Government ditches Hayne recommendation on mortgage broker pay
The federal government has ditched a key recommendation from the banking royal commission to scrap trail commissions for new loans arranged by mortgage brokers after pressure from the industry and smaller lenders.
The mortgage broker industry, which had warned that many brokers would go out of business if the Hayne recommendation was approved, cheered Treasurer Josh Frydenberg's announcement on Tuesday that the government would now review trail commissions in three years if it remains in government.
Mortgage & Finance Association Australia (MFAA) chief executive Mike Felton said the decision showed the case for the removal of mortgage broker trail commissions had not been made.
"Nor has it been demonstrated that existing trail arrangements lead to poor customer outcomes,” Mr Felton said.
“It is also backed by commentary from both ASIC and the Treasury that suggests that consumer outcomes could in fact be worsened in the absence of trail with the possibility of increased churn, reduced quality and heightened conflicts."
He said the MFAA believed trail commissions protected consumers as they would be paid out only if the loan was not in arrears, refinanced or involved fraud.
Commissions paid to mortgage brokers was one of the key focus areas for the royal commission, with commissioner Kenneth Hayne recommending in his final report that commissions to brokers be axed and replaced by an upfront fee.
But Prime Minister Scott Morrison last month elements of the proposal could turn the entire industry on its head and hurt ordinary Australians.
Currently, mortgage brokers receive a commission of about 0.2 per cent of the value of the loan, paid annually over the life of the mortgage.
Labor has pledged to abolish trail commissions if it wins government and instead allow brokers to charge an upfront fee, which is expected to be about 1.1 per cent of the loan.
Based on those figures, mortgage brokers arranging a $500,000 loan paid off over 30 years would receive $30,000 using trail commissions, while a 1.1 per cent fee would equate to $5500 on a similar loan. Huge numbers of Australians use mortgage brokers, who are estimated to write 60 per cent of all home loans.
More to come