Australian Broker magazine Issue 6.14

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ISSUE 6.14 July 2009

AFG: Lack of lending competition a big worry

 Brokers’ position

still strong despite dominance of majors The growing dominance of the major banks in mortgage lending is raising alarm bells at aggregation giant, AFG. As part of its June Mortgage Index report, Mark Hewitt, the aggregator’s general manager for sales and operations, noted the encouraging signs that the mortgage market is normalising with first homebuying, investor activity and LVRs all reverting towards the long-term trend after a period of turmoil.

However, he said the “real concern is that over 90% of all home loans are controlled by just four institutions”.

Mark Hewitt

“The lack of consumer choice, and the implications that has for future pricing, is a real obstacle to the functioning of a healthy mortgage market,” Hewitt said.

Speaking to Australian Broker, Hewitt said the dominance on these lenders had allowed them to exert more influence over brokers.

“You’re seeing in their accreditation [requirements], policy and pricing. It has allowed them to flex their muscle, whereas in the past there had been competition from a strong second and third tier,” he said.

Hewitt said there were concerns that the banks would lift rates outside of the RBA cycle due to the fact that second and third tier lenders were unable to access funding to compete. He added that from a consumer point of

view the lack of competition was also a worry. “Our industry has been based on competition and it’s always been a great thing for consumers.”

However, he said the transference of power to the four lenders did not bode well for the man on the street.

The June AFG mortgage index was released just before the idea of a ‘People’s Bank’ – in the style of New Zealand’s Kiwibank – attracted front page headlines in national newspapers.

Hewitt said he could not comment on the idea, but did suggest that rather than provide guarantees for bank deposits, the government should guarantee residential securities.

At any individual broker level, he said there were still other lenders in the market to support: “There are other alternatives out there, not as many as before, but we all have a responsibility to stimulate competition.”

Connective principal Mark Haron said he generally agreed with Hewitt: “The continuing consolidation [of lending] to major banks isn’t good for competition.”

And while Haron backed the idea of an Australian version of Kiwibank, (which he explained was set up because there were no longer any New Zealand-owned banks left in the country) he said setting up a “Koala Bank” in Australia would take a long time to happen.

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Broker re-vamp Mortgage companies have been urged to review their marketing messages, and pay attention to what is happening in the consumer space, to stay ahead.

Page 6

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Invest in security Brokers are being warned to increase the level of their IT infrastructure and internet security following the growing number of cases of online fraud and scams, and to not be complacent.

Page 14

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Living in America An insider’s view of what working as a broker in the US was like before the subprime crisis, and how the industry is moving forward and embracing change.

Page 28

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Big role for boutiques Smaller aggregators still have a vital role to play in the industry, according to one of the industry’s stalwarts, Mortgage Wisdom.

“Some of the smaller aggregators have high quality businesses and they pay a higher level of commission than some of the bigger players,” claimed Mortgage Wisdom founder Steve Troughton at the aggregator’s strategic planning meeting held recently in Sydney.

Mortgage Wisdom national development manager, Nick Creag, quantified this statement by saying that a broker could earn $1,000 more on every $1m worth of business they wrote by going through a smaller aggregator.

Asked for his thoughts on these statements, Paul Gollan, CEO of Australian Mortgage Brokers, said remuneration was “only one part of the mix”.

“Every aggregator provides a different mix of remuneration, broker tools, services and support to their members,” he said.

However, he said many aggregators still delivered a “one-size-fits-all solution where many brokers effectively pay for services they do not use”.

“In my view it isn’t a question of large or small, it’s a question of which aggregator is going to provide the best overall structure to help me achieve my goals. For some brokers this means less support and higher commission splits and for others it is lots of support and lower commission splits,” he said.

Troughton and Creag were joined at the Mortgage Wisdom

meeting by CEO David Smith, chairman Brian Hastings and eight of its top brokers as they discussed the challenges and opportunities that lie ahead for the new financial year.

They also examined the approach the banks were taking in dealing with brokers.

Steve Troughton

Creag said an anomaly existed where aggregators held the agreements with lenders, and the banks were now looking to measure brokers individually via volume targets.

“It’s a gate-keeping measure by the banks,” said Hastings. “It’s a way for them to keep out the lowest performers.”

Smith said Mortgage Wisdom was looking into the possibility of setting up a ‘direct and indirect’

approach to tackle the problem of brokers who no longer write enough business to keep their bank accreditation.

“If a broker wants to put a deal through the CBA and Mortgage Wisdom still holds the accreditation, then maybe that loan could be put through another [Mortgage Wisdom] broker who still holds the bank’s accreditation,” he said.

While the roundtable discussion specifically examined the strategic positioning of Mortgage Wisdom in relation to the current shape of the industry, the board expressed solidarity with other smaller aggregators and the need to promote their value to brokers.

And despite much talk about scale and size in the current market, Troughton said Mortgage Wisdom was not interested in volume. “It’s all about quality,” he said, pointing to the fact that even prior to the CBA making it mandatory that all brokers submit loans electronically from 1 July, 100% of Mortgage Wisdom deals were being filed online.

He also took issue with suggestions that originating mortgages via a bank branch is cheaper than using brokers, pointing to research conducted by HBOS in the UK which showed that in fact the opposite was true.

The other key issue discussed was the lack of competition provided by the non-bank sector as well as the reputation damage it had suffered in the eyes of both brokers and customers due to a number of high profile withdrawals from the market.

www.brokernews.com.au Managing editor.....George Walmsley Editor........................Larry Schlesinger Journalists...........................Tim Neary ......................................... Luke Cornish Production editors.......... Tim Stewart ...........................................Carolin Wun Design manager..... Jacqui Alexander Designer...................Jonathan Phillips Sales director............. Justin Kennedy HR manager.................. Julia Bookallil Marketing manager.........Danielle Tan Marketing coordinator... Jessica Lee Traffic manager............. Stacey Rudd Advertising sales Simon Kerslake t: 02 8437 4786 f: 02 9439 4599 simon.kerslake@keymedia.com.au Rajan Khatak t: 02 84374772 f: 02 9439 4599 rajan.khatak@keymedia.com.au Editorial enquiries Larry Schlesinger t: 02 8437 4790 f: 02 9439 4599 larry.schlesinger@keymedia.com.au Distribution Australian Broker is available by subscription. E-mail all subscriptions and mailing enquiries to: subscriptions@keymedia.com.au t: 02 8437 4731 f: 02 8437 4753

Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor.

Contributions are invited, but copies of work should be kept, as Australian Broker can accept no responsibility for loss. © Key Media 2009 Australian Broker is the most often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008.

The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

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Improvements noted in lender service Improvements have been noted in lender service levels by three aggregators, National Mortgage Brokers (nMB), Connective and Mortgage Choice.

In its June newsletter to brokers, nMB managing director Gerald Foley wrote: “Pleasingly, we have started to see some improvement in lender service levels, which is welcome, but still has a long way to go. “nMB continues to engage in dialogue with our lenders around servicing issues and how they can be improved.”

Asked what improvements he had noticed, Foley told AB turnaround times had improved among a number of lenders.

“Lenders that were taking 15 to 20 days are starting to come back in acceptable ranges,” he said.

To help brokers keep current on turnaround times of the lenders on its panel, nMB runs a table of

the latest turnaround times of all its lenders.

This, Foley said, was to make sure brokers do not submit a loan to a lender that cannot be processed in a timeframe expected by the client.

“Each broker knows the stated policy and it ensures lenders are kept honest to their stated times,” he added. Asked how lenders were responding to concerns about

Key points  Three aggregators all note turnaround time improving  Gerald Foley said service problems now “situational or transactional based”  Addition of more staff may be helping said Mark Haron  Mortgage Choice said just one major lender still way out on service

service issues, Foley said most delays were now situational or transactional based.

“In the early days it was all bad. More recently service issues have been around the impact on individual transactions,” he said.

Connective principle Mark Haron said there had been “minor improvements” in service.

This he said might be a direct result of the MFAA meeting (held on 28 April where aggregators and lenders discussed service issues) or more specifically due to banks putting in place more staff.

Mortgage Choice CEO Michael Russell was the most upbeat of the three principals about bank service, saying that most of the big lenders were back within acceptable turnaround times.

He also singled out ANZ for praise and said just one major lender was still having problems with service.

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Instead, he said there was more opportunity for government to provide “some sort of guarantee to underpin funding for the nonbank sector”.

However, both Haron and Mortgage Choice CEO Michael Russell agreed that the broker proposition remained strong despite the big bank dominance.

