Tag: Mortgage Brokers

What the realestate.com.au–Smartline–NAB love triangle means for brokers

From Mortgage Professional Australia.

The deal announced yesterday is a vote of confidence in broking and a new frontier for vertical integration

Property search giant realestate.com.au will be entering broking, it was announced yesterday.

Realestate.com.au and NAB are building a realestate.com.au-branded mortgage broking business and will launch later this year. All Choice Home Loan brokers will be invited to join the new business, which will benefit from realestate.com.au’s near 5.9m unique visitors a month.

Tracy Fellows, CEO of owner REA Group, portrayed the move as a vote of confidence in broking: “we’re excited to be partnering with NAB to build a new mortgage broking solution. The way people want to look for and buy property is changing. We want to make it easier for Australians to access the help and experience of a mortgage broker through the digital channels they’re already using to find their new home.”

Asked by MPA, REA Group claimed consumers would have access to a “broad panel of lenders, including NAB home loans and a realestate.com.au branded white label product.” Aggregation support will come from Choice Aggregation Services.

It is unclear what options are available to Choice Home Loans brokers who don’t wish to become part of realestate.com.au Home Loans.

How does Smartline fit in?

Yesterday also saw realestate.com.au acquire an 80.3% controlling stake in Smartline.

This deal was separate to that between NAB and REA Group. Smartline will keep its branding and continue to operate under its current management, who retain a 19.7% share in the business for at least the next three years.

Commenting on the move, REA Group’s Executive Director of Financial Services Andrew Russell noted: “We’re delivering on our promise to simplify property search and financing by offering genuine choice when it comes to finding the right home loan.”

However, at this stage, it is not confirmed whether Smartline brokers will actually get access to leads from realestate.com.au. REA Group could only tell MPA that “we will be working with Smartline to explore how both businesses can leverage each other’s scale and capability for the longer term.”

Vertical integration mk.ii

Given broking has recently experienced not one but two reviews, a major brand name such as realestate.com.au entering broking can be seen as a major vote of confidence.

Just as interesting is the role of NAB. Vertical integration was covered by ASIC’s Review of Mortgage Broker remuneration, Proposal 4 of which recommended clearer disclosure of ownership structures and realestate.com.au has been clear about NAB’s involvement.

ASIC also found that vertical integration through white labelling can raise a lender’s market share. NAB and Advantedge’s share of FAST, Choice and Plan loans was significantly higher than their overall market share (22.3% compared to 13.2%). However, NAB’s share of FAST, Choice and Plan was just 12.7% without Advantedge.

NAB will not own realestate.com.au’s home loan business but may be hoping that providing its white label products could have a similar effect as vertical integration.

Also in question is whether other online property groups – specifically Fairfax-owned Domain.com.au – will now decide to enter broking.

Fraudsters target brokers in Sydney hotspots

From The Adviser.

Incidents of fraud through the broker channel are skyrocketing, according to Equifax, which has now revealed the top suburbs where fraud is most prevalent.

Speaking at the Pepper Money Insights Roadshow in Sydney yesterday, Equifax BDM Steve Arsinoski shared data from the Veda shared fraud database, highlighting a 33 per cent year-on-year (YOY) increase in fraud. Identity theft is the fastest growing type of fraud, with an 80 per cent YOY increase.

“Thirteen per cent of frauds reported were targeting home loans and there has been a 25 per cent year-on-year increase in frauds originating from the broker channel,” Mr Arsinoski said.

“What we have noticed is that fraud through the broker channel is increasing, and that may be because fraudsters are becoming more sophisticated in the way they are applying for certain products. With the technology they have available they can fabricate certain documentation,” he said.

Equifax data found that 27 per cent of all mortgage fraud cases involved falsifying personal details.

While online is the preferred channel for fraudsters (57 per cent), 15 per cent of fraud cases are coming through the broker channel and 13 per cent through branches.

