THE public can rest assured that only a few finance brokers have been responsible for losses by various investors in mortgages says Mortgage Industry Association of Australia WA president Barry Barr.
THE public can rest assured that only a few finance brokers have been responsible for losses by various investors in mortgages says Mortgage Industry Association of Australia WA president Barry Barr.
He said the big stick was now being applied with the introduction of the Managed Investments Act 1998.
Previously the industry was administered by a myriad of State laws.
“This is a Commonwealth Act, administered by the Australian Securities and Investment Commission which has power far in excess of that applicable to the WA Ministry of Fair Trading,” Mr Barr said.
“It is apparent the State legislation via the Finance Brokers Control Act administered by the Ministry of Fair Trading, was inadequate to safeguard investors.”
Mr Barr said the ASIC had the sole power to licence brokers to manage mortgages and, at this stage, only three WA broking firms had received such a license – approximately 140 brokers are currently licenced under the State Act.
“The ASIC licence conditions are quite onerous. For example, each licensee needs to issue a prospectus and act in accordance with a constitution and compliance plan acceptable to the ASIC,” he said.
“In addition, the broking firm must have an independent compliance committee which is acceptable to the ASIC and whose task is to oversee the mortgage scheme’s operations and protect the interests of the investors.”
Mr Barr said investors could once again include mortgages in their portfolios in the knowledge the industry had been cleansed of undesirable elements.
He said problems had developed for two reasons.
Firstly, rationalisation had resulted in redundancies. In an effort to find employment, many sought jobs as brokers or contractors to broking firms.
“Regrettably, many had not earned the creditability required in the industry and were unable to attract first class borrowers,” Mr Barr said.
Secondly, globalisation led to banks lending more freely.
“As a result, the banks needed to diversify from the previous high margin home market to the commercial and investment market which was previously the province of mortgage brokers,” Mr Barr said.
However, he said blame for the losses should be apportioned equally between investors and brokers because investors seeking high returns should have been aware of the corresponding high risk.
“After all, when rates offered by reputable brokers on behalf of first class borrowers were in the range of 6.5 to 8.5 per cent, why would anyone invest fearlessly in a mortgage of 10 per cent to 12 per cent,” Mr Barr said.
He said the big stick was now being applied with the introduction of the Managed Investments Act 1998.
Previously the industry was administered by a myriad of State laws.
“This is a Commonwealth Act, administered by the Australian Securities and Investment Commission which has power far in excess of that applicable to the WA Ministry of Fair Trading,” Mr Barr said.
“It is apparent the State legislation via the Finance Brokers Control Act administered by the Ministry of Fair Trading, was inadequate to safeguard investors.”
Mr Barr said the ASIC had the sole power to licence brokers to manage mortgages and, at this stage, only three WA broking firms had received such a license – approximately 140 brokers are currently licenced under the State Act.
“The ASIC licence conditions are quite onerous. For example, each licensee needs to issue a prospectus and act in accordance with a constitution and compliance plan acceptable to the ASIC,” he said.
“In addition, the broking firm must have an independent compliance committee which is acceptable to the ASIC and whose task is to oversee the mortgage scheme’s operations and protect the interests of the investors.”
Mr Barr said investors could once again include mortgages in their portfolios in the knowledge the industry had been cleansed of undesirable elements.
He said problems had developed for two reasons.
Firstly, rationalisation had resulted in redundancies. In an effort to find employment, many sought jobs as brokers or contractors to broking firms.
“Regrettably, many had not earned the creditability required in the industry and were unable to attract first class borrowers,” Mr Barr said.
Secondly, globalisation led to banks lending more freely.
“As a result, the banks needed to diversify from the previous high margin home market to the commercial and investment market which was previously the province of mortgage brokers,” Mr Barr said.
However, he said blame for the losses should be apportioned equally between investors and brokers because investors seeking high returns should have been aware of the corresponding high risk.
“After all, when rates offered by reputable brokers on behalf of first class borrowers were in the range of 6.5 to 8.5 per cent, why would anyone invest fearlessly in a mortgage of 10 per cent to 12 per cent,” Mr Barr said.