“There’s a big difference in mortgage insurance costs [across the banks]; some banks’ line of credit loans work differently, while some fixed loans allow for additional repayments – this makes the broker proposition strong from an advice point of view,” he said.

Similarly, Michael Russell said different credit policies and offerings of the banks made them quite distinct.

“Consumers still need a broker to assess their individual offerings,” he said.

“In a perfect world, we would like a more diversified spread of business, but competition will return when credit markets re-open,” he added.

Industry magazine readership: every issue 100% 75% 50%

60%

64% 36%

25%

With the successful launch of their new eMag versions, Australian Broker and Mortgage Professional Australia (MPA) have cemented their position as the top industry news and business magazines.

The addition of the eMag has increased the circulation of Australian Broker from 9,123 to 15,240. Besides mortgage brokers and lenders, subscribers to the magazine also include accounting firms, lawyers and financial planners.

The addition of the eMag has increased MPA’s circulation from 12,500 to 19,821.

The electronic versions – downloadable from Brokernews. com.au homepage – include the entire magazines in an easy-toread PDF format.

The success of the eMag comes as Australian Broker added to its editorial resources with the addition to the team of seasoned journalist Luke Cornish.

Besides topping the circulation list, Australian Broker and MPA

are already recognised as the most widely read industry publications in the country.

A survey carried out by the Ehrenberg Bass Institute for Market Science in November 2008 (based on interviews with 400 brokers) found that 64% of brokers read Australian Broker for every issue, while 60% read Mortgage Professional Australia.

Thirty-six percent of brokers read Mortgage and Finance Brief, while just 13% said they read every issue of Mortgage Business.

0

13% Mortgage Professional Australia

Australian Broker

Mortgage & Finance brief

Mortgage Business

Survey respondants that received the magazine 100%

95%

94%

75% 50%

55%

25%

23% 0

Mortgage Professional Australia

Australian Broker

Mortgage & Finance brief

Mortgage Business

Source: Ehrenberg Bass Institute for Market Science

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Regional banks fight back Key points  Big Four banks benefit from three tier pricing policy  Regional banks petition Senate to bin it  They call it anti-competitive  Bendigo and Adelaide’s broker relationships already altered  Brokers call for increased competition  Government defends its guarantee decision Australia’s regional banks have had enough, and are fighting back against the government’s three tier wholesale funding guarantee pricing structure by petitioning the Senate to do away with it. Arguing that it has given

the Big Four banks enough of an unfair leg up, the second and third-tier lenders are concerned that continued support from the government will see their ability to provide credit diminish and lead to an “anti-competitive” lending environment.

“The tier system has created an unlevel playing field that gives the major banks a considerable advantage,” said Damian Percy, general manager for third party mortgages at Bendigo and Adelaide Bank.

While Bendigo and Adelaide Bank supported the government’s economic initiatives 12 months ago, they believe it is time to free up competition now that stability had returned to the market. Percy said the tiered policy had already

altered Bendigo and Adelaide’s broker relationships, since the lack of access to wholesale funding had meant the banks were hamstrung by a lack of choice for mortgage clients.

So it is no surprise that Percy welcomed the petition: “… so that all authorised deposit taking institutions can access funding without penalty.”

Agreeing with Percy, Kristy Sheppard senior corporate affairs manager at Mortgage Choice said the guarantee was a necessary step. She said the perception did exist today that regional and smaller lenders are not receiving the government support they need to remain competitive.

Furthermore, she said it was necessary for equal funding to be made available to regional and smaller lenders to enable brokers to offer the widest range of choice to consumers. Defending the government’s decision, assistant federal treasurer senator Nick Sherry said, at the MFAA

Nick Sherry

conference on the Gold Coast last month, that the idea of the government’s bank guarantee was not simply to support the Big Four, rather to support the entire Australian banking system. He said that if people did not have confidence in the banking system of a country its economy would quickly perish.

Re-branding set to re-vamp broking

John Symond alongside Aussie Blues captain Kurt Gidley

Major mortgage brokers are leading the way for smaller brokers by embracing marketing as a way to ensure that they are still sending the right message to homebuyers.

In the last month, both Aussie and Mortgage Choice have adopted re-branding initiatives aimed at bringing consumers on board the broker model.

Aussie’s pledge to put homebuyers in “a better place” and Mortgage Choice urging consumers to “make the right move” are part of a business strategy that any company can use to stay ahead of the game according to Liz Howell, head of Red Ark marketing company which worked on the Mortgage Choice campaign.

“Companies need to step back and take a look at themselves and

whatever messages have been communicated to the marketplace,” she told Australian Broker.

She said that it is important that companies look at where they are in reference to the competition as well as pay attention to what is happening in the consumer space.

Howell said that Mortgage Choice’s decision had been made after competitors had been involved in consolidation. Aussie, having recently acquired Wizard Homeloans, also timed its re-branding to reflect its new place in a changed marketplace.

Aussie turned to Lowe to formulate its campaign, which is based around the popular TV series Packed to the Rafters. Lowe Sydney MD Judi Lewis said that the company’s aim was to modernise an established home lender brand. “What Lowe and

Key points  Re-branding undertaken at both Aussie and Mortgage Choice  Initiatives aimed at getting more consumers to use brokers  Companies need to consider what they are communicating to marketplace  Aussie rebrand coincided with new position in market after Wizard buy Aussie set out to do was evolve a modern icon,” she said. “It was seen by the broader Australian demographic as … simply a home loan provider.”

Independent brokers who have diversified their offering should look at their marketing strategies and ensure that their clients know what they have to offer.

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Homeloans Ltd ticks all Mortgage Choice boxes

Steve Troughton

Non-bank lender Homeloans Ltd’s long track record as a funder together with its long association with brokers were key factors in Mortgage Choice’s decision to add it to its lender panel.

“They’re one of the early funders in the broker space and they have a track record as a publicly listed company, plus they have good backing with the likes

of Challenger,” said Mortgage Choice CEO, Michael Russell.

Homeloans products become officially available to its franchise network on 1 July, making it the 23rd lender on its panel.

And early signs were good, with four applications received for a Homeloans product in its first week on the panel. “We had four applications submitted and

Homeloans responded well within their SLAs,” Russell said.

The addition of the listed non-bank lender comes as Mortgage Choice undertakes due diligence of its lender panel.

The panel has shrunk in recent times from 28 to 22 before Homeloans joined, and at the time of going to press Mortgage Choice was reviewing a handful of other lender proposals.

Russell said the key criteria for selecting new lenders were availability of credit, some surety around the back office, and the uniqueness in the offering.

“We must determine whether they have the competencies and confidence in their back office processing to handle increases in volume – it’s no good if we give them business and the back office implodes,” he said.

“Brokers want a level of service from lenders that ensures return business. If lenders aren’t in sync

Expect broker number attrition Michael Russell says three things will result with many brokers leaving the industry.

He listed these as: lenders segmenting brokers and requiring minimum performance levels from individuals; the new licensing conditions; and the transition, led by lenders, to embrace technology. ”These three factors will lead to significant attrition in broker numbers,” he said. “It will get rid of the part-timers and other professionals moonlighting as loan writers.”

Russell said this was a good thing for the industry and for customers, because it would result in a “full-time complement of mortgage professionals”. then it makes brokers look sub-standard,” he added.

“We need to be comfortable about the commitment and integrity of the lender. “… we want lenders that committed to long-term sustainability,” Russell said.

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News movers & shakers Name: Patrick Snowball From: Towergate To: Suncorp Title: Group CEO Snowball will commence as CEO on 1 September 2009 and will also join the Suncorp Board. He is a highly experienced financial services executive, with a strong background in insurance. For the past two years, he worked with the Towergate group of companies as a deputy chairman and chairman’. He also served as a non-executive director of Jardine Lloyd Thompson plc. An outstanding leader, he has overseen businesses with operations in the UK, Ireland, Canada, India and Asia.

Name: Mark Forsyth From: Firstfolio To: Firstfolio (extension of contract) Title: CEO Forsyth signed a new three-year employment agreement with Firstfolio starting on 1 July 2009. Under Forsyth’s leadership, Firstfolio has experienced a structural transformation of the business, including the completion of several acquisitions, dramatically increasing the size of the group’s loan book and creating underlying profitability. The financial services company is now focused on opportunities to diversify its earnings from pure mortgages into a broader range of financial services and products.

