The banks have said they are “conscious that brokers are small businesses [and will] require support”, and will be revealing their positions on trail commissions for loans with repayment deferrals this week.
Following on from the Australian Banking Association’s (ABA) announcement last week that its members would suspend principal and interest loan repayments for distressed small-business customers for six months – with several lenders offering repayment holidays for mortgage borrowers, too – questions have been raised around how trail would be treated on loans with deferred repayments.
The Adviser contacted the ABA to ascertain whether lenders would continue to pay trail on loans that fall under the COVID-19 assistance package.
In its response, the ABA voiced its support of the broker channel, but suggested that commercial agreements will be made by members on an individual basis.
A spokesperson for the ABA told The Adviser: “The ABA and our member banks acknowledge that mortgage brokers play an important role in supporting competition in the home-lending market.
“They are also conscious of the fact that brokers are small businesses in their own right and will require support.
“Member banks are aware that these difficult circumstances may be impacting upon brokers.
“The industry is currently focused on rolling out the financial support packages for consumers and businesses impacted by the outbreak of COVID-19, but banks are also working through other aspects related to the mortgage broking channel,” the spokesperson continued.
“In coming days, individual banks will be in touch with brokers to confirm their approach on issues around face-to-face requirements and commission arrangements for brokers.”
FBAA and MFAA working to gain clarity
The broker associations and aggregation groups have been working on gaining clarity from the lenders on this matter since the package was announced last week.
Speaking to The Adviser, the managing director of the FBAA, Peter White, said: “We’ve been speaking to the ABA since the latter part of last week in regards to what would happen in regards to broker remuneration.
“We’re pleased to hear their support of the channel. I think there’s a great recognition from the ABA that brokers are small businesses, that they have a valuable proposition in the marketplace, and that they need support as well [as borrowers]. That is very much the case.
“But it really doesn’t answer the question. While I understand it’s difficult for the banks to actually finalise their individual positions, my position is that as this whole package is about actually helping people keep employing staff, or helping them keep their homes, through this coronavirus situation,” Mr White said.
“As these repayment holidays are part of a special package and is an option offered to borrowers, it is not the same as a loan going into arrears. It therefore doesn’t fall into a traditional default position. And that should mean that brokers’ trail should continue to be paid.”
Mr White concluded: “We’re all in incredibly uncertain and unusual times. I have been through countless recessions: I went through the GFC. but this is the one that’s rattled my cage more than anything else in the past.
“I think we need to ensure that we’re all supporting one another. This is a part of the banks’ obligations to support brokers and their businesses, because that’s how they have built their businesses over the last 25 years... It’s time now to ensure that they continue to support the clients that they have through the brokers that gave them those clients in the first place.”
‘We are confident this matter will be resolved’
The chief executive officer of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, told The Adviser that the organisation was “confident” that this issue would be resolved.
Mr Felton said: “The MFAA has been actively working on the potential trail issue on payment holidays, and we are confident this matter will be resolved.
“Quite clearly our industry is going to be even more critically dependent on trail in the weeks and months ahead – and it would be an exceptionally poor outcome for consumers and mortgage brokers if they were to be prejudiced due to circumstances beyond their control during this unprecedented event.”
The MFAA CEO continued: “From a competition law perspective, it is important that each lender individually makes their own determination on how to handle this.
“I am, however, greatly encouraged from the numerous ongoing conversations that I have had with lenders large and small, as well as the ABA, that there is acknowledgment of the critical importance of a sustainable broker channel in supporting competition in the home-lending market and that brokers are small businesses in their own right which will require support.
“I believe this will reflect in the individual lender announcements that we expect to commence imminently.”
The treatment of loan repayment deferrals under this new small-business loan package for small businesses that require assistance because of the impacts of COVID-19 has been the talking point for several days.
Credit reporting agencies and lenders have already outlined that the hardship arrangements are typically not reported as defaults, and therefore do not impact a borrower’s credit score, with APRA also stating today (23 March) that banks need not treat repayment holidays as arrears.
More to come.
[Related: Big banks offer mortgage repayment relief]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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