Mortgage Broker

CMB MAGAZINE cmba-achc.ca winter 2018 | 27 savingcommissions brokers bring to home loan borrowers," says FBAA Executive Director Peter White. "It is very concerning when misinformation is disseminated by those claiming to be consumer advocates, but who don't tell the truth. Home loan brokers and the non-bank sector have created a highly competitive and progressive lending environment that didn't exist before in Australia," he adds. "Competition created by brokers has fostered the opportunity for brokers to do work and home visits for loan interviews, create redraw facilities and lines of credit and offset accounts, all of which never existed before." e consumer groups believe current commission structures should be replaced by a flat fee model. White says while that might sound fine in part, the reality is it would cause interest rates to rise. "e average loan amount in this country is around AUD$450,000 and the average commission is 0.60 per cent, meaning a flat fee commercially would be around the $2,700 mark. In regional markets where loan sizes are smaller, a loan of $200,000 would, in the current structures, pay around $1,200 and not $2,700 in a flat fee model and lenders would never wear such a loss." CHOICE has also suggested trail commissions should be abolished, but White feels that is an ignorant position to take for what should be a responsible group of consumer advocates. "If they knew their subject matter, they would know that trail commission is paid to brokers to offset costs of providing ongoing customer service and to manage the borrower's ongoing and variable lending needs as required under the national consumer credit protection (NCCP) regulations," White says. "ere is absolutely no evidence to suggest trail incomes harm competition." White says the groups also claim that mortgage brokers are giving advice, yet that is not the case. "Under the regulations that govern mortgage brokers, they give credit assistance and are doing work on behalf of the lender, which is why the lender pays them a commission and it has no bearing on the interest rate the borrower pays. "If you don't use a broker, you go to a bank, which still has the administration costs for the loan, so it's cheaper for the bank to originate a loan through a broker than at a branch." White says the consumer group's reasoning for wanting commissions dumped was flawed because scrapping commissions would reduce competition in the mortgage market, potentially increase home loan interest rates and generate more profits for Australia's big banks. "If we disassemble the marketplace, banks would put margins up even more. e service levels would also drop away because it was brokers who introduced home delivered services to the home loan sector." White says the existing commission structure is transparent, but introducing a new and untested flat fee system is risky because it may not be transparent and could vary from lender to lender, which could lead to adverse effects on consumer outcomes. "e commission model as it stands is fair across the full marketplace. e regulators aren't suggesting drastic changes; it's only the consumer advocacy style people who say that this should happen. Nobody else in the marketplace is saying this, because it is only benefit aer benefit that brokers have brought in." ere are just over 26,000 consumer brokers in Australia and White says they do not all earn $1 million a year, yet the reporting of commissions had grossly distorted what's actually happening. "Some brokers do a lot, some do very little. Average it out and you're only talking about one to one-and-a-half mortgages per broker per month," he says. "e thing that people forget is that the actual commission paid to brokers today is less than what it was 15 years ago. When the GFC hit, broker commissions were pared back and clawbacks were introduced." White says that the FBAA had approached consumer groups like CHOICE with these issues in the past. "Unfortunately, they've got a very blinkered approach to the world and don't really want to sit down and have a discussion," he says. "You also have to be very cautious because anything you say to them can be taken in different directions." "It is very concerning when misinformation is disseminated by those claiming to be consumer advocates, but who don't tell the truth." Peter White, Executive Director, Finance Brokers Association of Australia

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