Australian Broker magazine Issue 6.20

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ISSUE 6.20 October 2009

Government stimulus helps build confidence

Parliament House

 After a boom fueled by grants, a recovery is about to begin The industry is gearing up for a broader and sustained recovery following an ‘artificial boom’ in broker-introduced mortgage settlements in the June quarter.

The surge was largely a result of the government incentives for first homebuyers.

According to MISC (Market Intelligence Strategy Centre) brokers wrote a record $18.3bn in settled loan contracts in the months of April, May and June – an 18% ($2.87bn) increase on the same quarter last year.

A spokesperson for MISC told AB there was “bit of artificiality” in the “extraordinary result” due to the confluence of a number of factors. These included first homebuyers accelerating their purchasing decision over

speculation that government incentives would be removed in the Federal Budget.

During the quarter, the average loan size increased to $267,724 (from $246,626 in June 2008) with much of this growth attributed to builders ‘accessorising’ their house and land packages to cater for borrowers with between $14,000 and $29,000 in federal and state grants money to spend towards their home purchases.

MISC expects loan sizes to decrease as these extraordinary factors dissipate and subsequent months to be down on June quarter settlement figures. But the million dollar question is, by how much?

Major industry players are optimistic about a sustained and broader recovery continuing for the rest of 2009 and into next year.

AFG general manager for sales and operations Mark Hewitt said its mortgage index for September revealed the biggest ever spike in investor loans in a single month (from 27.1% to 33.4%) and more “broader interest” across the market. After the surge in first homebuyers, he said, investors and second and third homeowners were moving up the chain. Hewitt added that a lot of grant demand was pulled forward on speculation, ahead of the Federal Budget, that the grants would cease.

Page 29 cont.

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The buck stops with lenders The much-debated proposed legislation that placed the onus to prove a borrower’s identity on brokers has been dropped Page 24

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Change management We get the lowdown on managing change across an organisation from several experts in the field Page 26

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Rising rates: back to normality AMP economist Shane Oliver explains why rising interest rates are a sign of an improving economy Page 28

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News

ACCC keeps hands off NAB/Challenger deal Key points  ACCC not to intervene in NAB/ Challenger deal  all products must be competitive in their own right: NAB  important part of NAB growth strategy  deal give NAB access to over 5,700 brokers NAB has re-affirmed its commitment not to interfere in the products Challenger-affiliated brokers recommend to clients, following confirmation that the ACCC would not intervene in its proposed acquisition of Challenger’s mortgage management business.

The ACCC confirmation follows earlier reports that key parts of the proposed $385m buyout deal might have been blocked by the commission over “market dominance” concerns.

A report in BusinessDaily had said the ACCC may seek undertakings from NAB to divest one of the businesses, in order to bring its share of the broker market to below 40%.

But the ACCC’s decision not to intervene in the deal was welcomed by the bank.

NAB personal banking group executive, Lisa Gray, said the acquisition

Lisa Gray

represented an “important component” of NAB Personal Banking’s growth strategy.

“It increases our presence in the important broker distribution

segment, and we will have the capacity to grow and support Challenger’s broker networks well into the future,” she said.

By way of commenting on the ACCC’s review of the deal, National Mortgage Brokers managing director Gerald Foley, wrote in the September nMB Intell newsletter. “It would be a surprise if ACCC approval was not forthcoming, given that the consumer proposition is unlikely to be impacted as brokers within the aggregator groups are still independent business operators, and above influence from their aggregator about their choice of lender. Maybe it’s just a bit of ‘chest beating’ by the ACCC after their normal role was largely steamrolled in some recent bank/ bank activities.”

Under the deal NAB will acquire three mortgage management platforms that service 5,700 brokers across Australia.

Acquisition overview The proposed acquisition includes: • PLAN, Choice and Fast aggregation platforms • Challenger’s multi-brand white label capability • discount acquisition of approximately $4bn in residential mortgages • interest of about 17.5% in Homeloans • an option to increase that interest to about 41%

www.brokernews.com.au Publishing director.... Justin Kennedy Managing editor.....George Walmsley Editor........................Larry Schlesinger Journalist.............................Tim Neary Production editor............ Tim Stewart Design manager..... Jacqui Alexander Designer...................Jonathan Phillips 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 8437 4772 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

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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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News

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Citibank hits ‘play’ button at Virgin Money Citibank says it intends to breathe new life into Richard Branson’s Virgin Money group in Australia with a deal to create new mortgages, credit cards and retail deposit accounts.

Virgin Money ‘hit the pause button’ on its home lending business in May last year, following funder Macquarie

Kim Cannon

Key points  Citi and Virgin sign 10-year JV deal  Plan to deliver full range on Virgin banking products  Virgin says it wants to provide Australians with additional choice  Citi says it signals a reemergence of competition in the market  Virgin has a history in Australia following an earlier Westpac alliance Bank’s decision to exit the wholesale and residential mortgage origination market.

But as economic conditions improve locally and globally, Virgin Money Australia and Citibank Australia have signed a ten-year agreement to jointly deliver a full range of Virginbranded banking services to the Australian market. The alliance will launch the first of its Virgin-

branded product range in mid 2010 with a deposit account and credit cards.

Matt Baxby, managing director of Virgin Money in Australia, called this agreement “a first for the market”, because of its comprehensive product range.

“This partnership with global banking leader Citibank represents a new focus and direction for the Virgin Money brand. It will provide Australian consumers with increased choice,” he said.

Roy Gori, chief executive officer of Citibank Australia, said the alliance signalled the reemergence of competition in Australia’s retail banking sector.

“Underpinned by Citibank’s well-established infrastructure and banking capabilities, this alliance will provide financial services and products to those with a strong association with the Virgin brand,” he said.

Commenting on the joint venture agreement, Kim Canon,

Five thousand to go, says AFG Australia’s largest broker group, AFG, has predicted that the industry will haemorrhage over the next year, eventually losing one third of its members.

AFG said that 5,000 brokers would be forced out of the industry as a result of increased costs and regulation.

MFAA CEO Phil Naylor would not comment on specific numbers, but admitted that the losses had already begun. “Everyone in the industry has been estimating that broker numbers will fall

over the next year or so,” he told AB. “Our membership is certainly reducing, and we’re expediting that process by cancelling a number of memberships because people didn’t qualify.”

Voula Kouroulis of My Choice Finance estimated that the number of exiting brokers would be closer to 2,500. She backed the MFAA’s decision to dump brokers who hadn’t completed the Cert IV. “They want to make the industry as regulated as possible, just to throw out all the

Phil Naylor

Richard Branson

FirstMac’s chief executive officer, said that for the Virgin Money brand to team up with Citibank’s infrastructure and access to funding would likely mean an enhancement to both businesses.

“Citibank will do quite well out of it, and Virgin will do quite well out of it [too],” he said.

Virgin Money became a major player in Australia five years ago when it linked with Westpac for a low-cost credit card that snared more than 750,000 accounts. But Westpac inherited them all when the contracted ended a year ago.

It is understood that Citibank beat NAB for the new Virgin deal. shonks,” Kouroulis said. “It’s cleared out a lot of people who weren’t ethical.

There was concern that honest ‘one-man band’ operators might be squeezed by the burden of licensing, Kouroulis said. But, Naylor hoped that would not happen.

“The idea is you’re keeping the good operators,” he said.

