Why the Banking Royal Commission Hits Mortgage Brokers Harder than Banks

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Hi Cheryl he editor of the daily reckoning Australia and let’s talk about the Royal Banking Commission now the final review came out on Monday and I’ve written on both Monday and Tuesday in the daily reckoning Australia my views on the role of regulators played in allowing this banking misconduct to happen but also to the irony the firm of the Haines review where it believes that now that the regulator’s are responsible for following up on these criminal misconduct cases however what one topic I haven’t touched on yet is the outcome of the review on bank stocks and mortgage broking stocks now on Tuesday are the big four banks share price all rallied near around 5% for the day now that’s a massive game so big that even Bloomberg noted it was the single biggest daily gain for any of the big four banks in a decade in addition to that a.m.

P their share price rallied 10% so a sec effectively what we witnessed here is sort of a sigh of relief from financial investors that you know the worst was already factored into the share price so those big rallies that we saw I guess are a relief rally that the bank’s just got a slap on the wrist in this report that’s in stark contrast to mortgage broking stocks now mortgage choice their share price fell I think 22% on Tuesday an Australian Financial Group their share price fell 29% on Tuesday so these are big big savage hits to their share price the main reason the market reacted like that is because of the Haines recommendation to change the mortgage broking a fee model now currently mortgage brokers receive payment from the banks when they when you apply for a loan with them now generally it’s a trailing Commission of about the percent now Haines recommends the end of trailing commissions and it making creating a model where people pay to see a broker upfront and this is why we sell that savage sell-off in Mortgage Choice and Australian Financial Group because people feel that it would be a detrimental model for mortgage broking business from my point of view I’m not a big fan of trailing commissions however I’m sure that there is a better solution then having an ongoing trend I’m trailing commissioner for the life of the loan the other thing too is I can’t see how a fee-for-service model where a customer pays a mortgage broker upfront to arrange a home loan for them is going to work you know if you’re applying for a home loan you want to put every single penny that you’ve got towards the deposit and reducing the value of the loan so that extra three or four or five thousand dollars maybe or maybe even more to pay that upfront to a mortgage broker isn’t something a customer’s going to want to pay so pushing towards a fee-for-service model could effectively wipe out the twenty thousand Australians that do work as mortgage brokers more to the point – I sort of feel that by targeting mortgage brokers the Haines review really is just a witch-hunt into a small section of the financial industry now yes there was wrongdoing with mortgage brokers and there was a bunch that created you know fraudulent loans however it was a small minority of mortgage brokers that did this what we heard during the Royal Banking Commission was severe financial misconduct from the banks and not only that the bank’s pushed their own program their own products and ignoring their you know fiduciary responsibilities to customers so by Hayne targeting mortgage brokers over the banks I feel that as Australians we very much missed our chance to have serious banking reform you know there’s no there’s nothing out of this review that is going to force the bench to behave better as I said before it’s very much a slap on the wrist and finally – if the Commission are sorry if both our regulators do want to push for a fee for service and upfront payment model for mortgage brokers there aren’t many people who are going to want to do that so people are going to leave the mortgage broking industry and they’re going to go to the big banks essentially that one decision will give our big banks even more power and we’ll concentrate the mortgage market even more to the big four they already dominate the mortgage market with around 80% of total mortgages in Australia so if that recommendation is put into place it’s just going to lead to an even bigger sector banking sector that we’ve got that’s all from me today I’ll be back next week.

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