mortgage applications) could shut the industry down.

The MP asked: “Are you not worried that out of the royal commission, where there has been a lot of pressure being put on incentives for brokers, for example, and a lot of claims that they have been the prime source of misrepresenting people’s incomes and expenses, that this is a particular channel that might get closed?”

However, in response, Mr Thorburn said: “Closing it down would be dramatic [and] extreme, given that over 50 per cent of volume coming through banks comes through brokers.

“Those brokers are, in many cases [licensed professionals] running a small business, so the impact on the economy and their livelihood would be dramatic.”

Mr Thorburn added that the bank is ultimately responsible for validating a borrower’s home loan application.

“We expect brokers to do certain things when they take details from customers, to pass that in full to us. We make the decision ultimately as to whether we will extend credit to the customer,” the CEO said.

“We look at their income, we definitely go through, in great detail, their expenditure to make sure they can afford it.”

He continued: “We require the customer, even though the broker is dealing with them, to be able to pay principal and interest back, even if they’re getting interest-only, and we require them to be able to afford 7.25 per cent [interest rate] per annum as a minimum, even though they’ll be paying a lot less in today’s rates.

“I do think we have a lot of checks and balances in that process, and I do think while the broker market needs to evolve, it’s playing an important role.”

Further, Mr Thorburn noted the competitive impact that the broking industry has had on the mortgage market, pointing to role it played in reducing interest rates when the industry emerged in the 1990s.

The NAB CEO also acknowledged the role that brokers play in helping clients navigate through the complexities of the mortgage market, making reference to the “blizzard” of home loan products offered by lenders.

However, echoing sentiments made by ANZ CEO Shayne Elliott, and Westpac CEO Brian Hartzer, Mr Thorburn said that there “needs to be some changes” to the broker model.

When asked by deputy chair of the committee and Labor MP Matthew Thistlethwaite whether the industry should move to a fees-for-service model, and if FOFA should be extended to brokers, Mr Thorburn called for greater clarity surround the payment of commissions but noted that the industry is already investigating the matter.

“Increasingly they’re [brokers] becoming more licensed and more professional, but I do think when the Sedgewick report was done, there was a conversation about [whether] they should be paid an upfront fee for a simple and a complex loan,” Mr Thorburn said.

“Should we make it clearer when we pay a trail to them? Obviously, that’s disclosed, but what they need to do for that, and I think those things are under serious investigation right now by our bank and also by the industry itself.

“We haven’t got to the end of that process, but I think, in short, there needs to be some changes in those areas.”

[Related: ANZ CEO chimes in on broker debate]