The Mortgage Choice Limited (ASX: MOC) share price is down 24% today and down around 65% over the past year as the bad news adds up for the mortgage broking business.
Today the Hayne Royal Commission delivered another blow by recommending that trailing commissions for mortgage brokers are banned for new loans written after July 1 2020.
Trailing commissions earn mortgage brokers more fees sometimes through the life of a loan so therefore the longer a loan the more fees potentially for the broker.
Of course a longer loan is not always in the best financial interests of the borrower and commissioner Hayne also appears to believe that the mortgage broker has no right in principle to trailing fees once their service of arranging the loan is complete.
Judging by the market’s reaction to today’s news trailing commissions make up a material proportion of mortgage brokers’ fees, with the Australian Financial Group Ltd (ASX: AFG) share price also down 30% to 90 cents today.
Mortgage Choice has already had to downgrade its full year profit guidance to between $14 million to $15 million on the back of weaker housing markets and increased regulation, with today’s news heaping more pressure on the industry.
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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.