Tag: Mortgage Brokers

Best Interest and Brokers – It Could Be Positive – ANZ

From The Adviser.

Applying best interest obligations to brokers could help preserve the integrity of the third-party channel, according to ANZ CEO Shayne Elliott.

In his opening address to the Productivity Commission (PC) on Tuesday, 6 March, Mr Elliott claimed that a “best interest duty” applied to the broking space could enhance consumer protection.

“About half of our mortgages originate from brokers. As such, while we don’t own a broker network, we believe the integrity of the channel is critical,” the CEO said.

“The Productivity Commission has made some recommendations concerning brokers. We see merit in enhancing the consumer protections in this space.

“A best interests duty could support the existing law to promote consumer interests when receiving help from a broker.”

In draft recommendation 8.1 of its report, the PC called for the Australian Securities and Investments Commission (ASIC) to impose a “clear legal duty” on lender-owned aggregators, which should also “apply to mortgage brokers working under them”.

The ANZ CEO told commissioners that despite the absence of a legal duty of care, consumers may be under the impression that such obligations already exist.

Mr Elliott added: “I imagine that a lot of people think that the broker does have a duty of care to them. I imagine that when mums and dads walk into a [brokerage], they assume that is the case.

“You may go as far as to say that they have a best interest duty as well — I don’t know — but I think there is an expectation.

“[I] think FOFA [Future of Financial Advice reforms] and others have probably raised that expectation and say well if that’s the rule for a financial planner, we assume it is for a broker, but I think it’s important to go and ask consumers and their representatives.”

ANZ on fees for service

Further, PC commissioner Peter Harris inquired about the feasibility of a fixed fee model as opposed to a volume-based commission paid to brokers.

“I have the impression that perhaps a fee is a better proposition. The question might be, should it be paid by the consumer, or should it still be paid by the bank?” Mr Harris said.

In response, the ANZ chief said that there is “absolute merit” in exploring such a model, and he pointed to the use of a fixed fee structure in Europe.

“The reality is, today, in an open, highly competitive market, [we have been] taken down a commission-based structure,” Mr Elliott said.

“There’s an understandable logic to that given that there’s an alignment between the commission and the volume obviously driving revenue to the bank.

“I think there’s merit in looking at a fee-based structure. I can’t imagine [that] it would evolve naturally — that would require some intervention. Either as an industry or through regulation would be my guess.”

ANZ on financial planners entering the credit space

The major bank chief also commented on calls from the PC to introduce financial planners into the credit space.

Mr Elliott highlighted the difference between the two services and noted that there are no restrictions on financial planners obtaining a broking license.

“To my knowledge, there’s nothing stopping people from doing that today, so if I have a financial planning license, I can go and get a broking license — there’s nothing prohibiting that, but for some reason, that has not evolved,” the CEO said.

“Our view from experience, and just looking at the products, they are different and our customers think about them in a very different way.

“There’s an old adage: wealth products are sold and mortgages are bought. People think about them very differently; they think about who they go to for that advice.”

Would Switching To Fee For Service For Mortgage Brokers Be “Anti-competitive”?

Some participants in the mortgage industry are mounting a push to argue a switch from mortgage broker commission payments, which normally  includes an upfront fee and a trailing payment for the life of the loan paid by the lender to the broker, to a fixed fee for advice would be “anti-competitive.

The former Mortgage Choice chief Michael Russell in evidence to the currently running Productivity Commission (PC) Inquiry into Financial Services said:

Is the outcome of directing more consumers that can’t afford the fees for service back to first party [in] any way in the consumer’s best interest? Is that outcome, in any way, a positive thing to be promoting competition in the lender market?

This is in response to the PC suggesting there was no rationale for the trailing commission payments and that mortgage brokers should move towards a fee for service payment, instead of a commission, paralleling changes in the financial planning sector. The moves in the financial planning sector was a response to perceived conflicts of interest where planners perhaps shaped their advice driven by the remuneration they might receive.

Non-transparent fees and trailing commissions, and clear conflicts of interest created by ownership are inherent. Lender-owned aggregators and brokers working under them should have a clear best interest duty to their clients.