“I would think the more professional [brokers] would want to stay in the industry as they would see [more] opportunities.” The Australian Broker 2009 Regulation Survey revealed that the vast majority of brokers expect numbers to decrease as a consequence of regulation. Over half of brokers expect a drop in broker numbers greater than 15%. But 43% expect a modest decline of between 5% and 15%.

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News RAMS trims exception fees

Joanne Reid

With at least one, if not two, further rate rises expected this year (following the 6 October increase) with more to come next year as the economic picture brightens, the general consensus appears to be that borrowers will cope with small increases spread out over time.

When the RBA, led by governor Glenn Stevens, cut rates between October 2008 and April 2009 it sliced 400 basis points of the cash rate, with three drastic 1% cuts and one 0.75% cut.

However, provided similar size increases were not implemented and with similar frequency, the impact on borrowers would be small.

Smartline executive director Joe Sirianni told Australian Broker the RBA’s inevitable interest rate rises would not have a great effect on Australian property markets.

“Most people have factored it in,” he said. “It’ll certainly have an impact, but that will only be moderate. Anyone who’s buying a property now has that in the back of their mind.”

Sirianni was confident that the rises would be rolled out incrementally. “If rates rise 1% over a two to three year period, that’s not too bad. But if they rise by 1% in six months, then we’re all in trouble,” he said. “But that won’t be the case.

Rates will rise gradually and slowly over a longer period.

Most buyers are aware of it and they’ve hedged it.”

However Sue Trinh, senior currency strategist at RBC Capital Markets, expected rates to go up at a speed similar to which they came down –

something which would become an issue for borrowers.

According to Trinh, the market has factored in about 2% of hikes over the next 12 months.

“As [the RBA] were very fast and front-footed in terms of cutting rates, they are likely to repeat that on the way back up as well,” Trinh said.

More pressure was placed on rates by the strong retail sales figures reported in August. After slumping by 1% in July, retail sales jumped 0.9% in August, according to figures released by the Australian Bureau of Statistics (ABS) today.

Trinh said she was not surprised by the strong retail result.

“The average Australian consumer has held up very well due to fiscal stimulus and much better than expected rates of employment over the past few months,” she said. “[Stronger] retail sales, combined with strong housing credit growth, reinforces our expectation the RBA will be hiking rates in November.”

Glenn Stevens

Trinh said that 0.25% hikes in both November and December were now widely priced in by the financial markets.

Sirianni and Trinh’s comments followed the RBA governor Glenn Stevens’ appearance before a Senate inquiry into economic stimulus measures. Speaking at the inquiry, repeated his earlier warning that rates would rise. No timetable was given. However, Stevens said that future rate rises would be “timely and ahead of a build-up of imbalances that would occur if interest rates were kept low for too long”.

How interest rates have fallen during the GFC April 2008 to August 2008

rates left unchanged at 7.25%

Sept 2008

rates cut by 0.25% (7%)

Oct 2008

rates by 1% (6%)

Nov 2008

rates cut by 0.75% (5.25%)

Dec 2008

rates cut by 1% (4.25%

Feb 2009

rates cut by 1% (3.25%)

April 2009

rates cut by 0.25% (3%)

May to Oct

rates left unchanged at 3%

Source: RBA

People don’t want to be charged exception fees, and it is in lenders’ best interests to help customers avoid paying them in the first instance, according to RAMS head of product Joanne Reid.

Her comments follow the recent announcement by the non-bank lender that it has followed the lead of major banks and reduced fees associated with missed payments, dishonoured payments and arrears.

Effective 1 October, the fees on all RAMS home loan products were reduced to $15. The action includes cheque dishonour fees, 14-day default notice fees and 30, 60 and 90 days arrears fees.

Reid said the action was taken in response to customer feedback.

She added that RAMS appreciated that its customers wanted to avoid exception fees altogether, but it believed the new fee structure was easier to understand. She also said Rams would continue to work with customers “to help them to avoid these fees altogether”.

“We are not trying to punish them with the fees, since they are already charged late interest on overdue payments,” she said.

RAMS has now joined the CBA, Westpac and NAB in responding to consumer demand by reducing fees.

Slow and steady rate rises won’t be a problem guv!

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News AFG conference attendees chosen on quality

“Not all of them are big writers.

Some are settling $2m or $3m a month, but they are all doing a good job.” Hewitt said the feedback from the SMART delegates had been excellent.

“They said it was terrific being recognised on the basis of customer ratings.”

Western Australia-based Kerri Buurman, one of the brokers

invited based on their customer satisfaction rating, said it was very pleasing for smaller brokers to go to conference.

“It was a reward for the work that we did during the year. It was a great event and an opportunity for me to meet and network with other brokers similar to myself, who are not part of a large organisation.”

More than just mortgages Tony Ducancubino, Duca Finance Solutions & Bryce Deledio at the Sangkheum Centre for Children in Cambodia

AFG chose to deviate from standard practice when selecting brokers to attend its SMART escape member conference held in Cambodia in the first week of September.

Reflecting the industry’s focus on quality and professionalism, AFG chose delegates based on how they were rated by their customers – not based on the traditional measure of volume of business written.

Once a loan is settled, AFG sends out a post settlement customer survey using its SMART

CRM system, explained AFG’s Mark Hewitt.

“Customers rate the service they received from their broker, and over a six-month period the top 50 rated brokers were selected and invited on the trip to Cambodia,” he said.

AFG also brought across representatives from its biggest groups as it has done in the past, but this time, Hewitt said, delegates included a “new breed of people”.

“It ties in with the whole theme of professionalism,” he said.

While the emphasis of the AFG conference was on quality and professionalism, it wasn’t all just business for those who attended.

Delegates experienced some of the history and culture of Cambodia when they were taken on a tour of the magnificent Hindi temple complex at Angkor Wat and surrounding temples. But the highlight of the tour for most was The Sangkheum Centre for Children, a shelter for orphaned, abused and neglected children.

AFG donated 85 bikes and helmets. Members, sponsors and AFG staff spent a morning with the children putting the bikes together.

“Fortunately there were some very clever children who knew what they were doing! It was more often than not a case of the child showing the adult what to do,” the aggregator reported.

Kerri Buurman said she returned a second time after the conference to the orphanage and has since donated books and yo-yos for the kids.

“It brings you back to earth and makes you realise how privileged we are to live where we do,” she said.

AFG and individual members donated a further US$8,000 to help fund the centre’s operation.

For more pictures from the AFG conference, turn to page 30.

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News

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SME lending recovery some way off Top commercial broker Mark Turnbull says a recovery in SME lending is still some way off, though there are some encouraging signs.

Turnbull was speaking to Australian Broker after a number of major banks ratcheted up recruitment campaigns to bolster their business banking, corporate banking and SME banking ranks.

A report in the AFR said NAB was looking to recruit another 150 bankers in October, to add to the 150 already recruited in the last 12 months; Westpac has put 200 local business bankers back into branches, with another 250 in place to service the SME market

by March next year; and ANZ has already recruited more than half of its 130 small business bankers.

“The banks are gearing up for a

Mark Turnbull

Key points  major banks recruiting business, SME and corporate bankers  suggests they are gearing up for a recovery  Mark Turnbull says banks still shying away from unsecured lending  Scottish Pacific Benchmark expects bank lending to SMEs to remain tight recovery, and it’s certainly better than it has been in the past, but it has not yet unfrozen,” Turnbull said, pointing to the fact that “unsecured lending is still not there”.

