Dodgy mortgage lending practices have become so rife that the corporate regulator has confirmed it has a significant proportion of Australian banks under investigation.

Australian Securities and Investments Commission (ASIC) chairman Greg Medcraft told The Business that, in addition to charges against Westpac Banking Corporation for allegedly failing to adequately assess clients, a further 10 institutions were in the firing line.

"When we are talking to lenders, it usually means we think they have broken the law," he said.

ASIC has previously only said it was in discussions with other lenders.

When asked if he thought the majority of Australian lenders were in breach of the law, he replied:

"They are your words. What we've said is that we are looking, we believe there could be problems but at this stage until we actually charge someone, there can be no inferences drawn.

"Most importantly, it's actually a shot across the bow, we are out there, we are looking. You do the right thing, you've got nothing to worry about."

Mr Medcraft said when ASIC takes on actions it considers three factors. One is the amount of harm or loss, the second is the regulatory benefit of sending a message to the community and the third is the availability of evidence.

Mortgage broker commissions need 'fine tuning'

ASIC has undertaken a wide-ranging study into mortgage brokers in a bid to identify whether incentives for mortgage brokers had distorted lending patterns.

Mr Medcraft said while the broker system generally performed well, the commission system needed to be tweaked.

"They (the banks) do need to think about fine tuning it, perhaps thinking about paying, rather than simply on the size of the loan, perhaps think about the risk to the underlying loan," he said.

Some brokers are likely to be disappointed that the report recommends scrapping bonuses "which increase the risk of poor customer outcomes" and removing soft-dollar incentives, or junkets.

The report has found the loans written by brokers are generally bigger and riskier than loans provided directly through lenders, but Mr Medcraft said brokers were ultimately not responsible for the system.

"The lenders still are the responsible parties doing the lending," he said.

"Let's not blame the brokers. Let's look at, not the channel, but back to where the lending occurs."

A study last year by investment bank UBS found widespread fraud in mortgage applications, and particularly among borrowers who used mortgage brokers, with evidence that brokers encouraged borrowers to falsify loan applications.

Mr Medcraft said ASIC had prosecuted several cases involving mortgage fraud but brushed aside concerns the practice was widespread, arguing mortgage brokers provided a service many consumers desired.

"Often the problem occurs when ... it's actually when rates start to rise and volumes fall and people want to maintain volumes is when you need to become even more diligent in terms of misstatement of income, understatement of expenses, overstatement of valuations, it all comes into play much more," he said.

Australian's biggest listed mortgage broker Mortgage Choice has welcomed the findings and recommendations of ASIC's report, particularly the part that highlights the important role brokers play in increasing competition in the market.

"We look forward to continuing our work with the regulator and conducting ongoing consultation with the Treasury over this next period," chief executive John Flavell said.