Tag: MFAA

Broker remuneration at “lowest levels ever observed”

The Mortgage and Finance Association of Australia (MFAA) has released a report examining the broker channel’s performance over the past six months; via AustralianBroker.

The eighth edition of the Industry Intelligence Service Report (IISR) drew on data supplied by 12 major aggregators from October 2018 to March 2019. 

While the the broker channel achieved a record high market share of 59.7% during the period, it settled just $87.56bn in home loans – the lowest six-month value recorded since the MFAA commenced reporting in 2015, down 10.32% on the previous year. 

The average value of new home loans settled per broker also continued to decline but at a rate “far greater than ever before,” down 10.66% on the year before. 

The number of loan applications also reached never before charted territories, with applications down 8.53% from the period before and 13.39% year-on-year.  

Further, the average number of applications lodged per broker declined across all states excepting Tasmania. 

The broker population is down from the record high of 17,040 industry participants, with the net industry turnover – accounting for those joining and leaving the industry, as well as those moving between aggregators – up to 10.9% from 9.6% a year ago. 

Notably, despite the proportion of new female recruits increasing by 10% compared to new male recruits, the population of female brokers declined over the six months, down 1.79%.

All of these factors contributed to a fall in the average total broker remuneration “to the lowest levels ever observed” by the IISR. 

Average combined remuneration has dropped 3.49% from the last six month period and is down 3.08% year on year. Compared to the high of April to September in 2016, it’s down 9.64%. 

The report linked the decline to the lower upfront commissions as trail increased across all states. 

The MFAA reiterated throughout the report that the inhospitable credit environment did not only impact the broker channel, as the value of home loans settled directly with lenders was down 15.71% from the last six months and 19.1% from the year before.

Broker Commission Stoush Continues

From Australian Broker.

The Mortgage & Finance Association of Australia (MFAA) has responded to the comments made by Commonwealth Bank of Australia (CBA) CEO Matt Comyn during yesterday’s Royal Commission hearings.

During the hearing, Comyn expressed his preference to scrap broker commissions and implement a fee for service. The MFAA has said it clearly demonstrates that CBA’s priority is shareholder returns.

MFAA CEO Mike Felton said the CBA’s position was not surprising, but was “entirely selfserving”, in that it is designed to destroy competition and reduce the bank’s reliance on the broker channel.

He said, “CBA’s model is anti-competitive and designed to drive consumers back into their branch network, which is the largest branch network of the major lenders.

“Mr Comyn’s solution for better customer outcomes is a new fee of several thousand dollars to be paid by consumers to CBA for the privilege of becoming a CBA customer.

“Cutting what brokers earn by two-thirds would save CBA $197 million, which is good for CBA’s shareholders. However, it would destroy competition, leaving millions of customers without access to credit outside of major lenders.

“In addition, as has been highlighted by both the Productivity Commission and Treasury, consumers are simply not willing to pay significant up-front fees for access to a home loan.”

Felton has also addressed Comyn’s recommendation to follow a model adopted in the Netherlands, under which consumers pay the same fee whether they use a broker or a branch, to ensure channel parity.

He said, “The proposal to adopt the Netherlands strategy is designed to maximise lender revenue. Under this model, broker customers pay the broker’s costs – instead of the bank – or branch customers pay a new fee that will substantially add to the bank’s revenue line and add thousands of dollars to the cost of getting a home loan from a lender directly.

“This is a fantastic win-win for CBA but a massive lose-lose for consumers regardless of whether or not they use a mortgage broker. CBA either acquires a new customer with zero acquisition cost, or it receives a new fee and massively decreased competition, so it can return to the days of four lenders in Australia. It’s a great deal for the bank.

“Any suggestion that this profit will be passed back to customers in the form of lower interest rates is fanciful.”

Felton also questioned the idea that brokers should earn the same as an in-house branch lender, whose overheads are paid by the bank.

He said, “Brokers are small business owners. They are not employees offering one product to customers. They pay rent, and staff, and electricity bills. They have to find every dollar they earn through servicing customers well and developing a strong reputation and referral network.”

The MFAA challenged the statements by CBA that brokers are causing systemic issues in the home lending market – and that it should be a lender who is tasked with ensuring good consumer outcomes for the entire Australian home lending market.

