CBA to introduce major accreditation changes next year

From The Adviser.

Commonwealth Bank has announced that, from next year, it will 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.

Speaking to The Adviser on Thursday (14 December), CBA’s general manager for third party banking, Sam Boer, and executive general manager home buying, Dan Huggins, explained that the bank would be bringing new benchmarks for mortgage brokers “designed to lift standards and ensure the bank is working with high-quality brokers who are meeting customers’ home lending needs”.
As part of the reforms, 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 & 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

Cert IV has ‘served its purpose’

Speaking of the changes, Mr Boer told The Adviser: “I actually sat down and reviewed a Cert IV for a friend of mine and looked at the process, and I think that while the Cert IV has served its purpose, with the new standards and expectations that are on us (which have been highlighted through the [ASIC and Sedgwick] reviews and through the Combined Industry Forum reform package), it’s time that we need to look at and set new benchmarks.

“So, that is what we feel is appropriate for the brokers that we want to partner with, to ensure that we are delivering those great customer outcomes.”

Mr Huggins added: “We want to ensure that customers feel confident that mortgage brokers have achieved that minimum standard of education and they can be confident in the advice or the guidance that they are seeing — because home loans are complex products and we want to make sure that customers get good outcomes.”

The executive general manager for home buying continued: “Brokers have done a fantastic job of supporting the industry and supporting great customer outcomes and we want to make sure that that continues for new entrants to the market.”

Two-year requirement

When asked why the decision has been made to only accredit new brokers with more than two years of residential loan writing experience, Mr Huggins said that the decision came down to the quality of loans written.

He told The Adviser: “The data that we have seen on the back book shows that there is a clear correlation that those that are more experienced (and those that are writing more loans) provide better customer outcomes, be they either the ongoing performance of the loan, the ongoing performance of the customer, and adherence to responsible lending as well.”

Mr Boer highlighted that there is a “huge amount of turnover” with new brokers, which he said was a “clear indication that these people need support”.

The general manager for third party banking continued: “They need more training, they need more investment to ensure that they are successful and, of course, with the increased complexity now and expectations on meeting responsible lending, we need to make sure that our brokers are meeting those standards and doing it right.

“So, it is very difficult for somebody without any financial experience, we believe, to be able to meet those standards. And therefore, we need to support, embed and ensure that they have that minimum level of capability.”

When asked whether new brokers coming from financial backgrounds (such as ex-bankers) would also be subject to the two-year requirement, Mr Boer said: “This is really about experience in sitting in front of customers and actually discussing mortgage products. But it’s not the only requirement that we have focused on. There is the education standard as well, which is also a very important part of the requirement.”

Aussie brokers to be held to same standards

Mr Boer emphasised that the new accreditation process holds “the same rules for everyone”, and that CBA-owned brokerage Aussie would also be subject to the same accreditation changes.

He told The Adviser: “It’s the same rules for everyone. We are investing with all our strategic business partners to ensure they meet the new standards.”

“We believe that [the changes] are in the best interest of consumers and the industry alike.”

Accreditation changes form aim to support Combined Industry Forum reform package

The accreditation changes for new brokers come off the back of the Combined Industry Forum’s reform package, which was released this week (and to which Commonwealth Bank was a contributor).

According to Mr Huggins, the new changes form part of CBA’s new mortgage broking model and “long-term commitment” to the industry.

“As a leading home lender we recognise mortgage brokers as a key channel for customers who are looking to purchase a home, and we have been working with the industry forum to find the right balance to ensure the best customer outcomes,” Mr Huggins said.

“Our new standards follow extensive consultation with the brokers, and are another example of our commitment to delivering the recommendations of the Sedgwick Report and ASIC review well before the 2020 deadline.”

Mr Boer added: “We’re committed to the process around the industry reform package – it is significant amount of change with quite a bit of challenge and a lot of investment required by industry. At CBA, we are making a huge investment to support the industry and ensure we are delivering on those standards.”

All new accreditations on hold

CBA said it would work closely with brokers who meet these requirements during the accreditation process, including conducting interviews and providing support with professional development plans.

The bank expects to launch the new process in the first quarter of 2018, with all new accreditations on hold until then to ensure the new process is implemented effectively.

