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There is growing concern that the government's plan to reduce early mortgage exit fees could stifle competition rather than promote it.
Last month, the federal government gave ASIC the power to crackdown on banks that charge ‘unfair' mortgage exit fees. 
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Under the key reforms, consumers will also be able to challenge early exit fees that are ‘unfair' or ‘unconscionable'.
Deputy Prime Minister Wayne Swan says ASIC's new powers will make it easier for borrowers to switch to a cheaper competitor, providing a major boost for competition in the mortgage market - but not everyone agrees.
Several key industry figureheads, including Smartline's executive director Joe Sirianni, have voiced their concerns about the government's plans to change the way mortgage exit fees are monitored.
Mr Sirianni says the new reforms could severely disadvantage both mortgage managers and non-bank lenders.
"These lenders offer lower interest rates in a bid to compete with the majors. And by doing so, they are forced to recoup their costs elsewhere - by charging higher exit fees for example," he says.
"If mortgage exit fees were cut, smaller lenders would be forced to hike their interest rates, which could price them out the market."
At present, non-bank lenders are able to offer consumers very competitive interest rates by deferring some of their set up costs into deferred establishment fees, which are only paid if there is an early termination of the loan.
Keeping upfront mortgage fees lower benefits all customers and supports customer switching, according to Mr Sirianni.
Deferring the upfront fees effectively reduces the cost of setting up a new loan at a time when the customer is incurring many other charges.
And there is plenty of evidence to suggest that the early termination fees imposed by Australia's lenders have not had a negative impact on competition.
According to recent AFG data, refinancing accounted for 37.2 per cent of all mortgages arranged in March 2010.
In fact, AFG's Mortgage Index shows the level of refinancing has risen steadily in recent months.
The last time refinancing accounted for more than 37 per cent of all mortgage activity was back in December 2008.
With no evidence to suggest exit fees are hurting competition, non-bank lenders are justifiably concerned that any changes to the current fee structure would threaten their ability to compete in the mortgage market - thereby impacting the range of services they can provide.
But the MFAA's chief executive officer Phil Naylor says the industry body is currently working with ASIC to make sure this threat doesn't become a reality.
The MFAA is in the process of making a detailed response submission to the ASIC Consultation Paper 135, on behalf of its non-bank members.
"This will ensure that while consumers are properly protected, there is no inhibition on competition by disadvantaging non-bank lenders," he says.
But some industry figures argue that the new powers given to ASIC will be hard to enforce.
Credit ombudsman Raj Venga says both consumers and ASIC will have a hard time proving exit fees are ‘unconscionable' or ‘unfair'.
"Most lenders will be able to give a satisfactory reason as to why their mortgage exit fees are true and fair," he says.
Whether or not competition is stifled, remains to be seen.