He said, “ASIC’s extensive, data-driven review of mortgage broker remuneration concluded that there was no finding of systemic harm caused by the broker channel,” Mr Felton said. “Additionally, as noted by Treasury in its background paper to the Royal Commission in July 2018: ‘Following a comprehensive report by ASIC in 2017 on mortgage broker remuneration, the industry is progressing reforms that could address the most significant misconduct with the current remuneration model’.”

“Frankly, we were surprised that it is being suggested that one of the major lenders should be tasked with reforming Australia’s home lending market, given the revelations of the past 12 months.

“The Productivity Commission found that: ‘Fixed fees paid by customers rather than commission structures have been proposed, and would eliminate conflicts, but the cost to competition would be high. Consumers would desert brokers, and smaller lenders (and regional communities with few or no bank branches) would suffer much more than larger lenders, if customers were required to pay for broker advice’.”

No Evidence of Systemic Misconduct Says MFAA

Industry participants are being to react to the Royal Commission report, of course arguing from their own corner. Here is the latest.

The Mortgage & Finance Association of Australia (MFAA) has released a full response after the interim report of the Royal Commission, saying there is no evidence of systemic misconduct and outlining responses to each issue raised in the original report; via Australian Broker.

The document from the picks up on concerns over commissions and the fact the report said loans written through mortgage brokers have higher leverage, more interest-only loans, higher debt-to-income and loan-to-value ratios, higher interest costs and an increased likelihood that borrowers will fall into arrears.

The association responded to this claim saying that the complexity of borrower situations was not considered, as it was often that “risky loans” gravitated to the broker channel. Customers in difficult financial situations can benefit from using a broker to obtain finance.

It was strong on its stance over broker commissions, saying, “If conflicted remuneration was causing systemic harm to consumers, then the data should show complaints and relative arrears high and rising, competition and consumer support shrinking and prices inevitably rising. But this is not the case.”

The MFAA also said that as the report had not discussed the benefit of competition or consumer choice, the questions it had reported did not take into account wider unintended consequences.

It also accused the interim report of being silent on many of the changes industry groups are already adopting, not taking into account these changes when forming its questions and considerations.

It added, “The MFAA believes the issues raised around remuneration can be effectively dealt with by the specific reforms being proposed by the Combined Industry Forum (CIF), a stronger customer duty and a governance framework with an enforceable industry code focused on conduct and culture.”

It also said, “A consumer fee-for-service model would harm customers (especially in rural and regional Australia), damage competition and threaten viability of broker small businesses. It would significantly benefit the major lenders, providing them with an unassailable stranglehold on the home lending market and interest rates.

“A consumer fee-for-service is not a viable solution to improve transparency around broker commissions and help consumers to make more informed choices.

“It would tip the balance back in favour of branch-based lending by making it significantly more expensive for a customer to use a broker rather than a bank branch to obtain a home loan.

“Smaller lenders that do not have branch networks would be pushed out of the market, stifling competition, and allowing major lenders to restore the massive net interest margins they imposed on mortgage products before broking made access to competitive credit services a reality.”

In its conclusion, the MFAA said it would be calling on policy makers to consider all consequences of any changes to regulation.

It added, “We will also be promoting the fact that there is no evidence of systemic misconduct, and that our industry is focused on making the changes required to continue to improve customer outcomes.

“We know we must ensure that the strong consumer trust and confidence in the broker channel is underpinned by governance and transparency for the long-term sustainability of our industry, and ultimately, in the service of competition in the mortgage lending market.”

MFAA launches major broker advocacy campaign

A multi-channel advertising campaign is being launched by the Mortgage & Finance Association of Australia to promote the value of brokers to the general public.

DFA comments that the industry should focus on fixing the inherent conflicts in the broker channel, as revealed in the Royal Commission.  This is not marketing perception problem, it is the reality of current practices!  The MFAA are fighting the wrong war… ASIC’s analysis showed that contrary to myth, borrowers who use brokers do NOT necessarily get a better deal.

Via the Adviser:

Starting from this Saturday (7 July) and running through to the end of October, the Mortgage & Finance Association of Australia’s (MFAA) national advertising campaign – developed by creative agency Redhanded, in partnership with MFAA advisers GRACosway and Porter Novelli – will run across regional television, national newspapers, social media, national radio, as well as on billboards, bus stops and on branded buses, among other channels.