Name: Chris Cuffe From: Colonial First State To: Centric Wealth Title: Member of the board Financial services firm Centric Wealth has appointed former Colonial First State chief executive Chris Cuffe to its board. Cuffe helped pioneer the First Choice platform and, separately, Challenger Financial Services Group. Cuffe works at non-profit group Social Ventures Australia as an executive, assisting in the development of the Third Link Growth fund, an investment structure to help fund not-for-profit organisations. Cuffe is also a director at UniSuper, investment firm; WAM Active and Arkx Investment Management.

Shopfront hots up The mortgage broking shopfront battle is heating up following the completion of Smartline’s merger with Western Australian broking group Mortgage Force.

The merger increases Smartline’s overall distribution to 200 stores nationally, though the Mortgage Force brand has been retained in WA. Smartline has set its sights on further growth and expects its franchisees to number 240 within the next 12 months through ‘organic’ growth, but has not ruled out a merger or acquisition to reach its ultimate goal of 300.

This comes soon after Aussie expanded its shopfront presence to 140 following the completion of the Wizard acquisition, while RAMS has set itself a target of doubling its existing network of 80 stores over the next few years.

Smartline managing director Chris Acret told AB the group was adding to its franchise network at a rate of about 30 a year.

Acret, a franchising veteran of 15 years, said that when franchising is done well “it’s the strongest business model on the planet”.

He added that one of the most underrated things about being part of a franchise is the team culture it creates.

“The importance of team culture is quite hard to appreciate. It can get quite lonely [being a broker] and you can get burnt out a bit. Being part of a franchise means you can talk to your peers so they can help you out,” he said.

Chris Acret

The merger of Smartline and Mortgage Force creates a loan portfolio exceeding $10bn.

“We were always confident the merger would succeed as a result of both groups’ strong client care ethic and shared values,” he said.

He said the merger would allow Smartline to further capitalise on the considerable investment made in the group’s systems in recent years and achieve greater economies of scale.

Top of the shops Franchise

No. of shops/units

Mortgage Choice

350 (approx)

Smartline

200

Aussie

140

RAMS

80 (approx)

Source: Numbers provided by each franchise group

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Debt free nMB looking for more brokers A strong balance sheet and zero debts on its books were two key factors in bringing new brokers on board during the last financial year, according to National Mortgage Brokers’ (nMB) director of sales and marketing, Sal Cinque.

The aggregator added 52 new brokers in the 12 months to the end of June, pushing loan writer numbers up to 260.

Cinque said it was looking to continue to grow both organically and via acquisitions in the new financial year. “We’re always on the look out for new brokers and open to [acquisition]

What is nMB looking for in a broker?  Sound technical skills in lending plus industry experience  A high rank on quality metric benchmarks  A clear plan to achieve their own business objectives  Commitment to build their own business  Cultural fit with nMB Source: Sal Cinque

opportunities,” he said. Cinque also said nMB’s financial strength along with regular commission payments and transparency were key reasons why brokers jumped on board. “nMB is well positioned financially. We’re quite profitable and have a very strong balance sheet. We also don’t have a debt issue. In fact, we’ve never taken on any debt in managing the business,” he said.

Besides its financial strength, Cinque flagged the aggregator’s commission systems and payment regularity as things that appealed to brokers “Our system is quite detailed. It’s quite easy to retrieve backdated statements, for any time period, so it’s easy for a broker to draw up an invoice for any specified date.”

Cinque said in eight years of operation, nMB had not missed a commission payment date.

“Brokers are paid on the 25th of every month – and earlier than that where possible,” he said.

And in contrast to some aggregators which hold unclaimed commissions in a special account,

‘Big two’ increase share of Connective book The increasing dominance of Westpac and the CBA in mortgage lending has been reflected in the latest break down of Connective’s loan book.

With nearly 1,000 brokers on board and a loan book in excess of $11bn, it provides a good benchmark of where brokers are putting their business with a break down for July revealing that nearly one in two loans (49%) are going to either Westpac or the CBA. Westpac subsidiary St.George also saw an increase in its share of the Connective pie, while the other notable mover was RAMS which more than doubled its share to 5%.

Of the top eight lenders on the Connective panel, only one (ING) is not a major bank brand and when combined, the top eight account for 90% of all mortgages arranged by Connective brokers (compared to 88.8% in April).

Connective principal Mark Haron said this reflected to a large extent the terms of lenders’ policies

over the last three to four months.

Haron said this particularly applied to RAMS, (which AB notes has recently focused its efforts squarely on the first homebuyers’ market) and St. George through its fixed rate specials. “They’re (the distribution of business) also, partly, a reflection of service levels provided to brokers,” he said.

Haron said Connective was hoping to reach the 1,000 broker market before the end of the financial year, but said it would

Key points  National Mortgage Brokers attracted 52 brokers in last financial year  Business has good profitability and no debt  Has not missed a commission payment date in eight years  Does not hold onto any unclaimed commission  Commission paid in error returned to lenders Cinque said nMB did not have such an account, “we ensure that when we receive a commission, we find the broker and action the payment. If a payment is made in error, we return it to the bank.”

In its June newsletter, nMB said its ‘Top5 campaign’ carried out online and in print and focusing on the five main reasons brokers are choosing the aggregator had been a success, while the appointment of professional BDMs in each of its major markets had played a significant role in developing its distribution network. definitely pass this milestone in July. “One hundred and twenty brokers have joined in roughly three months. Ninety percent have come from other aggregators, quite a few haven’t used an aggregator in the past, and there’s also the odd banker who is a new entrant to the industry,” he said.

Looking ahead over the next 12 months, Haron said it would continue to be fairly tough and lenders would struggle due to tight securitisation markets and cost of funding remaining high.

“On a positive note, we still have a good property market despite the much tighter lender conditions,” he said.

The Connective loan book Lender Westpac CBA St.George BankWest ANZ HomeSide ING RAMS Total share Source: Connective

% of loan book in April 2009 22.60% 20% 14.50% 7.60% 11.60% 5% 4.90% 2.60% 88.80%

Competitive dynamics will return - Lahiff

% of loan book in June 2009* 26% 23% 16% 6% 8% 3% 3% 5% 90%

Movement ▲ 3.4% ▲ 3.0% ▲ 1.5% ▼ 1.6% ▼ 3.0% ▼ 2.0% ▼ 1.9% ▲ 2.4% ▲ 1.2%

*Based on estimates given by Mark Haron

Paul Lahiff

Former Mortgage Choice boss Paul Lahiff has added a calming voice to the mortgage market’s lack of competition saying that as international financial markets continued to stabilise, competitive dynamics would gear up again.

“The general public has always benefited, and always will, from strong and robust competition through having access to better mortgage products, better pricing and better service,” he said.

In a parting vote of confidence as he stepped into his new role as CEO of WD Scott Global, Lahiff said the mortgage broking sector had been vital in producing the market’s competitive edge.

Lahiff joined WD Scott Global after six years at helm of the ASX-listed mortgage broker.

Lahiff told AB that he had joined WD Scott because he believed the consulting company had “a great deal” to offer financial institutions in the process performance space.

While Lahiff complimented the mortgage sector for the role it has played in the Australian economy over the last decade, he said that since much of its focus had centred on revenue growth, there was work to do to address inadequacies in its simple processes, which had been neglected, “such as mortgage settlements, credit card applications or account openings.”

WD Scott works with financial institutions, particularly in the area of business process improvement and has operations in Australia, Asia and the UK and Europe.

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The next wave of credit tightening?

Changes to the CBA’s serviceability calculator which may reduce the amount of money customers can borrow from the bank, could be the first sign of the next round of credit tightening, according to National Mortgage Brokers’ managing director Gerald Foley.

Foley said he had noticed a significant reduction in the maximum loan amount the bank

was willing to lend to the typical husband and wife borrower.

Kathy Cummings, executive general manager for third party banking at the CBA, confirmed that changes had been made: “The bank annually reviews serviceability and with changes to the Medicare Levy, taxation levels, an increase in the Consumer Price Index and the bank’s review of living expenses, we’ve made changes to our serviceability calculator to ensure that our customers can manage and service their loans. These changes have been effective since 1 July 2009.”

Cummings said the combined changes may reduce the borrowing power for new and existing customers.

However, she said the changed serviceability requirements would help to protect customers from over-committing themselves and avoid any issues with falling into

Hacking: Don’t skimp on internet security

Brokers have been warned that they need to invest in their IT infrastructure and internet security following a number of high profile online banking breaches and the growing threat of phishing attacks.

