Mortgage brokers are not washing machine salesmen: Darren Moffatt

Confession time: I'm a big fan of Jessica Irvine.

I've read her stuff for years in the SMH and Fairfax and have almost always found myself nodding furiously in agreement. I love her brand of accessible, econo-political insight. It's rare for an economist to effectively deconstruct big issues for the masses, and rarer still to offer common sense solutions. That she regularly does both, is a real testament to her talent and value as a writer.

Recently she moved to News Ltd and now commands a much larger audience. Her column is syndicated out through the Sunday dailies such as the Sunday Herald Sun, The Sunday Telegraph, and Sunday Brisbane Courier Mail.

It's a pity then, that so many people would have read her howler of a column today. It’s a real shocker.

Her attack on mortgage brokers might make for a nice headline, but it’s riddled with factual inaccuracies and omissions. It’s not even a real story – everyone knows that brokers are paid commissions by the lenders and that this is how it’s (mostly) kept as a free service to consumers. Borrowers themselves use brokers for convenience, product knowledge, and access to many lenders so they can more easily get a better rate and save on interest. Several iconic household brands such as Aussie and Mortgage Choice have been built on this premise. It’s not news.

But most damning of all, is her total failure to understand the crucial role brokers play in keeping some semblance of competition in our bank-dominated mortgage market. More on this in a moment.

First, the errors. Early in her piece she claims that:

"Brokers are failing to adequately disclose the commissions they receive from lenders when they sign up borrowers for a loan.”

Really? What’s the basis for this assertion? Because I can’t find one in her column. It also ignores the reality of the government’s recent efforts to legislate against this concern (among others). In 2009, they introduced the National Consumer Credit Protection (NCCP) act, and substantially lifted requirements for broker disclosure on commissions. If, as she claims, brokers are not disclosing, then the bigger story would be the failure of government policy. Strange then, that we do not hear about this.

In fact, it’s impossible for any authorised credit representative (broker) not to disclose exactly how much they’re getting paid (unless they’re deliberately breaking the law). The main document for this is the “Credit Proposal Disclosure” form, but there’s also the “Credit Guide” and the commissions are disclosed again the lender’s loan offer contract.

That’s lot of disclosure in any one’s book.

Jessica makes the point that brokers aren’t required to disclose the commission rates of every-single-lender, only a short list, so there is potential for brokers to recommend lenders that pay a higher commission. Technically this is true. And no doubt, some brokers (a very, very small minority I would say) might abuse this. However, the law again requires that brokers offer borrowers a choice of lenders and rates, and the practicality of the process is that most brokers have software that compares hundreds of mortgage products right in front of the client.