The problem is that every government reform aimed at the banks in Australia have eventually added to the bottomline of the big mortgage lenders.
Mortgage loan exit fee reforms: The fly in the ointment
Before Christmas I wrote to the Prime Minister and advised her of the fly in the ointment of the Wayne Swan solution to our mortgage woos.
Make it a no brainer to switch mortgage lenders by removing exit fees on home loans and the rates would fall.Mortgage exit fees are not the problem
The problem was that mortgage managers, the securitised lenders that helped to reduce mortgage interest rates by 3% were the very ones that would be most hurt by the reform, because they charged the most by way of deferred establishment fees on their mortgages. These deferred fees had a sunset clause of about 5 years, so most people never paid these anyway.
But it gave a way for securitised mortgagelenders to pay mortgage brokers a commission to compensate them for their efforts.
Ralph Norris cries Crocodile Tears over the Mortgage Managers plight.
[Crocodile tears are the tears one cries whilst devouring our prey.]
The funniest thing is that the CBA who have all but destroyed the mortgage managers loan sector, with the help of Kevin Rudd's Banking Guarantee support, now says he is hurting for the small end of town. This is just a ploy, but Mr Norris does make the same point I rose last year. That is that the exit fee ban will hurt small lenders more than the big four banks [if we only focus on the fee income, and not the mortgage market.]
Australia's Banks. Are they too big to control?
Based on Ralph Norris's [CEO of CBA] comments and the reality of the power and control of the Big Four Banks, its time to ask the unthinkable. Are the banks too powerful to control. Have they become the Mafia of Austalia, where they can do what they like and still be supported by the government? Sometimes the lines between the profit motive, the public good, and business ethics are blurred and this I believe is where we are in the banking debate right now.
The business Power of the banks. A case on point
Norris claims that "The moves to limit excess fees on credit cards and improve credit protections will have a similar perverse effect as far as the reaction from the major banks.
"The new national credit protection regulations means that banks simply have a higher cut off level for those to whom they are willing to provide credit."
Does this not smell of a lender who thinks he owns the lenders and credit space? If so is he right. I say yes to both propositions!
The law of unexpected consequences
The best intentions of government regulations often create unexpected consequences,because they neglect the big picture. That's why doing nothing can often be better than doing something when it comes to Government Policy. The Government needs to focus more on the purpose of the reform and how it will affect the mortgage industry as a whole. Winning at all costs can cost too much.
Any reform has to be balanced with the planned growth non bank lenders. That means a no bank involved sector of mortgage lenders.
