We Support Mortgage Brokers, Not Banks

Commissioner Kenneth Hayne’s recommendations in his final report into misconduct in the banking industry has immediately jeopardised the survival of more than 17,000 small businesses across Australia.

That’s the number of mortgage brokers providing loans to mums and dads, who rely on upfront and trailing commissions paid by the lender to survive. Take those commissions away and make the borrower pay, and you will decimate the industry.

That’s tens of thousands of jobs, millions of dollars in tax revenue and much less competition for the big banks.

The recommendations have also jeopardised more than 100 small lenders in Australia – lenders that have shifted into regional areas to partially fill the void left by the big banks moving out. Those small lenders, including regional banks and credit unions, rely on mortgage brokers to reach customers.

The consequences of Hayne’s mortgage broker industry recommendations will be far-reaching for small businesses, consumers and our economy. And they won’t be positive.

There are several flaws in the Royal Commission report relating to the home lending market. Hayne shows little knowledge of how the mortgage market works.

The first flaw is a lack of understanding about what a mortgage broker does to earn his or her upfront and trailing commissions. A mortgage broker helps a customer select a home loan based on their financial situation, needs and ability to repay the loan. They compare loans, help the customer negotiate a lower interest rate and use their knowledge and contacts within the industry to find the most suitable deal.

Once the customer has decided on the best loan for them, mortgage brokers help customers fill out the loan form, liaises with solicitors before settlement and often do a full assessment of the credit-worthiness of the borrower. They are regularly responsible for chasing documents, such as pay slips, to verify eligibility. Then they submit it to the lender.

Once the lender approves the loan, the mortgage broker assists with the loan documentation, liaises with the lender, solicitors and anyone else involved in the transaction to allow the customer to get the money. No-one else in the home lending sector provides a single coordination point for all this.

Knowing what is going on in the market is very important if the customer wants the best deal. Which bank has the best deal for fixed-rate loans this week? What lender is looking for long term home loans? Who wants to lend to agri-businesses? Mortgage brokers know what’s going on in the market. Consumers don’t.

I can’t imagine someone walking into Commonwealth Bank and being refused a loan, only to hear the customer service representative suggest they go down the road to ANZ.

If the government undermines the mortgage broker community, there will be far fewer loans provided. Almost 60 percent of us use a mortgage broker. Take that service away and fewer people will buy houses. The Reserve Bank has already said the economy is vulnerable to shocks in the property market. The second flaw from Hayne recommends borrowers, not lenders, pay the upfront fee. It means the borrower will pay the fee twice.

At the moment, the mortgage brokers receive a commission paid by the lender and the customer gets the loan. Under Hayne’s recommendations, the borrower pays the fee and the bank gets to pocket what it used to pay the mortgage broker. Hayne didn’t tell the banks to reduce interest rates to make up for the additional money they’ve made on the home loan.

So customers will pay twice – once when they set up the loan and once when they pay the interest on the loan.

The only way around this is to force the banks to refund the fee to the borrower, or to have them charge a lower interest rate, at least for the first year. Hayne wants to punish the mortgage brokers and reward the banks.

The third flaw is that forcing the borrower to pay the upfront fee to mortgage brokers means families will take longer to buy a house. Already it’s very tough to save for the deposit, and have enough for stamp duty, administration fees, legal and other fees. Adding another cost up front will put home ownership out of people’s reach for longer, particularly first home buyers.

The fourth flaw from Commissioner Hayne’s recommendations on mortgage brokers is critical. If you undermine the mortgage brokers’ viability, smaller lenders lose access to customers and will start closing. The only winner will be the big banks.

Already the number of small lenders is shrinking. Excluding the big five banks – ANZ, Commonwealth Bank, NAB, Westpac and Macquarie Bank – there is half the number of lenders available to home loan customers than 12 years ago.

Regional banks and credit unions haven’t got the money to open up branches in Sydney or Melbourne or regional Western Australia or far north Queensland. They don’t need to because mortgage brokers do the job for them, helping them access thousands of customers.

If mortgage brokers become unviable, so too do dozens of lenders. Market power shifts back to the big banks and interest rates will go up. Customers lose out.

Just look across the ditch. No trail is available to mortgage brokers in New Zealand, but the upfront payment is almost twice as much as here. It’s not because the mortgage brokers are greedy. It’s because they need that much upfront commission to stay afloat.