The commission’s draft report released in early February says that based on ASIC’s findings, lenders pay brokers an upfront commission of $2,289 (0.62%) and a trail commission of $665 (0.18%) a year on an average new home loan of $369,000. $2.4bn is now paid annually for mortgage broker services.

The discussion of trailing commissions centered on whether there was downstream value being added to mortgage broker clients, for example, annual financial reviews, or being the first port of call when the borrower has a mortgage related question. The interesting question is how many broker transactions truly include these services, or is the loan a set and forget, whilst the commissions keep flowing?  There is very little data on this.

In the UK, mortgage brokers work within a range of payment models. Many mortgage brokers are paid a commission by lenders of around 0.38% of the total transaction and some mortgage brokers also charge a fee to their customers.

On average, you pay £500 for a broker to arrange your mortgage. But different firms charge in different ways:

  • Fixed fee. Your adviser will agree to arrange your mortgage for a fixed amount of money. This should be agreed in writing so there isn’t any room for dispute.
  • Hourly rate. Some advisers will charge per hour. Make sure the adviser gives you an estimate of how long the work will take.
  • Commission. If a mortgage adviser is ‘fee free’, they may be receiving payment in the form of commission from the lender. Make sure you ask about it right at the start so you can’t be misled.
  • Percentage. Some advisers will charge you a percentage of your mortgage. For example, if you agree a 1% charge for a £300,000 mortgage, the fee will be £3,000. Some advisers will cap fees to a certain percentage.
  • A combination. Some advisers will charge fees but still receive commission. Others will charge fees, but agree to cap them at a percentage of the mortgage.

So, a fee, is not always simple to calculate and compare.

A fee for service may be cleaner, but it might put access to broker services out of the reach of some potential borrowers, as has been the case in the UK.  Would better disclosure of the commissions and the relationships with lenders would offer an alternative path? But then, would that remove the conflicts?

The final PC report will be out later in the year, and it appears the question of broker commissions, which are often not disclosed in a way that is meaningful to clients, will certainly be an area of interest.

 

 

 

ASIC Highlights Burgeoning Referrer Market

From The Adviser.

The financial services regulator has told the Productivity Commission that there is now “an industry of referrers” who are often being paid the same amount as mortgage brokers despite doing less work.

At the final day of public hearings for the Productivity Commission’s (PC) inquiry into competition in the Australian Financial System, the financial services regulator outlined its thoughts on a range of topics, including mortgage brokers’ duty of care obligations, broker remuneration, comparison rates and financial advisers giving advice.

Speaking for the Australian Securities and Investments Commission (ASIC), Greg Kirk, the senior executive leader for strategy, and Michael Saadat, the senior executive leader for deposit takers credit & insurers, noted that there was a growing referrer market that are being paid a relatively high commission despite not being bound by the same regulation and compliance as brokers.

Mr Kirk said: “In our work on [broker] commissions, there were a separate category of people who are paid commission who don’t arrange the loan but just refer the borrower to the lender. It seems to be that professionals — lawyers, accountants, financial advisers — are reasonably prominent among people who are acting as referrers and that this strange one in that commissions they were paid for just a referral was almost as large as that [for a] mortgage broker doing all the extra [work].”

Indeed, Mr Saadat emphasised that although there is an exemption within the law for referrers, he noted that there is now “a fairly large industry of referrers comprising professionals, lawyers, accountants and advisers who do directly refer consumers to particular lender[s]” and that the commissions paid to these referrers “can be quite significant”.

“In some cases, [they are] as close to the commissions that are paid to mortgage brokers, who are doing more work than a referrer is supposed to be doing,” Mr Saadat said.

ASIC’s senior executive leader for deposit takers, credit & insurers continued: “What they can do under the law is quite limited. I guess there is a risk that some might be going beyond what they are allowed to do under the exemption and that risk is potentially exacerbated by the incentives that are provided by banks. And we have seen cases where misconduct has occurred by so-called referrers and ASIC has taken action against those.

