Originally published via Message from the CEO, 12 June 2018
I know many of you feel the mortgage broking industry has been on the receiving end of some unfair criticism this year. I agree.
Those of you who attended the MFAA Roadshows during May would have heard the MFAA is launching a series of proactive initiatives, designed to defend and promote the value you provide to your customers, and the Australian economy.
The fact is that the rhetoric surrounding the broker channel is not consistent with the available data.
I have stated publicly many times that the broker channel is now systemically important to the Australian economy, and as such, increased scrutiny is entirely appropriate. Indeed, I welcome anyone who wishes to scrutinise our industry, because the relevant data portrays an industry that helps customers and drives competition to the benefit of all consumers.
This is reflected in consumer behaviour. Customers continue to vote with their feet, with more than 50 percent of residential lending now originated by brokers. The consumers’ Net Promoter Score of brokers is in excess of 70, which is phenomenal, and 92 per cent of customers have reported that they are satisfied with their broker’s performance. This is a credit to your great work.
However, we have recently seen criticism from some with entrenched interests and others with poorly informed perspectives on the industry, portraying the broker channel as systemically rotten, and riven with conflicts and poor behaviour. We believe we must respond to this.
So, we decided to examine real data for answers. The numbers don’t lie.
If the criticism was accurate, and the mortgage broking industry really was broken, then complaints and arrears rates would be high, competition and consumer support would be shrinking and prices would inevitably begin to rise.
Is that the case? Absolutely not.
The MFAA has conducted analysis during 2018, examining complaints, arrears, penalties and the broker channel’s impact on competition. I must say, even I was pleasantly surprised by the results.
We began by reviewing complaints to the MFAA, the Credit and Investment Ombudsman (CIO) and the Financial Ombudsman Service (FOS).
While broker-originated loans written annually have doubled since 2008, complaints to the MFAA have plummeted by 78 per cent.
In addition, while mortgage broker membership of the CIO service has tripled since 2008 - to 91 per cent of CIO membership - complaints about brokers represent just 6.1 per cent of all complaints to the CIO.
Mortgage brokers also account for just 1 per cent of complaints to FOS.
When we reviewed penalties data, we found that ASIC has made just 15 convictions of brokers between 2010 and 2017, which represents one in 9,000 brokers per annum.
When reviewing arrears, ASIC data showed there is no significant difference between the broker channel and the proprietary channel, and ASIC also noted in its Review of Mortgage Broker Remuneration that there is no significant relationship between the level of broker commissions and the level of loan arrears.
This data forms a compelling story, and a formidable accolade for the industry. However, when I talk to stakeholders about this data, I am sometimes met with some scepticism. Why would the industry be receiving this criticism, if there are no systemic issues?
The answer lies in the data on competition.
The rise of the broker channel has significantly moderated the dominance of the major lenders over time, significantly reducing their market share. In the last four years alone, the share of broker channel mortgage business concluded directly with the four major lenders declined from 58.5 per cent to 50.7 per cent, and the percentage of loans originated by brokers for lenders not affiliated with the four major lenders has grown from 21.5 per cent to 28 per cent.
At the same time, as broker numbers and the broker channel’s market share have both increased - driving increased competition - the Net Interest Margin of the major lenders has decreased commensurately.
These recent criticisms are a clear reflection of the pressure being felt by the entire financial services sector to drive revenue and margins – and to respond to the Royal Commission. It is tough for the sector, but that same pressure and increased competition is great for consumers.
While certain lenders have supported changes that would rationalise the broker channel and drive increased traffic into their branch network, this would have an immediate negative impact on consumer outcomes.
So, while we remain focused on self-regulation and implementing a strong package of reforms in response to the ASIC Remuneration Review, we also understand the need to continue to staunchly defend and promote the industry.
We are making all the data above available to you via a two-page fact sheet which you can share with your customers, and over the coming weeks and months, you will see a range of initiatives designed to promote the industry.
We will continue to advocate on your behalf with political decision-makers, as we deliver a communications pack based on the data above. You will also see more consumer-facing communications via a proactive campaign in the coming months.
In an environment of strong broker-driven competition, low net interest margins, significant data-driven reviews by ASIC and Sedgwick, and an industry that has united to self-regulate under the watchful eye of ASIC, Treasury and Government, it is appropriate that we are allowed to continue that self-regulation process, and our goal is to defend the industry so that it can.
Chief Executive Officer
Mortgage & Finance Association of Australia (MFAA)