In addition to the updated accreditation standards, CBA is also reviewing non-monetary benefits provided to brokers to ensure they support good customer outcomes; improving the value proposition for accredited brokers; and rolling out the industry’s proposed changes to commissions and KPIs. These changes will be in line with the principles announced in the CIF package, and further details will be released in the new year.

Mortgage Brokers To Be Assessed On “Good Customer Outcomes”

An excellent piece from Sam Richardson at MPA.

For the first time in mortgage broking history, a ‘good customer outcome’ has been defined by the industry.

The Combined Industry Forum created the definition as part of wider governance reforms, in response to ASIC’s Review of Mortgage Broker Remuneration.

The CIF defines a good customer outcome as when “the customer has obtained a loan which is appropriate (in terms of size and structure), is affordable, applied for in a compliant manner and meets the customer’s set of objectives at the time of seeking the loan.”

Additionally, lenders will report back to aggregators on ‘key risk indicators’ of individual brokers. These include the percentage of the portfolio in interest only, 60+ day arrears, switching in the first 12 months of settlements, an elevated level of customer complaints or poor post-settlement survey results.

MFAA CEO Mike Felton, who took part in the CIF, told MPA that the definition “it does hold the industry to a higher standard in terms of saying appropriate versus ‘not unsuitable’, but in reality there has been so much change in responsible lending I don’t think it’s going to make that much difference to their current behaviours.

“The regulator has done a lot of research in this area, we are just articulating it…the first time it’s been articulated.”

Not legally binding…yet

According to Felton, the good customer outcome definition will not be applied retrospectively to loans and is not currently legally binding, but will be subjected to an industry code which gives teeth to the reforms.

This has come as a disappointment to consumer advocates, such as CHOICE, which wanted brokers to be legally required to act in the best interests of consumers, in common with financial planners.

The intention of the Combined Industry Forum, however, is for the definition to form the basis for a new system of governance, and become part of licensing conditions. This process of governance will not be in place until 2020.

The first step is for every individual broker to be issued with a unique identifier number, that stays with them throughout their career. MFAA boss Felton told MPA that the being able to track individual brokers would help make governance ‘data-driven’.

Insights from tracking could “provide direction to your monitoring; file monitoring, surveys, mystery shopping. That in turn drives remedial training, education and outcomes, and then reports back to continually improve.”

Felton describes the governance framework as “the centrepiece, the absolute glue, in the reform package.”

Disclosure to customers

Not only will the industry collect far more information about itself, it will also make that information public.

By the end of 2018, brokers will be required to publish to customers the numbers of lenders used in the previous financial year, in addition to the top six years and the proportion of business going to them.

Aggregators will need to provide to ASIC on the spread of lenders being used by brokers, such as brokers using less than 3 lenders or more than eight.

The Combined Industry Forum also calls for lenders to provide ASIC information on the “weighted average pricing of home loans in the previous financial year across their different distribution channels using various standard scenarios.”

CHOICE ‘Welcomes’ Broker Commission Changes But…

Consumer group CHOICE says the proposed CIF mortgage broker reforms are positive, but do not address their key concerns of ensuring brokers act in the best interests of their customers (currently they are not obliged too), and potential conflicts about poorly disclosed trail commissions.

This from Mortgage Professional Australia.

Consumer advocate CHOICE and other consumer groups have welcomed changes to broker commissions proposed by the Combined Industry Forum.

“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’s director of campaigns and communications, Erin Turner.

CHOICE, which was harshly critical of brokers in their submission to ASIC earlier this year, said CIF’s proposals “shows that all parties in the home lending industry have taken ASIC’s report into mortgage broker remuneration seriously.”

It adds that the changes could increase transparency by informing consumers about the number of lenders brokers used.

CHOICE became part of the CIF after complaining to the Treasury in July that “reform must be focused on what’s best for consumers, not what works for brokers, aggregators or lenders.”

Broker heads hopeful

Both following ASIC’s review, an ongoing Productivity Commission review and in an earlier ‘shadow-shopping’ report, CHOICE have been critical of brokers in the past two years.

However, broking industry associations are hopeful that CHOICE’s involvement in and endorsement of the Combined Industry Forum’s recommendations could lead to a more cooperative relationship.

