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Banks, mortgage brokers pledge to reform home loan commissions
Mortgage brokers would no longer have an incentive to sell customers larger-than-necessary home loans, the industry claims, under a package of changes designed to address regulator concerns.
In response to a review by the corporate watchdog into the $2.4 billion a year in mortgage broker commissions, a group of brokers, banks and other lenders are vowing to curb some of the payments and practices that have long been criticised by consumer groups.
Mortgage brokers, which arrange more than half of all new home loans, say the new changes should improve standards.Credit: Rob Homer
Banks would also stop paying bonuses to brokers who write large numbers of mortgages, and there would be tougher rules on "soft dollar" spending such as banks paying for brokers to attend hospitality events.
The changes have been proposed to financial services minister Kelly O'Dwyer, and are an attempt to lift standards in the mortgage broking sector, which arranges more than half of all new home loans in Australia.
Under the plan released on Monday, banks would continue to pay brokers a commission for writing a loan, which is typically about 0.6 per cent, plus an ongoing trail commission of about 0.15 per cent.
However, it is proposed that banks would only pay commissions on the amount of debt a customer actually uses for their home purchase, net of any cash a customer may have in an offset account.
In contrast, brokers currently receive commissions on the full value of a loan, even if the customers has a large cash balance in an offset account linked to the mortgage.
ASIC identified this issue as one of several problems in a review of mortgage broker remuneration in March this year. The review did not call for a ban on commissions, but listed areas where it held concerns.
The recommendations were developed by a forum of banks, member-owned financial institutions, and mortgage broking associations, chaired by National Australia Bank executive Anthony Waldron.
“We are genuine in our commitment to not only meet the proposals put forward in ASIC’s review of mortgage broker remuneration, but to raise the bar on the expectations of stakeholders from all corners of the industry,” Mr Waldron said.
The forum also proposes brokers keep a register of where banks have paid for them to attend entertainment or hospitality events worth more than $100, and banks cease such spending worth more than $350 a head.
It also said "professional development" conferences would need to be have 80 per cent of their material focused on education.
Brokers would also report to ASIC on which lenders they had used the most, while banks would give ASIC greater detail about the pricing of their home loans sold through brokers compared with those sold directly.
The forum also proposed a new framework to monitor risks and "self-correct," and that ASIC establish an ongoing "shadow shopping" program in the sector.
Leading consumer groups called for a ban on mortgage broker commissions earlier this year, saying the commission structure meant brokers had the incentive to recommend customers take out larger mortgages.
Consumer groups Choice, Consumer Action, Financial Rights Legal Centre an Financial Counselling Australia supported the changes announced on Monday. But they said the changes to commission structures were relatively minor, and they were "disappointed" there had been no requirement for brokers to act in the best interests of customers.
“This announcement from the mortgage brokers, aggregators and lenders is a positive first step towards ensuring that mortgage brokers act in customer interests,” said Choice director of campaigns and communications, Erin Turner.
“However, the mortgage broking and home lending industries will need to continue to evolve if they are going to genuinely put customer interests first."