Boss Commonwealth Bank Matt Comin has discovered that the bank is a week away from abolishing commissions paid by mortgage brokers, but has dropped out of the plan because of fears that it will reduce its share in the mortgage market.
- CBA learned how to pay a fixed fee for brokers in the Netherlands leading to better customer outcomes
- The model would save CBA of $ 197 million over five years, which could be passed on to customers
- The CBA has abandoned the plan, fearing it will lose its market share in home loans
The first of the top Bosnian bosses who led the Kenneth Haine Commission of the Royal Commission, Mr Comin said at a Sidnei hearing to investigate that CBA had abandoned plans to move to a flat fee for mortgage brokers for concern that it would be in a disadvantage if It was the first bank to make a change.
Lawyers assisting Roven Orr KC exchanged e-mails between Mr. Comin and former CEO Ian Narev in April last year, in which Mr. Comin said he would announce the change in the coming weeks.
"We believe that this is an opportunity that will not be repeated and requires decisive action," wrote Comin in an e-mail.
"We will announce our intention for these arrangements to come into force on January 1 . "
However, more than 18 months after Mr. Comin wrote an email, mortgage brokers still receive pre-paid and current fees from the CBA.
"What happened, Mr. Comin?" Ms. Orr asked.
"We come to the conclusion that no one will follow, and we will suffer material degradation to the extent and we will not improve the outcomes of customers," Comin replied, arguing that only the squeezing in the industry would benefit the borrowers.
In his abandoned proposal, Mr. Comin emphasized the financial impact of mortgage brokers.
"The effect of these arrangements will be to reduce expected brokerage income on an average loan of $ 6,627 to $ 2,310," he explained in 2017.
Mr. Comin said at a hearing that around 1,300 brokers were earned more than $ 1 million a year, while at most 200 earned about $ 2.5 million.
If the fixed fee structure was to be implemented, it would save the CBA of $ 197 million over five years, which could be passed on to customers through lower interest rates.
"There will be commercial damage"
The commission learned that CBA is the smallest bank base in the mortgage brokerage channel, with only 40 percent of its tenancy loans sold through a broker – much smaller than regional and small lenders.
Commonwealth Bank has completed a five-year study of its mortgages and found that brokerage loans were higher, that consumers were paying longer and that they probably had outstanding liabilities.
Mr Comin said he had consulted with Dutch regulators on reforms in the Netherlands and concluded his model of debtors paying the full amount of brokers leading to better outcomes of customers compared to banks paying brokerage fees related to the size and type of loans.
However, when Commonwealth Bank submitted an independent review of the banks' bonuses at the beginning of 2017, Sedgvick instead suggested a different model where the bank paid the full amount to the broker.
"Why did not you go to the model of the Netherlands, not the model that paid-paid?" Miss Orr's trial.
"We thought there was a real lack of the first driver," Komin said.
"So you lose your job, but you do not have the industry to go with you to try to improve the outcomes of customers?" Ms. Orr asked.
"Yes, there will be commercial damage and we will not monitor the improvement of customer results," Comin said.
The final report of the Sedgvick Audit, published in April last year, recommended that banks develop an approach to remove the direct link between brokerage fees and the size of the loan in a "timely manner".
However, Mr. Comin acknowledged that the CBA still does not have a plan to comply with the recommendation and wait for the recommendations of the Royal Commission due to the final report of February 2019.
CBA baking is not yet completed
Despite having spent all day in the witness box, Mr. Comin has not finished yet in the commission.
The Executive Director will return to deliver further evidence tomorrow and is expected to be followed by CBA Chairman Catherine Livingstone.
Today's survey revealed mortgage mediation was not the only topic. Mr. Comin failed to successfully lobby his predecessor, Mr. Nareva.
The Commission heard that Mr Comin had concerns about low-value insurance, credit cards and loans from 2014, which he said he had spoken to Mr. Narva on three occasions in 2015 and 2016.
Mr. Comin acknowledged that the bank failed to make changes that ASIC proposed in 2011, which led to the misallocation of consumer credit insurance for more than 64,000 customers.
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