“I would hope so,” FBAA executive director Peter White told MPA. “it has turned out to be a good result, they have been involved. It’s no ‘roll over, we’ll do this because I say so’; there’s been debate and meaningful discussion about things.”

MFAA CEO Mike Felton said he looked forward to working with consumer advocates going forward: “we the MFAA and the Combined Industry Forum recognise that the consumer is a key stakeholder and that it was critical that the consumer be represented throughout this process. I think that gives credibility to the reforms that have produced.”

Still concerned about trail commissions

Consumer advocates did not entirely welcome the recommendations of the Combined Industry Forum, however.

CHOICE noted that “we are disappointed that brokers aren’t required to act in the best interests of consumers and that there are few changes to overall commission structures. In particular, there is little clarity about the consumer benefit of trail commissions.”

“Consumer groups will continue to discuss these reforms with industry and look forward to their implementation.”

CHOICE has complained about trail commissions to an ongoing review by the Productivity Commission into competition in the financial system. The review, which reports in July 2018, could lead to changes by the Government, depending on its recommendations.

Brokers to have new code and unique identifier numbers

From The Adviser.

By the end of 2020, brokers will be given a “unique identifier number” and be subjected to a new code of conduct, following changes that are to be instituted by the Combined Industry Forum.

The newly released reform package from the Combined Industry Forum has outlined changes to remuneration structures (including changes to upfront and trail commissions) and recommended that the sector would be subject to new code and identifier numbers “to allow for more complete reference checking and identification of poor performers”.

New industry code

While the industry code is yet to be developed, the CIF outlined that it would begin working on a new code by “mid 2018”.

The report read: “The proposed reforms will be industry-led, and individual industry participants have committed to taking immediate steps (having regard to competition law requirements) to implement the reform package. However, to ensure the ongoing viability of the reforms and equal consumer protections, the reforms will need to be captured in an industry code that enables enforcement, applies across the industry and includes new participants over time.

“The CIF is considering a number of approaches, including working with ASIC on establishing an ASIC-approved code for all participants in the mortgage industry, and/or repurposing current industry codes to include these reforms, and to house the appropriate monitoring and compliance functions.”

The code will reportedly take into account the outcomes of the ASIC Enforcement Review’s assessment of ASIC’s code approval powers, and any new obligation for industry participants to subscribe to an approved industry code.

The report continued: “A ‘mortgage broking industry code’ would apply to mortgage brokers, lenders, aggregators and, where appropriate, referral businesses and would be subject[ed] to all applicable regulatory and competition law approvals.”

Speaking to The Adviser about the code, Combined Industry Forum chairman Anthony Waldron said: “It’s really important that we work with ASIC and the government on this to get it right. So that’s whether we repurpose one of the existing codes (for example, there are codes with the industry bodies) or whether it is another ASIC-led code.

“We are still working through exactly how that works, but we think codifying these changes is important to ensure that the industry absolutely implements them. This is a coded, directional piece to say, [and] we want to make sure that the industry takes it seriously and that the government and all players can be ensuring that they are comfortable the industry is moving forward. The code will provide that ongoing monitoring to ensure that it will happen in the future.”

The CEO of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, said: “This ‘mortgage broking industry code’ would apply to all players across the value chain. It may be a new standalone code or an addition to existing codes, and adherence to it could even become a future licence condition of relevant ACL holders.

“We are completely confident in brokers’ ability to create consistently good consumer outcomes, but we’re equally confident in the industry’s ability to do more to show transparency and ensure the trust we’ve earned from consumers is maintained in the long term. I am looking forward to continuing our work with the CIF and ASIC and implementing these reforms.”

Likewise, Peter White, the executive director of the Finance Brokers Association of Australia (FBAA), said: “Both associations already have a code of conduct, so this is a serious work in progress that is more of a headline statement with a desire as much as anything.

“It could be that we take the best of breed of everything and turn it into one. That is a decision that would have to be made by the MFAA and FBAA boards to see if we are prepared to replace the code or have it as an additional code on top of the ones we already have.”

