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Alex Whitlock, the director of mortgages at Momentum Media (the parent company of Mortgage Business), has written to the CBA CEO, following his remarks regarding broker commissions during the seventh round of hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The contents of the open letter are as follows:
Mr Comyn, your carefully measured words at the royal commission hearing on Monday, 19 November, is an opportunistic attempt to reduce competition in the Australian mortgage market with potentially catastrophic consequences for Australian home owners, investors, prospective buyers and, ultimately, the economy.
Your goal, I feel, is simple: to destroy, or at the very least decimate, the marketplace that is enabling lenders to compete with CBA.
Fifty-five per cent of Australians now choose to access lenders and their products via mortgage brokers, and it would appear you fear the impact this will have on your bank’s stranglehold on mortgage lending.
Let’s just remember, mortgage broker market share had surged over the last decade on the basis of delivering greater choice to borrowers. They also offer a service that is flexible and based around the convenience of the borrower.
Your bank is under some threat from a growing number of smaller and mid-tier banks, non-banks and innovative new challenger lenders that are breathing new life into the mortgage market.
This is good for borrowers and good for Australia… but perhaps not so good for CBA.
There is no coincidence that historically low mortgage rates correlate with a more competitive and open market — and a robust mortgage broking industry will ensure that this continues. But the welfare of Australians through reasonably priced financial products and the growth of CBA seem in stark conflict.
So, let’s establish what we both know. Commissions paid to brokers have a negligible impact on the outcome for the borrower.
Before considering CBA’s true motives with your call to replace commissions with a ‘fee for service’, let’s clarify exactly why commissions have no detrimental outcome for the borrower.
Firstly, commissions today are so similar between lenders that there is very little financial incentive to influence a broker. It is getting progressively more difficult for borrowers to secure finance, and on that basis a broker will place a borrower with the institution that is suited to the borrower’s needs and is most likely to approve the loan.
The reason is very simple. A broker only receives a commission when a loan settles, so it makes sense to connect the borrower with the lender that’s most likely to approve the loan, not the one that pays the highest commission.
Secondly, variable interest rates change without warning — up and down depending on market conditions. To ensure that borrowers are able to move smoothly between products without penalty should their rate become out of step, there are no barriers to the borrower to switch lender. They can go back to their broker or walk into a retail bank branch; it is easy and quick.
Lastly, broker commissions are a cost-effective way to stimulate competition for the lenders that don’t have the capacity to build a vast retail network like CBA. And this is the critical point.
Mr Comyn, you have sought to influence the regulator by highlighting what you describe as the best remuneration structure: a fee paid by the borrower, which you told the counsel assisting the royal commission, Rowena Orr, “... that is, in my view, the most attractive model”.
It is clear why, in your view, this is most attractive model.
With the most powerful retail reach and an insatiable appetite to dominate the mortgage market, it is easy to see why CBA is pushing to dismantle the competitive edge that brokers deliver to the broader mortgage market — and, most importantly, the positive impact brokers have for Australian borrowers, home owners and investors.
Your poker-faced delivery of a carefully crafted strategy has to be recognised for exactly what it is: a CBA bid to stifle competition, reduce options for borrowers and cripple the only channel that ensures Australian borrowers have an open and free marketplace to access competitively priced loans. Australian borrowers are at the mercy of four banks, unlike the Netherlands, and that’s how you’d like it to stay.
Only today, Reserve Bank governor Philip Lowe has warned of the dangers of overregulation and a lack of confidence in the financial services sector. The timing of your scaremongering and misleading comments is breathtaking given the looming crisis our housing market faces.
I invite you to respond to my letter and provide your alternative facts. I will publish whatever you have to say without edit.
Director – Mortgages