“But, yet, it is a feature of the law, and as a result, there is now an industry of referrers that includes financial advisers and therefore they are paid for that referral.”

The Productivity Commission also asked ASIC about whether financial planners should be given the ability to move into the credit space, to which the senior executive leader for strategy outlined that there seems to be little appetite from planners to offer it.

Mr Kirk said: “Financial advisers can and do provide advice on credit now, and in fact, our regulatory guidance encourages them to in some circumstances… We’re going through at the moment some of our databases to try and get you some data on the level of crossover, but as a broad indicator, it would look to be about 4 per cent licences have a dual licence.”

ASIC on remuneration and changing standards

Touching on the potential of increasing standards for mortgage brokers and potentially changing broker remuneration, the regulator suggested that only small tweaks, rather than drastic changes, would be needed.

Mr Kirk said that when mortgage brokers were first regulated, the standard set was the same as that of the product issuer (i.e. a bank), but he said that “it does seem now that a mortgage broker is [working] to offer customers something more”, such as help with navigating the marketplace. As such, he said that “there is scope to increase the standards expected on mortgage broker”.

However, the strategist argued that “it may be better to start with the obligation that is on [brokers] now and to work in some more specific requirements”, rather than bring in a new “best interests” duty.

Mr Kirk explained: “Typically, there are two elements now of responsible lending; the loan has to be repayable by the consumer given their financial circumstances without undue hardship, but it also needs to meet their needs and objectives.

“And I think often, at the moment, the needs and objectives are only explored in very broad terms [such as] the main need is to buy a house… rather than more detailed needs and objectives about looking for the most competitive loan [a borrower] can get, the best priced one across the market, etc.

“There is something more explicit about what they should be canvassing and addressing in meeting consumer needs and objectives [and there] may be a more direct way to get to this sort of solution.”

Mr Saadat went on to highlight that ASIC’s report for its review into broker remuneration last year suggested “improvements” to the standard commission model rather than fundamentally changing commissions structures, and noted that the “industry has come together and proposed a number of improvements to that standard model” which he believes are “positive suggestions”.

He told the PC: “I suppose one thing to consider is whether you wait for the impact of those to flow through to the market and then assess whether further change is required or whether there is enough evidence now to say that more fundamental change is required to those commission arrangements.

“And for our own purpose, I don’t think we have landed on that position.”

Broker commissions ‘far aligned’ from customer interests: PC

From James Mitchell at the Adviser.

The chairman of the Productivity Commission has said that while it may be in the interests of the bank and the broker to limit churn, it is not in the interests of the borrower.

Speaking at the Committee for Economic Development of Australia (CEDA) in Melbourne on Monday, Productivity Commission chairman Peter Harris reiterated some of the questions raised in the commission’s draft report into competition in the Australian financial system, which scrutinised broker remuneration and the purpose of trail commissions.

Despite ASIC finding last year that broker remuneration was generally sound and only required some minor changes to “improve” the structure (largely to do with soft dollar benefits), the productivity commission said it was “considering making a recommendation to the Australian government on the matter of trail commissions and commission clawbacks”.

The PC is also questioning whether consumers should pay brokers a fee for service.

Speaking on Monday, Mr Harris said: “Despite some recently announced industry changes to parts of the commission payment structure, commission earned by brokers remains far from aligned with the interests of the customer.

“Trailing commissions are an example of that. These are only paid while a customer remains with a loan. They are worth $1 billion per annum. There is nothing immaterial about them.

“The industry itself has said that trailing commissions are designed to reduce churn and manage customers on behalf of banks.

“Despite the hint to the contrary, we do actually understand quite well why it might be in a bank’s interest and a broker’s interest to jointly limit churn.

“But not the customer’s interest, who (the data is surprisingly unavailable, as noted earlier) is most probably paying for the service.”

He continued: “Given the unhappy experience with misaligned incentives in wealth management, being able to substantiate the assurance that a broker is acting in the customer’s best interest would seem to be pretty desirable today.”

He said that the commission would “prefer” that banks imposed this interest via contract rather than have the standard introduced via regulation. (However, the commission’s chairman added that as the commission has no power to recommend what banks do, it has instead proposed regulation in the draft report.)