He added: “Bankers already have their code of conduct, and I can’t see anyone replacing that — so they would have that and this newly proposed code as well. So, it could be that we have two as well, but these discussions are yet to be had on what the code would look like.”

Unique identifier numbers

Another aspect of the CIF’s “landmark reform package” that aims to “improve consumer outcomes and confidence in mortgage broking” is the introduction of a new unique identifier number for brokers.

First suggested by the MFAA to help provide ASIC with “the complete and accurate broker picture it desires”, the association suggested the industry bring in a “single broker identifier number” that would be mandatory for use on each home loan sold.

“Such a unique identifier of the broker that has intermediated any loan must be provided to the lender with the application and stored by the lender throughout the life of the loan and for a period of seven years after the last interaction with a customer in line with other NCCP Act requirements,” the MFAA stated in its response to Treasury.

The MFAA noted earlier this year that while there were existing identifiers in use, such as credit licence numbers or credit representative numbers, it is not “clear whether these numbers cover all brokers and staff”.

As such, the association proposed that it could therefore require a “different number” to be used by those who operate directly under their employer’s ACL number.

“This solution may initially be a lender-specific unique identifier, but in time, ideally each broker should receive a single identifier across all lenders,” the submission read.

This suggestion has been taken up by the CIF, whose report stated: “In response to Sedgwick’s recommendation that ‘the industry needs to improve the governance and oversight of brokers, lenders and aggregators, the CIF has proposed that it bring in new unique identifier numbers for brokers.

“The industry intends to work with the government to implement a unique identifier for each broker and introducer/referrer to lender, noting that there is investigation required around how this can be implemented.

The unique identifier should be held on a register of brokers maintained as a reference checking protocol for credit professionals moving between aggregators or moving from working with a lender to an aggregator.

The CIF elaborated: “Ideally, this identifier would be maintained throughout a person’s career across financial services industries, such as financial planning, mortgage broking, referring/introducing and as a lender-employed banker, and be managed centrally by ASIC. Once fully implemented, this identifier would be used by aggregators, lenders, associations and ASIC, and be held against all loans lodged at the lender level to assist with data analytics.”

Mr Waldron told The Adviser: “There is a lot of work still do with this one and we will need to work with ASIC closely on that. This [number] is designed to be portable, so you take it with you no matter where you are working. We think that will improve a whole range of things, but ensuring that the governance that we talk about can be implemented — and that if people change aggregator, for example — that reporting can continue.

“Down the track, we think that efficiencies can be created out of it for the industry as well. But we still have a bit of fair work to do to implement this one and we will need ASIC to implement this.”

The FBAA’s Peter White said that he could “see the value in a unique number that carries across everything and that helps manage the industry”, particularly as bankers who write home loans aren’t captured by ASIC’s current register of those operating with ACLs and ACRs.

He said: “So, I see this new number — if it’s set out in a desirable way — not changing anything else but enhancing what is already in place.”

The CIF outlined that it expects the unique identifier numbers to be implemented by the “end of 2020”.

CIT Proposes Broker Remuneration Changes, Keeps Commissions

The representatives of Australia’s mortgage broking industry have prepared a reform package that they say will improve consumer outcomes and confidence in mortgage broking. But the package still keeps the essence of commissions, while removing volume incentives and capping soft benefits. Disclosure of ownership and commissions will be improved.  [This all signifies the current arrangements are not adequate – and change is needed – an important signal in my mind!]

The details from Australian Broker.

The reform package is the result of unprecedented engagement between industry bodies, lenders, mortgage brokers and their representatives, aggregators, introducers, and consumer groups, who have worked together since May 2017 as the Combined Industry Forum, and follows consultation with regulators and Federal Government.

The paper is in response to the proposals outlined in ASIC’s Review of Mortgage Broker Remuneration, and takes into account the third party recommendations of the ABA’s Retail Banking Remuneration Review.

