Major banks expected to ‘clamp down’ on commissions

During the first round of hearings, the counsel assisting the commission, Rowena Orr, asked those that had leave to appear to answer a range of questions relating to commissions, including: 

• Does the use of upfront and trailing commissions for remuneration of head groups and the brokers who submit loans through head groups lead to poor customer outcomes?
• Should upfront and trailing commissions be replaced with an upfront flat-fee payment?
• Is the first mover issue identified in CBA’s evidence a genuine commercial impediment to change in respect of the structure of broker remuneration? If so, what can and should be done to overcome that impediment?
• Will the program of reforms in the mortgage broking industry, announced by the Combined Industry Forum in 2017, ameliorate the conflicts of interest or any other issues that have been referred to in this case study? 

While many in the industry have outlined that there is little evidence to suggest that commissions lead to poor customer outcomes and warned of the “potential adverse consequences” of moving from the existing broker remuneration structure to an upfront flat fee, the HashChing survey shows that there is still widespread concern that banks could change broker remuneration once the commission releases its findings next year. 

“The knock-on effects of the royal commission are starting to rear their ugly head,” COO of HashChing Siobhan Hayden said.

She added: “Most brokers believe that the major lenders will clamp down on broker commissions — an issue that means brokers will need to explore ways to scale their business and ensure their business systems create efficiencies.

“The key to success will be ensuring client conversations are broader and capture customers’ needs related to insurance and other financial products.”

Further, the survey revealed that an overwhelming majority of brokers (93 per cent) said they had noticed that banks were examining borrower finances more methodically than they had in previous months. 

In recent months, several major banks have ramped up their mortgage approval processes by requiring more detailed information around customer living expenses. This follows intense scrutiny of the HEM Index by the royal commission. 

“The greater scrutiny on borrower finances by the major lenders is both a challenge and an opportunity for brokers,” Ms Hayden continued.

“Borrowers will need the assistance of experienced mortgage brokers now more than ever for their home loan applications, but there will also be greater pressure on brokers to meet the stricter requirements being enforced by banks.”

HashChing recently announced a partnership with global information solutions company Equifax to provide brokers with simpler online access to automated management of borrower income and expense records.

The company added that the partnership would also ensure that brokers comply with regulations by disclosing all income and expense information.

Equifax offers MOGO technology, which HashChing noted would provide its brokers with efficient and secure digital access to their clients’ complete 90-day transaction history, as well as the automatic sorting of any income and expense items within a possible 91 categories while also flagging risk factors before they start filing for a loan.

HashChing CEO Mandeep Sodhi said: “We anticipate that our brokers will feel better supported and have the tools needed to deliver an improved customer experience. Specifically, they will be able to turn loan proposals around faster, make better and more accurate loan product decisions, identify and avoid fraud, and help borrowers capture all relevant income and expenses.

“This will assist in protecting households from unnecessary mortgage stress by helping ensure they aren’t taking on loans that they can’t repay.”

HashChing takes a swipe at CBA

The HashChing survey also found that 70 per cent of brokers said that more clients have been inquiring about using non-bank or alternative lenders in the past month. 

Ms Hayden said: “There has also been a noticeable backlash against the big four banks following the dodgy lending practices exposed by the royal commission.

“With borrowers now more open to using non-bank or alternative lenders for their home loans — as well as refinancing away from the big four — we’ve noticed a tangible spike in web traffic for the HashChing platform.

“There’s definitely a greater opportunity here for brokers to explore the home loan options being offered by the smaller and non-bank lenders on behalf of their clients.”

The mortgage marketplace has taken aim at the major banks recently, with the company strategically placing a billboard over a branch of the Commonwealth Bank in Melbourne.

The advert that reads “Our brokers will go to mortgage hell, so you don’t have to” was reportedly placed at the location to highlight the alternative lending options available to borrowers.

Mr Sodhi said: “By positioning this billboard above a CBA branch, we’re encouraging the 80 per cent of borrowers who are currently with a big four bank to find a better deal on the HashChing mortgage marketplace.

“Never mind the additional paperwork and red tape — our brokers will take care of the entire process.”

[Related: Royal commission ‘not representative’ of broking: Bouris]