Consumer groups have called for the federal government to intervene in the mortgage market to stop lenders offering payments that could lead to consumers taking on more debt than necessary.
An Australian Securities and Investment Commission review of mortgage broker remuneration released on Thursday found lenders paid brokers $1.42 billion in commissions on $175 billion in home loans in 2015, and $984 million in trail commissions on an outstanding balance of $545 billlion in home loans.
The report also found that lenders paying broker commissions could influence them to recommend consumers take bigger loans than they needed or that they take loans from particular banks.
"For example, for one lender offering higher commissions for a limited period, the volume of home loans increased by a factor of four," the report said.
CHOICE, Consumer Action and Financial Rights Legal Centre have jointly called on the government to intervene in the mortgage market to protect consumer interests.
Financial Rights Legal Centre's principal solicitor Kat Lane said the National Credit Law had fallen short on the issue of broker remunerations.
"It's time to bring credit in line with the rest of financial services and address both conflicted remuneration and brokers duties to their customers in the law," she said in a statement.
The report outlined lenders also offered a range of "soft dollar benefits" to brokers depending on the volume of loan applications passed.
Those benefits included loyalty programs for brokers - similar to frequent flyer schemes - which have gold and platinum membership and reward brokers with better service levels, better commission rates and access to hospitality.
Aggregators acting as wholesalers have also offered overseas travel benefits such as trips to conferences in the Caribbean, Los Angeles and Hawaii, worth several thousand dollars to attending brokers.
The report found consumers using brokers generally had larger loans, which were more likely to be interest-only.
Lenders and brokers also failed to make sufficient inquiries into consumers' expenses, despite ASIC previous mentioning it had concerns about that.
The system stifled competition in the mortgage sector, the regulator said, as smaller lenders are unable to access and remunerate brokers like larger brokers could.
ASIC said serious changes needed to be made to the mortgage broking remuneration system so consumers would get the most benefit.
The regulator proposed setting a standard industry remuneration package, moving away from bonus commissions and soft dollar benefits and improving oversight of brokers and consumer outcomes.
"We consider that these proposals should be implemented before a further review of the market is conducted in three to four years to determine whether additional changes are required," the report said.