Mark Gregory, program leader of network engineering at RMIT

Key points  Invest in ‘level two’ IT infrastructure  Conduct regular and random security audits  A lot of online fraud committed by insiders  Online banking systems vulnerable to hackers

University, and an expert on internet security, said brokers and mortgage managers need to make sure they have the very best in IT infrastructure.

“You can’t try and save money in this area. You need the latest security technology, including at a bare minimum ‘level two security’,” he said. Level two security, Gregory explained, is the type employed by some banks whereby in addition to needing a username and password to login, a customer needs a code sent to them either via text message or generated from a ‘token’ (a device handed out by the bank) to undertake any transaction.

While by no means fool proof, he said such action is reasonably secure when compared to ‘first

arrears. Foley said he would expect lenders to review their lending criteria from time to time, in line with current economic conditions.

“The recent move by CBA is interesting in that borrowers who previously qualified for a higher loan amount, and believe they can still afford such a loan, will now need to look at other lenders who are prepared to lend the amount they require,” he said.

“If that has an impact on those other lenders seeing an increase in business, they in turn may look to review their credit rules to reduce the amount of new business. This could see the next wave of a tightening credit market, and a possible easing of property values as buyers can’t obtain finance,” he added.

This point of view was shared

by Smartline managing director Chris Acret who said there would be wider ramifications for the broader mortgage market and Australian property market if other lenders all followed.

“Things that on the face of it aren’t massive can be part of pretty big changes to the overall picture,” Acret said. level security’ whereby you just use a username and password to login to do your online banking.

“This level offers very little barrier to cyber criminals, he said. “It’s close to having no security at all.”

Gregory said implementing a system built around level two security, even for smaller organisations, was relatively cheap to set up.

This, he said, should be complemented by consistently reviewing “what’s being done and how it’s being done”.

“Never be too complacent.

Audits should be carried out regularly, frequently and randomly,” he said.

Gregory claimed that online banking fraud or scams were often the result of an “inside man” who had been “bought by criminals” to provide them with information.

“It’s just like in the movies – the ‘inside man’ working within the bank itself who provides information or who puts a program on the server that makes certain information available via a backdoor,” he said.

Gregory said banks’ digital networks had not been designed with security in mind, only in terms of convenience for customers. “Online banking is perilous. The amount of fraud is growing. It hasn’t yet reached the tipping point.”

Plan B adds finance to product suite With the idea of beefing up its mortgage broking operations, boutique wealth management company Plan B has acquired mortgage broker Aspire Finance for an undisclosed sum.

“We found Aspire Finance after a patient search for the right business to bring appropriate scale to our finance operation,” Plan B’s managing director Denys Pearce told AB. He said that Aspire’s reasonably young book and team of highly credentialed loan consultants had first caught Plan B’s eye, since it viewed finance as an appropriate and complimentary offer to its existing suite of wealth management services.

“After 22 years operating in the wealth management business, last year we embarked on a build-buy strategy for a new finance division.”

He added that the Aspire Finance acquisition would deliver immediate scale to Plan B’s fledgling finance business.

And, since both companies already aggregated with AFG, Pearce was confident that all systems and technology integration efforts would be “straightforward” and that integration challenges would be kept to a minimum.

He also confirmed that the Aspire Finance name would be phased out.

The acquisition would be partly financed through the issue of 100,000 ordinary shares in Plan B, with the rest coming from the company’s existing banking facility, Pearce said.

Denys Pearce

18 www.brokernews.com.au

News

Gruen: Market not righting itself If competition in mortgage lending was going to return on its own, we should have seen signs of this by now.

This was the view of Nicholas Gruen, CEO of Lateral Economics and Peach Discount Mortgage Broking, and one of the signatories to an open letter sent to Wayne Swan calling for a

Nicholas Gruen

government-backed alternative to the four major banks (as part of a complete review of the financial regulatory system).

Besides supporting the idea of a ‘People’s Bank’, Gruen told AB there was a role for the government to play in helping stabilise the non-bank lender bond market which has been crippled by the collapse of securitisation.

The open letter – written by Rismark International founder Christopher Joye, along with Melbourne Business School academics Joshua Gans and Sam Wylie, Monash University professor Stephen King and former ACCC commissioner, John Quiggin and Gruen – called for a “publicly-owned entity akin to Kiwibank” that would give consumers access to basic savings, payments, and wealth management products and that would leverage off “unique government infrastructure” such as Australia Post, the tax system, and the government bond market.

The letter also questioned how the government planned to “remedy the regulatory asymmetry” between the larger banks that rely on short-term retail deposits as their primary source of funding and many of their competitors that depended on the RMBS market.

“Australia’s regulatory architecture does nothing to maintain the liquidity and integrity of its securitisation market. This contrasts with the Canadian system, which has remained open and functional throughout the crisis,” the economists said.

They warned that “as a nation with a large foreign debt …”

Australia’s vulnerability to foreign shocks is in many respects greater than most of its peers.

They also questioned what impact “whole or partial nationalisation of banking systems around the world” would have on Australian institutions’ ability to source foreign credit, pointing to recent actions by the UK government to rescue failing banks and the new regulatory regime in the US under President Obama.

The letter called on the government to thoroughly review the existing system and evaluate

Key points  Economists propose government alternative to major banks  Signatories to open letter include economist and broker Nicholas Gruen  Gruen said more government intervention would help stabilise non-bank bonds  Nick Sherry says no review of financial system is planned whether changes need to be made to it. However, the government appeared uninterested in the recommendations contained in the letter.

In an interview on Melbourne ABC radio, assistant treasurer Nick Sherry said there were no plans for any systemic review of the banks, and that Australia’s financial system had performed well compared to other countries.

One of the signatories, Sam Wylie, said the response was not surprising: “First, they do have their hands full with the Henry tax inquiry and the Sherry superannuation inquiry. Second, they don’t want to undermine the idea that the Australian financial system is the best managed in the world.”

www.brokernews.com.au

19

Paul Davies is broker business manager at Mortgage Shield. You can contact him: paul@mortgageshield.com.au

top ten tips

Better time management In an age where time is more valuable than gold, Paul Davies says it is important to put in place procedures that make your valuable time more effective. These points are a foundational guide to help you get the most out of time and become more efficient in your business.

Tip 1: Set goals Work out what you want out of life in all areas of concern. This can be in business, sport, socially, educationally, income, relaxation, family, retirement, civically, etc.

Tip 2: Make lists for everything Things like business, staff, personal development, family, shopping, jobs that must be done each day, things to take on holiday, leisure, reading, legal, relationships et al.

Tip 3: Make a start now Don’t wait until you get around to it; do it now. By allotting a priority you will achieve a sense of urgency rather than just have a lumbering set of onerous tasks to attend to.

Tip 4: Break big jobs into smaller projects. That way they look less intimidating and are easier to handle in the timeframes you set.

Tip 5: Write things down The minute things occur or you think of them write them down so it doesn’t burden your mind or you forget them.

Tip 6: Carry a notebook to write things down Have a notebook with you wherever you go to record your ideas, thoughts, strategies and observations.

Tip 7: Try grouping similar tasks together Make phone calls together and then write letters in one hit. It stops you changing mental gears all the time.

Tip 8: Learn to say ‘no’ to tasks that don’t belong to you. Saying ‘no’ sets the parameters of your responsibilities. Sometimes others have to wait while you complete or move things along in other areas.

Tip 9: Set aside regular time for relaxing It can be as simple as a five-minute break after completing a specific task to planning your annual holidays.

This can cover mentally, physically, metabolically, psychologically, socially, politically and family-wise.

Tip 10: Set tight deadlines Work expands to fit the time available. So set cut off points for completion of tasks in all walks of life.

And two bonus tips…

Tip 11: Stay focused Give top priority to value-added activities, those things which take you a step closer to your goals.

Tip 12: Learn to delegate Determine who can help you, who should handle tasks and who should not.

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News

For all the latest mortgage industry news visit www.brokernews.com.au

Lender exit fees “out of whack”

James Middleweek

Some useful contact points: • www.financialredress.com.au • www.fos.org.au • 1300 78 08 08

Exit fees being charged by lenders in Australia are “substantially higher in every respect” compared to those being charged in the UK, according to James Middleweek, managing director of consumer compensation law firm Financial Redress.

“The UK is light years ahead of Australia when it comes to consumer protection and activism. Penalty charges are on the point of being outlawed in general in the UK,” he said.

The law firm was launched in March to help consumers get back unfair penalty fees and late fees, but Middleweek said many clients were enquiring about exit fees on loans.

