Brokers Praise Senate Committee on Exit Fees
Friday May 6, 2010
The Mortgage & Finance Association of Australia has praised today's Senate Economics Committee
recommendations on mortgage exit fees, saying that home-buyers will be the winners if the findings are
adopted by government.
The Senate Committee into banking competition today [May 6] released its report in which it recommends
that the government should allow a proper assessment of the November 2010 ASIC Guidelines on exit fees
before banning them, or alternatively, that small lenders be exempted from the Government's proposed ban
on exit fees.
The Government announced last year it would ban the use of exit fees in mortgages in order to boost
competition, but the MFAA argued that such a measure would hurt small lenders, thus reducing competition.
Chief executive of the MFAA, Phil Naylor, has praised the Committee's Recommendation 4 as a first step
towards ensuring that the most competitive players in the mortgage industry – small and non-bank lenders –
were not wiped out by a ban on exit fees. He has urged the government to implement the Inquiry's
recommendations and allow small lenders to use exit fees.
"The Committee heard the submissions and formed the view that banning exit fees would hurt small
mortgage lenders," said Mr Naylor. "It was small and non-bank lenders who made mortgages so competitive
in the decade to 2006."
The non-bank lending sector had been seriously depleted since the GFC, Mr Naylor said, having seen their
share of the mortgage market drop to 1.9 per cent in the Australian Bureau of Statistics February lending
figures. Just prior to the GFC in 2007 non bank lenders held a market share of 13.6 per cent.
Mr Naylor said the MFAA had asked the government to exempt smaller lenders from the ban on exit fees so
they could continue to offer lower rates with a deferred establishment fee – a waiver of the establishment fee
if the borrower stayed in the loan for a minimum period, usually five years. The government had defined a
deferred establishment fee as an 'exit fee'.
"The deferred establishment fee brought down the margin on home loans for thousands of Australians," said
Mr Naylor. "Lenders such as Aussie and Wizard used the deferred establishment fee to reduce mortgage costs
and compete with the banks. We call on the government to implement these recommendations."
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