“It would have been valuable to put the cost-benefit side by side”

Once again, the chair highlighted a data gap in the industry, stating that he believes the “default position among data holders in this industry is set against transparency”.

“[W]e were genuinely surprised to find that they either do not hold data at all on some important aspects of decision making, or for another reason could not supply them,” Mr Harris said, stating that “the cost of mortgage brokers is quite high”.

Mr Harris added that brokers cost $2,300 for the average loan of $369,000, plus a trailing commission of $665.

He said: “Other analysts have suggested higher numbers than these in high-priced locations, but we will stick with national averages.

“More than $2.4 billion is now paid annually for these services. Some in the broking industry want to know why there is suddenly attention being paid to commissions.

“The sum I just cited, as a large apparent addition to industry costs since the mid ’90s, by itself suggests a public analysis of why it is so large might be in order.”

He argued that the $2.4 billion figure “becomes problematic when it is also suggested that customers aren’t burdened by this as they don’t pay these costs”, adding that “anyone with a slight amount of common sense knows that somewhere in any product purchase it is only a customer or a shareholder who could be paying this charge, unless offsetting costs have been stripped out”.

Mr Harris continued: “Shareholders returns are pretty constant, so we would have liked to unpack that cost question a little, to see if the price was supported by cost savings. With the data provided by banks, this proved to be near impossible.

“For smaller banks, we were able to develop some estimates of the branch costs they would potentially face, without broker assistance. But we received insufficient information from most (not all) banks, and so could not create a clear picture.

“Thus, we can’t say whether there has been a net improvement in efficiency, even as a large sum in commissions has been added to industry costs. We have also shown in the report that brokers do produce slightly better rates for their clients than going in to the bank branch. But that benefit for consumers has been declining since the GFC. It would have been valuable to put the cost-benefit side by side.”

Mr Harris also took aim at vertical integration, suggesting that bank-owned aggregators control about 70 per cent of the mortgage broking market.

He added that in-house products or white label loans appear to “dominate disproportionately” the outcomes for borrowers who use bank-owned aggregators.

The PC chair noted that, in 2015, the Commonwealth Bank had 21 per cent overall market share in the broker channel but a 37 per cent market share via Aussie Home Loans.

However, while it has concerns about vertically integrated groups, the Productivity Commission said that forcing banks to divest of their broking businesses should be “a last resort”.

“Of course, if the necessary solutions prove commercially unpalatable, institutions themselves may then choose to divest,” Mr Harris said.

Many in the industry have spoken out against the Productivity Commission’s draft report, with some suggesting that the remuneration figures cited are “incorrect”, others stating that the recommendation to charge fees would be “anti-competitive”, and both broker associations calling out some findings of the report (which relied heavily on figures from CHOICE consumer group and UBS reports) as “limited”, “amateur” and — in some cases — “nonsense”.

Royal Commission Spotlights Brokers

The Banking Royal Commission has released an information paper on Mortgage Brokers. It is a good summary and looks at industry structure, shares, and commissions.

According to data from the MFAA and the ABS, the total value of new loans placed by brokers has increased as a percentage of GDP since March 2013 but has remained relatively stable over recent quarters. Loans placed by brokers in the March quarter 2017 was equivalent to around 2.7% of nominal GDP (four quarters to March 2017), up from around 1.6% in the March quarter 2013. In the four quarters to March 2017, the value of the loans placed by brokers was equivalent to around 11 % of nominal GDP

According to data provided by The Adviser on the top 25 brokers, four brokers — Aussie, Mortgage Choice, Loan Market and Smartline Personal Mortgage Advisers — are larger in terms of total book size, volume of loans settled and number of brokers. The remaining brokers in The Adviser’s top 25 have a smaller share of the market.

 

Are Mortgage Brokers Conflicted?

From The Adviser.

The financial services regulator has backed claims from the Productivity Commission that “there are conflicts of interest” in the way that home loans are sold through mortgage brokers “where some of those mortgage broking firms may be owned [by lenders] as well”.