Featuring real broker customers, including winners of The Block, Kyal and Kara Demmrich, the advertising campaign aims to highlight the experiences customers have had with brokers and the value they place in the broker offering and service.

Several leading brokers will also front the campaign, including award-winning broker and director of Rise High Financial Solutions Marissa Schulze, and share what their typical day looks like.

The campaign, which runs with the tag line Your Broker Behind You (showcasing that the broker is supportive of the customer and their dreams of home ownership) and utilises the hashtag #findafairerdeal, also aims to involve other brokers.

The 30-second television commercial, social media posts and several other assets are being made available to brokers through the campaign website brokerbehindyou.com.au, and the MFAA is calling on all brokers to post their own videos, photos and posts using the hashtag to create a wealth of content showcasing how Australia’s brokers are making a difference.

‘We have a wonderful story to tell’

Highlighting that broker market share has increased over the past six years, with the MFAA’s recent stats showing that broker market share in the March quarter reached its higher ever figure, the association noted that while the recent negative publicity has not yet impacted the proportion of people using brokers, the association believed it was the “the right time” to come out in a public campaign to “promote and defend” the industry.

The CEO of the MFAA, Mike Felton, commented: “There is no doubt our reputation as an industry has been challenged through repeated regulatory reports, inquiries and negative media coverage over the past year, but we have a wonderful story to tell. Brokers drive competition, value and choice, which creates positive customer outcomes and fairness for all Australians.

“While we are continuing our ongoing efforts in advocacy and education, through such actions as our involvement in the Combined Industry Forum, this campaign will highlight more publicly the value of the mortgage broking industry.”

He continued: “Many broker businesses are comparatively small, but working together, we represent an industry of real significance, which is systemically important to the Australian economy. It’s time to make that size and scale count.”

Mr Felton revealed that the association tested and shaped the initiative with the help of an advisory panel made up of brokers, aggregators and lenders to ensure it reflected the views of the entire industry.

He continued: “We’re focused on the positives. The message is: ‘Your broker is behind you all the way, providing you with a choice of lenders and products, and support for the life of the loan. Your broker is on your side’.”

The marketing campaign comes off the back of calls from brokers for such an advertising campaign.

Several brokers have taken to the comment section of The Adviser in recent months to call on the associations to put out a public-facing marketing campaign on the broker proposition, with one commentator calling on the associations to “launch an Australia-wide media campaign outlining the fact that the banks are in the process of killing the broking industry and when they do consumers will be far worse off”.

Some brokers have already taken steps to rebut the negative headlines and misinformation being disseminated to the public following the financial services royal commission and Productivity Commission’s inquiry into the financial sector.

Tasmania-based broker Lance Cure launched a local TV advertising campaign to strengthen the public’s perception of the broking industry, while Steve Milligan, broker and director of Mandurah-based brokerage Launch Finance, presented a whitepaper for Federal MP Andrew Hastie titled The Value of Finance Brokers and Positive Consumer Outcomes to “get the truth out there about why brokers are doing so well”.

Likewise, the MFAA recently presented to government departments and regulatory agencies a data package to provide an evidence-based rebuttal of the negative reports and to emphasise ASIC’s review of mortgage broker remuneration, which did not conclude that the upfront and trail commissions have detrimental impacts on consumers.

The association also revealed that a new Deloitte Access Economics report, Value of Mortgage Broking, will be released in the coming weeks.

 

MFAA responds to brokers’ bad press

From MPA.

In a letter to its members, the Mortgage and Finance Association of Australia (MFAA) has highlighted the positive impact brokers have on the lending market, quoting new data that confirms a customer satisfaction rate of 92% and a reduction in complaints of 78%.

The industry data, based on figures released last week, highlights a series of positive trends which MFAA CEO, Mike Felton, will present to both the government and ASIC.

“While consumers benefit from the service brokers provide, we continue to be criticised as though the broker channel is systemically rotten. So, we decided to examine additional real data for answers, to bring an accurate presentation to government and to ASIC. The numbers don’t lie,” Felton said.

According to the figures, complaint volumes to major bodies have declined sharply over recent years. While brokers represent 91% of Credit and Investment Ombudsman (CIO) membership currently, complaints against them account for only 6.1% of the total volume received last year – a near 50% reduction on 2008 figures.

Further, brokers account for 1% of complaints to the Financial Ombudsman Service (FOS) and ASIC has made 15 broker convictions between 2010 and 2017, representing one in 9,000 brokers per annum.

