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Major bank concedes brokers were ‘bypassing’ mortgage controls

by James Mitchell6 minute read

A big four bank has faced another round of questioning before the royal commission over customer expenses, the broker channel and its white label lending programs.

NAB’s EGM of consumer lending, Angus Gilfillan, appeared as a witness yesterday where he was grilled by the counsel assisting the financial services royal commission, Rowena Orr, QC.

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Ms Orr focused on customer expenses, reading out a statement from Mr Gilfillan in which he describes the type of controls built into NAB’s home loan assessment process.

The EGM’s statement reads: “Each application was submitted for a credit reference check and when a customer’s expenses were lower than NAB’s stipulated benchmark, the banker or broker would be notified to have a further discussion with the customer to ensure their expenses were truly reflective of their situation.”

Mr Gilfillan confirmed that the stipulated benchmark in question is the Household Expenditure Index (HEM).


“HEM is the floor by which expenses are assessed for customers when determining customer serviceability to repay a home loan,” the EGM explained.

Ms Orr noted that ASIC’s report on mortgage broker remuneration characterised HEM as being a conservative measure of expenditure, rather than a typical or average figure.

“Which means that many customers would have higher expenses than HEM,” Ms Orr said. “Are you aware of concerns about how brokers are using the HEM benchmark? What concerns are you aware of?”

Mr Gilfillan replied: “That across the industry, there is a greater proportion of loans originated by brokers at or around the HEM measure in terms of declared expenses.”

Ms Orr cited an EY report into NAB from April 2017, in which the professional services giant described the use of HEM, particularly through the broker channel, as an area of concern.

The report reads: “During our analysis of the portfolio data, it was reported that a significant volume of customers had reported general living and entertainment expenses within their loan applications that were effectively equal to HEM or within 0.5 per cent. Of this proportion, 48 per cent of those loans were originated through the NAB broker channel.”

“EY described this as an area of concern,” Ms Orr said, “and the reason for that concern is NAB’s serviceability calculator defaults to the higher of HEM and the customer’s GLEE, which is the General Living and Entertainment Expenses.

“So, as a result, where brokers substitute a customer’s expenses with HEM, they are bypassing one of NAB’s primary serviceability controls. Do you agree that is the effect of this conduct?”

“Yes,” Mr Gilfillan confirmed.

The report records that EY’s discussions with NAB identified that the bank was aware of the issue.

White label lending in the spotlight

Mr Gilfillan was also asked about NAB’s white label products, which he said allowed different customer segments to be serviced. He said that he believes it was important to both customers and aggregators that the products are not badged as NAB loans.

Ms Orr asked why this was important to customers.

“It’s a slightly different proposition. It is a slightly different product to the NAB product suit. It has different features and sometimes different pricing as well,” Mr Gilfillan said.

The NAB executive explained that white label home loans are processed through a manual credit decision-making process, whereas its branded loans go through an automated decision-making platform.

[Related: Royal commission reveals allegations of bribery at NAB]

Major bank concedes brokers were ‘bypassing’ mortgage controls
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James Mitchell

James Mitchell


James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.


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