Property Analyst and Developer Chris Anderson is urgently calling for a widening of the terms of reference to the royal commission into the finance sector to ensure that mortgage brokers and their affiliate support networks are thoroughly investigated.
Mr Anderson says he is concerned that the current draft recommendations appear to have several key omissions which will not get to the bottom of some of the practices he has seen “pulled’ in recent years.
“The definition of financial services entities to be considered does not appear to include all of those bodies and individuals in the mortgage broker space. Nor does it extend to their affiliated entities such as property valuation operatives who also have a key influence on loans and interest rates. Some lenders who only require an Australian Credit Licence and not an Australian Financial Services Licence (AFSL) are not covered by this inquiry.”
Mr Anderson says those terms need to be extended to ensure all lenders and their operatives, agents, affiliates and employees are covered.
“It needs to include affiliated legal and accounting practices, Property valuation businesses, and some development companies that offer packaged up commissions and the like to brokers. and financial planners.”
“You only have to look at the sorry history of the mortgage broker industry in a place like Redlands to understand that some of these so-called experts have feather bedded.”
Mr Anderson says ‘old favourites’ by Brokers such as “churning”, or moving people from an existing loan to another, just to double dip on commissions, packaging superannuation and unnecessary insurance into loans, all in the guise of better deals need to come under the commission’s’ spotlight.
“Then there’s the favourite tricks when things get slow-Locking people into fixed loans in a market where rates are clearly stagnant or dropping. Other issues are the over valuation of a property, the stacking of assets to secure loans, the lists of trickery are endless.”
“The best I have seen are brokers that tell their clients particular banks or institutions ‘won’t service their requirements’ because the broker wants to push them towards a loan with another intuition that pays the broker a better commission.”
Mr Anderson is also calling on all people in Redlands who feel they have been short changed by financial advisors or brokers to step up.
“The second task of the royal commission is to identify whether misconduct and misbehaviour can be attributed to poor culture and governance practices, and finally the commission needs to identify what changes might be made to reduce these problems.”
“Presenting a submission to a commission of inquiry can be a daunting prospect. Don’t let it throw you. If you feel you have a story to tell about your experiences with some of the bottom feeders make sure you put this commission to work for you.”
Mr Anderson says if ever there was any doubt of the need for the mortgage broker/financial planner sectors to be front and centre of this inquiry one needs to look no further than UBS research released earlier this year.
“It shows the Mortgage Broker industry is charging almost double what fees should be per mortgage and that payments are a clear illustration of excesses built into the finance system.”
“This independent research by leading bank Analyst John Mott is a tell all. It shows that this is an industry that adds about $4,600 to the cost of a loan and picks up around 16 % on average and does so at time when housing affordability is key.”
The Mott research has shown that Broker commissions have swelled by a massive 18% since 2012 made up of over $1.4 billion in commissions and a staggering $1 billion in their ‘do nothing’ trailing commissions.
“Then there’s the unnecessary ‘ad ons’ like unnecessary trauma insurance coverage and life coverage they add on to the mortgagee simply to get a fatter commission take.”
Mr Anderson says any cleanup of the banking and finance sector must start with the worst and inch its way through the stench to the top.
“The outcomes not only need to be tighter control of illicit practices, but also control over so called information that is disseminated. Many people who borrow for property don’t understand the intricacies and it is far too easy for Brokers to simply state an opinion without producing the paper to prove what they are claiming.”
“We hear of the Storm financial horror stories but it’s home loan purchasers and investors who have really suffered in silence for too long.
What the numbers say is that many people are now at risk of being subjected to the hard sell as frantic salespeople try and make buck and in turn that too is having negative impact on the housing market.
“This Inquiry has one chance to get it right-so again I ask those affected to step up and submit. Let’s rid ourselves of the used cars salesman one-day, mortgage and finance Expert the next operatives. Then, maybe, we see an industry that can be trusted and a market that will return to a sensible professionalism and more regulated, level playing field.”