Speaking at the Parliamentary Joint Committee on Corporations and Financial Services on Friday (16 February), the Australian Securities & investments Commission (ASIC) was asked a range of questions about conflicts of interest in the financial planning industry.

Touching on ASIC’s recently-released report regarding vertically-integrated institutions and conflicts of interest, deputy chair Peter Kell noted that while it “probably wouldn’t have come as a surprise to anyone to see that there would be some sort of bias towards internal or in-house products”, he added that ASIC’s question was to establish the extent of this and “whether that was associated, in some cases, with poor quality advice”.

He noted that financial planners, who are bound by a ‘best interests’ standards, are inherently conflicted – adding that some brokers are too.

Mr Kell said: “[T]here is an inherent conflict of interest — it’s not prohibited, but it’s a conflict of interest — when you have an entity which is a product manufacturer and a product distributor and when, at the end of the day, there is an obligation to act in the client’s best interest.

“The question is: how is that playing out in practice and how are those conflicts of interest being managed? That’s clearly one of the key aims of this report, to get a better picture around that.”

The deputy chair echoed claims made by the Productivity Commision in its draft report into competition in the Australian financial system, which argued that brokers who process loans through lender-owned aggregators could be facing conflicts of interest.

Mr Kell said: “All of us in one way or another have conflicts of interest in different parts of our professional lives.

“There are conflicts of interest that are there in the vertically integrated model [in financial planning] just like there are conflicts of interest, for example, that are there in the way that home loans are sold through mortgage brokers w[h]ere some of those mortgage broking firms may be owned [by lenders] as well.

“Some conflicts in remuneration have now been prohibited – that’s not what this is looking at. There are other conflicts in terms of the structure of businesses that are allowed. The key question is: are they being managed appropriately? Some of those conflicts might be associated with other sorts of benefits, which means you would say it’s better to manage them than to try and rule them out altogether.”

The new ASIC chair James Shipton said that “the same thing can actually [be] said with horizontal business loans”.

“There are conflicts that need to be managed both horizontally and vertically,” he added.

Difficult to get a yes or no’ on conflicted remuneration

When asked whether mortgage brokers should come under “conflicted remuneration laws”, Mr Kell said: “There’s been a lot of work done on this, so it’s difficult to get a yes or no answer, but we’ve obviously highlighted in our report that we think there are some aspects of the way that remuneration works in the mortgage-broking sector that would be better to take out of the sector because they raise unreasonable conflicts.”

For example, ASIC’s review into broker remuneration found that the current structure was generally sound, but suggested that lenders “move away from giving soft dollar benefits” to brokers as they “increase the risk of poor consumer outcomes and can undermine competition”.

At the Parliamentary Joint Committee on Corporations and Financial Services on Friday, ASIC was asked if it would seek to ban vertically-integrated models from financial planning.

Mr Kell said: “That wouldn’t really be our call. An interesting question might be whether the Productivity Commission will look at that issue. I think they’ve made a recommendation about ensuring greater transparency around ownership and ownership links – not just in this area but also in the mortgage-broking area.”

Mr Kell concluded by saying: “[I]n most of the areas we regulate we are not regulating for a particular business model. We are regulating for appropriate consumer outcomes and appropriate advice being provided or appropriate products getting into the right hands.”

This focus on ownership and conflicts of interest has been of increasing interest for the regulator, whose review into broker remuneration last year recommended that there be clearer disclosure of ownership structures within the home loan market to improve competition.

To reduce the impact of ownership structure, ASIC proposed that participants in the industry “more clearly disclose their ownership structures”.

However, the Productivity Commission has gone a step further by calling for a legal provision to be imposed by ASIC to require lender-owned aggregators to work in the “best interest” of customers.

Draft recommendation 8.1 reads: “The Australian Securities and Investments Commission should impose a clear legal duty on mortgage aggregators owned by lenders to act in the consumer’s best interests.

“Such a duty should be imposed even if these aggregators operate as independent subsidiaries of their parent lender institution, and should also apply to the mortgage brokers operating under them.”

