Yesterday’s release of APRA’s new rules on mortgage lending (CPG223) targeting the risky end of the loan spectrum had a provision that implies loans originated through brokers are inherently more risky than others.
It is an implication to CPG223 which Phil Naylor, CEO of the Mortgage & Finance Association of Australia (MFAA) told Business Insider were incorrect.
Naylor said that while the MFAA has no issue with APRA’s review, the inference that broker loans were more risky is simply wrong and that “a broker loan is subject to more checks than one from the proprietary channel”.
He added the credit performance is also solid and that “anecdotal evidence from lenders indicate that broker loans are at least of equal, if not higher, quality than proprietary channel loans.”
The trouble is that one of the proposals from the review is a “claw back”, where the lender stops broker commissions or asks for repayment of previous ones, if a loan defaults.
Effectively this means that when someone defaults on their home loan the broker could be out of pocket.
Naylor said that APRA might be overreaching with this, noting:
(Banks) currently do not claw back commissions on delinquency, but they do stop paying trail when a loan falls into arrears. We believe this is more than adequate as delinquency is often a caused by a change of circumstances for the client such as unemployment, sickness, divorce, etc. This should not be changed as brokers cannot influence this outcome.
No doubt APRA will be hearing from Naylor and the MFAA not to mention the banking sector on its draft proposals.
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