In response, the firm has developed a specialised service (including online registration, a break fee questionnaire and flat fee of $150 + GST) to advise consumers if they feel they may have been taken advantage of by their mortgage provider.

Middleweek, who hails from the UK, said responses from clients suggested they were confused about exit fees and in many cases felt they were “being ripped off”.

Furthermore, he said some of the exit fees had “elements of being penalty fees”.

LoanTrack leaves shadow of unpaid bills Leaving a trail of unpaid salaries and super contributions in its wake, broker support company LoanTrack, founded by Monique Brand and Michelle Newby, has closed its doors.

Nevertheless, the company continues to trade, following the purchase of its intellectual property by a group of independent investors.

A report in the Sunshine Coast Daily said LoanTrack was trading out of Mortgage Ezy’s Surfers Paradise headquarters.

However, Garry Driscoll, chief executive officer at Mortgage Ezy, said the new LoanTrack had only sub-let space from Mortgage Ezy prior to relocating to its new Gold Coast location.

An ex-LoanTrack staff member called Brand and Newby’s actions

“unethical”, telling AB that the pair had asked the staff to carry on working in the months leading up to the company’s closure because Mortgage Ezy were on the verge of buying the company; at which time all arrear salary and super payments would be made good.

But according to the Sunshine Coast Daily, the mortgage manager flatly turned the offer down saying that LoanTrack was a poorly run company and that its level of debt was too high.

Responding to the allegations of unethical behaviour, Brand scoffed at the notion and said instead that she and Newby had no choice but to sell LoanTrack simply because it was trading poorly. She denied manoeuvring her employees out of getting paid.

“We had an enquiry from a business that had been charged $44,000 to exit a loan. The proprietors complained and negotiated it down to $28,000.

“How could a mortgage provider start at $44,000 and willingly come down to $28,000? There must have been an element of overcharge,” he said, adding that such cases showed that there was some degree of “flex” in the system.

“It’s potentially quite a scandal when you look at the number of break fee complaints that have been made to the ombudsman.

“Disclosure is the real issue,” he said. “Quite often the lender provides no information as to how the fee is calculated … or they won’t reveal their cost of funds to the consumer.”

Middleweek said, in some cases, borrowers were not told at the point of sale that exit fees even existed.

“We’ve created the questionnaire to mirror what the ombudsman will ask: What were you told at point of sale? Was the contract explained by your broker or provider? Is there evidence of mis-selling?

“We provide the preliminary assessment,” he said.

In addition, Brand told AB that she did not know what was owed to her former employees, but that it was “nothing as extreme as what was written in the newspaper,” she said, referring to reports that it was in excess of $9,000 for each employee.

At the time of being retrenched, one angry ex-employee was owed – and still is – nine weeks’ wages and unpaid super for “at least” the last 18 months.

Brand was, however, able to confirm that both she and Newby were paid employees of the ‘new’ LoanTrack. While LoanTrack’s new directors are not liable for any of its previous debts, Driscoll has a small share in the new entity in his personal capacity.

Key points  Brand and Newby’s LoanTrack experiences trading difficulty  Staff asked to stick around and wait for bail out  LoanTrack goes belly up after bail out fails  Staff are not paid  New investors re-open its doors  New investors not liable for old debts

Brokers should charge fee – Forsyth  Brokers quite right to charge fee if commission is cut  Funding likely to flow in from Asian countries  Firstfolio board renews Forsyth’s employment contract  Hartigan praises Forsyth’s contribution so far  Plans for revenue growth and diversification  Prioritises integration Forthright Firstfolio chief executive officer, Mark Forsyth, has added fuel to the ongoing fee for service debate by saying that if the industry wanted to improve the level of work a broker would be required to do – which it says it does – then the brokers’ rate of pay would need to be stepped up as well.

“And if commissions get cut, then quite rightly some brokers are going to say I’m going to have to charge you a fee for service,” he said.

Forsyth felt that some brokers resisted the idea because it was an easier sell to the client for them to invoice the lender at the time of settlement, rather than the client at the time of the consultation. But on that basis, Forsyth told AB that Firstfolio had no plans to cut broker commissions.

On the subject of funding, he felt the lack of it would still be an issue in 2009, although he said there was still a lot of cash around and it would begin to make a comeback in 2010.

“It’s reasonably common knowledge that the Chinese or some of the big Asian players will look at Australia as a fairly attractive market,” he said.

His comments come soon after the Firstfolio board showed its faith in his leadership by extending his employment agreement with the financial services group for an additional three years. The new agreement took effect on 1 July.

Commenting on the announcement, chairman of Firstfolio Tom Hartigan said: “Under Mark’s leadership, Firstfolio has been built into a national mortgage and financial services distribution platform … we look forward to continuing to work closely with him. We’re excited by the business’ future prospects under Mark’s leadership.”

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News

Hall calls time on 20year Genworth career Peter Hall has drawn the curtain on his two decades at mortgage insurer Genworth.

During his 20-year tenure, Hall held numerous positions with the Housing Loans Insurance Corporation (HLIC), GE and Genworth, including those of deputy chairman, managing director and most recently country executive.

Besides his senior roles at Genworth, in January 2007 Hall, alongside Aussie chairman John Symond, was appointed to serve on the NSW Government Ministerial Advisory Board Working for Better and More Affordable Housing.

Hall was interviewed by MPA magazine in September last year, at the time when the credit crisis was at its worst, where he highlighted the way Genworth had looked for more effective channels to better assist

borrowers in managing or minimising mortgage defaults.

At Genworth, Hall focused on building partnerships with lenders based around mutual understanding of key business needs. “We really do share genuine value-add relationships with the lenders we insure. Why is it a partnership? Well, we’re both able to benefit profitably. For me, that is the basis of a good working business relationship,” he told MPA last year.

Among his other achievements was the formation, in 2006, of Genworth’s Hardship Solutions team to assist borrowers struggling with managing mortgage stress and to work more closely with lenders across all aspects of their operations.

“Peter has been instrumental in the growth and success that Genworth has enjoyed over the years, and much of our current

position can be attributed to his leadership,” said Martin Barter, CEO of Genworth Financial.

“While Peter will be greatly missed, both within the industry and Genworth, I’m confident we have a solid management team in place to continue to build on our position as market leader,” Barter said. “All at Genworth wish Peter well for the future,” he added.

20-year changes Australia in 1989 Cash rate: 17% Household debt-to-income ratio: 165% Average house price: $107,400 Australia in 2009 Cash rate: 3% Household debt-to-income ratio: 50% Average house price: $437,000

Peter Hall

Tributes for dedicated industry stalwart The MFAA in Victoria was saddened to hear of the passing of Michael Pedersen on Monday 29 June after a short battle with cancer at the age of 61.

Mike was a very well respected member and strong supporter of the association, attending all its functions, conferences and events over the past 10 years.

His experience and knowledge commenced over 40 years ago when he started his career with

the CBA after leaving school. He then took up roles with RESI Building Society, AMP Bank and was CEO of the Over 50s for many years.

In 1998, Mike set up Provident Lending as a mortgage manager in Victoria, and operated from offices in North Melbourne.

Mike enjoyed golf, sub-district cricket and amateur football. He was also a keen horse racing fan.

Mike leaves behind his wife Ann and son Antony.

The family had a tragic set back two years ago when their other son, Kris, also lost a battle with cancer, at the young age of 26.

“A man of few words, yet when spoken all listened.

Mike, you were an absolute gentleman, and will be genuinely missed,” wrote Darren McLeod on Brokernews.

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23

industry NEWS IN BRIEF Fraud software could benefit brokers

A new software platform could speed up loan approvals after RP Data released its new mortgage fraud detection tool – RP Data FraudMark. CBA will be the first bank to employ the new specialist mortgage fraud protection and loss mitigation platform. “Whilst mortgage fraud is low in Australia compared to most other countries – it exists and is growing,” said RP Data CEO Graham Mirabito.

“The RP Data FraudMark solution allows mortgage lenders to speed up the mortgage application approval process of qualifying customers whilst protecting the bank and its shareholders from loss resulting from mortgage fraud and customer default.”

Brand change for Members Equity Bank

Members Equity Bank has rebranded itself as ME Bank and simplified its logo. The lender said it was calling itself ME Bank “to make it easier”.

“We have kept the smile in our logo as we believe that this is why we exist: to ensure that you are happy to bank with an organisation whose core purpose is to provide low cost banking with great customer service,” it said in a statement.