“Branch channel fraud is around 13 per cent, which showed signs of slowing down in 2015 but there has been a resurgence. We are finding branch fraud is continuing to increase,” Mr Arsinoski said.

“Broker fraud is sitting at 15 per cent. It is not drastically higher than branch fraud, but what is alarming is that we are seeing that 25 per cent growth form the previous year,” he said.

Over 72 per cent of all fraud cases are occurring in the Greater Sydney and Melbourne areas. Mr Arsinoski highlighted that Paramatta, in Sydney’s west, was a particular hotspot.

However, the fastest growing areas for fraud in Australia, with a 130 per cent increase in incidents over the second half of 2016, were Newcastle and Lake Macquarie.

Richmond, in Sydney’s north-west, recorded a 127 per cent surge in incidents over the half, while Baulkham Hills and the Hawkesbury region saw a 111 per cent increase.

Illawarra, Brisbane Inner City, the Sunshine Coast and Geelong were also named as fraud hotspots.

The four main types of mortgage fraud are falsifying personal details (71 per cent), identity takeover (19 per cent), fabricated identity (4 per cent) and undisclosed debt/serviceability fraud (4 per cent).

Mr Arsinoski urged brokers to report fraud as early as possible and suggested how it can be identified.

“If you could find or pickup fraud early on and identify any discrepancies, raise them earlier rather than letting the loan application go through. If the lender finds some inconsistencies and reports it to the originator, this is going to be a massive waste of your time and effect your commissions,” he said.

“The biggest impact on a broker is the loss of credibility. I’ve spoken to many brokers and they say reputation and their brand are the most important things in being able to generate leads and referrals.”

How brokers can combat fraud:

  • Ask questions to uncover fraudsters. The face-to-face interview is the best time to get to know your customer and do a thorough needs analysis. It is also the perfect opportunity to find holes in their story. Use your intuition.
  • Validate information via internet searches
  • Ask the borrower to identify any C-level executives at the organisation they say they work for
  • Get consent to record the interview
  • Look out for an unencumbered property offered as security.
  • Ask for original payslips or bank statements, or have the client download them in front of you.
  • Use ZipID for identity verification

Banks pull the broker lever as APRA pressures mount

From The Adviser.

In addition to rate hikes and policy changes, brokers are proving to be a convenient lever for the banks to pull as they strive to meet APRA’s limits on mortgage lending.

Banks are now approaching broker clients with owner-occupier home loans to refinance as they look to rebalance their mortgage portfolios and limit investor and interest-only lending.

In a recent The Adviser survey, brokers who had experienced channel conflict were asked which type of loan their clients had been approached by their bank to refinance.

Almost 74 per cent of brokers said clients with owner-occupier mortgages had been targeted. The survey also found that 84 per cent of the 766 brokers surveyed claimed the major banks and their subsidiaries had directly approached their clients to refinance over the last 12 months.

The figures come as Australian banks face ongoing pressure from the prudential regulator to cap investor lending growth at 10 per cent and limit the interest-only loans as a proportion of all new lending to 30 per cent.

Commenting on The Adviser’s channel conflict survey results, Digital Finance Analytics principal Martin North said banks are currently “powering up” their acquisition of owner-occupier loans to offset a reduction in investor and interest-only lending. He said this is being done through their proprietary channels “at the expense of brokers”.

Earlier in the year, CBA stopped refinancing investor mortgages through the third-party channel. Any CBA customers with an investor home loan looking to refinance would have to visit the bank directly.

“Two or three months ago, CBA said they were really looking to drive more momentum through their branch channels and offset the volumes through brokers. Westpac also showed in their latest results a little bit of a fall in broker momentum,” Mr North told The Adviser.

“There is a change of strategy from these lenders. They are less willing to take business from third-party channels for that particular category because they are trying to control the volume of those particular loans at the moment, thanks to the imposed speed limits and the need to reduce interest-only loans. It is a way of giving priority to their own channels,” he said.

Morningstar expects that a change in the broker strategies of Westpac and CBA in recent months could have a detrimental impact on broker market share.