Assessing its own complaints data for 2008 to 2017, consumer complaints declined 78% to what MFAA terms a “negligible 55 per year”. The body expelled, cancelled or suspended the membership of 75 brokers over the same period. In 2017, there was less than one consumer complaint for every 21,000 new contracts and the consumer Net Promoter Score currently stand at +70, with customer satisfaction at 92%.

“If our industry was systemically rotten you would have complaints and arrears going up, competition and consumer support declining and you would have interest rates rising. We have a very different picture,” Felton added.

In the first three months of 2018, the broker share point increased 1.7% year-on-year, from 53.6% to 55.3%. Further, in 2017, the major lender paying the highest commission received the lowest market share of Smartline’s business among the four majors.

“It’s a phenomenal performance,” Felton continued.

The message, delivered first hand by Felton during the association’s recent roadshows, also comes in response to recent bad press that has emerged during the royal commission, although he maintains it is not a direct response.

“The first thing to say is that this is not an attack on anybody. This is to say the rhetoric and debate in the public realm has been, of late, predominantly negative and is not consistent with the significant ASIC and Sedgwick reviews, our knowledge and understanding of the industry, and our own research,” he said.

Helping brokers to leverage the positive trends, a series of marketing materials will be made available on the MFAA website to enable members to share the information with their customers.

There are currently 17,000 brokers in Australia and from 2008 to 2017 the average number of loans originating through the channel reached 500,000 per year. In the last four years, the market share for non-major bank lenders has increased from 21.5% to 28%, driving competition and improving customer choice.

“We believe this data will demonstrate to the broker and the broker’s customers, that the channel is very sound,” Felton added.

 

Broker market share rises to a record 55.7% in September quarter – MFAA

From MFAA.

Australian finance brokers settled 55.7% of all residential mortgages during the September 2017 quarter, up from 53.6% in the same quarter last year, the latest industry data reveals.

Mortgage and Finance Association of Australia (MFAA) CEO Mike Felton said this represented a record $51.77 billion worth of residential home loans settled by mortgage brokers nationally in the September 2017 quarter, up from $48.57 billion in the September 2016 quarter.

“The broker share of the residential market is now at an all-time record which is reflective of the excellent value and service the broker model delivers,” Mr Felton said.

“The dollar values represent a pleasing 6.6% increase from the September 2016 to the September 2017 quarter,” he said.

The $51.77 billion settled by brokers represented a market share of 55.7% of all residential home loans as a percentage of ABS housing commitments. Comparing the market share on a year-by-year basis, this was an increase of 2.1% from the September 2016 quarter and 3.1% higher than the September 2015 quarter, comparator’s quarterly survey reveals.

“What a great result this was in these market conditions. The results suggest a rising trajectory for the broker-originated lending share and are further evidence of the trust and confidence consumers have in their broker,” Mr Felton said.

“Of course these figures need to be viewed in the context of the growth in broker numbers for the same period which is a statistic that will only be made available in the first quarter of next year but the latest surge in broker market share in both percentage and value terms in extremely positive,” he said.

Research group comparator (a Corelogic business) compiles quarterly broker statistics by calculating the value of loans settled by 19 of the leading brokers and aggregators as a percentage of the ABS Housing Finance commitments. The MFAA releases these statistics each quarter.

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 should be given ‘identifier numbers’: MFAA

From The Adviser.

Mandatory broker identifier numbers should be established and used on every home loan to help provide ASIC with “the complete and accurate broker picture it desires”, the MFAA has said.

Writing its response to Treasury’s consultation on ASIC’s Review of Mortgage Broker Remuneration, the CEO of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, noted that ASIC had “uncovered areas where inadequate data existed across the industry”.

Indeed, ASIC’s report into remuneration proposed that there needed to be better oversight of brokers and broker businesses, potentially by using “a consistent process to identify each broker and broker business”.

To meet this requirement and “produce reliable data sets to assist with better governance and oversight”, the MFAA has suggested that brokers should be provided with an individual number.

Mr Felton wrote: “The MFAA believes that the ASIC report provided a snapshot of the industry, and for the first time, collated a consistent data set to assess remuneration practices. It also uncovered areas where inadequate data existed across the industry…. ASIC is keen to work with the industry to determine the required data set, as well as to seek advice on what would be other good measures of consumer outcomes. The MFAA sees that this is an extremely important task, as this process will also produce reliable data sets to assist with better governance and oversight.”

