The Mortgage & Finance Association of Australia (MFAA) has responded to proposals suggested in the ASIC Review of Mortgage Broker Remuneration, submitting a 46-page paper to the Treasury today.
In an exclusive interview with Australian Broker
, MFAA CEO Mike Felton
commended the “tremendous amount of work” by the industry that had gone into creating the original review.
“We’re sitting with a well-informed, well-considered report that affirms that brokers drive competition and great consumer outcomes. But it also goes on to say that there are six areas that require attention.”
The MFAA response delves into these areas and considers the viability of the different recommendations under each of ASIC’s proposals:
- Improving the standard commission model
- Moving away from bonus commissions and bonus payments
- Moving away from soft dollar benefits
- Implementing clearer disclosure of ownership structures
- Introducing a new public reporting regime
- Bringing in better governance and oversight
Both ASIC and Treasury had been clear that they would give the industry the chance to self-regulate, Felton said.
“Self-regulation is not a right. It’s an opportunity. It’s also not an invitation to do business as usual. We have to use it as a window of opportunity to make meaningful change so that we can drive an increase in trust, confidence and sustainability of our industry.”
The association gave the green light to certain proposals while expressing its concern about others.
Linking upfront commission to loan size was flagged with some risks, with ideas such as implanting a cap on the maximum LVR or paying upfront based on both loan size and complexity shot down by the MFAA.
Paying different sized upfront commissions around a pre-agreed pivot point also comes with risks including potential impacts on tax-based investor lending and first home buyers, Felton said.
“For tax-based investor lending, suddenly the LVR is hitting that. To get your maximum tax deduction, you actually need to be at 100%. For first home buyers, if you’re going to give a broker less for a high LVR deal and they’re at full capacity, they’re going to choose the low LVR loan because they’re going to get more.”
Felton said the MFAA was fully behind moving away from bonus commissions and payments, saying that they caused heightened conflict of interest. This includes scrapping lender volume-based incentives (VBIs) direct to broker, pass throughs to the broker of VBIs paid to the aggregator, and removing volume bonuses and campaign bonuses – replacing them with a balanced scorecard.
Soft dollar commissions such as broker clubs also needed greater disclosure and should also be based on a balanced scorecard rather than volume.
“We need to define what falls under a balanced scorecard which simply says that only some of it is based on volume. For example, 30% is a figure that comes up quite often. Then you’d have other metrics in terms of quality of submissions, etc. Generally, they would be more qualitative with volumes as the smaller portion.”
This scorecard will be jointly developed within the industry.
Addressing another contentious issue amongst brokers, Felton said that the MFAA was behind adjusting lender accreditation removal to include a retraining step.
“We think that accreditation removal creates a hard edge which could result in a broker putting their next deal to a particular lender in order to avoid that. I think the solution here is to put in an interim step whereby rather than being removed for volume that they need to do some retraining or re-education.”
This ensures that the broker remains current with the lender’s products and forms while also allowing them to service their back book, he said.
The MFAA had already spoken with various lenders with this recommendation coming out of the association’s recently held Lenders Forum on the subject, Felton said.