“Changes in mortgage distribution strategy by Australia’s two largest mortgage banks CBA and Westpac will over time likely slow the growth rate of home loans sourced through brokers,” Morningstar analyst David Ellis said in a recent research note.

Over the last year 84 per cent of brokers have had one or more of their clients approached directly by their lender to refinance. Over 47 per cent of brokers admitted they had lost commission through clawback as a result of a client being refinanced by the lender directly.

However, despite these findings, MoneyQuest managing director Michael Russell is adamant that channel conflict is not a systemic issue.

“Under no circumstances have I witnessed any systemic channel conflict condoned by a lender,” Mr Russell told The Adviser. “I just have not witnessed it.”

Banks and brokers in remuneration talks

From The Adviser.

Representatives from the mortgage broking industry have met with the Australian Bankers’ Association to discuss proposed remuneration reforms.

The ABA, which instigated the highly contentious Sedgwick review, met with the Mortgage and Finance Association of Australia (MFAA), the Finance Brokers Association of Australia (FBAA) and the Customer Owned Banking Association (COBA) on Friday, and held a discussion forum with key industry participants including bank and non-bank lenders, aggregators and brokers to progress reform.

The forum, held on Friday, 9 June in Sydney, was recognised by participants as an opportunity for the industry to understand the key issues in response to ASIC’s proposals for mortgage broking; the potential impact to aggregators and lenders; and the overlap with the Sedgwick review.

While the ABA has given little information about what was discussed, the association’s executive director of retail policy Diane Tate said the meeting was “an important step” for the industry to work together on options for an industry-based response to calls for changes in the mortgage industry.

“We have heard these calls to change incentives and governance arrangements and we look forward to working with the industry, in consultation with the government and subject to all competition law obligations, on reforms to support good customer outcomes,” she said.

The FBAA’s Peter White said the forum was “a unique step forward” for the third-party channel.

MFAA chief executive Mike Felton said the discussions are a “crucial step” in the process of determining how the industry responds to the challenges of addressing ASIC’s proposals on broker remuneration, ensuring the sustainability of the industry going forward.

“This meeting demonstrates that our industry is serious about self-regulation and has the maturity to work together across different stakeholder groups to effect the required change and ensure customer outcomes continue to remain front of mind,” Mr Felton said.

Both the FBAA and MFAA were scathing in their reponse to the Sedgwick review, which included a number of proposed changes to the way brokers are paid.

Following the release of the report, Mr Felton said the association was “frustrated” by Sedgwick’s proposals, which he said were essentially recommending a consolidation of power to lenders, giving them complete oversight of mortgage brokers.

“This would lead to a reduction in independence, would do little to enhance competition and tip an already precarious power balance further towards the big four and away from consumers’ interests,” he said.

Meanwhile, the Mr White said the release of the ABA-funded Sedgwick review was making recommendations to banks, which “seem to be taking it as gospel”, and influencing regulators before any decision has been made by ASIC, Treasury or the minister.

“The banks and the ABA unquestionably must stop this attempted regulatory manipulation through the Sedgwick report and allow the works of ASIC and Treasury, and then the minister, to make the appropriate determinations without manipulation driven by self-interest, greed and poor consumer and industry outcomes,” he said.

The FBAA, MFAA and ABA will hold further discussions in the coming months, with all participants committing to work in consultation with Treasury and government stakeholders on an industry-led response.

Branches still leading channel for major banks

From The Adviser.

Brokers are writing less than 50 per cent of mortgages for the big four banks but have become the dominant channel for Australia’s smaller lenders, according to fresh APRA figures.

APRA’s quarterly bank property exposure data for March found that brokers wrote $31.3 billion worth of home loans for the big four, up 8.7 per cent over last year.

While brokers currently account for 46.6 per cent of major bank mortgages, Australia’s non-major lenders are seeing 52.1 per cent of loans written through the third-party channel.

