APRA has outlined a detailed set of management information systems to be used by lenders when assessing mortgage risk exposures, including reports on third-party relationships and performance.
Last week, Mortgage Business reported that the prudential regulator had warned banks that their reliance on mortgage brokers can lead to additional risk.
In addition, APRA’s lending guidance stated that broker remuneration was an area of “inherent” risk to ADIs.
In a further warning to the banks on the risks associated with broker-originated loans, APRA has suggested lenders invest in management information systems that allow for appropriate assessment of residential mortgage lending risk exposures.
“A robust management information system would be able to provide good quality information on residential mortgage lending risks,” the regulator said.
Reports on broker relationships and performance were included on a list of 17 suggestions for mitigating mortgage risks.
“Such a system would typically capture a range of risk metrics related to individual loans at the point of application and throughout the life of the loan,” the regulator said, warning that a history of low defaults does not justify underinvestment in management information systems.
The MFAA issued a firm response to APRA’s lending guidance, slamming its “completely incorrect” assertions about mortgage brokers.
“Its assertion that ‘commissions paid upfront (to brokers) tend to encourage less rigorous attention to loan application quality’ is completely incorrect,” MFAA chief executive Siobhan Hayden said.
“I am disappointed to read such comments from APRA's chairman and it demonstrates that Mr Byres has little or no knowledge of the third party market,” she added.
Speaking to Mortgage Business, Ms Hayden said it is “not ideal” for the regulator to provide suggestions to ADIs when the assumptions they are working from are wrong.
“It was evidently clear that they don’t really understand mortgage broking,” she said, adding that APRA’s lending guidance exposes its failure to engage with the third-party channel.
“I was quite surprised when I read it,” Ms Hayden said.
“A lot of the assertions don’t seem to be based on much data,” she said.
“If there is data I would be happy to see it, but it just doesn’t seem to be accurate from what I see or hear from our lender partners."