Before the GFC, he said banks had been willing to provide unsecured lending to “good cash flow businesses”. “The funding is there to some degree, but it’s nowhere near where it used to be”.

But when markets start recovering, SME lending would be one of the first areas that would pick up, he said. “The market will pick up … but I am not yet certain when it will start recovering”.

Turnbull’s sentiments were echoed by Scottish Pacific Benchmark (SPB) CEO Peter Langham, who said banks were still restricting credit to small and medium size businesses.

Cairns hit hard Mark Turnbull reported that Cairns, the headquarters of Horizon Financial, has been hit particularly hard by the GFC – with unemployment at about 12% and rising by 1% a month.

“We lag massively behind Sydney – a couple of major developers have gone under,” Turnbull said.

Despite this grim statistic, Turnbull was optimistic about the future: “Next year will be better than this year. There are massive opportunities at the moment because people are getting out of the industry because they are finding it too hard.”

Registrations to kick off 1 April ASIC has confirmed new start dates for the registration and licensing of brokers.

Under the new timetable, registration for an Australian Credit Licence (ACL) will commence between 1 April 2010 and 30 June 2010 (inclusive) – not as originally intended from 1 November to 31 December.

Brokers will then have six months to apply for an ACL – between 1 July 2010 and 31 December 2010. New entrants will have to apply for an ACL from 1 July 2010.

Changes to the timetable came a week after Minister for Financial Services Chris Bowen’s announcement that Consumer

Credit Reforms would begin on 1 July 2010, not the previous date of 1 January 2010.

The decision to push back the calendar follows a recommendation by the Senate Economics Legislation Committee to give the credit industry more time to make the necessary changes to move to the new regulatory regime.

The requirement not to arrange or provide credit that is unsuitable will apply to brokers from 1 July 2010.

Other responsible lending obligations including disclosure requirements, such as upfront disclosure of broker fees and charges, will come into effect on 1 January 2011.

Brokers embracing diversification: Choice survey

strengthening their client service offering,” he said.

“Our focus as a business will be to ensure the continued depth of our lending panel. We will achieve this by adding commercial products, leasing and finance, insurance and other appropriate banking products.”

“This reflects the evolution of our business as one that is focused on financing broking, rather than just mortgage broking,” O’Donnell added.

According to the member survey, 74.7% of respondents currently offered insurance to their clients.

The majority of brokers now recognise the importance of diversification, according to a new survey by Choice Aggregation Services.

A solid 81.5% of respondents said it was appropriate to offer clients additional products, while 10.8% said it was not and 7.7% said they were unsure.

The aggregator said the results reaffirm the recent industry shift towards offering value-added products when writing a loan.

According to Choice CEO Brendan O’Donnell, it’s essential for brokers to diversify their product offering in order to ensure ongoing business growth and their client servicing proposition.

“Forging deeper client relationships through a wider product offering will help brokers maintain revenue through all market conditions, as well as

Brendan O’Donnell

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News Homeloans Ltd looking for broker support Homeloans Ltd, the listed mortgage manager, will spend the next six months targeting brokers who are capable of looking at alternative lenders to the major banks.

This follows research carried out involving over 2,000 respondents which found that

Tony Carn

nearly seven out of ten are open to using an alternative lender to the traditional mainstream banks.

It also uncovered a strong sentiment against the Big Four among almost one in every two respondent. Fifteen percent said they disliked using banks and would avoid using them where possible, and 33% saying they did not like big banks but accepted that they had to use them.

Carn said Homeloans Ltd would educate brokers that it is delivering products that compete with the major banks, has a unique brand only available to third parties and has very low deferred establishment fees – with no clawbacks.

“We are building up our capabilities in the full-doc space,” he said, adding that since introducing an e-application through Next Gen online submissions had gone up from

Space for brokers to grow among ‘the undecided’ Research carried out by Homeloans Ltd has revealed a big opportunity for brokers among undecided consumers.

Over 2,000 respondents took part in an independent survey which asked questions about their perceptions of brokers and banks versus non-banks.

On the question of “Would you use a mortgage broker?” 41% indicated they would use a broker, and only 20% said they would not.

But the most interesting finding was that the remaining 39% sat on the fence, choosing the response: “Maybe, maybe not”.

“This indicates that there is a lot of space for brokers to move into,” said Tony Carn.

The survey also revealed that WA remains the most broker-friendly state, with 50% of respondents saying they would use a broker, followed by Victoria. The least broker-friendly states were NSW and Queensland.

It also showed that high-income earners were less likely to use a broker than those earning more modest salaries.

16% to 60% from January to September. “We expect them to reach 95% to 100% in the next six to 12 months,” he added.

Since last year, the lender has repositioned itself as a competitive alternative to the majors in the full-doc space – rather than a mortgage manager

Long wait for commercial recovery It could be a long wail until the commercial lending market recovers to pre-GFC levels, according to Mortgage One’s Danny Masri.

Masri, who wrote $126m in loans in the last financial year and ranked number one in the 2009 MPA Top Commercial Brokers survey, told AB that he could not see the markets improving much over the next two to three years.

“Until the government guarantee fades away, nothing

really major will change. All the aces are in the banks’ hands.”

He said the government had “got it wrong” when it introduced its $1m deposit guarantee in October last year, effectively ruling out second-tier lenders and mortgage funds, who had traditionally invested in commercial real estate.

Masri said it was not sustainable to have the Big Four dominating commercial funding, and he urged the government to change its guarantee policy.

Danny Masri

focused on specialist areas. In the last financial year, sales of full-doc products soared from 51% to 90% of overall lending.

“We doubled our full-doc business in the 2008/2009 financial year,” Carn said, “and we want to increase it again to gain more market share.”

He also dismissed the idea that the major banks beefing up their corporate and business banking operations was a sign of recovery.

“It just indicates that the banks want to use their own channels over the third party,” he said.

He accused the Big Four banks of not playing fairly when it comes to dealing with commercial brokers. “Only the CBA has a dedicated commercial broker channel. None of the others do.”

Masri said obtaining funding remained a major challenge, particularly with deals greater than $10m.

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News Club Financial Services cleans up at AMAs

David Brell

Paul Bieg

Sam Zammit

Scott Vine

Mortgage lending and loan broking company, Club Financial Services, cleaned up at this years’ Australian Mortgage Awards.

Club picked up three awards, including ‘Young Gun of the Year’ and ‘Consultant of the Year’.

Club’s director of sales and marketing, Simon Norris, said the franchise group was thrilled that two of its consultants – Paul Bieg and Joshua Egan – had been noted for industry excellence.

“We’re incredibly proud of Paul and Josh. They’re outstanding Club ambassadors, and epitomise our core values,” he said.

Bieg and Egan were announced winners collectively for three categories, in front of an 800strong crowd of mortgage professionals at the gala awards event in Sydney earlier this month.

And while Bieg and Egan were part of the same club, the other winners were drawn from all walks of the industry.

Like Egan himself, some were back-to-back winners. Others paid homage to the teams that had supported them in their pursuits of excellence. Others still were left speechless, humbled by the industry tribute.

But to the last, all were delighted to be selected and recognised by their peers at the end of what has been another particularly challenging year.

Lending Solutions Group’s Scott Vine, who won the nonconforming broker of the year

category, said: “I’m very surprised. I won it last year and certainly didn’t expect to win it back to back; but this is a fantastic result.”