The launch of the refreshed logo will be supported by a new campaign. Tony Beck, head of corporate affairs, said ME Bank remains in a financially strong position and the refreshed brand image comes at an opportune time despite the ongoing changes in the global financial market and the market consolidation of Australia’s big banks.

A recent survey by Brand Management Core Data Survey, Net Promoter Score (NPS), found that ME Bank received the highest result with an NPS of + 61.6 compared to negative scores for the major banks.

US bank granted Bank of New York Mellon has been granted an Australian banking licence by APRA. The licence allows BNY Mellon to Australian banking licence provide banking services to its institutional clients and will

broaden its range of local and global capabilities it can offer in Australia. However, BNY Mellon does not intend to provide any retail banking services. Recently, the bank formed a strategic alliance with Mortgage Settlements Australia which allows it to provide a variety of mortgage-related services to lenders, such as loan documentation, settlements, discharges and arrears management. It has also set up a document custody facility, which provides secure document storage. The bank plans to expand its Melbourne and Sydney operations and increase its local employment in the future as it looks to build or acquire complementary local capabilities.

Fewer Australians falling behind on mortgage

Borrowers have been keeping up with their mortgage payments thanks to successive interest rate cuts and government stimulus actions. Ratings agency Standard & Poor’s reported that the arrears fell from 1.66% in March to 1.62% in April. There has been a general trend downward after arrears peaked in January at 1.84%.

But missed payments on sub-prime loans remain substantially higher at 16.3%. Many borrowers in this segment of the loans market took out their mortgages in 2005 and 2006. Many are unable to refinance because of tightened credit policy.

UK lenders allowed to dual price

The UK’s financial regulator, the Financial Services Authority (FSA), says it will not intervene in how lenders price and distribute their mortgage products, including allowing the practice of dual-pricing.

Brokers have complained that dual-pricing (offering one price via brokers and a usually cheaper one via a branch) does not serve the best interests of consumers.

Chief executive of mortgage broker Email Mortgages, Michael White was reported in Introducer Today as saying: In general, most would accept that mortgage advice is a positive service that consumers benefit from. However, dual-pricing does not have consumers’ long-term interests at heart. It is only likely to contract the avenues from which consumers can seek advice.”

However, FSA spokesman Robin Gordon-Walker said mortgage lenders were not obliged to deal through brokers and that “how they chose to price and distribute their products is a commercial matter for them”.

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News analysis

Give employees a fair go, or else…

T

rue to its election promise to reform Australia’s industrial relations laws, the Rudd government enacted its Fair Work legislation on 1 July.

And although some companies will be better prepared than others to deal with the change in standard operating procedure required by the new law, there remains a general sense of unease about it.

This is the view of Heather Ridout, chief executive at The Australian Industry Group.

“No one can underestimate the scale of change the new laws will bring,” she said.

Simply coping with the new laws would be tough enough for business owners but implementing them would be even more of a challenge since most companies already had their work cut out in just getting past the GFC, and – ironically – preserving jobs, she said.

And while she conceded that some “hard won” amendments had wound back some of Fair Work’s sharper teeth, she found that there could be no doubt of the increased power that would inevitably run the way of the unions as an upshot of the new legislation.

Consequently, she laid down this warning to them: be responsible, or risk causing economic damage at the worst time for Australia – when pressures on business and on employment are already intense.

And since the Fair Work legislation is yet to be tested, Ridout also had a message for the government.

“We will need to see how the laws operate in practice and Parliament needs to remain open to amendments if problems arise.”

Small business red flags

Similarly, The Council of Small Business of Australia had its own red flag to raise.

Saying that small businesses should act with “extreme caution” when making any changes to their existing staffing arrangements, it has called the new legislation “the most broad-sweeping” workplace relations change in years”. Small businesses, it said, should understand now that the system that they are operating in is in a state of flux – there are a great number of additional obligations on them.

In particular, according to the council’s CEO Jaye Radisich, two significant areas of the new law could result in punitive measures being taken against owners who fail to comply.

The first is that owners with fewer than 100 staff members can no longer simply dismiss an employee.

“As a result of the new legislation, small business owners must adhere to the Fair Dismissal code and follow a step by step instruction of the process of performance management,” she said.

This means that there is a process to be followed and records to be kept.

“This did not exist under Work Choices, and small business owners should be aware that if they fail to do so the action will be deemed to have been unfair, and they will expose themselves to liability,” Radisich said.

The second is that not complying with various elements of the Fair Dismissal code can give rise to other obligations occurring.

“The bottom line is that a small business owner must keep records of all of the interactions with their staff member that will lead up to any dismissal,” said Radisich.

At Mortgage Choice, senior corporate affairs manager Kristy Sheppard told AB that it had informed its franchisees through an internal communication of the various legislative changes that would affect all employers, and undertook to provide support by updating the tools on its internal intranet.

“Each government change brings with it changes to the industrial relations framework, and the last federal change is no different. Work Choices no longer exists and a new framework, Fair Work Act 2009, will now govern the way employers and employees have to manage their working relationships,” the memorandum read.

Heather Ridout

Useful contact information Fair Work Australia T: 1300 799 675 W: www.fairwork.gov.au Department of Education, Employment and Workplace Relations W: www.deewr.gov.au Navigate to Australia’s New Workplace Relations System for additional information.

The Council of Small Business of Australia W: www.fairworkforsmallbusiness. com.au (from August 2009)

Snap shot of The Fair Work laws 1. A new enterprise bargaining system, incorporating good faith bargaining obligations and a wider set of “permitted matters” 2. New unfair dismissal laws, including the removal of the blanket exemption for small businesses 3. New institutions and agencies, including the establishment of Fair Work Australia from 1 July 4. A new minimum wage setting system 5. “General Protections” laws which are very broad in nature 6. New transfer of business laws 7. National Employment Standards (which will take effect from 1 January 2010) 8. A modern award system (which will take effect from 1 January 2010)

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25

James Veigli is a mortgage broker, marketing and business strategist and founder of the Australian Mortgage Broker Alliance. He can be contacted at: james@theorangeadvantage.com.au

opinion Forging a new trail James Veigli says there is nothing stopping a broker charging a fee and reducing their dependence on lender commissions, so long as they provide value-add services to their customers It’s time to face up to reality. As a broker in today’s financial climate, you can no longer rely on upfront commission and trail alone to pay the bills and get ahead. With your income at the sole discretion of third party corporate institutions, you are a sitting duck.

Trail replacement strategies enable brokers to reduce the impact of the current financial downturn and boost their cash flow, plus grow additional income streams.

In fact, it’s possible to replace your current broking income entirely – which means no more uncertainty at the mercy of the big lenders.

There are three trail replacement strategy concepts: (1) Value add and charge fees; (2) strategic partnerships; and (3) memberships. In this column, I will discuss the first of these.

Charging fees by adding value The easiest and fastest way to boost your cash flow and start replacing your trail is to start charging fees by adding perceived or real value to your services.

For example, many brokers offer a standard ‘free initial consultation’. Problem is there’s no real or perceived value on offer here. It is a big mistake to think that by offering something for free, people will want it. The fact is, most people are sceptical of anything that’s ‘free’.

On the other hand, if the same broker offered an ‘initial finance consultation’ to prospects and clearly communicated the value of this offer, say the consultation is worth $300, plus offered a bonus information pack on ‘Tips to paying off your home loan quicker’ worth $50 – people will be lined up to take advantage of this offer, even if this broker is charging $150 for the consultation. Why? Because people want value (and they love discounts!).

Don’t be afraid to charge for your time or service. Accountants, lawyers and financial planners do it, and already a number of mortgage brokers have done it successfully for years. There are a number of ways you can go about charging fees, from charging an upfront fee that is reimbursed when the client settles a loan, right through to simply charging a set fee for your time.

Are you allowed?

So is it ethical to charge fees? If you are a qualified mortgage broker and you give value to your clients, help solve their problems and help them get what they want – then YES! Here’s a fact on human psychology. The more you charge for your time and the harder you are to get to, the more people will want to do business with you. This is exactly why the $1,000 per hour lawyer has a full client book, when the $100 per hour lawyer is sitting at the desk waiting for people to walk through the door.

When you start adding value to your services and charging fees, you will immediately increase your cash flow and overall income. You will also increase your sales and conversion rates, because customers who are paying for your knowledge will value you and your service.

If that’s not enough, you will even save time because you will avoid the time-wasters and rate-shoppers – leaving more time to write more loans for clients that value and appreciate you.

So start adding value and charging fees today, and watch your business (and income) grow!

Five tips to adding value to your business (and to justify charging a fee): 1. Differentiate to the point where your prospects cannot get your exact service elsewhere.