The industry has agreed on six principles that will be implemented to ensure better consumer outcomes and improved standards of conduct and culture, while preserving competition in mortgage broking:

  • The standard commission model will avoid financial incentives that encourage consumers to borrow more than they need or will use, for example by basing commissions on facility draw down net of offset;
  • Volume-based and campaign-based commissions paid by lenders and aggregators are recognised as raising potential conflicts of interest and poor customer outcomes and are expected to cease;
  • Non-monetary benefits will only be given based on a balanced scorecard and good customer outcomes, and benefits given by lenders will be capped;
  • Ownership models and commercial relationships will be made clear on all marketing materials, including websites, where ownership is greater than 20 per cent, so consumers have the right information to make informed choices;
  • ASIC and consumers will be given clearer information on where loans are written, commissions paid and interest rates, to increase transparency and accountability in the industry;
  • The industry will introduce an improved Governance Framework that monitors for, and identifies risks, and requires the industry to take action and continuously improve where issues are identified.

In drafting these reforms, the industry has also for the first time set a standard definition for ‘good customer outcomes’, which looks at the size and structure of the loan, affordability, responsible lending requirements and individual customer needs.

Combined Industry Forum chairman Anthony Waldron said the release of the report this week was a significant milestone and laid clear foundations for industry-led transformation.

“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,” Waldron said.

“We hope to lead by example by taking a proactive position in those areas where our industry has the opportunity to deliver even better customer outcomes.”

Combined Industry Forum deputy chairman Mark Haron said: “For a diverse range of key stakeholders to come together to deliver a meaningful package of industry-led reform is unprecedented in the financial services sector. The mortgage broking industry introduced true competition to Australia’s lending landscape and this, in itself, has delivered vastly better outcomes for consumers. With that said, there will always exist areas for continued improvement in any industry and the measures set out today mark an important step in setting a new and superior standard in mortgage broking.”

Australian Banker’s Association deputy CEO Diane Tate said: “We have put customers at the centre of this important package of reforms. The industry will be holding itself to a new standard, set higher than the law requires, when assessing good customer outcomes. The banking industry is committed to implementing this reform package, and to monitoring the impact of the reforms to ensure they are delivering benefits for customers.”

MFAA CEO Mike Felton said: “It has been tremendous to be a part of an industry that has united in its commitment to ensuring that broker remuneration is targeted at promoting strong consumer outcomes and the sustainability of our industry. It is a credit to all industry participants and representatives that they have embraced the task of self-regulation and delivered this suite of genuine reforms in such a timely and comprehensive manner.”

FBAA executive director Peter White said: “The undertakings and endeavours of the Combined Industry Forum has been an extensive exercise in co-operation and mutual respect between those who are not always necessarily aligned on matters. It has been a rewarding time to see how we as an industry and competitors can work together for the good of an industry we hold dearly, and to ensure good consumer outcomes are continued to be maintained by our actions. It is an honour to be a part of this group and the
journey will continue into the future as we continue to work with government and our regulators on these outcomes.”

Australian Finance Industry Association (AFIA) CEO Helen Gordon said: “Our members are focused on financing Australia’s future including for home ownership and investment. Mortgage brokers play a pivotal role in facilitating consumer choice and access to that finance. AFIA has welcomed the opportunity to work through the Combined Industry Forum with key industry players to propose action to address consumer risk areas raised by ASIC, while enabling home buyers to continue to have access to a competitive mortgage
market.”

Customer Owned Banking Association (COBA) CEO Michael Lawrence said: “The Combined Industry Forum has focused on improving outcomes for consumers and this package of measures is aimed at delivering on that objective. The broker channel is a big segment of the home loan market, with brokers representing more than 50% of home loans written.”

The Combined Industry Forum will report on its ongoing progress to ASIC, Treasury and the Government on a regular basis.

No additional risk from brokers, says S&P

From Australian Broker.

Leading analysts at S&P Global Ratings have commented on the major banks’ use of brokers, saying that trends in third party channels are not indicative of any additional risks for the industry.

These views come from the agency’s analysis of major bank lending practices including governance and controls around brokers, said Sharad Jain, S&P director of financial institutions ratings, at an Asia-Pacific Banking Insights session entitled What’s The Latest Credit Outlook For Australian Banks? held yesterday (29 November).

Despite these views, Jain admitted there may be constraints around making informed commentary in this area.

“We do not see any significant difference in the outcomes [between broker and proprietary] but that data itself is constrained because [it] does not come through any period of significant stress.”

While on the face of it, there may seem to be additional risks through brokers, current data does not back this up, he said.