Smartmove’s David Brell, who picked up the prize for both independent broker of the year as well as the ‘under five staff’ brokerage of the year, said: “It feels great, but this is not my award. It’s on behalf of the whole team; they have put a lot of work

in towards this. We are a real family. We work together: when one person is down, we all stick together and come back as a team.”

And Plan Australia’s Sam Zammit – another double winner – said “I didn’t believe I would win the award since I’m just doing my job – returning phone calls and e-mails, and doing everything I can for my members,” when he collected the best aggregator

BDM prize. The big winner on the night was Joe Sirianni, who took home the Golden Morgie award for lifetime achievement in the industry.

“It’s an honour and a privilege to win this. Look it is nice to be recognised, you don’t do these things for awards – you do them because you enjoy it. And it’s great a great industry with great people – I mean I love what I do,” he said.

All the winners Brokernews most effective internet presence -Commonwealth Bank of Australia Best industry advertising campaign – St.George Bank MPA best industry service – FrontRunner Consulting Group Eurofinance best customer service from an individual office – Intelligent Finance Australian First Mortgage best new office on the block – WHO Finance Citibank franchise operation of the Year – Smartline Commercial brokerage of the year – LJ Hooker Financial Services; East Perth Pepper Homeloans brokerage of the year (under five staff ) – Smartmove; Neutral Bay Mortgage House brokerage of the year (over six staff) – Choice Home Loans; Berwick Finance Tools best aggregator BDM – Sam Zammit; PLAN Australia Best non-bank BDM (including mortgage managers) – Paul Concannon; Liberty Financial Connective best bank BDM – Gerard Rolfs; Commonwealth Bank of Australia Commonwealth Bank young gun of the year (franchise) – Paul Beig; Club Financial Services: Norwood Commonwealth Bank young gun of the year (independent) – Hany Pham; Central Choice: Footscray Australian College of Professionals broker of the year (commercial real estate) – Greg Wells; Wells Partners/Mortgage Link Liberty Financial broker of the year (non-conforming) – Scott Vine; Lending Solutions Group Broker of the year (commercial finance) – Danny Masri; Mortgage One Australia Royal Bank of Scotland broker of the year (equity release) – Darren Moffatt; Seniors First St.George Bank broker of the year (franchise) – Joshua Egan; Club Financial Services St.George Bank broker of the year (independent) – David Brell; Smartmove Commonwealth Bank Australian Rookie of the Year – Hany Pham; Central Choice National Brokers Group Australian BDM of the Year – Sam Zammit; PLAN Australia Westpac Australian Broker of the Year – Joshua Egan; Club Financial Services Westpac Golden Morgie – for lifetime achievement in the mortgage industry – Joe Sirianni; Smartline

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News

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CUBS compete with banks, offer choice to consumers

Louise Petschler

In a market that is increasingly dominated by the Big Four banks, credit unions and mutual building societies continue to deliver “real competition and choice” to the mortgage market, according

to Louise Petschler, CEO of Abacus, the body that represents Australian mutuals.

In addition, Australia’s mutuals are even more strongly capitalised than banks and have shown themselves to be prudent and responsible lenders, according to Abacus.

Credit unions and building societies enjoy capital ratios of 16.4% and 15% respectively – compared to the banks’ lower figure of 11.3%.

“Almost all the capital of credit unions and building societies is the highest quality Tier 1 capital. The reason for this is because it’s mainly comprised of retained earnings,” said Petschler.

The RBA’s latest Financial Stability Review confirmed the high prudential standing of credit unions and building societies.

Key points  CUBS have higher capital ratios than banks  arrears on home loans better than banks  RBA acknowledges contribution of CUBS in standing up to GFC  banks have increased market share and margin in last 12 months  CUBS regaining lost owneroccupier share Furthermore, the RBA has noted the part played by the mutuals in contributing to the wellcapitalised structure of Australia’s banking sector – a key factor in the overall resilience of the Australian financial system to the bearish effects of the GFC. Building society housing loan arrears are half that of the banks’. Additionally, the credit union arrears rate is less than a quarter of the banks’ rate, said Petschler.

The credit unions’ arrears rate of 0.15% compares favourably to the increasing 0.62% banks arrears rate – a result which

Petschler called “an outstanding performance”.

“The arrears rates for credit unions and building societies are around the same levels as in 2005, despite the global financial crisis and economic downturn,” Petschler said.

The RBA’s Financial Stability Review went on to report that the banks had increased their share of new owner-occupier loan approvals to 81% (from around 60% in mid 2007) as well as their interest rate margin on domestic lending from 2.11% to 2.24%.

The RBA also noted mortgage originators, smaller banks and, to a lesser extent, credit unions and building societies have lost market share since 2007.

However, Petschler was quick to add that both credit unions and building societies had been “winning back” lost market share.

“According to ABS data, credit union and building society share of the number of new owner-occupier lending commitments was up from 6.8% in July 2008 to 7.9% in July 2009,” she said.

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Tasso Papachatgis is managing director of Australian Life Insurance’s (ALI)

top ten tips …FOR cross selling Tasso Papachatgis reveals his top 10 tips for cross selling Tip 1: Know the pros There’s a lot of industry talk right now about cross selling.

It is relatively easy to integrate into your business, but you must understand why you are making this move. Offering a suite of products that support residential mortgages can help build stronger client relationships.

Tip 2: Set goals Your goals might be based on growing the number of products you offer, or achieving a certain dollar value of business (ie, the level of insurance cover written). As with any business targets, cross selling goals should be regularly assessed.

Tip 3: Prepare One of the real benefits of cross selling is that it is easy to introduce to your established residential offering. Focus on choosing the products that you feel are the best fit with your current offering. A perfect starting place is mortgage protection insurance.

Tip 4: Know your stuff Good brokers know their mortgage products, and the same should apply to their cross sell offering. Sound product knowledge will ensure that the client is matched with the best solution for their needs, and will also add a considerable boost to your confidence when presenting.

Tip 5: Be confident Your clients will take your lead when you present, and a confident pitch will get results. Confidence in cross selling will come with practice, but you can ensure that you fasttrack your self assurance by being organised, knowing your product and understanding its true benefit.

Tip 6: Pick the right partner Knowing that you offer the best product on the market is paramount for every broker. But as well as the product itself, you must be sure that the provider has the capabilities to support you as well as your client. Ensure you pick a partner that understands your needs.

Tip 7: Tools of the trade When cross selling it’s important to be backed by marketing collateral that you can use to support your presentation. Your product provider should be able to support you by providing good quality material. This material should help underpin the benefit of the product you’re offering, as well as the benefits and costs.

Tip 8: FAQs There are going to be common questions and concerns that arise so why not prepare an FAQ sheet to help address regular issues? This is an effective way to let clients know that they are not alone in their concerns, while helping to provide answers to their queries.

Tip 9: Paint a picture A case study is perfect for illustrating how a product can benefit your client by highlighting how it has helped someone else. We all find it easier to put things in to perspective when we see how others are affected – particularly when it comes to financial products.

Tip 10: Keep it real Don’t let cross selling take your focus away from your core residential mortgage offering. There are a number of products that have a close fit with mortgages, but beware of clouding your offering and confusing the client.

