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Aussie Mortgage Brokers Up in Arms Over Big Four

Volume-based accreditation among issues

Oct. 26, 2009

Australian Correspondent for

Australian mortgage brokers claim that four huge financial institutions are putting the squeeze on them.

The brokers, referred to as finance brokers down under, maintain that a shift to volume-based accreditation is compromising their independence. Under the new system, a minimum number of loan submissions and approvals are required in order to maintain approval with a given wholesale lender.

Finance broker Maria Rigoni, co-founder of the Australian Institute of Professional Brokers, told that Australia's 'big four' banks -- ANZ-Australia and New Zealand Banking Group, Commonwealth Bank of Australia, the National Australia Bank and Westpac -- are placing brokers in an untenable position.

Rigoni is accusing the banks of employing bullying tactics and capitalizing on the diminished second-tier and non-bank lender sector. Her allegation is that banks are placing mortgage brokers in a position where they are being forced to choose between their traditionally independent role -- offering consumers a range of products from a wide spread of lenders -- and financial survival.

Earlier this month, the Australian Federal Government plunked down an additional $8 billion of taxpayers' money into new residential mortgage-backed securities. The move was an effort to support the home lending market and prop up mid-tier lenders.

But economists argue that this will have little impact on the dominance of the big four banks.

The government first took steps to boost the RMBS market last year after it almost shut down as a result of the global credit crunch. In September 2008, it invested an initial $4 billion to boost competition. Another $4 billion was invested in October 2008.

The concern centers around the banks' recently established volume-based accreditation schemes for brokers, which effectively limits supply to brokers unless compliance occurs and rewards them for volume-based business.

Rigoni pointed out that volume-based accreditation is unrealistic because all borrowers will not necessarily qualify for loans with specific banks. For example, tightening living expenses criteria means that a client who can borrow $145,000 with Westpac is only entitled to $108,000 with Commonwealth Bank.

Volume-based accreditation will also place brokers in a position where they are forced to focus on the big four if they want to retain their accreditation.

In Australia, 40 percent of credit consumers use a finance broker as their preferred distribution channel. Rigoni's assertion is that consumers are unaware of this change, which she says has the potential to prejudice a broker's advice.

She claims that the banks' actions and requirements violate the Trade Practices Act and that regulatory bodies are not listening.

Recently, six prominent economists urged the government to consider setting up an inquiry into Australia's financial system -- the first in more than a decade.

In their line of fire is the growing power of the big four banks and the diminishing competition in the banking sector caused by the demise of the non-banks and second tier banks.

To date, Federal Treasurer Wayne Swan has shrugged off any interest in a comprehensive inquiry into the financial system.

Another issue concerning brokers is pending legislation that would result in holding brokers liable for loans they originated if the borrower defaults -- even several years after a loan has been written. The bill disregards due diligence done up front by the broker.

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Australian journalist Jill Fraser reports on the country's mortgage industry for Jill is also a book author. She has been in the media business for 26 years. Reach Jill at [email protected].
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