The Banking Royal Commission has once again served up some startling revelations, with the recent appearance at the Commission of the Commonwealth Bank's CEO, Matt Comyn. Mr Comyn's preemptive strike against mortgage brokers, by supporting a flat fee structure, is an attempt to erode mortgage competition and diminish the role that mortgage brokers play in consumer mortgage lending.
Any move to reduce the value proposition of the mortgage broker network would ultimately end up handing power back in the hands of the banks, leaving millions of mortgage customers with no access to credit outside of the big four banks. This will in turn lead us to the anti-competitive days of the 1990's where the Big Four Banks dominated the mortgage sector.
It is worth re-iterating the points I made in an earlier blog about the role the broker network plays in relation to competition in the mortgage sector and how the position taken by the CBA is at the very least self-serving, but at most, a premeditated attempt to erode competition, leaving millions of mortgage customers with no access to credit outside of major lenders.
"The CBA’s position is to try and reduce the bank’s reliance on the broker channel", says the Mortgage & Finance Association of Australia's (MFAA) CEO, Mike Felton. "Without a comprehensive broker network, competition in the mortgage sector would be greatly reduced." Read the MFAA's media release here.
As a mortgage broker and mortgage originator who has been in the industry for over 23 years, I applaud the the MFAA's swift response to again returned fire to support the mortgage broking industry at such a crucial time.
The proposal by the CBA, to introduce a flat fee for consumers, would be a "...win-win for CBA but a massive lose-lose for consumers regardless of whether or not they use a mortgage broker. The CBA either acquires a new customer with zero acquisition cost, or it receives a new fee and massively decreased competition, so it can return to the days of four lenders in Australia. It’s a great deal for the bank.” he said.
Banks using diversion tactics
The CBA in particular and the other banks in general, are using diversion tactics to attempt to stifle competition and marginalise the broker sector. You only have to look at the residential mortgage industry in the early 1990's where the big four banks had the monopoly, to see how mortgage brokers have improved competition and reduced the net-interest margins of the banks.
Recent revelations from the Banking Royal Commission highlight the continuing lack of competition practices by the banks, with the ACCC calling out the big four banks for not rewarding existing customers for their loyalty - by offering discounts to new customers but not existing ones. The ACCC’s report identified that existing banking residential mortgage borrowers paid significantly higher interest rates than new borrowers at the same bank.
Mortgage brokers drive competition
Mortgage brokers are single-handedly responsible for competition in the lending market and a broader product choice for customers. With over 55% of all residential loans sourced via mortgage brokers, Australian borrowers have demonstrated time again their support and comfort with the mortgage broker services. And of this 55%, 28% of all loans are directed to non-bank lenders, which in turn drives competition and improves customer choice even further.
Any changes to diminish the value proposition of the mortgage broker network would ultimately end up handing power back in the hands of banks, which would reduce competition and not serve the needs of the broader community. The mortgage sector could very quickly revert back to pricing strategies of the 1990s, where the big four banks' will be more intent in maintaining current positions than providing genuine competitive products and rate choices to customers.