Royal Commission updates online form

From The Adviser.

Following an article in The Adviser highlighting a ‘major flaw’ in the online form for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the commission has now updated the form to better reflect channel choice.

On Wednesday, The Adviser ran a story in which Queensland-based broker Nicki McDavitt warned that the figures cited by the initial hearing of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry could be wrong, after she identified what she called a “major flaw” in the commission’s online form.

The form asks users to identify the “nature of the dealings” in which misconduct took place.

However, the only option specifically relating to home loans fell under the category ‘mortgage broker’. Ms McDavitt therefore said that the commission’s figures on mortgage broker-related misconduct could be “false” as they may include information relating to bank branch home loans (and therefore be miscategorised).

However, the royal commission has today (14 February) updated the form to allow users to select ‘home loan/mortgage’ under the ‘personal finance’ option (see below). The mortgage broker option has also been updated to read ‘entity that arrange homed loan/mortgage’

Speaking to The Adviser following the change, Ms McDavitt said: “I’m absolutely thrilled. I’m thrilled that I was listened to and I’m thrilled that it has been changed.”

Ms McDavitt said the Royal Commission thanked her for bringing it to their attention as they had “not even realised that it was not even there” and brought it up with the web designers who changed it today (14 February).

“I said to [the contact]: ‘It does mean that those statistics that you have been flouting will be wrong’ and she acknowledged that it could be a risk, but said: ‘Thankfully we’ve caught it early’. And I said ‘yes’.”

The Adviser had asked the commission yesterday (13 February) for a comment on the issue and whether it would be changing the form, and received the following response: “The online submission process is working well and based on the number of submissions received to date, we are confident that those using the form have been able to identify correctly the nature of their dealings, including to identify home loans taken out with banks.

“We are also reviewing submissions as they come in to ensure that they are appropriately categorised.

“We are committed to ensuring that the information on our website is clear and easy to understand, so we will continue to review and improve the website going forward.”

The heads of both the mortgage broker associations had spoken to The Adviser this morning, both highlighting that they would be raising this issue of the online form error with the royal commission.

Speaking to The Adviser after the change, the executive director of the FBAA, Peter White, welcomed the change, but added that he believed the bank branches “still get off lightly, as the grouping/sections for arranging loans is highlighted separately for brokers, whereas the bank branches are not identified separately but rather in the cluster titled ‘Personal Financial’”.

He added: “This should read as ‘Personal Banking’ or the like, and then have the itemisation in brackets following it.”

Sell Overpriced Properties to Unsuspecting Clients

From The ABC’s Michael Janda.

Real estate sales companies are using big commissions to tempt mortgage brokers, financial planners and accountants to sell overpriced properties to unsuspecting clients. Here is the segment from ABC The Business.

 

It is a business model that has been operating for years, but is raising more concern now that many of Australia’s largest property markets are heading for a potential apartment glut.

Developers generally contract out sales to these companies when they are having difficulty shifting their stock, such as when there is an oversupply of new apartments or houses in the area.

Real estate agents say developers use these sales companies, which often market themselves as property investment firms, because they can achieve higher-than-market prices.

One reason the properties are so far above market prices is to cover the cost of the commissions going to the marketing firm.

Those fees can add tens of thousands of dollars to the cost of a new apartment or house.

A large part of those commissions are often then passed on to mortgage brokers, accountants or financial planners who refer their clients to the marketing firms.

The Real Estate Institute of Australia (REIA) said it has been “ferociously lobbying” both the federal and state governments to impose more regulation on this type of property sales tactic.

In the meantime, the REIA’s president, Malcolm Gunning, said clients need to do their homework if offered a property deal that sounds too good to be true.

“This is really aimed at, I suppose, the new investor or the lazy investor who really doesn’t want to go out and do their own due diligence,” he said.

“You should always cross-check. You should go off, walk down to your local real estate agent who’s been there for 25 years and say, ‘if I buy this property, what rent can I get for it and what in your opinion is the current market value?’

“So at least you’re making an informed decision. Don’t rely just on one source of information.”

