Consumer groups have lashed the mortgage broking industry for pretending to care about reform while vigorously lobbying politicians to protect their commissions. From SBS News:
The consumer groups that were part of a forum with the mortgage-broking industry have quit en masse, citing a lack of progress and willingness to change.
Choice, Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre pulled their representatives from from the Combined Industry Forum.
“Buying a home is one of the biggest decisions someone can make, said Fiona Guthrie, chief executive of Financial Counselling Australia.
“It’s essential that any advice is given with a consumers’ best interest in mind.
“Removing conflicts is the only way to make sure that someone buying a home gets genuine advice about the best option for them.”
The forum was initiated by the mortgage-broking industry.
The consumer groups their discussions over the years have failed to deal with concerns about commissions or calls for brokers to act in the best interests of their clients.
“Mortgage broking lobbyists continue to swarm on Parliament House in an attempt to derail crucial recommendations from the Royal Commission Final Report, showing the sector cannot be trusted to stand up for everyday home owners when it comes to reform,” the groups said in a statement.
They are urging the government to implement the recommendations of the royal commission into the financial services industry, including ending trail commission payments to brokers for the life of a home loan and phasing out commissions paid by lenders to brokers who push their loans.
Hear hear. Brokers were at the forefront of the decline in mortgage standards and the proliferation of ‘liar loans’, as noted by UBS:
“The level of factual inaccuracy in mortgage applications was highly skewed to customers who secured finance via a mortgage broker,” UBS said.
Lead analyst Jonathan Mott, along with four colleagues, wrote in a report last week that “32 per cent of customers who secured their mortgage via brokers stated they misrepresented parts of their mortgage documentation compared to 22 per cent of customers who used bank proprietary distribution.
“In each category of factual accuracy (with the exception of ‘would rather not say’) there was a statistically significantly higher level of misrepresentation for customers who secured their mortgage via a broker,” the report said.
It said 13 per cent of respondents who secured their mortgage via a bank and misrepresented their documentation “stated their banker suggested they over/under represent” their income or asset details.
For borrowers who “secured their mortgage via a broker and misrepresented their application, 41 per cent of them stated they had done this on the suggestion of their broker.”
Brokers have conflicted remunerations structures identical to those that blew up US banking system pre-GFC and the same problem of no “skin in the game”, as well creating diffused responsibility for lending standards. Allowing them to receive a percentage of the loan amount plus trailing commissions is also a strong incentive for them to oversell.
Root-and-branch reform is long overdue.