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Mortgage Choice says big banks benefiting fro -

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Mortgage Choice says big banks benefiting from lack of competition

Sue Lannin reported this story on Wednesday, December 2, 2009 12:31:00

ELEANOR HALL: One of Australia's big four banks, Westpac, yesterday drew criticism from the Federal
Government for raising its mortgage interest rates above the official increase.

Now the head of Australia's biggest independent mortgage broker is warning that the global
financial crisis has wiped out the competition that was created by previous banking reforms.

Michael Russell is the chief executive of Mortgage Choice and he told Sue Lannin that the dominance
of the major banks in the home loan market is bad news for consumers.

MICHAEL RUSSELL: I'm terribly concerned that it has regressed and I don't think it's anybody's
intended actions that have caused that. I think it really is an unintended consequence of the
global financial crisis but I think we're operating in a market place now where the four major
banks certainly have a fairly significant stranglehold on the market and I don't think that's
healthy for anybody, short or long term.

In 1985, 1986 we had this deregulation occur with all these wonderful foreign banks taking up
banking licences and from that point onwards until just recently we've seen some terrific
innovation and advances, in mortgage delivery in particular. And I look now and it's sort of got
the same trademarks as what was occurring back 20 years ago.

SUE LANNIN: So do you think there is a lack of competition in the mortgage industry now?

MICHAEL RUSSELL: From Mortgage Choice's perspective, we still have some healthy competition but I
think there's a number of those second tier lenders that'd probably be on life support and unless
we can provide them some liquidity, you know, within the next six to 12 months, you might have a
situation where you've got the four banks owning a couple of the other banks and then you've got
three or four second tier regionals competing with them, which probably isn't enough.

We need to reinvigorate the building societies and the credit unions and these sort of
organisations that have served Australian homebuyers so well in recent years.

SUE LANNIN: Do you think this lack of competition is the reason that the big banks now feel they
don't have to move in tune with the RBA?

MICHAEL RUSSELL: The major banks undoubtedly still have funding constraints and are still under
pressure from a funding perspective and I think the decision to, in the past, have moved outside of
the RBA, movement in the cash rate, has been a commercial one and has been a commercial one made in
the best interests of their share holders.

That said I think they would probably have given it a lot more thought if we were operating in a
landscape of two or three years ago because I think the backlash would be severe, the backlash that
did occur was fairly minimal because consumers didn't have the choice to really vote with their
feet.

SUE LANNIN: And the issue we've got now is that, especially when you're looking at first
homebuyers, if they've got even minor defaults they won't get bank loans.

MICHAEL RUSSELL: It is a real issue now with banks tightening credit. They are obviously very risk
conscious and because of credit rationing that they have tightened from the point of view that if
young first homebuyers have been a bit tardy and a bit complacent in paying bills in the past and
they rear their ugly heads, because quite often young kids don't know when a telco or whatever put
a default on their credit rating, it may well knock them out on a home loan.

SUE LANNIN: So what, even if it's what, $50, $100?

MICHAEL RUSSELL: If it's a small telco, given the credit policy of our major four banks at the
moment, yes it can knock them out.

ELEANOR HALL: That's Michael Russell the head of Mortgage Choice speaking to Sue Lannin.