An industry association has released a full response after the interim report of the Royal Commission, saying there is no evidence of systemic misconduct and outlining responses to each issue raised in the original report.
The detailed document from the Mortgage & Finance Association of Australia (MFAA) picks up on concerns over commissions and the fact the report said loans written through mortgage brokers have higher leverage, more interest-only loans, higher debt-to-income and loan-to-value ratios, higher interest costs and an increased likelihood that borrowers will fall into arrears.
The association responded to this claim saying that the complexity of borrower situations was not considered, as it was often that “risky loans” gravitated to the broker channel. Customers in difficult financial situations can benefit from using a broker to obtain finance.
It was strong on its stance over broker commissions, saying, “If conflicted remuneration was causing systemic harm to consumers, then the data should show complaints and relative arrears high and rising, competition and consumer support shrinking and prices inevitably rising. But this is not the case.”
The MFAA also said that as the report had not discussed the benefit of competition or consumer choice, the questions it had reported did not take into account wider unintended consequences.
It also accused the interim report of being silent on many of the changes industry groups are already adopting, not taking into account these changes when forming its questions and considerations.
It added, “The MFAA believes the issues raised around remuneration can be effectively dealt with by the specific reforms being proposed by the Combined Industry Forum (CIF), a stronger customer duty and a governance framework with an enforceable industry code focused on conduct and culture.”
It also said, “A consumer fee-for-service model would harm customers (especially in rural and regional Australia), damage competition and threaten viability of broker small businesses. It would significantly benefit the major lenders, providing them with an unassailable stranglehold on the home lending market and interest rates.
“A consumer fee-for-service is not a viable solution to improve transparency around broker commissions and help consumers to make more informed choices.
“It would tip the balance back in favour of branch-based lending by making it significantly more expensive for a customer to use a broker rather than a bank branch to obtain a home loan.
“Smaller lenders that do not have branch networks would be pushed out of the market, stifling competition, and allowing major lenders to restore the massive net interest margins they imposed on mortgage products before broking made access to competitive credit services a reality.”
In its conclusion, the MFAA said it would be calling on policy makers to consider all consequences of any changes to regulation.
It added, "We will also be promoting the fact that there is no evidence of systemic misconduct, and that our industry is focused on making the changes required to continue to improve customer outcomes.
"We know we must ensure that the strong consumer trust and confidence in the broker channel is underpinned by governance and transparency for the long-term sustainability of our industry, and ultimately, in the service of competition in the mortgage lending market."