The banking royal commission interim report was scathing of mortgage broker commissions and the fact that loans written through mortgage brokers have tended to have higher leverage, more interest-only loans, higher debt-to-income and loan-to-value ratios, higher interest costs and an increased likelihood that borrowers will fall into arrears.
Now, Australia’s mortgage broking industry is preparing to engage in an all-out war against any moves to clamp down against the sector, especially outlawing commission-based remuneration. From The SMH:
Mortgage brokers, in response [to the royal commission], will embark on the large-scale advertising drive across print, broadcast, and digital media, as well as political lobbying, to promote the competition benefits of the industry for customers and the economy.
“Our campaign highlights the potential threat posed by the introduction of any new regulations that result in an uneven playing field being further skewed towards the major banks and away from efficiency and competition,” said David Bailey, chief executive of Australian Finance Group, the nation’s largest lender.
If there is one outcome from the Hayne Royal Commission that is a must it is ending the diffused responsibility for between banks and brokers on lending standards. At minimum, commissions must be cut to achieve this end.
It would better to shutter the entire industry. Loans should be issued by banks not ‘get rich quick’ substitutes.
That said, the broader problem with respect to mortgage lending relates to lenders’ systemic abuse of the Household Expenditure Measure (HEM) – a relative poverty measure – in lieu of a comprehensive credit assessment. Here, the royal commission was scathing, blasting all lenders for failing to fulfil their legal obligations to make reasonable inquiries about borrowers’ financial situation, as well as properly verifying their information.
Ending the use of the HEM as a credit assessment tool should also be a top priority.