Hayne has these recommendations wrong. The Government and Labor are blindly walking into a huge trap by abolishing trailing commissions. Bill Shorten and Scott Morrison need to consult with the industry before making these sweeping changes or they risk enormous fallout.

38 replies
    • JMS
      JMS says:

      Sorry I don’t go along with the item above – the Taxpayers of Australia have paid out enough over the years – the Banks should supply Mortgage Brokers as part of their service – enough is enough.

      Reply
      • Stuart
        Stuart says:

        Hi JMS. In a way, Banks do currently supply brokers as part of their service. If you think about it, a broker is paid by the lender. You as the borrower can use a broker to get the best deal at the lender that suits you best and the broker pays the broker. There is strong evidence that brokers have reduced rates to Australian borrowers by 3% and keep rates competitive. The new proposal is that borrowers will need to find the money upfront and hope the big banks will pass on the savings to then with better rates. Do you trust Big Banks to do this? I don’t. Thanks Pauline.

        Reply
    • Elaine Herold
      Elaine Herold says:

      Mortgage Brokers are necessary to help the average person navigate the complex system that has been created. Without Brokers every Bank will crucify the borrowers. No need to offer better deals as the average borrower will not have the time or the expertise to navigate the various lenders (Banks). Let alone know the other smaller lenders. Pauline, get in and fight for small business. Every small business is being crucified in some manner. Who will be next?

      Reply
  1. Sandra Norman
    Sandra Norman says:

    Agree totally with you Pauline. And what about the rumour that is circulating that Australia has gold bullion in an English bank and the English bank won’t release it. Made enquiries on another level regarding the price of a script for medicinal cannabis here in Victoria $500. Is it any wonder people are making their own. Keep up the good work we are all with you.

    Reply
    • Glynis Robinson
      Glynis Robinson says:

      Then Banks will make more profits. How many Mum’s and Dad’s can afford time to run around to every big bank to find best deal? The small mortgage brokers do a hell of a lot work for the meagre amount of money they earn. Plus they keep the banks honest. I went through a mortgage broker when I needed my mortgage and debt consolidated. It was the quickest and most efficient action for me.

      Reply
  2. JMS
    JMS says:

    Sorry I don’t go along with the item above – the Taxpayers of Australia have paid out enough over the years – the Banks should supply Mortgage Brokers as part of their service – enough is enough.

    Reply
  3. Max
    Max says:

    I had 23 years in the Banking industry and saw their workforce diminish with retrenchments every 5 years or so.
    I saw a gap in the fence and also became a Broker in the late 90’s
    The banks largest expense at that time was Staff salaries so retrenchment were a cheap fix.
    Are they going to start building up their workforce to service their customers or go OFFSHORE to appease the shareholders.

    Reply
  4. Max Morris
    Max Morris says:

    I had 23 years in the Banking industry and saw their workforce diminish with retrenchments every 5 years or so.
    I saw a gap in the fence and also became a Broker in the late 90’s
    The banks largest expense at that time was Staff salaries so retrenchment were a cheap fix.
    Are they going to start building up their workforce to service their customers or go OFFSHORE to appease the shareholders.

    Reply
  5. Scott
    Scott says:

    The best “ moving forward “ way Re Brokers is to get rid of the shonky one, which abound in the “ industry”.
    There’s far too many that take the easy way, dudding information on loan applications. “ Storm” is a case in point!
    Most brokers are legitimate and ethical but the others is the reason I got out of Brokering.

    Reply
    • Paul Woodley
      Paul Woodley says:

      With 17,000 mortgage brokers you are bound to get the odd bad apple. But I’m not sure what your evidence is for saying the industry abounds with shonky brokers.

      I’m in the industry & with the level of oversight & interrogation of broking standards I can’t imagine there are too many shonky brokers. You would quickly get discovered and your business (which takes years to build) would be wiped out in a micro-second if you are found to be shonky. The industry is too heavily scrutinized to believe there are many shonky brokers.

      Reply
  6. Jeff Hinton
    Jeff Hinton says:

    Why is it that we are still paying stamp duty at all ? Has everyone forgotten that it was to be abolished as part of the GST agreement.

