Westpac yesterday announced a loosening of its broker remuneration policies in an apparent effort to rebuild market share in home loans.
From 1 August the bank will relax the clawback provisions on up-front commissions paid to brokers who originate Westpac mortgage business.
The bank is reducing the active clawback period from two years to 18 months.
Lenders typically retrieve or “claw back” up-front payments to brokers when a borrower decides to refinance a home loan within two years of entering a mortgage contract.
While the Westpac move is likely to welcomed by brokers across the country, it might also be viewed as a belated measure given that intense competition for refinancing borrowers has softened this year after most banks withdrew cash incentives to poach borrowers from other lenders.
Clawback provisions in agreements between banks and brokers became controversial in recent years as lenders stoked refinancing activity by marketing cash incentives of up to A$8000.
Following the findings of the Hayne Royal Commission, ASIC has supported clawback arrangements in lender-broker agreements on the grounds that they act as check against brokers seeking to churn mortgage customers through multiple lenders to maximise their commission income.
However, the Finance Brokers Association of Australia in 2021 began campaigning for the removal of clawbacks, citing evidence that so-called “mortgage churn” was actually being fuelled by bank-funded cashback offers, rather than miscreant brokers.
The FBAA’s position gained traction last year when former ASIC deputy chair Daniel Crennan QC told a financial conference in Sydney that he believed clawback provisions should be removed from lender-broker agreements.
Crennan said that the imposition of a best interests duty on mortgage brokers meant that there was no longer much utility in clawbacks as a check on broker conduct.
Under Westpac’s revised clawback policy, the bank is able to recoup 100 per cent of commissions paid to brokers if their client borrowers decide to refinance within 12 months.
If the borrower refinances between 12 to 18 months after entering the loan contract, Westpac will recoup 50 per cent of the upfront broker commission.
No clawback applies if the Westpac borrower refinances after 18 months.
The new clawback arrangements apply to all broker-originated mortgages from 1 February 2022.