Through a Different Lens
/MFAA Shares the Facts About Mortgage Brokers
The peak body for Mortgage Brokers, the MFAA has issued a strong defence of the current lending industry structure following bad publicity emanating from the Royal Commission into the banking sector. Whilst nearly all of the bad behaviour exposed by the Commission has fallen directly at the feet of the banks, some of the major banks have tried to use the commission as an opportunity to wrest back control of the lending market.
According to Mike Felton, CEO of the MFAA, "The fact is that the rhetoric surrounding the broker channel is not consistent with the available data."
"I have stated publicly many times that the broker channel is now systemically important to the Australian economy, and as such, increased scrutiny is entirely appropriate. Indeed, I welcome anyone who wishes to scrutinise our industry, because the relevant data portrays an industry that helps customers and drives competition to the benefit of all consumers."
This is reflected in consumer behaviour. More than 50 percent of residential lending is now originated by brokers. 92 per cent of customers have reported that they are satisfied with their broker’s performance.
However, we have recently seen criticism from some with entrenched interests and others with poorly informed perspectives on the industry, portraying the broker channel as systemically rotten, and riven with conflicts and poor behaviour.
The Numbers Are Revealing
In response the MFAA has published some real data to verify these claims. The numbers don’t lie. The MFAA has conducted analysis during 2018, examining complaints, arrears, penalties and the broker channel’s impact on competition.
They began by reviewing complaints to the MFAA, the Credit and Investment Ombudsman (CIO) and the Financial Ombudsman Service (FOS).
- While broker-originated loans written annually have doubled since 2008, complaints to the MFAA have plummeted by 78 per cent.
- In addition, while mortgage broker membership of the CIO service has tripled since 2008 - to 91 per cent of CIO membership - complaints about brokers represent just 6.1 per cent of all complaints to the CIO.
- Mortgage brokers also account for just 1 per cent of complaints to FOS.
- When reviewing penalties imposed, they found that ASIC has made just 15 convictions of brokers between 2010 and 2017, which represents one in 9,000 brokers per annum.
- When reviewing arrears, ASIC data showed there is no significant difference between the broker channel and the proprietary channel.
- ASIC also noted in its Review of Mortgage Broker Remuneration that there is no significant relationship between the level of broker commissions and the level of loan arrears.
These data form a compelling story, and are a formidable accolade for the industry. But this begs the question: Why would the industry be receiving this criticism, if there are no systemic issues?
The answer lies in the data on competition.
The rise of the broker channel has significantly moderated the dominance of the major lenders, significantly reducing their market share. In the last four years alone:
- the share of broker channel mortgage business concluded directly with the four major banks declined from 58.5 per cent to 50.7 per cent, and
- the percentage of loans originated by brokers for lenders not affiliated with the four major lenders has grown from 21.5 per cent to 28 per cent.
At the same time, the Net Interest Margin of the major lenders has decreased commensurately.
These recent criticisms are a clear reflection of the pressure being felt by the entire financial services sector to drive revenue and margins – and to respond to the Royal Commission. It is tough for the sector, but that same pressure and increased competition is great for consumers.
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