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Opinion: PC report relies on shoddy UBS research

Opinion: PC report relies on shoddy UBS research

The Productivity Commission’s scathing report on the mortgage industry reveals a significant lack of research and a pressing need for more accurate data.

The most worrying element of the report, released this week, was the lack of reliable data to support its claims. The hefty document — 628 pages — is also very confusing.

For example, the report makes a draft finding around interest rates from brokers compared to other channels.

“Home loans originated by mortgage brokers have only slightly lower interest rates than those originated through direct channels. Further analysis is needed to inform the Commission’s view of the sources of such differences and whether they are significant.”

The report noted later that “brokers are not a low-cost option, potentially adding 16 basis points in cost to interest rates.”

This 16 basis point figure is not based on the Commission’s own due diligence, but rather from one of the many tabloidesque research reports penned by UBS analyst Jonathan Mott entitled Are brokers overpaid?

The 16 basis point claim was labelled “incorrect” and “misleading” by MFAA CEO Mike Felton when it received widespread media attention in May of last year.

But this isn’t the first time an inquiry has used UBS research to try and gain quantitative facts about the mortgage market.

In September last year, UBS’ Mr Mott penned another report claiming that up to a third of Australian mortgages could be “liar loans” based on factually incorrect information.

A month later, on 11 October, ANZ chief executive Shayne Elliott was grilled about the report’s findings during the major bank review in Canberra.

Committee chair David Coleman MP asked the ANZ boss for his response to the claims made in the UBS “liar loans” report — specifically, a UBS claim that 45 per cent of ANZ [transactions] have been subject to false or inaccurate representations by the borrower.

“What was missing from the report and some of the journalists’ articles afterwards was that we don’t just rely on what customers fill out on a form,” Mr Elliott explained.

“We’ve been in business for 185 years, and it’s not new to us that sometimes customers forget to tell us all the full details of their financial situation. So, we have all sorts of systems in place and checks and balances to mitigate that, and that’s really very important as part of the process.”

Mr Elliott directed the committee’s attention to the size of the UBS survey, comparing it to the number of ANZ’s home loan customers.

“We have a million mortgages on our books alone at ANZ,” the CEO said. “The entire sample size for that survey was fewer than 1,000 for the whole country.

“Based on our market share, that means that survey was based on 150 ANZ customers. To then extrapolate that, to say that that’s true for the whole million, I think is a bit of a stretch.”

However, to be fair to the Productivity Commission, it was only going off the data it could find. The report notes that lenders were unable to provide any information that might trump the UBS findings or even refute them.

“Surprisingly for such a major-cost item, most lenders were unable to provide the information required to evaluate whether brokers are a lower-cost distribution network. Cost data appears to be a black box for this industry.”

It’s about time we see what’s inside the box and get the facts straight once and for all.

Opinion: PC report relies on shoddy UBS research
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