APRA figures found non-major broker originated loans increased by 19.7 per cent between the March 2016 and March 2017 quarters. Foreign bank subsidiaries saw a significant increase in broker loans, up 92.9 per cent over the year.

The data comes after a number of reports in recent weeks have flagged changes to the third-party distribution strategies of the major lenders.

A recent Morningstar research report into Mortgage Choice noted a number of “industry headwinds” for the broking industry, including a change of direction in the mortgage strategies of two major banks.

“Changes in mortgage distribution strategy by Australia’s two largest mortgage banks CBA and Westpac will over time likely slow the growth rate of home loans sourced through brokers,” the report said.

These changes have led one alternative lender to urge mortgage brokers to diversify their offering.

Pepper’s managing director of Australian mortgages and personal loans, Mario Rehayem, told The Adviser that brokers need to look beyond the big banks in today’s market.

“Your business model, and the whole value of your business as a broker, hinges on the diversity of your back book,” Mr Rehayem said. “If you want to build a business, an asset that you can one day sell as a going concern, the buyers will be looking at the diversity of your back book, the run-off rate and your arrears,” he said.

“Imagine if more than one major bank changed their distribution strategy overnight. What’s going to happen to the broker market? How will brokers react to that? If you’re going to be pigeonholed to one bank and tomorrow that bank decides that their belly is full of third-party business, what are you going to do?”

Mr Rehayem said that brokers shouldn’t be “cherry picking” clients but instead position themselves to satisfy every type of consumer. He added that brokers are being forced to radically change their business models as banks change their appetites.

Australia’s largest mortgage provider, CBA, has been clear about its plans to grow its proprietary channel, telling The Adviser in February that it was a “strategic priority” for the group.

AI and the Future of Mortgage Lending

From The Adviser.

The managing director of online mortgage broker uno. has suggested that artificial intelligence in mortgages could disrupt the industry and change the way broking works.

Speaking to The Adviser, Vincent Turner outlined that currently, online mortgage platform uno. allows users to look at different loans suited for their needs, which are then supported by a team of advisers.

Mr Turner said: “There is the presumption that if it’s digital, it means you’re doing it yourself. But, today, our advisers look at deals in the same way a broker would. We work out things the platform doesn’t, yet, work out.”

However, the managing director suggested that as technology catches up, the role of brokers and advisers will change.

He said: “Every month, we improve the insights available in the platform, or the rules that are in the platform, so that more and more of the stuff that we get a broker to do today – looking at it, and having credit knowledge — will be in the platform. Anything that a human can learn about credit policy, you can teach a computer.

“Now at that point, the intelligence in the platform starts to surpass that of an individual broker because it’s across every lender we deal with, and the service person’s role becomes less around who will approve it (because that logic will be inside the platform), and more about how do we structure this deal.”

Mr Turner estimated that uno., could, “within a year from now”, have the algorithm rules to know who will lend the money, how much they’ll lend, how much will cost, and whether they’ll approve it.

However, he said that if the lenders “work out how to do lending decisions in real time, without involving people at their end”, there could be a point where the intelligence “gets beyond our own”.

Mr Turner explained: “If you move forward 10 years, the lenders, I believe, are going to make lending decisions quite differently. With the advent of ubiquitous machine learnings and AI, the credit policies could be evolving on a minute-to-minute basis. That’s where I think it’ll end up on the next five to 10 years… And, if that’s all changing real time and the algorithms work out how to get smarter and smarter, then, the concept of a broker doesn’t really exist. It’s basically platforms that are plugged into what the lenders are using to make decisions.”

When asked whether AI could spell the end of brokers, he said: “Well no, not now. Not two years from now, five years from now. Even seven to 10 years from now, I doubt it. But, I don’t know.

“Each year, we get closer to where technology can make the entire lending decision. As long as you give it all the data and the documents, and you can assume that any documents you give it, it’ll be smart enough to pull the data off those documents, populate it into a data file, then the lenders who can make decisions just based on uploading all of the documents you need for a particular person, they will win.

