Government Changes its Tune on Mortgage Broker Reforms


The implementation of new recommendations will not drastically change broking commissions, for the time being.

The Morrison government has backflipped on mortgage broker pay, just weeks after agreeing to the banking royal commission’s recommendation to prohibit trail commissions for new loans from mid-2020.

Treasurer Josh Frydenberg announced the policy change on Tuesday, promising a review in three years’ time.

Upfront commissions to mortgage brokers made by banks will be part of the review as well — a 180-degree turn from ASIC’s review of mortgage broking remuneration in 2017.

The mortgage broker industry ramped up lobbying efforts prior to the back down, with mortgage broker industry groups launching advertising and offline campaigns — claiming up to 70 per cent of its members could lose their livelihoods if commissions were abolished.

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Brokers play a ‘critical role’

In a statement announcing the decision, Treasurer Frydenberg said mortgage brokers acting in the best interest of the consumer are good for the economy.

The government says it wants to see an increase in the number of mortgage brokers, up from the 16,000 currently working across the country, which combined employ more than 27,000 people.

Almost 60 per cent of residential mortgages are settled by brokers.

The treasurer said that brokers play a “critical role” in the mortgage market.

“We’re concerned about the impact on competition in the mortgage lending market,” Frydenberg told reporters after the announcement.

“Small lenders and mortgage brokers are an absolutely critical part of competition in that market.”

What has the government done so far?

In an effort to show a quick response to what many see as being linked to the potential housing crisis and a spiralling market, the government has extended the remit of the Australian Financial Complaints Authority and introduced several new measures to address conflicts of interest in the industry.

“We have passed legislation through the Senate to extend civil penalties to superannuation fund trustees and directors for breaches of their best interests duty and ban superannuation funds from inducing employers,” Frydenberg said in a statement.

“We have released exposure draft legislation to ban grandfathering of conflicted remuneration, released a consultation paper on removing the insurance claims handling exemption, and commenced a capability review of the Australian Prudential Regulation Authority and an immediate review of financial counselling services.

“We have also initiated work towards establishing a national farm debt mediation scheme.”

The government will introduce several new measures including bans on campaign and volume-based commissions and a two-year limit on claw-back; a requirement that the value of upfront commission be linked to the amount drawn-down by borrowers and an overarching legal obligation on mortgage brokers to act in the “best interests” of consumers.

The three-year review will be carried out by the Council of Financial Regulators and the Australian Competition Consumer Commission.

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