AFG Highlights The Number Of Mortgage Broker Related Investigations

AFG has today called on the banking Royal Commission to recognise the significant inquiries that have already been conducted into the mortgage broking sector and the important role mortgage brokers play in the Australian lending market, as the government outlines the inclusion of mortgage brokers in the scope of the banking Royal Commission.

“The mortgage broking channel accounts for more than 53% of the Australian lending market so it is unsurprising that we are in the mix, however 2017 has also been marked by significant regulatory scrutiny of our industry,” said AFG CEO David Bailey.

“The ASIC Review of mortgage broker remuneration and the ongoing Productivity Commission inquiry into competition in the financial system have both looked at the structure of the mortgage broking sector.

“We are confident Justice Hayne will recognise the unprecedented data collection process conducted by ASIC in their Review of mortgage broker remuneration has thoroughly examined our industry.

“The ASIC report recognised the important role that mortgage brokers can play in promoting good consumer outcomes and strong competition in the home loan market and we are confident any other examination of our sector would find the same,” said Mr Bailey.

The Combined Industry Forum (CIF), made up of representatives from across the mortgage industry, has submitted a report to government that outlines a package of reforms to address the proposals made in the ASIC review.

“The Productivity Commission is also undertaking a significant examination of the competitive landscape and mortgage brokers are a key lynchpin in providing that competition.

“The Royal Commission, and the industry as a whole, needs to focus on how competition can be further improved and this should include the impact the government guarantee has on competition.

“Ultimately, the findings of this inquiry should assist the government to promote a competitive and stable financial industry that contributes to Australia’s productivity,” said Mr Bailey.

“The mortgage broking sector provides vital competition to deliver on that aim.

“AFG has 45 lenders on its panel with more than 37% of borrowings going to lenders other than the four major banks, and we remain committed to ensuring choice and competition remains for Australian consumers.

“This competitive tension ensures consumers continue to have choice and most importantly benefit in terms of home loan price and service because of the service brokers deliver on a daily basis across the Australian lending market,” he concluded.

Auction Volumes Decrease Across The Combined Capital Cities

From CoreLogic.

The final week of auction reporting for 2017 returned a preliminary auction clearance rate of 64.2 per cent across the combined capital cities, increasing on last week when the final auction clearance rate fell below 60 per cent for the first time this year, when only 59.5 per cent of auctions cleared. The number of homes taken to auction fell this week, after the surge in activity recorded over the 4 weeks prior when volumes remained consistently above the 3,000 level. There were a total of 2,865 auctions held this week, down on last week when 3,371 auctions where held across the capitals and only slightly higher than volumes from the same week one year ago (2,735).

Melbourne and Sydney both saw an increase in preliminary clearance rates this week, with 67.3 per cent and 60.8 per cent of auctions clearing which was up on the previous week when both cities recorded their lowest clearance rates of the year. The smaller auction markets returned varied results this week, with Adelaide recording the highest preliminary auction clearance rate of 70.1 per cent, while only 43.3 per cent of auctions sold in Perth.


Virgin cuts investment rates

Virgin Money has announced multiple rate reductions on its new fixed rate investment products.
This reflects easing on funding rates (now future expectations of higher rates have eased) and competitive pressure for share of lending.  Expect more banks to follow. Existing borrowers are still paying the higher amount of course.
The changes, which come into effect tomorrow (19 December), will decrease rates on the 1-5 year fixed rate interest only investment products and the 4 year fixed rate principal and interest product.

Changes are as follows:

Term Current rate (p.a.) New rate (p.a.) Change
Investment – Fixed interest only
1 year 4.49% 4.39% -0.10%
2 year 4.39% 4.14% -0.25%
3 year 4.39% 4.29% -0.10%
4 year 4.59% 4.29% -0.30%
5 year 4.69% 4.59% -0.10%
Investment – Fixed principal and interest
4 year 4.44% 4.29% -0.15%

CommInsure pays $300,000 following ASIC concerns over misleading life insurance advertising

ASIC says CommInsure will pay $300,000 towards a consumer advice service and have its advertising sign-off processes independently reviewed after ASIC raised concerns about certain instances of its life insurance advertising.

ASIC commenced investigating CommInsure in April 2016, which included a review of CommInsure’s advertising of two life insurance policies:

  • Total Care Plan, sold through financial advisers
  • Simple Life Insurance, sold directly to consumers

The review looked at advertising from mid-2013 to March 2016 and found that misleading and deceptive statements are likely to have been made on some of CommInsure’s websites about the extent to which customers would be entitled to cover for trauma if they suffered a heart attack.