Nico de Lange, another S&P director of financial institutions ratings speaking at the event, predicted that the broker channel would continue to be a major source of new business for the major banks.

“It will remain a channel that they [will] be focusing on but what might happen is that there might be different strategies within the major banks on the importance that the broker channels might play.”

While some of the major banks had been increasing the use of brokers, others such as the Commonwealth Bank of Australia (CBA) had slightly decreased their use of third party, he said.

Broker Commission Changes In The Wind

From The Adviser.

ANZ and AMP Bank have announced new changes to their commission structure, with ANZ’s changes effective starting 1 December while AMP’s update effective starting 5 January 2018.

ANZ stated that it will replace the Base Rate with a Consumer Customer Rate, which will be notified to brokers on a monthly basis. Under asset finance loans, the Consumer Customer Rate will be the maximum annual rate charged to customers.

Brokers will be entitled to discount the Consumer Customer Rate at their discretion by up to 200 basis points; however, the asset finance commission (AFC) will be cut in proportion to the discount offered to customers, and no commission will be paid to brokers if the discount exceeds 200 basis points.

ANZ has also decided to split the customer Other Goods into two categories: Other Goods Category 1 or OG1 (e.g., caravans, trailers and marine) and Other Goods Category 2 or OG2 (e.g., motorcycles, jet skis).

All consumer transactions must also be submitted on the consumer pricing Source of Business (SOB).

Meanwhile, AMP Bank will be changing the way it pays commissions for loans that are internally refinanced.

Changes will be processed as new loans for loans that are restructured or refinanced by existing customers, which means that broker commissions will be based on the net difference of the new and outgoing loan, rather than only being based on the new loan limit.

Further, AMP Bank’s changes mean that no commissions will be paid to brokers if the new internally refinanced loan limit is less than the original loan being financed. Standard clawback rules will remain unchanged and continue to apply to the original loan.

NAB Will Remediate 2,300 Home Loans

NAB has said it has commenced a remediation program for some of its customers, after a review identified their home loan may not have been established in accordance with NAB’s policies.

It follows the completion of an extensive review by NAB which identified around 2,300 home loans since 2013 that may have been submitted without accurate customer information and/or documentation, or correct information in relation to NAB’s Introducer Program.

NAB first became aware of the matter in October 2015, and advised ASIC in December 2015 after an initial high-level review. Since then, NAB has provided regular updates to ASIC on the progress of its investigation.

“What occurred was unacceptable. We have investigated this matter thoroughly, and, as we have always said, whenever we find issues we will investigate them, fix them, and hold people to account – and we did,” NAB Chief Customer Officer, Consumer Banking and Wealth, Andrew Hagger, said.

As a result of NAB’s review, 20 bankers in New South Wales and Victoria had their employments terminated, or are no longer employed by NAB, and an additional 32 bankers had consequences applied including the reduction of remuneration.

NAB has commenced writing to the around 2,300 customers – many of whom live overseas – asking them to participate in a detailed review of their loan, which may include verification of documents submitted at the time of their home loan application. Affected customers may be offered compensation as appropriate.

NAB has engaged with ASIC to ensure the remediation program provides fair outcomes for customers. The remediation program has been designed with reference to the methodology applied by the Financial Ombudsman Service, and with NAB’s standard approach to compensating customers. NAB will engage an independent expert to undertake regular audits of the remediation program, and will update ASIC every two months on its progress.

“I want to assure all of our customers that we have improved our systems, processes and programs as a result of what occurred here,” Mr Hagger said.

This includes changes to NAB’s Introducer Program, including enhanced governance and eligibility criteria.

Customers who receive letters to participate in the remediation program are encouraged to contact NAB on the phone number provided to them. Any NAB customer who is not part of the remediation program, but who has a query about it or their home loan, can contact NAB

 

Broker Boom Outpaces Loan Growth – MFAA

According to the MFAA, the boom in brokers may be unsustainable, given lower mortgage growth.  The snapshot, up to March 2017, shows that the number of brokers is estimated to be 16,009, representing 1 broker for every 1,500 in the population.  Overall brokers rose 3.3% but net lending only 0.1%. As a result the average broker saw a fall in their gross annual income. On these numbers, brokers cost the industry more than $2 billion each year!

