the positive contribution of brokers while enhancing consumer outcomes and competition in the home loan market. For this reason, we urge the Government and Treasury to treat the ABA Report as a submission by just one interest group in the mortgage industry. The standard commission model It is important to remember that the existing commission model for mortgage brokers is not broken. The existing model means that all Australian borrowers have the option of using a broker or dealing directly with their chosen lender. The development of the mortgage broking industry has increased competition amongst lenders by giving those without a large branch network access to an effective distribution network. AFG has 45 lenders on its panel with more than 34% of borrowings going to lenders other than the four major banks. This competitive tension is needed to help limit oligopoly behaviour in an industry that is dominated by the four major banks. AFG agrees that borrowers should not be encouraged to borrow more than they require and it is appropriate to consider whether there are any industry structures or features that create a market distortion. AFG is of the view that lenders can reduce this risk to borrowers and improve consumer outcomes by making the following changes to existing commission structures: paying upfront commissions on the drawn-down amount rather than the approved amount (this may necessitate upfront payments being made in tranches, for example for construction loans and lines of credit); and introducing balanced scorecards for brokers that recognise appropriate loan application quality metrics. These changes should not result in an economic drift away from the broker to the lender as devaluing the service provided by brokers would have significant and long term detrimental effects for consumers by lessening the competitive tensions that currently exist in the credit industry. It is essential that anticompetitive conduct is not permitted to proliferate under the guise of regulatory reform. In addition, lenders should be encouraged to consider whether their methodologies for pricing loans should be reviewed to reduce the incentive for consumers to take out larger than necessary loans. For example, consumers may borrow more than necessary in order to access additional discounts to the standard interest rate.
the positive contribution of brokers while enhancing consumer outcomes and competition in the home loan market. For this reason, we urge the Government and Treasury to treat the ABA Report as a submission by just one interest group in the mortgage industry. The standard commission model It is important to remember that the existing commission model for mortgage brokers is not broken. The existing model means that all Australian borrowers have the option of using a broker or dealing directly with their chosen lender. The development of the mortgage broking industry has increased competition amongst lenders by giving those without a large branch network access to an effective distribution network. AFG has 45 lenders on its panel with more than 34% of borrowings going to lenders other than the four major banks. This competitive tension is needed to help limit oligopoly behaviour in an industry that is dominated by the four major banks. AFG agrees that borrowers should not be encouraged to borrow more than they require and it is appropriate to consider whether there are any industry structures or features that create a market distortion. AFG is of the view that lenders can reduce this risk to borrowers and improve consumer outcomes by making the following changes to existing commission structures: paying upfront commissions on the drawn-down amount rather than the approved amount (this may necessitate upfront payments being made in tranches, for example for construction loans and lines of credit); and introducing balanced scorecards for brokers that recognise appropriate loan application quality metrics. These changes should not result in an economic drift away from the broker to the lender as devaluing the service provided by brokers would have significant and long term detrimental effects for consumers by lessening the competitive tensions that currently exist in the credit industry. It is essential that anticompetitive conduct is not permitted to proliferate under the guise of regulatory reform. In addition, lenders should be encouraged to consider whether their methodologies for pricing loans should be reviewed to reduce the incentive for consumers to take out larger than necessary loans. For example, consumers may borrow more than necessary in order to access additional discounts to the standard interest rate.
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