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 News | August 21, 2008 |
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Mortgage broker shakedown ahead
THE MEMBERSHIP of the peak body representing the mortgage broking industry is likely to drop as it faces tougher regulation, reduced commissions and pressure to improve efficiency in the wake of the sub-prime credit crisis.
Joe Sirianni, chair of the Mortgage Finance Association of Australia’s National Brokers Committee, said that he didn’t agree with some people who had suggested there would be reductions of the order of 10 to 15 per cent in its member base of 13,000, but he agreed that the 9 per cent growth the MFAA had experienced over the past year was likely to be reversed.
John Symond, founder of Aussie, Australia’s largest mortgage broker, told the MFAA’s national convention in Sydney last month that as well as the regulatory changes on the horizon, there was “unfortunately, a lesser amount of money to go around” now and suggested that brokers might be forced to charge a fee in future.
“A whole new broker model needs to be tailored,” he said. “I do believe the broker model will survive, but it will be very different. I think that the regulatory regime will mean that the bar is raised.”
Head of retail banking at the Commonwealth Bank, Ross McEwan, said that all would have to “share the pain” of the present lending conditions and confirmed that commissions would likely have to drop.
He also said that broking operations would have to become far more efficient and more automation would have to be introduced to reduce duplication and inaccuracies.
“[The broking industry] will have to become more efficient right through the chain,” he said.
“To put on a home loan through the broker channel costs us three times as much as the proprietary channel.”
He said the level of inaccuracy in the information that comes through from brokers to the lender was “horrific” and there had to be a major overhaul of the back-end systems, which currently involved too much paper documentation and too much handling.
Seventy per cent of direct loan applications through CBA are automated now, he said, and the goal was to have the same levels via the broking channel.
From 1 June, St George Bank will introduce new rules for its broker commissions that the bank said would ensure commissions more closely reflect the value of the business broker’s supply.
Conditions for the payment of full commissions included loan applications being lodged electronically; assisting with cross-selling of non-home loan products; meeting or exceeding agreed percentage of home loan applications that convert to settlements; and meeting or exceeding agreed home loan book run-off rate.
“Driving the usage of electronic lodgement will assist customers in getting a faster decision on their home loan applications, whilst other changes will result in customers experiencing a superior level of service from their broker,” said George Beatty, acting group executive of retail business.
The Minister for Superannuation and Corporate Law, Senator Nick Sherry, told the MFAA’s national convention that the Federal Government would finalise the transfer of regulation of the financial services industry to the Commonwealth by the end of theyear, and that new national financial services regulations would be ready by the beginning of 2009.
A green paper on the proposed legislation was released last month detailing the Federal Government’s plans to take over all financial services regulation.
Credit standards are currently regulated by each state and territory through the Uniform Consumer Credit Code, the Commonwealth and via self regulation.
Senator Sherry emphasised that the majority of brokers and lenders acted in the best interests of borrowers, but there would always be “shonky operators” and a national scheme would reduce compliance costs.
“We now have eight sets of regulation across the country. This is highly inefficient, to say the least,” he said.
“This system also imposes an unnecessary regulatory burden on the providers of financial services, including mortgage brokers.
“One, single, simpler national regime for regulating mortgages and brokers is the only logical solution.”
Several industry members at the convention predicted that the mortgage broking market would consolidate into a smaller number of larger brokers with the economies of scale to introduce the new technology that would inevitably be introduced to support a more automated system of approval.
“Scale is going to be a very important factor … there is a flight to the more capitalised vehicles,” said Ben Benari, chief executive of Challenger Mortgage Management.
However, Symond said that to date the volume of loans a broker provided had not been recognised as a reason to provide cheaper loans. But he predicted that this situation would eventually succumb to “market forces”.
The MFAA suspended two members last month for breaching its code of conduct.
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21 May 2008
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