Mortgage brokers are the fall guys for the big banks' misdeeds: Chris Joye

Chris Joye's AFR column says the biggest winners from the royal commission are demonstrably the big banks while the largest losers are Australia’s mortgage brokers.

"Indeed, the top end of town have done an amazing job convincing everyone that brokers should be made the “fall guys” for their own deeds, surreptitiously fattening their profits, despite no evidence of pervasive misconduct," Joye noted.

Joye noted the single biggest cost a lender incurs when selling a home loan is the 0.6 per cent upfront commission and 0.2 per cent annual trailing commission that they pay to a mortgage broker.

Mortgage brokers currently settle around 59 per cent of all mortgages in Australia.

"If the royal commission has its way and/or Labor comes to power, these commissions will disappear completely, destroying the existing business models of the 20,000 mortgage brokers (and their employees) that rely on this revenue.

"This is horrific news for aggregator businesses that have built up large networks of brokers licenced by them in exchange for a share of the revenue they generate."

The only hope the latter have is to quickly shift into lending and securitising themselves, he says, adding the ban on broker commissions will radically reduce bank and non-bank mortgage distribution costs, which is "ironically going to be a huge profitability fillip for funders."

According to CBA evidence cited by the commission, a bank typically has to pay a mortgage broker $6,600 in fees to sell a loan via this channel, which accounts for almost 60 per cent of all residential mortgages written in Australia.

Under the commission’s proposal, these costs will disappear and be shunted on to consumers, whom CBA says should be prepared to pay about $2,310 for the service.

Brokers are also set to be regulated for the first time under the much stricter future of financial advice (FoFA) laws that apply to planners.

Mortgage brokers will be subjected to a "best interests" duty.

The government has said it will move to ban trailing commissions from July 2020, after the royal commission final report declared the chief value of trail commissions to the recipient, "to put it bluntly, is that they are money for nothing".

The government said it would not immediately adopt Commissioner Kenneth Hayne's call for upfront commissions to also be banned and be replaced by a customer-paid fee, which Labor indicated it would support.