20 www.brokernews.com.au

News

“Licensing bar set too low” Chris Acret, managing director of 2009 AMA-winning franchise group Smartline, has expressed disappointment at the licensing requirements set to be imposed

by ASIC. Smartline, which has recently merged with WA-based Mortgage Force, said it had been preparing for licensing that “set the bar much higher” “The bar is incredibly low. We were expecting something midway between an AFSL and the WA licence.

“I don’t think [what they have proposed] will transform the industry, [and as a result] the banks will play a much larger role,” he said.

While not yet 100% certain, Acret said Smartline would probably get a central licence and accredit its brokers underneath as authorised credit representatives – something he admitted went against the grain of what other aggregators are planning.

“The big benefit for brokers is that it saves them the hassle of

going through the licensing process, and it saves them money, he said.

Furthermore, he said indications from ASIC are that even if the group does not hold the licence, they will hold them in some way responsible if a representative does something wrong.

Regardless, Acret said Smartline was confidence about its franchisees’ professionalism and ethics. “We are confident in our own professionalism, but nothing is full proof. You can’t prevent an incident from happening. But we would be confident our due diligence and systems would stack up against the best in the industry.”

The recent Australian Broker Regulation Survey revealed an expectation among brokers that aggregators have a major role to play when it comes to licensing.

Forty-six percent of respondents said they would be turning to their aggregator, franchise or head broker group to assist them

getting their licence, a far high percentage than both the MFAA (15%) and FBAA (19%) combined.

Other aggregators and broker groups have not yet decided which model they will adopt, but have indicated a preference for brokers to hold their own licences or charge a margin to cover the risk for holding the master licence.

In the AB regulation survey, 57% of respondents said they would require their loan writers to obtain their own credit licence.

Chris Acret

AMA award means we are getting it right: Smartline Winning the Australian Mortgage Award for best franchise operator is “testimony to the fact that we are getting the formula right”, said MD Chris Acret, after picking up the gong.

Acret said while the triumph recognised its “benchmark systems and marketing”, most importantly it recognised “that our people are passionate about what they do and about being part of the Smartline group”.

That wasn’t the only success on the night for Smartline. Its executive director Joe Sirianni was the popular winner of the prestigious Golden Mortgie for Lifetime Achievement in the Mortgage Industry, an award that recognised his contribution to the industry as a whole.

www.brokernews.com.au

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industry NEWS IN BRIEF Influx of brokers pushes up Connective settlements

Aggregator Connective eclipsed $800m in settlement volumes in July – a return up significantly from June’s $647m. Connective principal, Mark Haron, told AB that the aggregator had experienced a net increase of just over 400 brokers in the last 12-months, and it is this which has enabled it to increase settlement volumes “by nearly 100%”. Haron said that this growth was sustainable, since the number of brokers joining Connective has been averaging 37 per month for the last six months – and has shown no sign of abating. Haron was optimistic about the industry’s future, believing the non-bank sector was “definitely set for a revival” with many brokers keen to support it.

Broker franchise offers refunds

Australian Loans Management (ALM), which promoted and sold ‘licence agreements’ for a finance broking business called Active Money, has agreed to release franchisees from their agreements and refund them their money if they so choose. ALM claimed that these licence agreements were not franchising agreements.

The agreements failed to comply with the Franchising Code of Conduct, said ACCC chairman Graeme Samuel. “The ACCC has accepted court-enforceable undertakings from Australian Loans Management Pty Ltd and Active Money (Aust) Pty Ltd,” Samuel said. On its website, Active Money describes itself as a “boutique wholesale provider dedicated to assisting small to medium enterprise compete for business”. It offers opportunities for individuals or businesses to become accredited as registered introducers, or take up an “exclusive franchise opportunity”.

eChoice rides to raise funds for childhood cancer

Online mortgage broker eChoice announced a fundraising joint venture with the Steven Walter Foundation to help raise funds for childhood cancer research. eChoice has made an initial donation of $25,000 and aims to raise further funds during the foundation’s annual fundraising event, The Snowy Ride, which is a motorcycle tour through the alpine region of NSW. More than 3,000 people are expected to take part, and funds raised will go towards the launch of Answers for Kids Cancer, according to eChoice GM Brett Mansfield. “eChoice can play a significant role in connecting the community to the great work being undertaken in the area of childhood cancer research,” he said.

Sampson to oversee lending at Provident Capital

Steve Sampson has been appointed to the newly-created position of group national manager lending at non-bank lender Provident Capital. The role will include managing all facets of Provident’s lending, including strategic direction, funding and sales. It incorporates his position of CEO of Provident Cashflow. Sampson, a well-known industry figure, brings with him over 30 years of finance experience and will be charged with expanding the groups footprint across all distribution channels.

In his new role, Sampson said he would drive Provident’s growth in the non-conforming space. “I am excited about the prospects of Provident Capital increasing its position as a major alternative financier to the mainstream lenders,” he said.

Bank nonperforming loan ratios rising: RBA

Despite early signs of recovery recently, the GFC continues to affect the local mortgage business, according to the RBA’s recently released September Financial Stability Review. The aggregate non-performing loan ratio for banks was 0.69% as of June 2009, compared to 0.49% a year earlier. Furthermore the report found that in spite of lower interest rates easing pressure on borrowers, higher unemployment presented a serious risk to lender portfolios.

It also stated that credit union and building society arrears rates (0.15%) were lower than those of banks (0.35%).

Smaller banks were having to cut margins as business converged around the Big Four. Stephen Fergusson, senior manager of risk and compliance at Homeloans Limited, told BrokerNews that the non-bank sector was feeling similar heat. “The market’s certainly cleaned itself out a little bit,” he said, referring to mergers and collapses in the non-bank sector. “There’s been a lot of movement back to the big banks. Mortgage management is still competitive.

But we’re in a state of flux within the alternative lenders.”

22 www.brokernews.com.au

News

Industry thermometer  Over the past few months Brokernews has been running a series of online polls gauging reader responses to a range of industry topics.

Here are the results:

Are you writing (or have you written) a business plan for 2009/2010?

Respondents: 295

21%

Provident to expand nonconforming ‘footprint’

 Yes  No

79% Do you think the industry is in need of new loan products?

Respondents: 241

 Yes

57%

43%

 No Steve Sampson

Will non-banks bounce back in 2009/2010?

Respondents: 431

24.6%

75.4%

33.8%

66.2%

 Yes  No

Will the non-conforming sector make a comeback in 2009/2010?

Respondents: 363  Yes  No

Will you be getting involved with a community project this year?

Respondents: 225

18.6%

 Yes  No

Will you be undertaking extra study this year?

26.6% Respondents: 281

 Yes

81.4%

73.4%

 No

Are you concerned about rising unemployment rates affecting 15.4% your business?

Respondents: 453

 Yes  No

Source: Broker News online polls

84.6%

Specialist lender Provident Capital will be aiming to enhance its service to brokers as part of plans to increase its ‘footprint’ in the non-conforming sector following the exit of competitors due to the GFC. This was the vision put forward by Steve Sampson, the group’s newly appointed national lending manager.

Practically all of Provident business is written through its 5,000 accredited brokers, who servicing business owners and self-employed clients.

Sampson said the emphasis was now on better servicing brokers, and preparing them to take advantage of the “upswing in the economic market” and assisting them “finding those clients that may need assistance”.

“There are many borrowers, both commercial and individual, that have survived the downturn and incurred some damage to their credit or balance sheet.

Their circumstances are recovering, but traditional lenders may not show them patience. We can help,” he said.