    Reply
    • Glynis Robinson
      Glynis Robinson says:

      yes Jeff Hinton, I agree. GST came in 2001 and we are still paying stamp duty plus gst on everything. So governments are double dipping.

      Reply
      • Paul Woodley
        Paul Woodley says:

        I am a very long term mortgage broker:

        Firstly, GST started in 2000, not 2001.

        Secondly, GST is not paid on top of property stamp duty. So no double dipping on this tax.

        Thirdly, Stamp Duty on land transfer was never one of the taxes to be replaced by GST (stamp duty on mortgages was – & this was removed – it is no longer charged)

        Reply
  7. terry
    terry says:

    the game is over. giving out liar loans. loans based on 12years annual wage. intrest only loans. negative gearing with intrest only loans. what a ponzi scheme. house hold debt 200%. negative gearers outpricing home occupiers at ponzi auctions. overpaid brokers are part of the ponzi scheme. loans should not be more than 4 times av income not 12. time for brokers to get a job with uber. no trailing commisions. get real. ireland ,spain, greece ,ect all fell for the housing madness.

    Reply
  8. John Castle
    John Castle says:

    I’ve run a business for 50 odd years and the use of mortgage brokers is the only logical way to get a range of quotes from various financial institutions . This is also the case with my insurance broker that I’ve used for 45 years. You all get nothing for nothing however concentrate on what you do best

    Reply
  9. Bruce
    Bruce says:

    Pauline,
    Thanks for the in-depth overview regarding an aspect of the outcome of the Banking industry… another reason I appreciate your regular “email blogs”!
    On your argument regarding brokers (I don’t own a home) it sounds so reasonable – so why do I now turn my sense of “joy” over the banks being reprimanded to wondering… was all this simply a huge ploy to gain control of the market by the big banks? If what you say is so ( I agree with you) then why don’t others in Govt see this too?

    Reply
  10. Paul Woodley
    Paul Woodley says:

    I am a long term mortgage broker. I can confirm Hayne has no idea at all what mortgage brokers do, & if his recommendations are put in place it will totally devastate the mortgage broking industry & lending competition in Australia.

    We mortgage brokers are modestly paid consumer advocates, fighting tooth and nail for our customers on a daily basis against the greedy interests of the banking executive. We are industry insiders, but are the only ones fighting for our customers. We live and breath lending, and know how to find our customers the best solutions to their circumstances. We become personally involved in our customers lives and care about good outcomes for our customers.

    Take away our trail, & you wipe us out (our trail is half our modest incomes). No trail and most brokers would be better off on the dole (seriously).

    Take away all our commission and go to a customer paid fee for service. This would wipe out broking entirely. Even if banks were forced into charging the same fees brokers were (the banks would simply offer to refinance that fee after loan settlement). In essence a customer paid fee for service is a broker killing & competition killing idea. Brokers are one of the main drivers of competition in Australia.

    Reply
  11. phillip t mcternan
    phillip t mcternan says:

    I do not support mortgage brokers who never existed 30 years ago. When we got our first home loan, you went to the bank with your cap in your hands and trembled when the bank manager interviewed you. Mortgage brokers are nothing more that commission merchants which you will in the end paying for.

    Reply
    • Den Gibson
      Den Gibson says:

      Your correct Phillip, we ARE paying for the brokers commission now, BUT, with Rural lending being what it is today, without a broker, there would be hardly any rural properties sold… Mortgage brokers are totally necessary, unless one has attended the Philadelphia Lawyers school, the paperwork for bank loans in rural areas is absolutely horrendous…

      Reply
    • Paul Woodley
      Paul Woodley says:

      Not really sure what your point is Phillip, you appear to want people returning to cap in hand begging to the bank manager. Seems a retrograde step.

      Your caricature of broking is not one I recognise. From my extensive experience in the industry, Mortgage Brokers are extremely hard working, modestly paid, consumer advocates, fighting for their customers. We are one of the main drivers of competition in the industry. 60% of all home loan applications voluntarily choose to use us, & complaints against brokers at the banking ombudsman last time I looked represented about 6% of all complaints. So we organise most of the loans, but have almost no formal complaints from customers.