2. Satisfy your client’s most burning problem, because problems are huge motivators that cause people to take action and spend money to fix them. To find out your client’s biggest problem – simply ask them.

3. Become a specialist mortgage broker by focusing on one type of finance, or on helping just one group of people. It’s far easier to become the preferred mortgage broker in a small group, than it is to become well-known in the wider community.

4. Offer bonus services or products, including information and education. Using bonuses is an easy way to stand out in the market – plus a bonus can motivate people to take action and say ‘yes’ to your offer, even if you are more expensive than another broker or bank.

5. Use ‘standard’ and ‘premium’ services. For example, your ‘standard’ service might be free to the client – but only includes mortgage broking. Your ‘premium’ service will attract a fee, but it also includes 24/7 e-mail and phone access, a half-yearly review of your loans and an information pack on ‘Tips to paying off your home loan quicker’. Studies show that more often than not, people will choose the ‘premium’ service over the free ‘standard’ service.

26

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News analysis

Read the latest issue of Australian Broker online www.brokernews.com.au

Race on for volume target alternatives Many brokers realise that a more viable alternative to volume targets is needed if mortgage broking’s consumer proposition is to remain strong. Larry Schlesinger reports on what the concerns are and what steps are being taken

W

ith roughly 18 months to go until responsible lending obligations become operational under the new credit legislation, the industry is searching for alternatives to volume target requirements.

Two major banks – the CBA and Westpac – have, to date, gone down the route of requiring brokers to meet minimum volume targets to keep their accreditations.

The CBA argues that its minimum submission and lodgment requirements ensure that “brokers stay relevant and current to the bank’s policy and processes” and many brokers would accept that banks need to ensure mutually profitable relationships with all their business partners. However, volume targets create a number of headaches for brokers.

Phil Naylor

Joe Sirianni

A number of headaches

First and foremost, there is the obvious risk of losing accreditation with a major lender, a problem which may not just hurt part-time brokers, but some of the industry’s top practitioners.

A broker affiliated with PLAN told AB that two close friends listed on last year’s MPA Top 100 were at risk of losing their accreditation with the CBA under the new rules. National Mortgage Brokers (nMB) managing director Gerald Foley and Smartline director and head of the MFAA’s national broker committee Joe Sirianni both agreed that such an outcome was possible.

Sirianni said it was quite common for a broker to start off as a loan writer and then to write less and less as more time is spent running the practice, leaving the loan writing to members of the broker’s team. “[In such a scenario] the broker will lose their accreditation, he said. “The bank does not recognise professionals who have gone to the next level.”

Furthermore, he said there might be times when a bank’s product was not the most suitable one in the market, and should not be recommended.

The new credit rules

The customer is of course the person that really matters at the end of the day – not the volume requirements imposed on the broker by any lender.

The danger, though, remains that a broker, with the best intentions to service the needs of his client, may have the pending withdrawal of his accreditation in the back of his mind as well.

As MFAA CEO Phil Naylor points out, the regulation is quite clear that the broker must make a preliminary assessment that the loan is not unsuitable.

While this requirement only becomes operative on 1 January 2011, Naylor said the MFAA Code of Practice required that a member “must suggest or recommend to an applicant only those arrangements for mortgage finance that the member genuinely and reasonably believes are appropriate to the needs of the applicant.

“We would argue this is a higher test than the legislation will impose. A broker recommending finance purely to satisfy accreditation would be in breach of that unless the loan also complied with the above.”

Alternative solutions

The MFAA’s National Broker Committee (NBC), led

by Sirianni, is working on a proposed accreditation

standard which would rate brokers on their professionalism and quality of business and hopefully remove the need for lenders to impose volume requirements.

In discussions with counterparts on the MFAA’s National Lenders Committee (NLC), a proposal has been put forward to create an MFAA-backed ‘certified mortgage advisor’.

According to the head of the NLC, NAB Broker’s Matt Lawler, if there was a higher standard of accreditation (where individuals had clear requirements around product knowledge, policy and process) “then there would be more confidence about maintaining accreditation beyond the volume requirements”.

In a letter to Sirianni, Lawler said members of the NLC were “receptive” to a discussion around the concept of an ‘Accreditation Standard’ and joint work on the proposal would continue.

Both committees were set to meet up again on 21 July.

Even if an agreement is reached, Sirianni said the onus would be on the MFAA convincing lenders to accept the certified mortgage advisor tag.

“If we as an industry association can set the standards and get our members to rise up to those standards, hopefully lenders would acknowledge this,” he said.

“We are looking at the value proposition piece by piece.

We want to make sure brokers understand the product propositions of the lenders they deal with, and that lenders only deal with people who are highly trained and highly effective, not just some part-time guy.”

The requirements to become a certified mortgage adviser have not yet been clearly defined, but according to Sirianni, it would include obtaining a diploma in financial services (in addition to Certificate IV), having conversion rates higher than 75%, undertaking 40 hours of training a year and adhering to strict standards.

As yet though, there is no consensus with lenders on what standards might exclude a broker from volume requirements with NBC working on defining what constitutes a ‘professional broker’ before approaching lenders. “We as an industry group should set the standards. Once we have done that, we have to convince lenders that our standards are high enough. This might mean meeting each individual lender and finding out what they require,” Sirianni said.

MFAA CEO Phil Naylor said he remained hopeful that “we can sort this out over the next few months”.

Besides the work being done by the MFAA, other proposals are being floated around.

Test everyone

While Connective principal Mark Haron said it seemed appropriate that fees are levied against those brokers not creating any value for lenders – though some are “wildly over the top” – his preference is for a more streamlined process that makes use of online training systems. “I don’t see why banks don’t have an online re-accreditation testing every year for every broker.

Brokers could earn CPD points, while the banks could be confident that all brokers understood their current policies and procedures,” he said.

Foley agreed that a “quick online test to renew accreditation” might be a better option or “to sit brokers in a room once a year and run through the bank’s products and processes.

Foley said it was important to match the solution to the problem – so if it is a compliance problem, then tackle that.

“Just because a broker is giving a lender a lot of business doesn’t mean that the broker is getting it right,” he added.

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US perspective

America Foy is a fifth-generation San Franciscan. He followed in the family tradition and was licensed as a real estate agent in 2003.

He works with Villa Group Real Estate and Mortgage as a senior real estate associate specialising in mortgages. If you wish to get in touch with him, you can e-mail him at america@vgrouprm.com

Opportunities in a meltdown America Foy began originating mortgages in California in 2004, having previously worked as a real estate agent. His first hand account provides a unique insider’s view into what it was like working as a broker in the US before the sub-prime crisis and what opportunities exist now

M

y name is America Foy. I am a licensed real estate agent in California. I have been licensed since 2003. I currently work with Villa Group Corporation in San Francisco. I also work for New Leaf Modifications, a loan modification company, and I also provide BPOs (broker price opinions) for various asset valuation companies.

I began my career working with a boutique real estate broker. I sold credit tenant, bond, and net leased properties nationally. I left because I wanted to feel like I was contributing; I wanted to help people and felt I could do this by getting people loans.

I began originating mortgages early in 2004. I worked for a few different mortgage broker companies before opening my own branch of Aapex Financial Group in 2006. I loved doing mortgages; I felt like I was helping people achieve their dreams.

I had a lot of referral business because I believed that my clients had the right to ask questions and have their options explained to them clearly and concisely. I learned that scare tactics and hard sells did not work, and what did work was demystifying the process.

An easy job in the beginning

Doing mortgages in those days was easy. A broker I worked with said about the mortgage market at that time, “If you can fog a mirror, I can get you a loan.”

And that was the attitude most people had about the market. I began to become disillusioned by what I saw – indiscriminate lending without regard to whether the borrower could actually afford the loan – and after the company I worked with imploded in 2007, I decided to take a break from the industry and pursue a career in writing.

It was shortly after my first novel was published in 2008 that a family friend came to ask my advice about refinance. I went over her paperwork with her and realised that her broker was doing things I despised in other brokers, (ie, not telling her the truth, not explaining her options to her). I decided I would go back to real estate because I felt I would be able to help people again.

A changed market

The market I found when I returned to the industry was nothing like the one I left. Very few lenders were doing jumbo loan amounts. No lenders were doing “stated income” documentation. No lenders were doing loan amounts above 95% LTV. Very few lenders were doing second mortgages or equity lines of credit. I came back to a market where the interest rates were very low but few were able to refinance or purchase because of a drop in property values.