He continued: “The MFAA believes that an important first step would be to develop a single broker identifier number to enable ASIC to get the complete and accurate broker picture it desires.

“We believe that such an identifier, when developed, should 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 noted 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.

Mr Felton concluded: “To respond to the need for greater transparency and data collection, which will assist the industry to self-regulate, the MFAA recommends a series of significant changes, including (in time) having mandatory ‘unique identifiers’ for brokers for each loan funded, the provision of loan concentration and performance data to aggregators to allow for data/risk-based monitoring, and improved public reporting to increase transparency in the mortgage market.”

The association has previously recommended that lenders pay upfront commissions on the drawn amount net of offset, with a top-up, and that brokers should improve transparency when offset accounts are recommended or used.

It is currently working with the Finance Brokers Association of Australia (FBAA), the Australian Bankers’ Association (ABA), the Customer Owned Banking Association (COBA) and the Australian Finance Industry Association (AFIA), as well as unnamed “representatives from bank and non-bank lenders, aggregators and brokers”, to develop a cross-industry response to ASIC’s report on mortgage broker remuneration.

The Mortgage Industry Forum will formally present its progress to ASIC, Treasury and the industry by the end of the year.

New ASIC funding model a “tax” on brokers, MFAA warns

From Australian Broker.

The Mortgage & Finance Association of Australia (MFAA) has expressed concern about a new industry funding model proposed by the Australian Securities & Investments Commission (ASIC).

The model, which is set to commence in the second half of 2017, hopes to draw funds for ASIC from parties within the finance industry.

“ASIC has long believed that those who generate the need for ASIC’s regulation should pay for it, rather than the Australian public,” said ASIC chairman Greg Medcraft.

“An industry funding model for ASIC is about establishing price signals to drive economic efficiencies in the way resources are allocated within ASIC. Industry funding will also improve ASIC’s transparency and accountability. That means business will better understand the job we do by having greater visibility of the cost of doing that job.”

However, Cynthia Grisbrook, chairman for the MFAA, has warned that proposed changes would see licensed mortgage brokers and broker groups paying “up to seven times” the amount for each dollar of credit facilitated compared to lenders.

“We believe that this equates to a ‘tax’ on brokers. Unlike lenders, brokers are – in most cases – unable to pass this additional cost on down the value chain,” she said.

Under the current proposal, licenced brokers and broker groups would face a levy rate of $1,000 plus $1.14 per $10,000 on credit intermediated greater than $100 million. This was compared to $2,000 plus $0.15 per $10,000 facilitated for lenders on credit provided greater than $100 million.

“On ASIC’s current calculations this could leave licensed brokers and aggregators (where applicable) each out of pocket in the amount of $39.90 on an average $350k mortgage given that the levy is charged at multiple points in the value chain. Lenders would be levied $5.25 on the same average $350k transaction,” Grisbrook said.

While these amounts would only be payable once the relevant party has reached the threshold of $100 million – which Grisbrook admitted may not affect brokers directly – she warned that this could impact aggregators who may then expect brokers to carry a portion of the cost.

“Overall, the MFAA believes that the model currently under consideration is inequitable, anticompetitive and unnecessarily complex to administer,” she said.

The proposed changes could also lead to the consolidation of licensing with many individually-licensed brokers handing back their licences and joining broker groups instead. This would reduce industry competition, Grisbrook warned.

“The MFAA is currently working with members and other industry participants to develop an alternative model based on the following four principles: simplicity, equity, achievability and neutrality.”

To get a feel for any unintended consequences, the MFAA is talking with aggregator and member groups, Grisbrook told Australian Broker.

“We have a lobbyist panel that’s made up of a lot of aggregators, and we’re sharing information and data to look at different angles.”

The MFAA also has a select group of brokers that it is working with on this. “We’ve sent something out for their input,” she said.

ASIC is currently taking submissions on the proposed funding model through the Treasury website. The submission process will close on 16 December.

In light of this short deadline, the MFAA has spoken to ASIC and is seeking an extension so that all industry players are on board and are working towards a common goal, Grisbrook said.

“We want everybody who’s involved in this to have a say in it and ensure that we’re all on the same page.”