The statements may have led a policyholder to believe they would be entitled to a lump sum payment if they suffered a heart attack in general, when in fact only certain types of heart attacks, which met certain medical criteria as defined in the policy, were covered.

In response to ASIC’s concerns, CommInsure will commission an external firm to conduct a compliance review of its advertising sign-off processes and procedures. The review will look at whether CommInsure’s processes and procedures ensure compliance with the ASIC Act, and make recommendations to improve compliance if required.

CommInsure will report to ASIC by 30 June 2018 on the results of the review and the changes implemented.

As previously announced, CommInsure updated the definition of heart attack in its trauma life insurance products in March 2016 and is reassessing past claims under the updated definition back to October 2012. To date, CommInsure has paid additional benefits for 32 claims, totalling approximately $4 million as a result of the reassessed claims.

ASIC has now concluded its investigation into the life insurance business of CommInsure.


CommInsure will make a $300,000 payment to the Financial Rights Legal Centre which will be used for the Insurance Law Service, a national specialist consumer insurance advice service operated for the benefit of vulnerable, low income and disadvantaged consumers.

ASIC released a public report on its investigation in March 2017 [17-076MR]

Following concerns raised by ASIC, CommInsure applied its updated heart attack definition back to October 2012, which was the date at which international cardiology bodies published an updated consensus on the appropriate clinical marker for heart attack.

S&P Says Mortgage Arrears Lower In Oct 2017

The latest report from S&P Global Ratings covering securised mortgage pools in Australia to end Oct 2017, showed 30 day delinquency fell to 1.04% in October from 1.08% in September. They attribute part of the decline to a rise in outstanding loan balances during the month, and many older loans in the portfolios (which may not be representative of all mortgages, thanks to the selection criteria for securitised pools).

+90 Day defaults are still elevated, see the chart below.

Here is their state summary

Overall trends across the states show the differences across states, with WA and NT still significantly above other states.

The ACT recorded the lowest arrears levels, at 0.58%. QLD and WA, where arrears have been more elevated for some time, recorded another month-on-month decline in mortgage delinquencies. In QLD, arrears fell to 1.39% in October from 1.47% in September. In WA, they declined to 2.12% from 2.21% a month earlier, against a backdrop of increasing loan balances. Home loan arrears also declined in NSW and VIC, but by smaller  magnitudes. In NSW, arrears fell to 0.75% in October–the second lowest in the country–from 0.79% in September. In VIC, arrears declined to 0.94% from 0.96% the previous month.

In terms of the outlook, they say:

“improving employment conditions and low interest rates have helped to keep mortgage arrears low, but risks remain. Australia’s high household indebtedness, which has outpaced income and GDP growth for some time, leaves borrowers vulnerable to a change in economic circumstances. We do not expect arrears to increase much above current levels while these relatively benign economic conditions persist, particularly given the high level of seasoning in the Australian RMBS sector”.

MYEFO – There’s a Consumer-Shaped Hole in Our Budget

On first blush, the revised federal budget has improved according to the MYEFO (Mid-Year Economic and Fiscal Outlook) released by the Treasurer  today.  But consumers are the weak link, and wage growth and consumption a problem – no wonder there is now talk of tax cuts for consumers! In addition, more savings are forecast, including an extension of the waiting period for newly arrived migrants to access welfare benefits and a freeze on higher education funding.

The budget is, they say, on track to return to balance in 2020-21, and overall debt as share of GDP is set to fall further. The latest projected surplus of $10.2 billion in 2020-21 is an improvement of $2.7 billion compared to May’s Budget estimate.

At the 2017-18 Budget, gross debt was projected to be $725 billion in 2027-28. Gross debt is now projected to reach around $684 billion by 2027-28 — a fall of around $40 billion. But absolute debt is still rising!

The improvement is driven by a rise in company profits, and company tax take. Commodity prices helped also, although they remain a key uncertainty to the outlook for the terms of trade and nominal GDP, especially in relation to the Chinese economy.

They say the fall off in mining investment is easing, while non-mining business investment is predicted to rise (a little), but we think overall business investment remains an issue.