      Reply
    • Max
      Max says:

      Not sure weather you fully understand how the commission system works for mortgage brokers.. if the loan is repaid or client goes elsewhere in the first 18 mths they have all the commission clawed back.
      I wouldn’t call brokers “commission merchants” with the prospects of having 18mths of work to be repaid back to the banks.
      If anything the banks continue to hold that title.

      Reply
  12. Stuart
    Stuart says:

    Hi JMS. In a way, Banks do currently supply brokers as part of their service. If you think about it, a broker is paid by the lender. You as the borrower can use a broker to get the best deal at the lender that suits you best and the broker pays the broker. There is strong evidence that brokers have reduced rates to Australian borrowers by 3% and keep rates competitive. The new proposal is that borrowers will need to find the money upfront and hope the big banks will pass on the savings to then with better rates. Do you trust Big Banks to do this? I don’t. Thanks Pauline.

    Reply
  13. Stuart
    Stuart says:

    Hi Phillip. Would you prefer Australian lenders to be forced to go back to banks trembling and cap in hand? Why is commission such an evil way to earn a living as opposed to wages? Salespeople don’t get paid unless the buyer gets what they ask for. It makes us work hard for our clients. In the mortgage industry, the average borrower is paying around 3% less for their mortgage because of the competition brokers have bought to the industry. Without them, the Big Banks would be happy to see you cap in hand again. Stuart.

    Reply
  14. Brett
    Brett says:

