The Mortgage & Finance Association of Australia has launched a stinging attack on a UBS report that argued Australian mortgage brokers are overpaid, claiming it based its findings on incorrect data. In a client note, leading banking analyst Jon Mott pointed out that mortgage broker commissions have blown-out to $2.4 billion per year or $4,600 per mortgage.
Moreover, Mott further raised the ire of the brokers by flagging that the banks are set to negotiate lower fee-for-service commissions in coming months.
MFAA chief executive, Mike Felton, disputes Mott's calculations, claiming that the analyst has taken the total amount of broker commissions in 2015 (which includes upfront and trail commission) and divided them by just the number of loans written by brokers in that year.
"This has given them a commission per mortgage that is about double what it actually is in the year of acquisition," he told AB+F. “We are extremely disappointed that a reputable organisation would issue a report like this without ensuring that the data they’re working with is correct.”
UBS moved quickly to defend its analysis, saying it continued to stand by its published report, which is based on numbers produced by ASIC and contained in the Sedgwick Report. These recently-released reports found a number of material conflicts of interest in the mortgage broking industry and have called for sweeping changes to the way brokers are paid.
'Unrealistic economic rent'
Far from viewing his figures as being too high, Mott thinks they are, if anything, too low and that the average commission earned per mortgage over the life of the loan is likely to be higher than $4,600.
In essence, the argument stems from Mott adding in trail commissions earned from mortgages written in prior years, which bumps up his figure. For its part, the MFFA is objecting to the perception that each broker earned that amount each year.
Felton said he was disappointed by the tone of the report, which referred to a "blow-out" in commissions paid to brokers and "unrealistic economic rent being extracted by the mortgage broking industry".
“An interrogation of the data demonstrates that the increases to total remuneration to the broking channel are not due to changes to commission structures. Any ‘blow-out’ in commissions is due to the simple fact that every year, more Australians are turning to brokers,” he said.
The lobby group head also dismissed the idea that the banks would cut broker fees saying he did not see this an option for the banks.
“Last year saw a four per cent increase in the use of brokers, who are now writing more than 53 per cent of all loans as of March this year, as compared to 44 percent in March 2013. We believe this is due to the fact that 92 percent of customers are satisfied with their experience with a broker. Consumers are voting with their feet," Felton explained.
“In any event, while the total amount of commissions to the channel has increased, independent research has shown that the average gross earnings for brokers are about $142,000 per annum, before any superannuation contributions, overhead costs or staff salaries. This includes an average of $83,000 in upfront commissions and $59,000 in trail commissions, which allow brokers to service loans over many years.”
No sweeping changes
Finally, Felton went on to say, there were a number of statements made in the UBS report that appeared to misinterpret the ASIC and Australian Bankers' Association reports on mortgage broker remuneration.
“Neither report found material conflicts of interest, they found the potential for conflicts. This is not semantics. There is a massive difference between these two statements. Nor have they called for sweeping changes to remuneration. Indeed, one of ASIC’s key recommendations was to leave upfront and trail commissions largely intact, but for some fine tuning.”
The UBS report also referred to ASIC and ABA findings that broker loans were larger, had higher LVRs, were more likely to be interest-only, and were paid off more slowly by borrowers than bank-originated mortgages.
“This is not surprising to people in the industry. Brokers work with clients who have more complex or unusual financial situations, who are often unable to qualify easily for a large, low LVR mortgage loan from their lender,” the MFFA chief added.