Regulation of Mortgage Broking Industry required to protect home buyers, says Macquarie

10 September 2003

Mortgage brokers should be regulated like other financial service providers in order to protect home buyers according to Bill Moss, Head of Macquarie's Banking & Property Group.

Opening the Macquarie Bank Lecture on Housing Fraud in Sydney today, Mr Moss said the Australian home lending market is experiencing an increase in the incidence of fraud. "This is based on factors including the US experience with mortgage brokers, Australia's housing boom, and the lack of dedicated resources to detect this type of fraud."

"The best industry estimate of mortgage fraud in Australia is that it represents an alarming 13 per cent of the value of all financial institution losses. This is from the Consumer Credit Legal Centre's Report to ASIC on the finance and mortgage broker industry. With Australians borrowing $10 billion a month to buy or refinance property, that represents a significant amount of money."

Mr Moss said lenders had traditionally expected a very small fraudulent application rate. However, with rising house prices and the largely unregulated mortgage broking industry becoming more dominant, the potential for fraud was increasing.

"Banks are processing applications at a record rate of more than 60,000 applications a month as a result of the housing boom. The only way we can prevent the incidence of fraud is to make sure that all lenders and their intermediaries - brokers, solicitors, accountants, and financial planners - are regulated to the same standard as the banks."

Mr Moss said fraud aimed at financial services companies created costs that were passed back to the consumer in higher fees, interest rates and insurance premiums. Defrauding the banks was a cost to the economy.

According to the Australian Institute of Criminology (AIC), overall fraud is estimated to cost this country $5.88 billion per year, or 30 per cent of the total $19 billion annual cost of crime.

"Mortgage and finance brokers need to be educated, trained, licensed and a member of an industry body," said Mr Moss. "They must have professional indemnity insurance and be subject to significant sanction if they act unethically. They must fully disclose the commissions they receive, and who they act for."

Speaking at the lecture Mr Mike Barrett, Head of Macquarie Mortgages called on law-makers to bring the mortgage broking industry under greater national regulation.

Mr Barrett said the potential for fraud in the mortgage industry had increased because banks had outsourced their sales and distribution to brokers over the past 10 years. "Macquarie Mortgages is now working closely with brokers to assist them to understand and meet the Bank's requirements," said Mr Barrett.

"In the end, this is a problem all banks will have to fix together, along with the brokers themselves. The problem is too big for regulators, police or law makers alone to tackle. We need stronger regulations and the lending industry has to contribute."

A valuable 'DOs and DON'Ts Guide' (pdf 80KB) for home owners thinking of renovating and developed jointly by the Bank and the Master Builders Association was also launched. Between 1992 and 2002 the amount that Australians have borrowed to finance additions and alterations has almost trebled. In New South Wales the figure has leapt from $553 million to $1.6 billion a year.

For further information contact:

Robyn Turner
Public Relations
Macquarie Property
Tel: (612) 8232 6989