There has been a sharp increase in the use of mortgage referrers, such as real estate agents and developers, whom are being paid “almost as much” as mortgage brokers in commissions “despite doing much less”, according to the financial services regulator.
ASIC’s Review of mortgage broker remuneration, which was released for consultation last week, included 13 findings about mortgage distribution and the home loan market.
Notably, the regulator highlighted that those who merely refer consumers to lenders are paid “almost as much as brokers”, despite “doing much less”.
The regulator described mortgage referrers as individuals or businesses that provide a referral service to lenders or brokers.
“Some of the most common referrers are real estate agents, financial planners, accountants and lawyers. However, referrers may also include other types of individuals and organisations, including property developers and non-profit organisations,” ASIC said.
The number of referrals being made to lenders, either by the referrer directly or through a referrer aggregator has increased significantly.
According to ASIC, the total number of home loans sold after a referral increased from 8,124 in 2012 to 26,106 in 2015, representing an increase in value from $3.3 billion to $14.6 billion (22.6 per cent).
ASIC noted that more than 87 per cent of those sales were by two major banks.
Referrals by professional services businesses (either directly or through a referrer aggregator) made up the bulk of referrals, with one out of three of these referrals coming through a referrer aggregator.
“We found that referrers are paid almost as much as brokers. Like brokers, they receive an upfront commission when a loan application is successful.”
ASIC found that on average, lenders paid 0.46 per cent of the loan amount as an upfront commission, although for some groups of referrers this was as much as 0.56 per cent.
“This level of commission-based remuneration is paid even though referrers play a very limited role,” the regulator said.
“The referrers we reviewed all operated under a licensing exemption. Under this exemption, they are permitted to merely refer a consumer to a lender, and in doing so they are required to disclose what remuneration they may receive. They cannot provide advice to consumers, or assist them in applying for a home loan. Referrers are also not subject to the responsible lending conduct obligations in the National Credit Act.”
ASIC asked lenders and aggregators whether they sought to restrict brokers from passing on some of their commission to referrers. No lenders reported that they sought to impose such restrictions.
“Around one-third of aggregators reported that the referral agreement with the broker did include limitations,” according to ASIC.
“However, based on aggregators’ additional comments, these provisions did not appear to prohibit a broker from making such payments; rather, they appeared to require the broker to comply with the relevant legislative provisions.”
[Related: Remuneration report released]