So if an adviser or broker tries to sell you a property investment, it is worth asking who is paying theirs.

1 in 3 mortgages being rejected

From The Adviser.

One Sydney-based BDM and former mortgage broker says that one in three clients are unable to obtain a loan as a result of credit tightening policies implemented by lenders.

Speaking to The Adviser, former eChoice broker and Mortgage Pros North Strathfield BDM Hank Hong said that an increasing number of his clients’ loan applications are being rejected.

“It’s [credit tightening] affected servicing and how much you can actually lend based on incomes,” Mr Hong said.

“Certain offers that they put into place, higher living expenses, certain buffer rates, have reduced what [clients] can borrow.

“In the last 12 months, I would say one in three deals that come into my hands weren’t able to [get] service[d] and weren’t able to get the funds they were after.

“Two to three years ago, it was maybe one in five or one in six clients.”

The BDM added that borrowers, who have previously obtained unsuitable loans, are now struggling to manage their mortgage repayments.

“Existing clients are coming back because they’re not being able to service the loans that they were initially approved for because of the tightening of the service calculations,” the broker continued.

“Going back two years ago, people were getting million-dollar loans — $1 million to $1.5 million — with just $80,000 incomes or combined incomes of $150,000.

“They were on fixed rates of 3.99 per cent on interest-only loans, which they could afford, but when these fixed rates come off and the interest-only comes off, those clients are going to struggle to make the P&I repayments because they haven’t adapted to a lifestyle of paying principal and interest.”

Mr Hong believes that credit policy changes were “justified”, but he argued that lenders have “gone too far” and should “backtrack”.

“If they were trying to go 100 per cent, they’ve probably gone 150 or 160 per cent and they need to backtrack maybe 30 per cent,” Mr Hong said.

The former managing director and co-founder of Vault Lending Solutions recently revealed to The Adviser that he has departed the company after being “poached” by Mortgage Pros North Strathfield.

Mr Hong co-founded Vault Lending Solutions in March 2017 in partnership with Matthew Porfida, who will now take over as sole director of Vault Lending Solutions.

ASIC begins shadow shopping brokers

From Australian Broker.

ASIC has launched the second phase of its review into the mortgage broking industry by delving into the suitability of brokers’ advice through a mystery shopping exercise.

ASIC said this is part of its effort to better understand the home loan purchase process, which goes beyond broker remuneration.

“While broker remuneration practices may have an impact on home loan choice, ASIC recognises that a range of other factors influence which home loan products are purchased, and that the purchase experience may vary across purchase channel, i.e. via broker compared to directly from a lender,” said Michael Saadat, ASIC’s senior executive leader for deposit takers, insurers and credit services.

Saadat told Australian Broker that ASIC is conducting consumer and broker research to better understand the home loan purchase process as part of its review of mortgage broking practices.

The research looks to determine what factors – beyond broker commission – affect how and which home loan products clients buy, and whether and how consumer outcomes could be improved.

Within this, ASIC aims to gain insight around how consumers buy home loans, identifying critical points in the buying process, key inputs and decision-making criteria at such points, and how behaviour is influenced during the process.

Saadat said ASIC also wants to understand how the broker shapes which product a consumer buys and whether the advice offered results in positive consumer outcomes. These include making an informed choice, buying products that meet needs, and being provided with the right amount and relevant information in order to make a choice.

In November, Saadat told Australian Broker magazine that anything discovered through shadow shopping “will be more about understanding to what extent brokers are potentially not meeting their legal obligations, and whether ASIC, for example, needs to produce more guidance around what they can or can’t say to consumers or whether some other action is required”.

In the past, ASIC had pointed to record-keeping as something brokers needed to improve on to better explain the process that had occurred.

“This is not about going into the review thinking that there are significant problems that need to be uncovered; in fact this is about really trying to understand how the interactions between the broker and the consumer are playing out, given that we don’t get any sense of that really from the loan files,” he said at the time.

Major industry players supported ASIC’s recommendations in the Review of Mortgage Broker Remuneration when it was released in March 2017. However, they advised ASIC and the government to proceed with caution in implementing those recommendations.