Mortgage brokers safe from change for now

Marco Green
March 15, 2019

But after speaking with mortgage brokers and small lenders, Treasurer Josh Frydenberg revealed on Tuesday the government had changed its mind.

MFAA CEO Mike Felton said, "The announcement reflects the fact that the case for the removal of mortgage broker trail commission has not been made, nor has it been demonstrated that existing trail arrangements lead to poor customer outcomes".

Thousands of mortgage brokers in Australia could continue to receive trail commissions beyond 2020, following the federal government backflipping on the decision to abolish them.

"The government wants to see more mortgage brokers - not less", the treasurer said.

"However, trail is contingent income that is only paid to a broker if the loan is not in arrears, is not refinanced and does not involve fraud".

Amid a concerted campaign from the mortgage broking industry, which claimed up to 70 per cent of its members could lose their livelihoods if commissions were abolished, the Government has now relented on trailing commissions.

"These changes will address conflicts of interest in the industry by better aligning the interests of consumers and mortgage brokers", the treasurer said.

"The royal commission has recommended some changes that will need to be absorbed over time, those businesses can absorb those over time if they're done in consultation", he said in February.

Yesterday afternoon, the coalition government announced a dramatic change to its position on the future of trail commissions.

Instead, Labor would cap upfront commissions to 1.1% of loan value, while still pursuing a ban to trail commissions.

Opposition Leader Bill Shorten said mortgage brokers were not "at the top of the hit list" when the royal commission was called for.

"It's just all in the too-hard basket", shadow treasurer Chris Bowen told reporters in Sydney on Wednesday.

Brokers are well organised, and politically influential, and have been lobbying intensively since the royal commission findings were handed down.

The review will be conducted by the Council of Financial Regulators and the Australian Competition and Consumer Commission (ACCC). The decision came after the government pledged to carry out all 76 recommendations put forward by the commission earlier last month.

That is despite overwhelming evidence that loans arranged by brokers tend to be larger, take longer to pay down and cost more than loans arranged directly with banks or other providers.

Brokers and the government are concerned though that changes to broker remuneration could disrupt competition in the market, allowing the banks to rake in market share and potentially offer less favourable terms to consumers in the medium term.

A 2017 study of the home loan industry by investment bank UBS found up to a third of mortgages are "liar loans" - based on inaccurate information that may have been massaged to help the borrower get a bigger loan than they should have been eligible for.

"Scrapping trail would have meant a whole change in focus around the "client for life" relationship", he tells SmartCompany.

Other reports by Click Lancashire

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