Westpac chief floats mortgage broker pay changes
Westpac chief executive Brian Hartzer has suggested mortgage brokers could charge customers directly, rather than receiving commission-based payments from banks, as the royal commission focuses on problems with remuneration.
Mr Hartzer also acknowledged the royal commission would force banks including Westpac to “tighten up” their processes after the recent revelations of flaws in their home lending, but warned that reversing the industry’s automated credit approval processes would make it harder to get a loan.
Westpac chief Brian Hartzer.
Photo: Peter BraigThe chief of Australia’s second-largest bank on Thursday said the stories revealed in last month’s royal commission hearings were “very uncomfortable and confronting to hear” but the process could ultimately help bring about “closure”.
In response, Westpac was already considering potential changes, and Mr Hartzer said a key focus was on remuneration across many related services to banking, including for mortgage brokers.
“In mortgage broking, increased transparency around broker commissions, fees and costs would help consumers to make more informed choices,” Mr Hartzer said at the Australian Financial Review Banking and Wealth Summit in Sydney. “One option that could be considered would be for brokers to charge customers directly for their services, although the consequences of such a change for all stakeholders would need to be considered carefully.”
Currently, banks pay a commission of about 0.6 per cent of a loan’s value to mortgage brokers, who arrange more than half of all new home loans. This makes broker commissions a significant cost for banks.
Asked if it was convenient for banks to suggest changes in mortgage broker pay, Mr Hartzer said the royal commission had exposed problems across the sector that went beyond banks.
“A lot of the attention has focused purely on the banks … actually we’re in a broader ecosystem of participants, and mortgage brokers have a role in that," he said.
“A number of the cases that we’ve seen raised in the royal commission are cases that relate to inaccurate documents and the like being submitted by brokers. So it’s not unreasonable that if we really want to solve the ultimate outcome for customers, we need to consider how the whole system works, not just one part of that.”
The royal commission has also exposed flaws in the banks’ own checks on whether customers can afford their loans. Previously secret internal reviews of lenders including Westpac revealed flaws in their processes for verifying customers’ expenses, income and other debts.
On this issue, Mr Hartzer highlighted that banks had automated credit decisions for consumers in the past 20 years, which had significantly boosted the quality of loans held by banks.
“We’ve become much more automated, that has meant credit is more available, so people don’t have to go and beg for credit ... like they did 30 years ago," he said.
“If you switch back to a manual, intensive process to avoid the possibility that any one customer could ever get a loan they couldn’t afford, well you can do that, but it has a consequence. And it’s going to have a consequence for cost, and efficiency, it’s going to have a consequence for availability of credit.”
He conceded Westpac needed to “tighten up our processes” and that it had been “a little sloppy at a minimum” on issues such as record-keeping, but denied there was something “fundamentally wrong” in the banking industry.