Around 53% of new loans come via brokers, they claim.

They call out a mismatch between the number of brokers and new loans settled, and other than in VIC, volumes are down relative to brokers.

Here is their release:

The latest Industry Intelligence Service (IIS) Report has revealed that finance brokers continue to facilitate more than one in two (53.6%) of all mortgages written in Australia.

“This is a strong performance in the context of investor and interest only prudential measures imposed by regulators during the period, however, there are some warning signs that we need to be taking note of,” said Mortgage & Finance Association of Australia (MFAA) CEO Mike Felton.

The IIS Report has revealed the number of finance brokers in Australia has grown by 3.3% to just over 16,000 (in the six-month period October 2016 to March 2017), with more than 500 new brokers joining the industry in the reporting period.

This exceeded the growth in the value of new home loan settlements by brokers nationally (up 0.1% at $94.61 billion) and the number of broker-originated new loan applications which fell 4.5% to 303,300.

“Whilst the improved broker coverage is positive for consumers, these statistics should be seen as grounds for caution and need to be closely monitored. It is not a sustainable trend to have broker numbers continually rising faster than the value of new business written and could be part of the reason why the report shows the average income for brokers is down 6% nationally. When the pie stays the same size and there’s more mouths to feed, the slices inevitably get smaller. The report reveals that, on average, the sum of a broker’s up-front and trail remuneration is $133,500 per annum, before costs, which is down from $142,500 in the previous report,” he said.

“The data shows that on a state level, only Victoria appears to have a clear alignment, or a reasonable equilibrium between the growth in broker numbers and growth in new lending,” he said.

The report also reveals that Australia’s finance brokers are gradually utilising the services of a more diverse range of lenders and diversifying the types of loans they are writing as well.

“This report is showing a shift in the broker use of loan products from majors and regionals aligned to majors to specialist lenders, international lenders and broker white label products,” Mr Felton said.

“Greater diversity is good news in that it strengthens the broker proposition and competition within the mortgage market,” Mr Felton said.

The MFAA’s Industry Intelligence Service (IIS) Report provides reliable, accurate and timely market intelligence for the mortgage broking sector. It is designed, produced and delivered by Comparator, a CoreLogic business and a recognised provider of performance benchmarking, market diagnostics and ad-hoc investigative services to the retail financial services sector in Australia and New Zealand.

Brokers burned by customer-driven channel conflict

From The Adviser.

Home loan conversion rates are plummeting as borrowers attempt to secure a mortgage by making multiple applications across different channels, new research has found.

Data from Digital Finance Analytics (DFA) shows that in recent months, the number of mortgage applications which are made, but which do not lead to a funded loan, is on the rise.

Back in 2015, the ratio was around 80 per cent. Now it has dropped to around 50 per cent.

DFA principal Martin North said that the data, which is based on 52,000 Australian households, shows that more multiple applications are being made to a portfolio of lenders in an attempt to get a single approved loan.

“Essentially, they are backing both horses,” Mr North explained. “They are talking to brokers and potentially putting applications in via brokers but also putting applications in themselves.

“It is creating a lot of noise in the system. That means there is a much lower probability of an application a broker is handling translating into a funded loan.”

The analyst believes that a number of factors are contributing to the rise in multiple mortgage applications being made by the same client across different channels. The ease of applying for a mortgage online, driven by comparison websites and digital platforms that enable a DIY approach, is believed to be a major factor.

In addition, Mr North points out that consumers understand that credit has become tighter following the introduction of macro-prudential measures.

“They understand that the hurdles are higher now,” the principal said. “They don’t necessarily trust one channel over another, but they will try this portfolio approach and see what turns up. The fact that the processes are far simpler now than they used to be is making it easier.”

The DFA data shows that younger borrowers under the age of 40 are making multiple applications more than any other age groups. Mr North said that this is not surprising, given their digital literacy.

He believes that the findings shift the conversation about mortgage channels and pose significant challenges for banks and brokers.

“I bet nobody asks whether the borrower currently has a mortgage application in the system,” Mr North said. “Perhaps, that’s a questions banks and brokers need to start asking.”