    I write to you as one of Australia’s 17,000 mortgage brokers to ask you not to hand power back to the big banks by killing competition in the home lending market.
    As you will be aware, potential reforms are currently being discussed which include a ban on broker commissions and the introduction of a customer fee-for-service. If enacted, this could make the mortgage broker channel unsustainable, forcing customers back to the big banks with large branch networks.
    Taking choice away from customers by killing competition in the home lending market is likely to result in:
    • Increased fees and interest rates for customers – as banks seek to restore their declining interest margins and increase profit without intense competition to keep prices down
    • Diminishing availability of credit – especially for customers in regional and rural Australia, where few branches remain, and for lower income customers with more complex credit needs such as first home buyers
    • The end of trade for up to 17,000 small businesses, and the resultant loss of up to 27,000 FTE jobs in Australia
    Mortgage brokers are critical to competition in the home lending market in Australia.
    Mortgage brokers originate almost 60 percent of all Australian home loans, and act as a shop front for lenders of all sizes, particularly those without large branch networks including credit unions, regional banks, international banks, non-major banks, building societies, mutuals and non-bank lenders. The competition that brokers have brought to the market has contributed to a fall in net interest margin of more than three percentage points,* which delivers lower interest rates to all Australian homeowners, and interest savings of more than $300,000 on a $500,000 thirty-year home loan.
    The important competitive impact brokers have delivered has been acknowledged in recent reviews of the mortgage broking industry by ASIC, the Productivity Commission and the Australian Banking Association (ABA). Treasury also noted in its submission to the Royal Commission Interim Report, that:
    “If mortgage broking activity diminishes, this could have a significant detrimental impact on competition in the mortgage market. The potential beneficiaries of any lessening of competition would be the major banks with established branch networks”.
    The mortgage broking industry is well aware of the need to continuously improve its practices and to ensure that customer outcomes remain overwhelmingly positive. To that end, following the 2017 ASIC Review of Mortgage Broker Remuneration, the industry came together to implement all the recommendations from this review. Through the Combined Industry Forum (CIF), the industry is addressing conflicted remuneration, improving disclosure and reporting, introducing a holistic approach to industry governance, strengthening its obligations to customers and introducing an enforceable, compulsory industry code. The CIF’s reform agenda is progressing well, and has the strong support of both ASIC and Treasury.
    The industry is committed to the CIF reform agenda even though the two most recent, comprehensive reviews of the industry (ASIC’s Report 516 and the ABA’s ‘Sedgwick’ Review) made no findings of systemic harm. It is committed to this reform agenda despite the exceptionally strong industry data which shows:
    • Increasing consumer support and high satisfaction
    • Extremely low and falling complaints
    • Low customer arrears
    • Increasing competition driven by brokers, particularly for regional and smaller lenders
    But most importantly, it is committed to this reform agenda because it will strengthen customer outcomes without destroying the industry and handing power back to the big banks.
    Despite these reforms, and the strong support given to them from both ASIC and Treasury, serious consideration at the parliamentary level is still being given to a blanket ban on broker commissions paid by lenders. Treasury is highly critical of such an approach, saying in its submission to the Royal Commission Interim Report:
    “While appealing in its simplicity, blanket bans are not the right answer, even if there is a case for banning or modifying certain forms of remuneration. Not all intermediaries are the same; there are differences between financial advisers and other financial product brokers, and between different product markets, that need to be considered. Any loss of competition or efficiency would ultimately have negative consequences for consumers and the community. The likely benefits of change should exceed the inevitable costs and disruption.”
    Of equal concern is the proposal to replace mortgage broker commissions with a FoFA-style customer fee-for-service of thousands of dollars; and the alternative proposal (the Netherlands model) to introduce a customer fee-for-service for all home lending customers whether they access a bank branch or a broker.
    These options – unsurprisingly – have the strong support of the Commonwealth Bank (CBA), which used its testimony at the Royal Commission hearings to push for these policy changes. This reflects the desire of some of the big banks to push customers back into the branches to increase their own profits.
    A FoFA-style customer fee-for-service would see customers forced to pay thousands of dollars to access a broker, while accessing a bank branch would remain free. Independent research released in January 2019 in a survey of almost 5,800 Australian broker and bank customers has revealed that 58 per cent of Australian consumers who intend to use a mortgage broker in future would be unwilling to pay a broker fee of any nature and only 3.5 per cent of consumers would be willing to pay a fee of $2,000 or more.^
    Such a consumer fee-for-service would result in customers deserting the broker channel, and the regional banks, credit unions and many other lenders they support.
    It is therefore not surprising that Credit Suisse has estimated that the banks will save between $800 million and $1.6 billion from these potential broker remuneration changes.# And without competitive pressure, it is highly unlikely that these savings will be passed through to the customer.
    The alternative proposal (the Netherlands model) not only has the customer paying a new fee of thousands of dollars every time they access a broker, but also every time a customer walks into a bank branch to arrange a home loan.
    This is nothing more than a massive new tax on borrowing.
    Of equal concern, this proposal ignores elements of the Netherlands tax system that are critical to its operation. A key aspect of this model relates to a customer’s ability to pay the fee. In the Netherlands, all interest on a home loan and costs relating to establishing a home loan are tax deductible, including the acquisition of advice relating to the loan. These can be deducted over the life of the loan.
    Such massive changes to the tax deductibility of interest paid and expenses, of course, would never happen here, and as such the full weight of the new multi-thousand dollar fee would be felt by every home loan customer, only adding to the current affordability crisis for those already struggling to buy a home.
    Another critical aspect of the Netherlands model that has been ignored is the ability for the banks to undercut the broker channel. As such, the only way this could work is if fees were of comparable size and not of a level that challenges viability for broker businesses.
    However, the current proposal states that this fee should be the equivalent of the banks’ cost of writing a home loan. In this case, the large lenders’ enormous economies of scale will mean their costs will be a lot lower than the marginal cost for a broker to arrange a suitable loan for a customer, which will therefore necessarily undercut the broker channel. Again, this brings great risk that consumers simply desert the broker channel, decimating competition and access to credit.
    While the major lenders will be very happy about these proposals, we fail to see how this is a good outcome for everyday Australians.
    I again ask you as a Member of the Federal Parliament to reject the blanket ban on broker commissions; reject a FoFA style customer fee-for-service for mortgage brokers; and reject the alternative of a Netherlands style tax on borrowing.
    These changes would decimate the broker channel, cut customer access to smaller and non-bank lenders, and entrench bank power by forcing customers back into the branches. The destruction of competition will in turn limit customer choice and further limit access to credit – particularly for those with low income, complex credit or those in rural and regional areas.
    The industry has acknowledged that there are issues that require solutions, and it is progressing strongly on reform.
    I urge you to get the facts at http://www.brokerbehindyou.com.au and consider the unintended

    Reply
  15. robert davis
    robert davis says:

    The mortgage brokers save the banks an awful lot in organising the loan customer.So the banks will have to pay the mortgage broker if they want that potential loan ,on an agreement of payment with no cost to the consumer.

    Reply
  16. robert davis
    robert davis says:

    The Mortgage Broker does an awful amount in processing the potential client for the banks. I feel that the banks should pay for this service on what ever they find mutually agreeable.the banks have the option of taking on the potential loan without any cost to the consumer.

