As yet another broker makes headlines for all the wrong reasons, questions are starting to surface: What makes brokers go rogue? And how can somebody rip off their own customers, the life-blood of their business?
Yesterday, South Australian mortgage broker, Malcolm Royce Jones, pleaded guilty in the Adelaide Magistrates Court to charges including falsifying documents in order to steal $170,000 from a client.
Royce Jones allegedly forged the documents in September last year and was arrested in June, charged with aggravated charges of deception and dishonest dealings with documents. He initially pleaded not guilty, but has now admitted to perpetrating the crimes.
Tom Godfrey, spokesperson for consumer advocacy group CHOICE, says that, career criminals aside, brokers can be led astray by incentives which, while not always strictly illegal, are none-the-less a step in the wrong direction.
“In today's red-hot real estate market, brokers are in a virtual feeding frenzy to land your business, but the vast majority of brokers won't resort to criminal activity. We believe good brokers can help home-buyers find the best loan in many cases…The more subtle concern is that brokers may be incentivised to push home buyers toward the bank that pays them the biggest commission rather than scour the market for the best deal for the buyer.”
However, rather than pushing for ASIC to come down harder on brokers, Godfrey believes industry associations like the MFAA and FBAA need to help weed out so-called ‘cowboys’.
“We believe the MFAA should crack down hard on any broker that violates its Code of Practice and Disciplinary Rules, and that potential home buyers should report any problems to the MFAA as well as the COS and FOS. The reputation of a self-regulated industry depends on how well it polices itself.”
While Godfrey makes no specific mention of the FBAA’s policies, FBAA president, Peter White, says the FBAA also requires all members to have PI and EDR (FOS / COSL) and says the FBAA is the only body that provides additional protection through its extended IDR structure under the Australian Standards and has been ticked off by ASIC in the ACL process.
Finally, says Godfrey, borrowers themselves need to practice due diligence in order to ensure that the broker they’re dealing with is looking out for the client’s best interests.
“In this real estate climate, any potential home buyer should be on high alert…Check which lenders are on your broker’s list and ask whether any are usually preferred — and why. Find out how and what brokers will be paid for arranging your loan, including on-going trail commissions.”
Godfrey also suggests borrowers ask about rebates and get their broker to explain why they’re recommending a particular home loan.
“Find out if the broker has professional indemnity insurance (the MFAA requires this of its members)…[and] check whether the broker has a complaints process and is part of an external dispute resolution scheme, such as the ASIC-approved Credit Ombudsman Service or Financial Ombudsman Service schemes.”