THIS week Mark Zuckerberg testified before the US Congress.
It kind of looked like he’d entered an old people’s home, didn’t it? None of the old duffers seemed to have any idea how the internet worked.
Yet Zuck quickly clued them up, with his entire testimony basically amounting to, “If you’re not paying for the product, you are the product”.
Back here in Australia a similar situation was playing out, but in a different arena. The Banking Royal Commission is in full swing, and Justice Kenneth Hayne, the head of the commission, was trying to get to the bottom of who mortgage brokers actually work for:
“So who does a broker act for, who does the customer think the broker acts for, who does the lender think the broker acts for?” he asked.
Well, turns out that 82 per cent of customers believe their broker is acting in their best interests, according to research from the brokers’ association, the Mortgage and Finance Association of Australia.
But the banks, which pay brokers to feed them loans, were a little more cagey in their answers. The NAB responded like a moody teenager being questioned by her parents:
“This is both a legal and a factual question, which — as posed at the current level of generality — is not capable of a simple answer.” So there! The CBA didn’t even get a chance to get its mumbo jumbo on. They got punked when the commission found a previously secret submission from former chief executive Ian Narev, who admitted that the current mortgage broker model — which generates over half of all loans in the country — is “conflicted”, and as a result customers are losing out. Damn straight, secret squirrels!
So let’s detail why your mortgage broker is conflicted.
First, they get paid by the lenders, some of whom pay higher commissions than others. Does that influence who the brokers recommend? Maybe. The Royal Commission found that the CBA’s wholly owned subsidiary, Aussie Home Loans, funnelled two out of every five mortgages to the bank.
Second, the more you borrow, the higher the upfront and trailing commissions paid to the broker. That’s one reason why ASIC found that customers who use mortgage brokers typically borrow more than those who apply direct, and it’s also why they found that loans arranged by brokers were 25 per cent more likely to go into arrears.
Zuckerberg, when faced with the overwhelming conflicts of his business, admitted to Congress that Facebook was considering implementing a user-pays platform to protect users.
It’s time mortgage brokers in Australia did the same. Remember, if you’re not paying for the product, you
are the product. Tread Your Own Path!