Reports put mortgage brokers under pressure

THE mortgage broking industry is under further scrutiny following the release of two reports suggesting the existence of significant problems within the current regulatory framework.

Last week the Australian Securities and Investment Commission released a report that found, among other things, the rapid growth of the industry was bringing with it problems for regulators.

The report follows a study released in January by the Australian Prudential Regulation Authority into the growth and practices of the mortgage broking sector.

The Parliamentary Secretary to the Treasurer, Ian Campbell, backed the ASIC-sponsored report and its recommendations for strong, national uniform regulations of mortgage brokers.

“It is a rapidly growing industry where consumers deserve to have the protection of a high quality regulatory regime,” Senator Campbell said.

The report found while the use of brokers had expanded greatly, there were still too few barriers to entry into the industry, such as clear minimum competency or training standards.

ASIC executive director of Consumer Protection Peter Kell said the report, prepared by the Consumer Credit Legal Centre NSW (Inc), identified significant issues about the structures and practices of the industry and raised possible options for addressing these issues.

“There is also a need for clarity as to whether brokers are acting for consumers or are really agents for lenders,” he said.

“We are also pleased that in response to the gap identified in the report regarding consumer complaint schemes, the Mortgage Industry Association of Australasia has announced that it will seek formal ASIC approval for its external dispute resolution scheme, the Mortgage Industry Ombudsman Scheme.”

The MIAA is currently re-viewing its MIAA Code of Practice and Constitution, which it uses to regulate its 3,500 members.

The report highlighted that ASIC had only limited policing powers, which hampered any move toward uniformity. State governments are primarily responsible for regulation under the State-based Uniform Consumer Credit Code, as the provision of credit is not covered by the financial services licensing laws administered by ASIC.

However, ASIC can take action in relation to misleading and deceptive practices and unconscionable conduct.

The report suggested that structural problems within the industry put consumers at risk of being financially disadvantaged, either through increased repayments on home loans, high brokerage fees or through the loss of the family home.

It also identified gaps in the way legislation at both State and Federal levels regulated the conduct of brokers.

The capacity of brokers to manipulate loan applications – potentially misrepresenting consumers’ position regarding acceptance criteria to banks and credit unions – was seen as another concern.

The absence of uniform legislation also removed any incentive for brokers to invest in training and compliance.

In the past 15 years the mortgage market has increased 10-fold.

The report says that, in 1986-97, Australians borrowed $15 billion in housing finance from lenders, which were then almost exclusively banks, building societies and credit unions.

Fifteen years later, Australians borrowed $151 billion to buy, build or refinance their homes.

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