Both the MFAA
and the FBAA
have come out in defence of brokers after the Reserve Bank warned banks over increasing broker commissions, saying it could create “significant amounts” of risky lending.
, chief executive of the FBAA
said the fact that brokers have been writing around 50% of the home loan market for some time is proof of the diligence, professionalism and ethics in the industry. White says brokers have actually increased the professionalism within the finance sector.
“Finance brokers are far better educated across more loan products and around compliance with laws under the NCCP,” he said.
“It is important to remember that it was the advent of finance brokers in the early ’90’s that bought service standards that borrowers wanted, when the banks were shutting branches.
“It is finance brokers that have delivered not only the service demanded by the market but also the availability of a range of products unseen in this country's lending past.”
According to Siobhan Hayden, chief executive of the MFAA
, the number of brokers that have been investigated or convicted is less than 0.5% of the total brokers in the market.
“Loans introduced through the broker channel carry less risk than those sought by consumers directly from lenders. Brokers must meet significant barriers to ensure that a loan will be made by a lender and on many occasions, loans declined via the broker channel are then made directly by lenders,” she said.
In fact, branch inducements are more at risk of a conflict of interest than broker commissions, says Hayden.
“Employees within the direct channel are often remunerated based upon achievement of total monthly lending volumes and are also responsible for the approval of the same loans, demonstrating a clear conflict of interest,” she said.
“Brokers are not remunerated if and when a loan defaults or is in slight arrears. If this does occur in the short term the broker involved is likely to actually lose all or most of his/her income through a ‘clawback’ provision by the lender.”