Australians battling medical conditions, unemployment and addiction are being targeted by mortgage brokers who are incentivised by "sizable commission" payments, consumer groups warn.
The claim, made by CHOICE and other consumer groups on the Review of mortgage broker remuneration, presents seven case
studies illustrating how brokers navigate the system to sell disadvantaged
Australians mortgages they cannot afford.
When Cindy*, a 36-year-old single mother to special-needs children,
informed a mortgage broker she was battling a gambling addiction, he told
her to withdraw money from ATMs outside of pubs and casinos to "keep her bank statements clean for three months". Then, to make
sure she was approved for a mortgage, the broker swapped a bottle of scotch
for a letter from an accountant endorsing Cindy's character. Cindy and the
accountant had never met.
The broker in Bradley's* case was working with a real-estate agent. The two
convinced Bradley, an ex-armyman with post traumatic stress disorder, to
leverage his home and buy two additional investment properties. The broker
claimed Bradley had seven times more superannuation and inflated the value
of his properties, to help make sure the pensioner would be approved. He
gave the estate agent – who approached Bradley and recommended him to the
broker – a cut of the commission.
Cindy and Bradley couldn't afford their mortgages. After enduring the
stress of owing money they couldn't pay back, the two ultimately turned to
financial hardship programs.
Five more examples of brokers selling mortgages to people considered
disadvantaged are included in the submission, which was jointly submitted by Financial
Counselling Australia, Financial Rights Legal Centre, Consumer Action and
The "predatory" behaviour is encouraged by broker remuneration packages, says Anna
Dooland, the financial counsellor who worked on the cases at Financial
"The way the [commission payments] are structured really leaves vulnerable
people exposed because people believe they can trust brokers and some
brokers take advantage of that.
"It's not so much the volume of case work, but when they come up they're so
bad. They're absolutely so bad that they become enormous cases," the
financial counsellor tells CHOICE.
Partnerships between mortgage brokers, lawyers and accountants have created
an environment where the needs of a customer is no longer the greatest
priority, she says.
"They certainly feed off each other by providing each
other business. If they have a business relationship, there's always going
to be this implicit pressure to give the loan out."
An ASIC report on broker remuneration, also submitted to the government review, found that mortgage brokers typically don't earn a
salary as they live off commission payments. Brokers earn an average
upfront payment of $3100 for every mortgage sold and are paid by
aggregators (the businesses between banks and brokers) trail commissions at
an average of $750 a year to make sure customers don't refinance elsewhere.
Consumer groups claim trail commissions are
anti-competitive because they discourage brokers from finding a better deal for their clients.
"We've called for urgent action on trail commissions, which are monthly payments from
a lender to an aggregator which is passed onto a broker over the life of a
loan," says Erin Turner, the head of campaigns and policy at CHOICE.
"Trail payments are money for jam. The broker makes money for doing
nothing, discouraging them from reviewing the quality of a loan long-term."
But the peak body representing 12,900 brokers, Mortgage and Finance Association of Australia (MFAA), claims getting rid of commission payments
would hurt competition in the industry.
"All our commissions are fully disclosed, and the MFAA works very hard to
ensure that brokers are transparent about how and why they are paid by
lenders," says chief executive Mike Felton. "We will continue to work with ASIC and Treasury...to seek the best
possible outcomes for consumers."
The submission echoes sentiments from the 243-page report released by the
ASIC in March, which concluded
the industry should move brokers away from commission payments.
Sixteen recommendations were made in the submission intended to make sure
brokers are paid to act in the best interest of their customers.
*Not their real name.