    Reply
  17. John Coleman
    John Coleman says:

    My concern is the massive amount of money in billions made with the excuse it’s for the investors. Get rid of these mobs. It seems now to steal up to a billion is ok.

    Reply
  18. Russell Mansfield
    Russell Mansfield says:

    In the early 90s banks were stupidly sacking staff and outsourcing many of their previously in-house systems to “cut costs”. In the mid 90s I took up a job with a mortgage broker for a couple of years. Many of our clients came to us seeking knowledge of requirements to get the best deals available. In that way I felt we were very helpful to those clients. However, as bank loans tightened, more clients came to us seeking ways around the normal bank loans criteria. For these people we often supplied the lenders (usually banks) distorted truths to achieve the desired result (ie. cheap loans) and make money for ourselves. In doing this, while I felt we had helped these clients in the short- term, I came to realise that they would lose everything in the event of a property market turn-down. Such an event occured a decade later, commencing in the USA with lenders foreclosing on high-risk, low-deposit mortgages. I sincerely hoped that none of the clients I had helped got caught up in that trap. In good conscience I left the industry the following year knowing at the same time there were far less-scrupulous brokers continuing to operate. It was only a year or so later that the whole American banking system crashed because so many banks and brokers had been doing the same thing. This leads me to believe that banks must (probably enforced by government regulation) return to employing and monitoring their own brokers in-house (call them loans managers, whatever). I would hope that many of the experienced private brokers would be favorably considered by the banks as permanent in-house employees.

    Reply
    • Paul Woodley
      Paul Woodley says:

      Hi Russell,

      Sounds like you had a very bad experience back in the 90’s with a broking firm.

      But that was a very long time ago. Back then, brokers had zero education standards, Zero government licencing, There was no National Consumer Credit Protection laws in place. I was broking back then also. The world has changed dramatically since then with min education standards, minimum ongoing yearly training requirements, NCCP laws, ASIC governed licencing & much much more regulation.

      In the 90’s it took me 4-5 hours to process a loan. Now with all the over-regulation and compliance requirements the average loan takes 12-15 hours to process.

      I really don’t think you can judge mortgage broking by what was happening back in the 1990’s. Formal complaint levels against brokers are almost non-existent, customers love us and voluntarily flock to brokers. We must be doing something very right to attract 60% of all home loan applicants.

      The Gov & Labor are looking to wipe us out. Thanks One Nation for your support.

      Reply
  19. Stuart Pullar
    Stuart Pullar says:

    Hi Pauline. Thanks for your comments on Sunrise this morning. Hopefully, common sense prevails. How is it that Labour is supporting the Big Banks and not everyday borrowers and small Mortgage Broking business that work in and are accountable to our communitites? This may will end up in the Senate so it is comforting to know that key Senators are prepared to look at this critical issue and take it on. All Australians will suffer if power is consolidated again within the major banks. Stuart.

    Reply
  20. Len
    Len says:

    We must rid the planet of the central banking cartels.
    The central banks own all major banks world wide including our reserve bank Rothschild.
    You would have to be well over 100 years old to know the freedom of living without these criminals.
    I am sure these crime syndicates will be gone or significantly altered for the better in the not to distant future.

    Reply
  21. Ronald Kelly
    Ronald Kelly says:

    Maybe we need to do away with the plastic cards and get payed cash, I remember the days when the banks used to offer you the world just to get your money, now we hand it to them first, what a great set up.
    I cant speak for all but I have a mortgage broker here in Goulburn nsw that I have used a number of times and I would recommend his company in a flash,
    I have been to a number of banks over the years in regard to loans and its always been a drama never easy, its like any contractor, once you find someone who looks after you and that you can trust it just make life easier, yes there maybe some brokers not doing the right thing? but if you check the reviews, ask around, do your research, l’m sure you will some find the one you should go to, the thought of having to deal with the banks again is not some thing I look forward to.

    Reply
  22. SFG
    SFG says:

    Just a thought. If one of the concerns is that Brokers are being swayed to hand a loan to whichever lender is paying the higher commission rate, could we fix this by simply making the lenders pay a uniform rate of commission so there is no bias to one lender or another??

    Reply

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