“And, if there’s still the concept for broker, it’ll be a platform that has access to all of those lending algorithms.”

He concluded: “Inevitably, a mortgage will be: have you enabled me to do the thing I want to do, as fast as possible, with the least amount of effort, at the lowest possible cost?… It’s competition, you know.

“It’s annoying, but it’s good for the customer.”

“Absolute rubbish” that brokers are being replaced by technology

Many in the broking industry have been quick to reassure that AI and fintech would not threaten the mortgage industry, with former RESI CEO Lisa Montgomery telling The Adviser earlier this week that the proliferation of technology companies coming to the fore is actually of “detriment” to the borrower.

She explained that this was because you “cannot run your personal financial platform without the guidance and support of someone who knows how to articulate it correctly to pay the least amount of interest and to pay things off quickly”.

Likewise, the former chief executive of the Stargate Group and a leading fintech consultant has said that despite technology becoming more prevalent in the mortgage space, “brokers aren’t going anywhere” and could actually be on their way to writing 80 per cent of home loans.

Speaking to The Adviser, Brett Spencer, the former CEO of the Stargate Group and executive director of TICH Consulting Group, said that he thinks anyone who believes the broking industry is being replaced by technology is talking “absolute rubbish”.

Mr Spencer said that the fact an abundance of “fintech” solutions are coming to the market is exactly the main driver behind brokers remaining relevant and increasingly relied upon by consumers.

He explained: “The reason brokers are here and will continue to be here, and market share will grow… is that the sheer proliferation of the number of mortgage products in the market today is in the thousands.

“You talk to any one lender and they might say they have three products, but there are probably 30 variations on those products. Joe Consumer just doesn’t understand it.

“No matter how good an online platform you have, no matter how good a technology solution you have — Joe Consumer still wants to talk to a broker who is the expertise. And so, brokers will be here to stay. There is no question about it.”

Commission changes could hammer mortgage franchise

From Australian Broker.

Future decisions to decrease broker commissions have analysts predicting a negative impact on mortgage franchises such as Mortgage Choice.

A research note released by investment research firm Morningstar looked at the headwinds facing Mortgage Choice and determined that although the firm is performing well now, potential changes to the broker commission model could lead to several detrimental effects.

Mortgage Choice currently pays franchisees 73% of upfront and 61% of trail received from lenders, putting it in a good position to pass on the negative impact of lower commission rates to franchise owners, analysts said.

However, despite the company’s strong market presence, it has been losing market share of the mortgage broker segment as smaller players take a cut of the commission themselves. This could lead to higher turnover for those with the firm.

“Commission cuts from banks could encourage more franchisees to look for a better deal outside the Mortgage Choice franchise model,” analysts said. This trend may also have the same effect on other mortgage franchises around Australia.

A downturn in the national housing market could also produce lower returns for Mortgage Choice over the long term, Morningstar predicted.

“Future profitability relies heavily on the ongoing strength of the Australian housing market and the preparedness of the four major banks to continue using mortgage brokers to distribute mortgages and continue to pay current levels of upfront commissions.”

In the event that housing finance approvals decrease in a downturn, Morningstar analysts predict Mortgage Choice’s upfront commission income will be affected.

Upfront accounted for 45% (or $39m) of gross broker commission income, while trail accounted for the remaining 55% (or $48m) in the first half of the 2017 financial year.

Finally, Mortgage Choice is subject to regulatory changes by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) both of which may affect the firm’s ability to grow, analysts said.

“ASIC’s review into broker remuneration could result in regulatory changes requiring a rebasing and/or reduction in the current commission structure, and if lenders reduce commission rates or negatively alter commission structures, Mortgage Choice’s revenue and profitability would be under pressure.”

However, despite these potential risks, analysts said the franchise was still financially sound in the present. As well as the high levels of expertise amongst the board and senior management, Mortgage Choice’s strategy to diversify into financial advice has also been effective at raising revenue.

“The business has consistently delivered on its strategy and business targets and we expect more of the same in the future.”

