62 MPA Issue 6.12

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raising the barThere has been plenty of talk about regulating the mortgage industry. What this could mean, though, at a practical level isn’t so clear. Greg Stevens of AIMS Home Loans outlines his views on the subject

as with any industry, the Australian mortgage industry is not without its problems and challenges. As a seasoned mortgage professional, I have seen

how many of the problems we currently face can be traced to a lack of a set of definitive and established industry accepted benchmarks in the provision of loan services.

While a big part of the problem is the few unethical brokers who are only out to make a quick profit with little or no genuine concern for their clients, we do have too many part-time and inexperienced loan writers in the market. And of those who are experienced and mean well for their clients, it is apparent that some are not up-to-date with their knowledge and skills.

All of this is contributing to a poor reputation of the mortgage industry and often leads to substandard if not unethical service, such as:• Providing inadequate advice and product selection• Not adequately disclosing all fees – up front, ongoing, exit

and potential variation and transaction fees• Fraudulent activity such as massaging loan applications,

intentionally leaving out material information, colluding with third parties, such as valuers, to get the required value to do the loan

• Small lending institutions which do not have effective training and compliance programs to check loan writers’ loan submissions or the authenticity of loans submitted through business introducers

Just as there is no perfect industry, there is certainly no perfect and simple solution to these challenges. But we can make a start by increasing public confidence in mortgage brokers and introducing accountability for advice given, in order to ensure consumer expectations are met. I believe this can be achieved by having minimum standards for loan writers and mortgage businesses.

Whether operating as a broker or a direct lender, as long as a loan is provided and advice is given, minimum advice standards and education requirements must be in place nationally. This may involve minimum hours per annum of ongoing training supported by a compulsory training register.

If there is a problem with a loan writer or a mortgage business, then they should not be allowed to continue operating at all. If they have been discredited, every effort must be made to ensure they are not able to direct their loan applications to other lenders.

Mortgage provider licence?For most Australians, their three biggest transactions in life are:• Buying an owner occupied property• Borrowing money to purchase the owner occupied property• Managing superannuation entitlements, pre and post

retirementWhen consumers purchase property from a real estate

agent or seek advice from a financial planner, they are dealing

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The need to establish common standards is reinforced by the fact that it has never been easier to take out a mortgage loan than the present time.

Access to Loans Borrowers can now source loans direct from several distribution points depending on what suits them and their lifestyle – over the counter from lending institutions, online, from brokers (part-time and full-time), or through business referrers such as property developers, accounting practices, legal firms, real estate agents, financial planners, collection agencies and debt reduction agencies.

In addition, now more than ever, borrowers have access to the widest range of mortgage loan products, including the following: specialty type loans; loans for borrowers with poor credit history; limited or no income evidence loans; loans for 100% or over of the property value; non resident loans; complex tax structures or loans to trusts; small business loans; investment loans; second mortgages; reverse mortgages; and, of course, the housing loan which comes in many forms, from introductory rates to variable loans and are distinguished by different features and fee structures.

With such an array of mortgages available and with so many different places to source them from, what assurance does the borrower have that they are being given all the relevant

with licensees or authorised representatives of the licensee. Surprisingly, this is not the case when taking out a mortgage loan. When a borrower/homebuyer speaks to a lender’s representative or a broker for a loan, the mortgage supplier need not have a licence or qualification. In other words, just about anyone can be a mortgage provider.How can a loan writer effectively keep up-to-date?

ComplianceThe mortgage industry is currently self-regulated with respect to individual loan writers, apart from some states and territories where broker legislation is currently in place. With the wide range of mortgage products available in the market and with more new product types expected to be launched, the time is right to move from self-regulation to mandatory compliance.

The mortgage industry crosses over into numerous pieces of legislation, codes or standards which a loan writer needs to understand in order to provide loan advice in accordance with borrowers’ requirements.

In our current regime of self-regulation, a wide range of standards has been set by both the direct lenders and loan brokers. These varying standards have often resulted in confusion and inconsistency. This highlights the strong need to establish minimum common standards for all participants who write loans.

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information with the appropriate disclosures on their loan requirement?

Industry reputationThe mortgage industry is fraught with many challenges and issues, and the unethical practices of some rogue operators are not helping to restore credibility or trustworthiness. Recently published complaints concerning unethical and/or poorly trained and inexperienced brokers as well as dubious linked property transactions illustrate this. The ASIC website (www.fido.asic.gov.au) lists a number of issues plaguing the industry.

Erring parties are not only confined to brokers but involve direct lenders as well. A few lenders have been expelled by industry associations but it is certainly somewhat of a shock to find that a few of them are still being allowed to operate mortgage businesses.

The bottom line is, our industry needs to work together, representing all the various types of mortgage providers to deliver equal representation that is not cost restrictive. Any proposed regulatory regime should not result in overly increased costs for small operators.

A common futureIn order to create some form of healthy growth of the mortgage industry, I believe there is a need for common

entry standards which must operate in this industry. These standards should encompass how professional advice is given out, and outline education requirements covering initial to ongoing education, supported by training registers. There is only one way to ensure that this will operate, and it is by providing uniform licensing legislation similar to the Financial Services Reform Act for direct lenders, and uniform legislation for all mortgage brokers.

Some participants in the financial services industry have already begun to incorporate minimum education requirements for its sales force, namely, the Certificate IV in Mortgage Lending/Financial Services.

I think this is a step forward in the right direction, but further to this needs there needs to be a uniform action across the industry, applicable to every participant in the mortgage supply chain. This will then promote professionalism in the industry as a whole.

Further, in the case of experienced lenders, we need to ensure that they undertake minimum regular annual training so they are kept up-to-date with applicable changes to legislation, product and other developments.

At the end of the day, isn’t it true that we all want to work in and be part of a reputable and professional industry with high standards? mpaGreg Stevens, general manager for servicing and marketing, AIMS Home Loans

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