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The current mortgage broking system is “working well,” and anymore legal restrictions or requirements placed on brokers would bring about negative effects, according to specialist mortgage broker Home Loan Experts.
The changes would increase the costs needed to be a mortgage broker, resulting in fewer taking up the profession or for current brokers to remain, the firm said in its response to the Productivity Commission’s Draft Report on Competition in the Australian Financial System. The open letter has been published on the Commission’s website.
“[T]he cost of compliance and meeting customer demand would simply be too high for a broker to remain viable,” the firm said. “Change is difficult, risky and has unintended consequences so there must be a strong benefit to justify any change. Otherwise, we risk going backwards.”
Home Loan Experts shot down the Commission’s claims that trail commissions were “perverse incentives” for mortgage brokers by rewarding them for keeping customers in their existing loans.
“The purpose of trail is to incentivise brokers to stay in contact with their customers and to service their needs for many years after the mortgage is set up,” said the firm. “Mortgage brokers that do not remain in contact with their past customers are likely to lose those customers and, therefore, lose their trailing commission.”
“It's actually short-term incentives, such as upfront commission, that promotes churning, which is often unnecessary when a customer's interest rate can simply be renegotiated without refinancing,” Home Loan Experts added.