Industry heads speak out on channel conflict

From The Adviser.

The head of a major aggregator and the executive director of an industry association have hit out at reports of channel conflict between banks and brokers.

Following The Adviser’s article yesterday concerning reports of a CBA branch offering to refinance a customer’s home loan at a “lower rate than his broker” (to which CBA and Aussie have not yet responded), two heads of industry have spoken out on this type of behaviour.

Speaking to The Adviser, Peter White, executive director of the Finance Brokers Association of Australia (FBAA), said that “if this is true, then for a bank branch to be doing that, it is unequivocally and unquestionably disgraceful”.

Mr White said: “The bank already had the client, I don’t think the bank branch should have that sort of authority to be able to do that in the first instance because what they are doing is reducing the margins that the bank has already accepted on a transaction.

“So, this is just a deliberate undercutting means, not to gain a client, but specifically to target brokers… If the bank has the ability to reduce the interest rate, they should offer it to everyone in the marketplace.”

He continued: “I think that whatever branch has done this needs a serious reprimand from CBA. If other branches do this, it has a significant impact on the bank’s lending portfolio and the margins and actually hurts the bank’s bottom line profitability-wise – because it’s actually more cost effective to write a loan through the broker network than the branch network.”

Mr White added that it “added greater insult to injury” that the broker who had written the loans originally was an Aussie broker, given that CBA “has a huge financial interest” in them.

He said that channel conflict and clawbacks are forming part of the discussion that it is putting together for the ASIC remuneration review and Sedgwick review.

Raise it with your aggregator

Mark Haron, the director of aggregation group Connective also spoke to The Adviser following the release of the story, saying that he would be “having a chat” with CBA.

While he added that he had not yet received notification from Connective brokers of CBA acting in this way, he emphasised that it is “really important that when brokers find these channel conflict issues that they immediately raise it with their aggregator”.

He commented: “This type of thing does undermine the relationship between the bank and the broker. Whether it’s a one-off or whether it’s systemic, the aggregator should be talking to the bank about it and trying to do something about it either way.

“So, the best way to manage it is to raise it to the aggregator so that the aggregator, through the agreements with the banks, can have each one dealt with.”

Mr Haron said that in the past he had found the banks to be “very, very responsive to any individual or potentially systemic channel conflict issue” and would make adjustments, where necessary.

However, he said that if this “stops happening and the banks are unapologetic” and were treating the broker channel differently, then Connective would be “making sure that the brokers are made aware of that and the brokers can determine whether or not they want to continue their own business with those banks”.

Touching on comments made by Digital Finance Analytics’ principal Martin North earlier this week, which suggested that some big banks had changed their appetite for broker-originated loans, Mr Haron said that he did not believe banks were changing tack on how they deal with brokers “at this stage”.

He said: “We’re not seeing it at this stage, but that’s not to say that they won’t.

“There are some of the major banks, like Westpac and CBA, that are being more focused on the proprietary channel and how they can serve customers better through that, and that’s understandable, because that’s how banks will always want to operate. But, if they do that to the detriment or by neglecting a broker, then it will hurt the overall market share.”

He continued: “I think most banks are aware of that and they will certainly see that played out if they don’t look after brokers. Certainly, if they don’t support brokers or see more conflict issues arising where it is clearly systemic and not a one-off, it will be quite detrimental and problematic for any bank that decides to go down that path.”

Major bank branch undercutting broker rates

From The Adviser.

The Adviser has learned that CBA could be actively targeting home loan customers that were introduced by brokers with the promise of a better rate should they refinance via a branch.

Despite the bank telling The Adviser earlier this week that it is once again accepting new refinance applications for investment home loans with P&I repayments through broker channels (following a hiatus on new investor refinance applications in February), concerns that some of the major banks are favouring their branch networks over the broker channel are rising.

Adding to the speculation, a source speaking to The Adviser said that he was actively targeted to refinance his home loan during an application for a credit card at a North Sydney branch of the Commonwealth Bank of Australia (CBA).

