It's time to 'cut the head off the snake' as scale of suspected fraud escalates
The mortgage broking industry is calling on Australia’s largest banks to improve their data-sharing capabilities to get a grip on an escalating home loan fraud scandal.
A suspected $1 billion worth of fraudulently obtained home loans, as initially reported by Commonwealth Bank in February, has since ballooned to a reported $3 billion as more banks dig into their records.
CBA has reportedly reported two mortgage brokers to the authorities over suspected fraud, although the issue concerns both the broking industry and the banks’ own introducer programs.
CBA’s referral program – which pays third parties such as real estate agents, accountants and other professionals a commission (typically around half of a broker’s commission) if they refer a client to the bank – is under scrutiny as a conduit for fraudulent applications.
It is not the first time an introducer program has drawn heat for potentially facilitating fraudulent home loan applications.
While CBA and Westpac continue to run introducer programs, ANZ and NAB have long since closed theirs.
Following regulatory scrutiny and the Royal Commission, NAB announced it was ending referral payments and discontinuing its introducer scheme around 2019. The following year, NAB was fined $15 million after ASIC uncovered misconduct in its referrer program between 2013 and 2016.
In 2021, ASIC commenced proceedings against ANZ over its home loan introducer program, alleging that the bank “breached consumer protection credit laws by accepting customer information and documents from introducers and other unlicensed individuals when this was not allowed”.
With the extent of the fraud remaining unclear, industry leaders are calling for a united approach.
“Obviously, I am very concerned whenever misconduct occurs because it harms consumers and undermines trust,” said Tanya Sale (pictured, left), founder and chief executive of mortgage aggregator outsource Financial. “But I don’t believe what is going on currently reflects the broader broking profession, which maintains high standards and delivers good outcomes for clients.”
Like many others in the industry, Sale is calling for better communication from the lenders, who have not always shared detailed data with each other – let alone the aggregators.
“That lack of visibility has allowed these fraudsters to move between channels undetected,” said Sale.
But effective data sharing requires more than just action from the lenders and aggregators – Sale also wants to see the Australian Tax Office (ATO) get involved.
“It is now time to cut the head off the snake – fraudsters!” stated Sale.
Michael Stephens, chief executive officer of Purple Circle Financial Services, agrees. “Tackling fraud in the industry is not something any one aggregator can solve in isolation,” Stephens said. “It requires alignment across all aggregators, lenders, and regulators. Greater consistency in standards, clearer communication, and a genuine investment in education and support will have a far more meaningful impact than solving isolated incidents.”
Better data sharing would allow the broking industry to identify patterns early and kick out bad actors who exploit existing communication blind spots.
Anja Pannek (pictured, centre), chief executive of the Mortgage and Finance Association of Australia (MFAA), welcomes broader collaboration across industry.
"We are already seeing the benefits of this approach," said Pannek. "The MFAA has worked alongside the Australian Banking Association and other bodies on joint advocacy, including calls to expand access to ATO data through the Consumer Data Right. This will improve data integrity and reduce reliance on documents that may be susceptible to manipulation.”
Raising the bar
Blake Buchanan (pictured, right), general manager at Specialist Finance Group (SFG), has been a long-time advocate for higher entry standards into the broking profession.
While he maintains that the broking industry “already has some of the strongest gatekeeping requirements of any financial services profession”, he acknowledged that industry standards need to be lifted “as those with ill will continue to develop new ways to infiltrate”.
He worries that new-to-industry brokers are being used as “pawns” by “sinister agents” in the finance community to conduct fraudulent activities. Better mentoring policies and forcing brokers to join an established broker in their formative years would go a long way to solving these problems. “SFG applied these principles many years ago which is why we are unaffected by this syndicate or the last one,” said Buchanan.
Despite there being “a lot of negativity around new-to-industry brokers at the moment”, Purple Circle chief operations officer Frank Paratore is seeing the opposite. A lot of this comes down to having the right mentoring and support structures in place. “With the right systems and support, new brokers are building compliant, sustainable businesses and delivering strong outcomes for clients,” he said.
“Purple Circle combines mentoring with a broker-owned structure and a genuine community environment. This ensures new-to-industry brokers are not operating in isolation, but instead have access to experienced mentors, peers, collaborative support, and ongoing guidance,” added Stephens.
Lessons from history
Unfortunately, while all aggregators stress the rigour and robustness of their governance frameworks, they can never be 100% watertight. And while the broking industry’s reputation is on the line, this isn’t its first rodeo.
When the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry exposed conflicts of interest, commission-driven behaviour and poor consumer outcomes in the broking industry, it raised serious concerns over the future reputation of the industry.
While the implementation of the Best Interests Duty (BID) following the Royal Commission went a long way to improving the industry’s image, there is always room for improvement.
“The broker channel has built a strong foundation of trust with Australians over many years which is underpinned by the professionalism and standards of most brokers and aggregators,” said Buchanan. “We would be foolish to think, however, that the actions of a few can’t spoil it for many. This is the moment of opportunity for the industry bodies and regulators to tighten up some weak spots and for the aggregators who have great oversight and do not have these issues to be assuring the markets that this is an isolated matter.”
Meanwhile, Ewen Stafford, LMG’s chief executive and executive director Ewen Stafford said that “the reputation of brokers, and the good they’ve delivered customers over more than 30 years, will withstand the current reviews… LMG welcomes the investigation and supports punishments for anyone – applicants, referrers or brokers – who are found to have abused Australia’s lending processes.”