In his new role, Sampson will manage all facets of Provident’s lending – including strategic direction, funding and sales. The new role also incorporates his position as CEO of sister business Provident Cashflow.

“The ramifications of the GFC have seen many lenders in the non-conforming sector of the market disappear, and this provides Provident Capital with a brilliant opportunity to increase its footprint,” he said.

Sampson added that he was “excited about the prospects of Provident Capital increasing its position as a major alternative financier to the mainstream lenders”.

www.brokernews.com.au

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24 www.brokernews.com.au

News analysis

Buck stops with the lender  After some speculation, proposed section 130(3) of the National Consumer Credit Protection Bill – which placed the onus on brokers to verify a borrower’s financial situation – has been deleted. Tim Neary investigates the impact

T

he government recently announced that it would delete proposed section 130 (3) of the National Credit Protection Bill on recommendation by the Senate Economic Committee.

Under the original version of the proposed legislation, lenders would have been entitled to rely on the information supplied to them by the broker.

“In other words, it would have been the broker’s responsibility to, for example, confirm employment and collect tax returns. This means lenders would have been able to say that they didn’t even want to see the tax return, and could simply believe what the broker told them,” says Steve Weston, Challenger’s general manager, distribution – broker platforms and lending, When a broker might have made a mistake from which a loss would have occurred, the lender could have reverted to the broker and legitimately claimed that since they relied on the incorrect figure, that the broker should carry part of the loss.

Not surprisingly, at the time the proposal was announced, lawyers such as Gadens were warning that were it to be passed it would prevent brokers from writing low-doc and no-doc business, with the potential to also increase PI premiums. And while undoubtedly making life harder for brokers, if the legislation had

Deferred legislation a good thing Challenger’s Steve Weston says he is pleased that implementation of the new credit laws has been deferred to July 2010 as it provides brokers and mortgage managers with “more time to prepare”.

The upside of regulation is that it will make individuals more effective as business people. But it will also mean there is more work involved in writing a loan.

“You have to be able to document why you believe ‘that was the right loan’. This means you need to have the systems and processes put in place – not an easy task,” says Weston. So, as far as he is concerned, the Senate Economics Committee has been very reasonable in understanding the systems and procedural requirements and accordingly deferring the kick-off date.

Steve Weston

gone through, it would have served purpose. “We would have wanted to make our own enquiries to ensure the borrower could pay the loan back,” Weston said. “While brokers and mortgage managers must make reasonable enquiries and verification, the ultimate responsibility must always lie with lenders because of their exposure to any default risk.”

Hunter gatherers

Peter White, national president of the FBAA agrees that the “final responsibility” for the risk decision rests with the lender – not the broker. He adds that the whole issue of proposed section 130(3) hinged on the fact that brokers are always what he describes as “the hunters and gatherers” of information.

“But it is the lender has to be the one that says ‘I am comfortable with this’ and to put pen to paper and approve it,” says White. He adds that while the onus will always be on the broker to make sure that the information is accurate, there is no one else that is more practically qualified to do the final verification other than the lender themselves.

Impact

White says while there is some discussion about a doubling up of work, the doing away with proposed section 130(3) means that “nothing changes from what is already happening today”.

“Brokers will still do some level of verifications – then there will be a final check, and a double check in some areas done by the lender,” he says.

“But, as a responsible lender wouldn’t you want to double check something to make sure that it is right?”

Peter White

What section 130 (3) proposed? “…if a preliminary assessment has been made by a credit assistant (such as a mortgage broker) in the preceding 90 days and the credit contract is found to be not unsuitable, the credit provider is not required to verify the consumer’s financial situation.”

www.brokernews.com.au

off the cuff Garry Driscoll Mortgage Ezy chief executive officer What was the last book you read?

The Rise and Rise of Kerry Packer Uncut by Paul Barry.

If you did not live in Australia, where would you like to live?

Anywhere warm, near the ocean and away from the city. Thailand would be a good option.

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

Lunch at Cocos in South Perth with The Bold Riders author Trevor Sykes; listening to stories about the corporate entities of the eighties, ex-ALP Senator Graham Richardson as he could tell some great stories about the political goings on at the time; football commentator Dennis Cometti who has a great sense of humour and turn of phrase; and Jill, my wife, who really enjoys a good lunch.

What was the first job you ever had?

My first job was as a junior clerk for the National Australia Bank in Sale, Victoria. I had a fantastic oldfashioned branch manager who taught me the value of being true to oneself.

What do you do to unwind?

I am a baseball umpire, and most weekends I am on the diamond somewhere around Brisbane. When you

are standing behind the plate with a pitcher throwing 94mph fastballs you must stay very focused, so all issues around work and business are forgotten for a few hours. Also I like to spend time on the water with Jill and the boys catching a few fish.

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

I recently bought myself a 5.5 metre Quintrex Centre Consol (fishing boat) – but I would not call it extravagant. I think it suits my personality – functional, practical and it gets the job done.

What CD is currently playing in your car stereo?

Paul Kelly’s Songs from the south.

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

Go hard and go early. Every successful business owner I know has had to put everything on the line a few times.

If I was not working in the mortgage industry, I would like to be…? …involved in sports administration. I have always been actively involved in sporting club committees and I get a real buzz about seeing people, especially kids, participating in all levels of sport.

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www.brokernews.com.au

Feature

Everything must change The broking industry (like others in financial services) is entering a phase of unprecedented change and upheaval – requiring participants to either adapt or die. Iain Hopkins gets some pointers from experts on how to manage change effectively

D

i Worrall, Di Worrall, author of A Climate for Change and principal of Worrall & Associates, believes there are interesting parallels to be drawn from change on a much larger scale: global warming. Worrall notes that global warming is an example of change that everyone knows about.

She believes it provides some important lessons that can address everything that does and doesn’t work about change.

“As an example, the first area where we fall over is in the mindset of the people who are leading change. They are not adopting the new ‘sustainable leader’ role that’s going to work in this day and age. The second stumbling block is in the systems we use. We’re caught up using industrial age systems that have been out-of-date for at least 30 years. We’re struggling with what makes for a sustainable business system,” she explains.

The third area, which Worrall maintains is where most of the change will come from, is what’s going on

around us. Environmental sustainability is a major issue and affects the way businesses are run. “What’s going to sustain our businesses in the future? We need to look carefully at things like accountability, trust and the environment. How do we make our relationships, our environment and our businesses more sustainable?” she says.

“These are massive areas, with one common thread: we need a new model of sustainability if our change programs are going to work.”

Sustainable change

Dr Tim Baker, managing director of local consultancy WINNERS-AT-WORK and author of The 8 Values of Highly Productive Companies: Creating Wealth from a New Employment Relationship, says it is tempting for new managers to look for instant gratification or point scoring. He adds that managers need to be “hard on the change and soft on the people”.

This means that they must demonstrate long-term, unwavering commitment to the change process but empathise with their staff in the adaption needed for the change.

“Unfortunately it’s often the other way round,” he says. “That is, managers are soft on the change and hard on the people. This means that they can be flimsy on the change project and too tough on people, thereby not committing to the process.”

Leadership thought leader Dave Ulrich tells AB that in order to achieve sustainable change it is useful to separate events from patterns.

“Change is too often an event, not a pattern. People go on diets, but don’t change their lifestyle. Changing patterns requires stable and sustainable actions that are woven into the daily actions of employees and organisational practices – for example, staffing, compensation, communication and training.