During the assessment process the source was surprised to hear that the branch could give him a “lower rate than his broker” if he refinanced his home loan directly with CBA.

The loan was originally written by an Aussie broker.

When asked how the branch was able to do this, the representative at the bank told the CBA-customer that he had been told by his manager to refinance broker-originated loans where possible.

The Adviser can confirm that a representative at the Walker Street branch in North Sydney said that they could give a CBA customer a ‘better deal’ than a broker on a refinance loan.

When asked by The Adviser whether CBA is looking to reduce its mortgage flows through the broker channel, a Commonwealth Bank spokesperson said: “Commonwealth Bank is committed to consistently delivering the best customer outcomes for home buyers, and mortgage brokers are an important part of how we meet the home buying needs of customers.”

Proprietary channels a ‘strategic priority’ for CBA

However, the bank has been open in its preference to boost the proprietary channel, telling The Adviser in February that it was a “strategic priority”.

Following the 2017 half year results announcement in February (which showed a 4 per cent drop in broker market share over the six months to December 2016), The Adviser asked CEO Ian Narev whether the bank was moving away from the broker channel.

Mr Narev said that while the broker network “provides a really important proposition that customers like and want” and will be a “critical part of the group strategy”, the “preference” was for customers to go through the proprietary channel.

He said: “[O]ur preference is always going to be, as you can imagine — for all sorts of reasons — to service as many of our customers through our own channels as we possibly can. That’s a strategic priority for us.”

Mr Narev told The Adviser that the increase in loans being written directly through the bank was due to the fact that it had “upgraded and put more lenders in the branches — people who are able to have lending specific conversations with customers”.

He added: “We’ve been able to provide more analytics to support those lenders and others in the branch and we’ve really invested in the branch proposition and as a result of that we’ve seen our own share of the proprietary channel go up at the time when the markets have gone down — so for us that is a pretty good outcome.”

Aggregators to ‘audit’ and number brokers under ASIC regime

From The Adviser.

ASIC’s remuneration review could see lenders and aggregators increase their scrutiny of mortgage brokers, who would be identified using a “unique number”.

The sixth proposal of ASIC’s review of mortgage broker remuneration states that lenders and aggregators should improve their oversight of brokers and broker businesses.

ASIC expects aggregators to actively monitor the consumer outcomes being obtained at a broker and broker business level, including those relating to loan pricing, features, clawbacks, refinancing and default rates, and distribution of loans among lenders. Aggregators are expected to retain this information and provide it to ASIC as the regulator looks to continually monitor outcomes across the third-party channel.

“The aggregators will need to gather more information on their brokers, where their loans are going and what type of loans they are writing. Aggregators will need tools to audit and ensure brokers are doing the right thing by the consumer,” Outsource Financial CEO Tanya Sale told The Adviser.

“ASIC will be asking the aggregators what processes they have in place to ensure that the consumer outcomes are being met,” Ms Sale said.

While this creates additional work for aggregators, it could also have a significant impact on the way brokers run their businesses. However, Ms Sale believes brokers should embrace change and consider the opportunities.

“Don’t look at the glass half empty. Realise we are going to make an even bigger impact now. We will have even further information and processes to help us better understand the wants and needs of consumers,” she said.

ASIC has also recommended that lenders increase their oversight of aggregation groups. Lenders are expected to provide consistent reporting to aggregators to allow adequate oversight of brokers.

If implemented by Treasury, these recommendations will mean lenders, aggregators and brokers will need to implement new reporting processes to meet the new regime. This was highlighted in ASIC’s review, where the regulator states that “a consistent process” must be used by lenders to identify each broker or broker business. The regulator suggested using a “unique number” provided by the aggregator to identify each broker.

Ms Sale believes the provision of “good consumer outcomes” must include educating clients.

“How can we provide good consumer outcomes if the consumers don’t understand the lending process?” she said, adding that aggregators have “a big part to play” in providing the tools to their members to be able to educate their clients.