There has been a significant increase in the use of mortgage referrers, such as real estate agents and developers. These parties are being paid nearly as much as mortgage brokers in commissions “despite doing much less,” according to the Australian Securities and Investments Commission (ASIC).
The regulatory body’s review of mortgage broker remuneration, which was released for consultation two weeks ago, included 13 findings about mortgage distribution and the home loan market.
Most notably, ASIC highlighted how those who merely refer consumers to lenders are paid “almost as much as brokers,” despite “doing much less”. ASIC defined mortgage referrers as individuals or businesses that provide a referral service to lenders and brokers.
“Some of the most common referrers are real estate agents, financial planners, accountants and lawyers. However, referrers may also include other types of individuals and organisations, including property developers and non-profit organisations,” ASIC said.
The number of referrals being made to lenders, either via the referrer or referrer aggregator, has risen significantly. The total number of home loans after a referral increased from 8,124 in 2012 to 26,106 in 2015, representing an increase in value from $3.3bn to $14.6bn, according to ASIC.
ASIC further noted that 87% of those sales were made by two major banks.
On average, lenders paid 0.46% of the loan amount as an upfront commission, although for some groups of referrers, this was as high as 0.56%.
“This level of commission-based remuneration is paid even though referrers play a very limited role,” ASIC said. The referrers ASIC reviewed all operated under a licensing exemption. Under this exemption, they are permitted to merely refer a consumer to a lender, and in doing so, are required to disclose the remuneration they have received.
They cannot provide advice to consumers, or assist them in any way when applying for a loan, said ASIC. Referrers are also not subject to the responsible lending conduct obligations outlined in the National Credit Act.
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