Sustainability comes when there are new routines,” he says.

www.brokernews.com.au

From controller to enabler

Worrall advocates a new model of sustainable leadership, but this too faces serious stumbling blocks. Part of the problem, she suggests, are the high expectations placed on leaders to perform in a certain way. “Our traditional education tells us we need to control everything. We’ve always been told that the leader is the one who is supposed to have the vision and make the tough decisions. It’s very much a top-down bureaucratic approach,” she says.

The new model of sustainable leadership mindset involves a move away from the ‘controller’ to the ‘enabler’. If a leader is not controlling, what do they do?

They enable things to happen, and they tap into the creativity of the workforce. They also remove obstacles.

“By removing obstacles you allow counter-intuitive change to start to take hold within the people. The key to sustainable change is that it sustains itself,” says Worrall.

There are new leadership models emerging, which break free from what Industrial Age thoughts of what a leader was and how they should act. Worrall cites an Indian company called HCL Technologies which is following in the footsteps of Brazilian company Semco.

“Semco is questioning the need for one person or one CEO in particular to lead the business. It’s questioning the traditional role of the manager having to know everything, to control everything. HCL won a Hewitt Best Employer award, so it’s producing impressive results. They are getting the change they want. They are shifting from the need to have a leader with a vision, to something that’s shared. They are deconstructing the hierarchical structures to allow the creativity, innovation and ideas from within the company to emerge,” she says.

Managers as coaches or enablers ask employees: What is your vision? What is your answer to the problem? Can you manage yourself? Can you set your own targets?

Indeed, many change programs fail because they are so dependent on the leader – to the point where if the leader takes a leave of absence the whole program comes crashing down. Why? They have tried to control it, rather than spending the time upfront to give people the opportunity to connect with it themselves, and find their own meaning and importance.

Leaders without followers

Organisations often revert to old habits because employees do not understand why change is needed, or they lack the tools and training required to sustain the new approach. Leaders may be effective at identifying what is wrong and how to fix it, but less effective at the ‘soft side’ of change management – that is, capturing people intellectually as well as emotionally.

“When people know the why they accept the ‘what’ and ‘how’,” says Ulrich. “But many leaders focus on what to do and how to do it, not why to do it. The ‘why’ or rationale for a change requires both cognitive and emotive cases for change. The intellectual comes from

How have you handled change?

Ross Miller, general manager, human resources, St.George Change point: Westpac/St.George merger “One of the keys has been good communication through the business. The St.George communications team is part of my unit and we ensure our communications are consistent right across the Westpac group and within St.George. We provide employees with good up-to-date information about what’s affecting them. Another important thing is, for a large number of employees at St.George, we wanted ‘business as usual’ during the merger. We gave them the confidence to be able to talk to their customers, but at the same time not get distracted by the merger.”

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data and showing what is wrong or could be better. The emotive agenda comes from capturing feels through experiences or stories.”

Dr Baker adds that managing change is as much about managing the emotional stages of change as it is about the change process itself. Staff go through four emotional stages of change – denial, resistance, exploration and commitment. Therefore, leaders must design their change management around these four emotions. “One of the challenges for managers is that they do not readily recognise and empathise with their staff. They need to put in strategies to help employees move through these four emotional survival instincts,” he says.

Vision and values

Worrall notes that a significant error of judgment made by many leaders is to assume that everyone is somehow aligned with their vision and values. They aren’t – the only vision and values they are aligned to will be their own.

“Everybody has the capacity to have a vision.

Industrial age structures told us that there were only a few people specially ordained to have vision. It’s not true. If we use the counter intuitive 21st century way of thinking, if I’m actually doing something that’s aligned to my personal vision, I’m 100% into it. All those lovely things we want from change, like discretionary effort and the cultural volunteerism, actually happen if what I do every day is aligned with what I actually want to be doing – however I define that,” she says.

“Step number one, in terms of the leader trying to get everyone heading in the same direction, is to step back and say, ‘here are the facts and figures, here’s where we’d like to go, where do you sit with that and is it something you can connect with?’ Together you develop a common vision. Creating the opportunity to get that buy-in process is the first step in any change program.

Let people connect with the change on their own terms,” she adds.

Dave Ulrich

Di Worrall

Tips for better change

Many change programs also fail because ownership of the change program rests with an external team of consultants, rather than the leaders responsible for running the business.

Leaders only have a superficial understanding of change leave it up to the consultants to take charge – often with disastrous consequences.

“Consultants are not owners of change, but architects,” says Ulrich. “Until leaders feel and personalise the changes, they won’t likely be sustained. People become committed to a change when they understand it intellectually, feel it emotionally, and act on it behaviourally. Consultants who want to create long-term change need to build intellectual, behavioural, and process agendas within the company so that leaders are fully committed.

Consultants are effective when they are not in front of the change, but behind it: coaching and advising leaders to make the changes happen.”

Open communication is crucial. Basic psychology reveals that people comprehend information in different ways. Some people like facts and figures; some like stories; others prefer the person speaking to them to really know their subject; and some people like to know the other person cares about them. Others need to blurt out their opinion without thinking about it; other people need to digest the information and perhaps share their opinion anonymously later on.

“If you construct every piece of communication this way when you’re trying to communicate to large numbers, then you’ll hit most of your population – or at least most of the population will have the opportunity to connect with the information in the way they know and can hear,” says Worrall.

Basic psychology reveals that people comprehend information in different ways. Some people like facts and figures, and some like stories

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www.brokernews.com.au

Inside economics

Rising rates: a return to normality With the RBA set to begin pushing up rates this year (with some analysts predicting two rate rises before the year is out), AMP economist Shane Oliver says this should be seen positively, as a sign of better economic conditions and improving job prospects

L

ast year and into early 2009 interest rates around the world were cut to emergency low levels to combat the fallout from the GFC. Monetary easing, along with fiscal stimulus, has been successful. With the crisis fading into history and economic conditions on the mend, it’s only a matter of time before interest rates start to move up towards more ‘normal’ levels. This will naturally cause some consternation. However, there are several points to note.

Firstly, the fact the interest rate cycle is likely to start turning up should be seen as a good thing.

Interest rates only collapsed because of the global financial panic and economic collapse. Rising interest rates will signal a return towards normality – better economic conditions and improving job prospects. They will only start rising because abnormally low rates have done their job and leaving them indefinitely at emergency lows will only encourage too much debt to be taken on and new asset bubbles to form.

Secondly, countries that have had relatively mild downturns and/or are likely to return to more normal conditions more quickly are likely to move well in advance of countries that have had deeper downturns and have more fragile financial systems and recoveries.

Australia’s downturn has been far milder than expected, and is a bit of a non-event by global standards.

The expected recession has failed to materialise, and housing indicators, consumer confidence, business confidence, business investment, and forward-looking labour market indicators have trended upwards.

Additionally, there are signs that the unemployment rate may be at or close to a peak. These factors suggest

Dr Shane Oliver is head of investment strategy and chief economist at AMP Capital Investors

that the recovery is becoming self-sustaining and the RBA will soon start to gradually raise interest rates.

Expectations

We now expect the RBA to start moving before the end of the year, with the cash rate at 5% by the end of 2010.

Similarly, while Asian and emerging countries generally had a sharp downturn in growth, they are recovering very quickly. China and India are leading the way, and are likely to start raising interest rates in the next six months.

