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ISCOVER
Jessica Darnbrough
Yet more industry veterans have weighed into the debate surrounding the government’s banking reforms.
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Mortgage Choice’s chief executive officer Michael Russell and Provident Capital’s head of distribution – lending Steve Sampson agreed the reforms have good points and bad points.
However, overall both industry heavyweights agreed that the reforms would do little to stimulate competition.
Although Mortgage Choice is a brokerage and not an originator, Mr Russell said he feels strongly about the needs of the non-bank lenders and second tier banks.
“Anything that dilutes their ability to compete with the major banks will impact home loan choices and service available to our customers,” he said.
“While we welcome an inquiry into mortgage market competition, it is apparent some proposals have not been thought through. We are deeply concerned that the unintended consequences of some of these proposed reforms look very much like disadvantaging the very people they are designed to assist – Australian mortgage holders.”
Of most concern to Mr Russell was the intended removal of mortgage exit fees.
Mr Russell non-bank lenders have long been forced to raise funds at a higher cost to their banking counterparts, and as such must impose an exit fee to recover their reasonable costs should a loan be discharged early.
“ASIC recognises this and made it very clear last month in RG220 what it regards as a reasonable exit fee and what it regards as unconscionable. Why is there now a reform package at odds with this recommendation?” Mr Russell said.
“Mortgage Choice opposes the intervention of government regulation of the financial services industry and supports continued deregulation that allows market forces to drive competition.”
Provident Capital’s Steve Sampson agreed that the government was wrong to interfere with exit fees.
According to Mr Sampson, the banning of exit fees will effectively reduce competition because non bank lenders recoup acquisition costs with the collection of deferred establishment fees (DEF’s).
“The support of mutuals simply ignores the sector that has historically driven down pricing by creating competition with the four pillars,” Mr Sampson said.
His opinions are obviously shared by others as each of the majors’ share price rose after the proposed reforms were introduced.
At the same time prices for all of the second tier lenders fell.
In terms of the impact on brokers, Steve feels that these proposed changes will certainly be a cause for worry as they ponder how the banks will actually recoup income lost by the banning of DEF’s.
“The writing is on the wall and the Australian Bankers Association has already attested to that. Commission reduction and amortisation of up-fronts over a period of the loan must be on the banks’ mind, which is sure to cause cash flow issues for brokers,” Mr Sampson said.
“The loan receptacle notion would also mean that brokers could quite easily experience even more channel conflict. That also might play into the hands of the majors too.”