I realised during my first month back at the office that I could no longer just originate mortgages but I still had

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A broker I worked with said about the mortgage market at that time, “If you can fog a mirror, I can get you a loan”

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off the cuff

no idea of how bad the market had become. I decided to also sell real estate – California real estate agents can sell real estate and originate mortgages with the same licence simultaneously.

I soon discovered that originating mortgages and selling real estate, something I never would have done in the past, still was not sufficient for me to make a living.

Providing BPOs

Therefore, I stepped back, took a long hard look at the current market, and found that while the traditional real estate market was stagnant there were some very busy real estate professionals out there. These people were working for asset valuation companies providing BPOs. They were working for loan modification companies. They were doing short sales. I like being successful and realised for me to be successful in the market I needed to be doing the same things successful people were doing.

I signed up with a bunch of asset valuation companies so I could provide BPOs. I found a very reputable loan modification company to work with. Then I began to network with agents that do short sales. In short, I did what I needed to do to become successful. It has not been easy and I’m still not there yet but I am confident about the future.

The housing bubble bursting and the resulting recession are not all bad. They may be causing a lot of financial hardship but the lessons we are learning because of the hardship could not be bought for any amount of money.

I am happy that lending guidelines are tighter because tighter guidelines mean realistic expectations. I am happy that lenders are working with homeowners to modify their loans. I am hopeful that property values will stabilise. I am grateful that the government is doing what it can to stimulate the market. I understand that it will take a while for consumers to regain their confidence; this is a hard time for everyone.

Real estate is a unique investment. It is emotional; there are not many individual retirement accounts (IRAs) that people can sleep in and no mutual funds with kitchens. My opinion is that the market can only go up from here. I feel confident about the future of the real estate industry and am excited to be working in it.

This is an edited version of an article which appeared in Examiner.com.

Explanation of US terminology • Short sale: This occurs when a property is sold for less than the value of the outstanding mortgage (ie, negative equity) and the lender agrees to discount the loan balance due to an economic or financial hardship suffered by the borrower. Lenders will typically allow a short sale when it will result in a smaller financial loss than foreclosing.

• Broker price opinion (BPO): a method that a broker uses to estimate the price a property is likely to sell for. This estimate is submitted in a report that includes local and regional comparative property data.

• Jumbo loan: A mortgage with a loan amount exceeding the conforming loan limits set by the Office of Federal Housing Enterprise Oversight. These loans are securitised by lenders other than Fannie Mae and Freddie Mac, are generally riskier and have a higher interest rate.

Ken Sayer founder and managing director, Mortgage House What was the last book you read?

How the Mighty Fall by Jim Collins If you did not live in Australia, where would you like to live?

South of France, because it is world famous for its vibrancy, culture and glamorous lifestyle.

If you could sit down to lunch with anyone you like, who would it be?

Paul Keating. He is a no-nonsense doer with attitude.

What was the first job you ever had?

I was a currency broker for Lombard Nash (International) and was involved in international currency transactions – trading and negotiating.

What do you do to unwind?

I do two things to unwind. Switch off from everything and engage in ‘solo time’. And I take long walks.

What’s the most extravagant gift you ever bought yourself?

A Mercedes Benz SL 500.

What CD is currently playing in your car stereo?

Phil Collins.

If you could give anyone starting out in business one piece of advice, what would it be?

Think about what you want, plan on how to get there and engage in relentless pursuit.

If I was not working in the mortgage industry, I would like to be…?

Managing a five star hotel.

Where was the last place you went on holiday?

Salzberg, Austria.

What is the one thing most people would not know about you?

That I would like to reshape and redefine mortgage lending and practices in Australia.

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Insider

Got any juicy gossip, or a funny story that you’d like to share with Insider, drop us a line at insider@ausbroker.com

• Looking too glamorous (handed to those from the fairer sex) • Smiling first thing in the morning

No sense in talking nonsense

I Citibank: the new cop on the beat

A

nyone who attended the recent MFAA conference may not recall exactly what the Citibank stand looked like, but they’re almost certain to remember the bank’s clever ploy to attract attention via three Segway futuristic personal transporters.

As the photo above shows, the Citibank crew clearly had fun flying around the convention centre in these contraptions.

Indeed, one of the people who manned the stand reported back to head office with the following message: “I believe we have matured beyond just selling the product, and the whole theme of the stand was ‘Keep moving with Citibank’.” The reporter continued, “a stroke of marketing

genius”, given that, unlike other exhibitors, Citibank was not confined by the square metreage of its stand. But the clever stunt didn’t end there.

Apparently, those riding the Segways were tasked with bearing down on unsuspecting convention attendees, issuing them with spot fines and sending the offenders to the Citibank stand (where else?) to place the infringement notice into the barrel for a chance to win a set of travel luggage.

And if you’re wondering what the spot fines were handed out for, here’s just a sample: • Too many buttons undone on shirt (Insider is assured this only applied to male attendees) • Drinking coffee whilst walking in a public place

n a recent survey looking at the aggregation space, sister publication MPA asked the following question of franchise group Mortgage Choice: “How would the adoption of fee-forservice by some brokers affect your business model?”

The reply: “Mortgage Choice will continue to be an industry leader … We have a strong team and … are determined to see the company succeed and grow … We are … working … on a future of positive growth and profit …”

Perhaps who ever wrote the response is considering a career in politics, but come on guys, if you don’t want to answer the question, just say “no comment!”

Aussie wizardry at its best

A

nyone who attended the second State of Origin game in Sydney may have noticed a photo of the NSW Blues team in the match program.

Unfortunately, we cannot reproduce the photo, but we can tell you that it featured the team with arms folded strategically across their chests so the jersey sponsor was not visible.

A week before State of Origin Game Three and the official photo shows the team have adopted a more relaxed pose, with arms by

their side, the Aussie logo clearly visible on their chests.

No prizes for guessing which logo they were hiding in Game Two.

The naked truth on staff morale

O

ffice morale can slip in the current environment, especially if you have had to lay people off due to the GFC. But if you want the naked truth about how to revive spirits in the office then perhaps consider the lengths UK-based advertising agency onebestway went to shake off a spate of redundancies.

Based on the advice of a psychologist, the staff at the Newcastle-based company decided to come to work on a Friday dressed only in their birthday suits in an attempt to deliver a boost to the ‘bottom’ line. (Staff warmed up to the task by photocopying parts of their body – thankfully there are no reports of anyone using the fax machine).

Giggles aside, the day was apparently a great success, so perhaps it’s something a couple of brokerages could try, though just how many brokers wish to see their colleagues in the buff remains to be seen.

If anyone does give it a go please don’t forget to send us some (tasteful) photos… it could give a whole new meaning to the concept of a ‘no-frills’ home loan!

For a cheeky look at this stunt go to: http://www.casttv.com/video/ liww1s/fox-news-video-worldnaked-friday-video

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Services

Australian Mortgage Awards 2009, 25th September, The Westin Sydney. Secure your table at www.australianmortgageawards.com.au Aggregator/wholesale broker Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 25

MORTGAGE MANAGEMENT/NON-BANK Mango Media 02 9555 7073 www.mangomedia.com.au page 1

short term lender Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2

Mortgage House Aggregation Services 1300 664 774 www.mhas.net.au info@mhas.net.au pages 16 & 17

NON CONFORMING Liberty Financial 13 11 80 www.liberty.com.au page 7

Interim Finance 02 9971 6650 www.interimfinance.com.au page 6

PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5

Oasis 1800 426 747 www.oasiscapital.com.au page 22 other services North Shore Mortgages (02) 8060 1825 www.northshoremortgages.com.au page 10

BANKS St. George Bank 1300 137 532 page 3 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 13 LEnder Eurofinance 02 9252 8311 www.eurofinance.com.au page 19

www.residex.com.au The House Price Information People

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Residex 1300 139 775 www.residex.com.au page 30 Symmetry 1300 723 613 page 23 Trailerhomes 0417 392 132 page 24

Homeloans Ltd 1300 787 866 www.homeloans.com.au page 18

Financial Services Online www.leads.financialservicesonline.com.au page 32

MKM Capital 1300 762 151 www.mkmcapital.com.au page 8

Finware 1300 762 444 sales@finware.com.au, www.finware.com.au page 31

NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 21 Wholesale Challenger 1300 786 552 www.challenger.com.au page 9 Resimac 1300 764 447 www.resimac.com.au newbusiness@resimac.com.au page 15 debtor finance Real Factor www.realfactor.com.au info@realfactor.com.au page 4

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