AFG’s in-house lending division AFG Securities has today announced a fundamental change to its clawback structure that further enhances compliance and fairness for AFG’s 2,975 brokers.
AFG Securities is the funder behind the AFG Retro and AFG Link products.
AFG Securities’ General Manager Damian Percy explained the new structure and how the company arrived at the decision.
“AFG Securities has been looking to find a fairer clawback model that better balances the interests of brokers and lenders for some time. Lenders will assert that upfront commissions should reflect the value that the broker delivers and must necessarily recognise that a loan that only lasts a year or two is, at best, a break-even proposition for the lender.
“In contrast, brokers can reasonably argue that the arbitrary clawback ‘cliffs’ that exist today simply don’t reflect the fact that as time goes on the lender’s position improves.
“And there’s the reasonable question as to whether the prevailing structure is supportive of what the new mortgage broker best interests duty is seeking to achieve.”
To strike a balance AFG Securities has established a model based upon three core principles:
- The current clawback ‘cliffs’ are arbitrary and need to change;
- Lenders recover their costs over time and that clawbacks should diminish proportionately in the same way; and
- There still should be recognition that a loan that discharges very shortly after settlement was arguably a poor transaction for all concerned.
The new structure features a 100% clawback for the first three months, followed by a monthly, proportionate step-down for the remaining 21 months.
Percy further noted that although no clawback regime is perfect, AFG Securities believes it is meeting both an appropriate and fair balance. “The step-down approach is, we believe, simple, reasonable and supports our brokers to meet their best interests duty. “I hope other lenders will, in due course, recognise that the industry’s approach today needs work and follow suit,” he concluded.
The new clawback arrangements will apply to all AFG Retro and AFG Link loans settled from 15th September 2020.