Real GDP is forecast to grow by 2.5% in 2017-18, lower than at budget time (2.75%). Beyond that, real GDP is forecast to grow at 3% in 2018 19, per the original budget.

The 2017-18 forecast is lower driven by anemic outcomes for wage growth and domestic prices.  More than 360,000 jobs at a rate of 1,000 jobs a day having been created in 2017.  Yet, wages are now forecast to remain lower for longer, with index growth of 2.25% in June 2018, 0.25% lower than at budget time, and 2.75% to June 2019. They admit wages growth is lower than expected, but they still hope lifting economic momentum will lift wages, eventually – despite the very high levels of underemployment, and structural changes in working patterns. This lower forecast for wages is expected to weigh on personal income tax receipts and slow household consumption.

Finally, the assumed Treasury yields are set quite low, for modeling purposes.  Rising rates in the USA and elsewhere may lift rates faster.



Brokers to be included in royal commission

From The Adviser.

The Governor-General has now issued the Letters Patent to the Honourable Kenneth Madison Hayne AC QC, formerly a judge of the High Court, establishing the royal commission.

Notably, the Treasury outlined that the Letters Patent require the Royal Commission to inquire into the conduct of financial services entities, “including banks, insurers, superannuation trustees, holders of Australian financial services licenses and intermediaries, such as mortgage brokers”.

Intermediaries between borrowers and lenders have been added following the government’s consultation with the appointed Commissioner on the draft Terms of Reference, which were released earlier this month.

The royal commission will examine allegations of misconduct or conduct which falls below community expectations. The commission will be focused on identifying ways to ensure that Australia’s financial system continues to work efficiently, effectively and in the interests of consumers.

Commissioner Hayne is authorised to submit an interim report to the Governor-General no later than 30 September 2018, and required to submit a final report no later than 1 February 2019.

“The financial system plays an important role in the lives of all Australians and we encourage all interested parties to engage with the royal commission,” the Treasurer Scott Morisson said.

“The Government has already taken comprehensive action to deliver better outcomes and protections for banking and financial services customers.

“This includes moving to establish a new one-stop shop to resolve customer complaints; significantly bolstering the powers and resources of the Australian Securities and Investments Commission; creating a framework to hold banking executives accountable for their actions; and boosting banking and financial services competition.”

CBA to Change Mortgage Broker Commission Structure

From The Adviser.

The Commonwealth Bank of Australia expects to have the CIF-recommended changes to broker commissions instated “ahead of 30 June” next year, according to its general manager for distribution strategy and execution.

Speaking to The Adviser following CBA’s announcement that it would no longer accept accreditations from new mortgage brokers with less than two years of experience (or from those that only hold a Cert IV in Finance & Mortgage Broking), CBA’s general manager for third-party banking, Sam Boer, and Matthew Dawson, general manager for distribution strategy and execution, revealed that they expect to change broker commissions next winter.

Mr Boer and Mr Dawson both welcomed the Combined Industry Forum’s reform package, which was released last week (and to which Commonwealth Bank was a contributor) and included recommendations that lenders pay brokers commission on a utilisation basis (i.e., based on facility limit drawn down by the customer and, in cases where the loan has an offset account, on the amount drawn down net of offset account balances).

General manager Boer said: “The whole industry got behind that one and we thought it addresses the concern raised around the potential conflict of interest and we’re very much supportive of that and working through our solution with our business partners on how we might go about implementing that in the new year.”

Mr Dawson added: “We are still working through the how of the commission changes, but we expect that we will still have it implemented ahead of 30 June.”

The CIF reform package states that it expects the commission changes to be implemented by lenders by “end 2018”.

Changes to CBA accreditation for new brokers

Last week, the major bank revealed that it would be making major changes to the way it accredits new brokers.

From “the first quarter of 2018”, new mortgage brokers will be required to meet new minimum education standards to be able to write Commonwealth Bank loans and demonstrate a commitment to professional development and on-the-job experience.

For CBA accreditation, all new brokers will soon be required to meet the following standards:

– Hold at least a Diploma of Finance and Mortgage Broking Management

– Have at least two years’ experience writing regulated residential loans

– Be a current member of either the Mortgage and Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA)

– Be a Direct Credit Representative or employee of an approved Aggregator/Head Group or Australian Credit License (ACL) holder

Mr Dawson told The Adviser: “We will absolutely be building a training framework and ongoing professional development framework as part of the rollout of the new strategy coming in to ensure that the brokers we’re partnering with feel assured and comfortable when they are sitting down in front of a customer to have really deep conversations around appropriate products for them.

“We will be providing that and equally working with the head group programs to ensure that the head groups that have their own professional development programs… that we support each other…. We provide content for their platforms and, where appropriate, we will rely on their platforms as a means of us getting comfort over the professional development of brokers.”

Mr Dawson continued: “I think, for us, this has been about working with the [Combined] Industry Forum and we have played a key lead role in that.

“It has been really important for us, and we are really supportive of the industry forum and the consultation process that we ran in terms of the engagement with brokers.”

He revealed that the bank surveyed 12,000 brokers in July and got nearly 2,000 respondents.

“We’ve had focus groups with many brokers right throughout the country over the last couple of month. We’ve met with every head group. This has been, for us, all about residential and making sure we support a robust industry and support the longevity of the industry.”

Tic:Toc expands to Tasmania, as NSW investors rush to purchase in Hobart

Australian fintech Tic:Toc, today announced their world first instant home loan platform will be made available to customers purchasing or refinancing properties in Tasmania. We featured the firm in a recent Fintech Spotlight.

The online home loan, which uses a digital decisioning system to assess and approve finance in as little as 22 minutes, launched in July 2017 and initially excluded Tasmanian and Northern Territory properties from being eligible for finance.

The expansion coincides with the latest results from CoreLogic RP Data, which shows Hobart has had the largest increase in home value year on year at 11.49%, ahead of Melbourne (10.10%) and Canberra (5.84%).

Mainlanders have accounted for 23% of sales in Tasmania to date (REIT), with gross value of sales up 22.7% on last year at the end on the September quarter, putting the Tasmanian real estate market on track to for its highest ever accumulated market value of sales.

Tic:Toc CEO Anthony Baum said while the expansion had nothing to do with the buoyant Tasmanian market, he is pleased that Tic:Toc can now help people purchase Tasmanian properties via a faster and more cost effective home loan offering.

“We have had a lot of customer enquiry about purchasing property in Hobart – particularly from investors living in NSW – and we’ve had to turn them away, until today.

“We’re so excited to now be able to assist these customers get a better home loan experience online, with all of the unnecessary costs stripped from the process.

“We wanted to bring Tic:Toc to as many Australians as possible, as soon as possible, which meant not having a solution to verify customers’ identities at settlement in Tasmania at launch. We’ve worked hard to ensure Tasmanians and those investing in Tasmanian property can now benefit from Tic:Toc too.”

The home loans originated by Tic:Toc and backed by Australia’s fifth largest retail bank, Bendigo and Adelaide Bank, are now available throughout Australia at; with variable comparison rates from 3.59% for live-in, principal and interest home loans.

Just five months from launch, Tic:Toc has already processed more than $340M worth of loan submissions Australia wide and were one of only ten Australian companies globally recognised in the recent KPMG and H2 Venture’s Fintech 100.

ANZ completes sale of 20% stake in Shanghai Rural Commercial Bank

ANZ today announced it has completed the sale of its 20% stake in Shanghai Rural Commercial Bank (SRCB), originally announced in January 2017.

As part of the Group’s broader capital management plan, ANZ now intends to buy-back up to $1.5 billion of shares on-market.

ANZ Chief Financial Officer Michelle Jablko said: “ANZ’s strong capital position combined with the progress made in simplifying our business means we are now in a position to commence returning surplus capital to shareholders while still complying with APRA’s unquestionably strong capital requirements.”

ANZ’s CET1 capital ratios as at 30 September 2017 will remain broadly unchanged on a pro forma basis with the ~40 basis point benefit from the completion of SRCB offsetting the impact of the on-market share buy-back.

ANZ has already purchased ~$500 million shares on-market to neutralise the effect of the dividend reinvestment program for both the interim and final 2017 dividends as well as the impact of ANZ’s share-based employee compensation plans.

The divestment of non-core businesses, including the sale of our Australian life insurance business last week, should provide ANZ with flexibility to consider further capital management initiatives in the future.

ANZ will continue to manage its capital prudently. Further capital management initiatives will only be undertaken while ensuring sufficient capital is available to support growth as well as being subject to business conditions and regulatory approval after the actual receipt of the relevant sale proceeds.

In order to comply with regulatory requirements, the purchase of shares will likely begin in January 2018, subject to market conditions.