By contrast, the US, Europe and Japan have had very deep downturns, greater increases in unemployment and will likely take longer to recover given various structural problems including the constrained flow of credit and the desire by households to reduce debt.

Given this, along with the likely absence of inflationary pressure for years to come and the need to unwind quantitative monetary easing first, they are likely to be slower to start raising rates. The US Fed is unlikely to start moving until around the middle of next year.

Thirdly, just because interest rates are starting to rise doesn’t mean they are going straight back to previous highs. Inflation is relatively benign, there is uncertainty regarding global growth and household debt levels are still high. This makes them much more sensitive to higher interest rates, so the process of raising rates is likely to be gradual. In Australia, the RBA is likely to move in occasional spurts then pause to assess the impact, much as we saw through the 2002 to 2008 tightening cycle.

What is normal?

The initial move higher in interest rates will simply be aimed at returning interest rates to more normal levels now the emergency has passed. But what is ’normal‘?

In Australia’s case it has been thought the normal level for the cash rate is around 5.5% to 6%, which is around Australia’s nominal long-term potential growth rate.

However, the gap between bank lending rates and the official cash rate is now one percentage point or more higher than was the case before the credit crisis began.

Given this, it’s likely that the normal level for the cash rate may have fallen to around 5%. Our view is that the 5% level for the cash rate in Australia won’t be reached until the end of 2010 and that monetary policy won’t move into tight territory (judged to be 6% or more) until 2011 or 2012.

Rising interest rates will signal a return towards normality

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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

sales data, housing, personal, commercial and leasing finance data, consumer and business sentiment, business and trade investment data, government borrowing and spending, consumer surveys results, global economic trends and lenders’ fixed rate movements (including pricing in future rate rises).”

Alternatively, the franchise group could just have asked borrowers to enrol in an economics degree.

>>

“If it was something the government did deliberately, then it was a very clever move on their part,” he said.

Since the budget AFG has seen first homebuyer numbers drop off. “Fifteen percent is the traditional level for first homebuyers and we expect it will come back to that next year.

Hewitt said while rates were the big unknown, people are now

I

warned senior corporate affairs manager, Kristy Sheppard.

And how do borrowers work out which way the RBA is heading on rates?

According to Mortgage Choice, you read and keep abreast of the following: “speeches and presentations by the RBA governor and representatives, articles written by economists and market commentators, employment trends and jobs data, retail and motor vehicle

very positive about employment prospects.

“Twelve months ago they were holding back because they were worried about jobs. This has dissipated and people are feeling safe in their jobs and are willing to commit.

“We are reasonably optimistic this will continue into next year,” he said.

Smartline director Chris Acret said signs in the market

gave it cause to be “reasonably buoyant”.

“Investors are coming back in. We are reasonably optimistic because markets are driven by confidence.

There is a feeling of increased confidence in the community.

Rates will rise but will still be reasonably low.

“We have also not seen huge increases in unemployment. As long employment goes along ok,

we think the market should recover,” he said.

Tony Carn, general manager of sales at Homeloans Ltd, said that on the back of steady improvements in the last six months he was “cautiously optimistic about steady strengthening”.

“We naturally expect a drop-off in first homebuyers, but there are plenty of investors coming into the market.”

Reading, reading and reading the signs

cont. from cover

‘A bit of light reading’

ometimes, Insider feels, it’s best for organisations to stick with their full names rather than resort to potentially embarrassing acronyms.

Readers may recall a few years back we reported on Canadian mortgage broking association the Canadian Institute of Mortgage Brokers & Lenders (CIMBL) which put itself up as a potential float in the Sydney Mardi Gras parade when it changed its name to the Canadian Association of Accredited Mortgage Professionals (CAAMP).

More recently and closer to home, the financial press reported on Refund Home Loans signing an agreement with financial planning group Professional Investment Services...or ‘PIS’ for short.

This resulted in a number of unfortunate headlines including:

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“Mortgage broker partners with PIS” (InvestorDaily) and… “PIS aligns with mortgage brokers” (Money Management).

They’re certainly not the only ones though. A few Google searches later Insider managed to track down UK mortgage broker, Professional Mortgage Services…or ‘PMS’ for short.

nsider admits to having a bit of a chuckle when it came across the welcome video from national president Peter White while perusing the latest issue of the FBAA’s e-mag “The Finance Professional”. The video kicks off with White at his desk reading a copy of the magazine.

As the camera pans in, White smiles, and introduces himself before admitting that he’s “just been caught catching up on a bit of extra light reading”.

He tells viewers that they can print off the magazine, read it on a plane or even pass it on to their friends…“whatever you like, it’s there for you”. So, FBAA brokers, we suggest you print off your own copy of the latest issue. Then kick off your shoes, loosen your tie, put on a James Morrison CD, pour a whiskey, light up a cigar and nestle in for a bit of… light reading.

(You can watch it at www. thefinanceprofessional.com.au in the August/September issue!)

Taking the PIS…

n the back of the Reserve Bank pushing up rates in October, Mortgage Choice came out with a press release urging borrowers to “take ownership over their mortgage situation”.

“Borrowers should prepare themselves for a festive season featuring higher mortgage repayments, and know where to look for signs of upcoming interest rate movements,”

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www.brokernews.com.au

Caught on camera AFG held its SMART Escape member conference in Cambodia from 3 to 6 September. A highlight of the trip was a visit to the Sangkheum Center for Children where AFG donated 85 bikes and helmets. Members, sponsors and AFG staff spent a morning with the children putting the bikes together 1

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Photo 1: Brendon & Deb Forster - Fast Track Home Loans

Photo 7: Bill Knighton & Belinda Bradshaw - Northwest Finance

Photo 2: Brendon Prior - Westpac & John Langley - RFS Finance

Photo 8: Happy rider

Photo 3: Helen Tardrew - Vogue Lending & Steve Seddon - Sabre Financial Services Photo 4: Orphanage kids Photo 5: Leigh Scukovic - ANZ & Daniel McNamara - Abound Lending Solutions

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Photo 6: Tony Ducancubino - Duca Finance Solutions & Bryce Deledio – AFG

Photo 9: Brad McGougan – AFG Photo 10: David Ham - Mortgage Australia Photo 11: Donna & Mark Harris Home Loan Connexion & Beccy Ras – AFG Photo 12: New helmet

www.brokernews.com.au

Services

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AGGREGATOR / WHOLESALE BROKER AMB Origination 1300 55 1118 www.ambo.com.au page 32

DEBTOR finance Cashflow Finance Australia 1300 788 945 www.cashflowfinance.com.au page 6

Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 21

LENDER Citibank Mortgages 1300 651 059 www.mortgagebroker.citibank.com.au page 11

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

Eurofinance 02 9252 8311 www.eurofinance.com.au page 19

PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5 Banks Adelaide Bank 1300 791 679 www.brokers.adelaidebank.com.au page 13 St. George Bank 1300 137 532 page 3 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 23 Think Tank 1300 781 043 www.thinktank.net.au deal@thinktank.net.au page 31

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Homeloans Ltd 1300 787 866 www.homeloans.com.au page 20 MKM Capital 1300 762 151 www.mkmcapital.com.au page 8 NON-BANK LENDER iLending 1300 610 035 www.i.lending.com.au page 15 MORTGAGE MANAGER / NON-BANK Mango Media 02 9555 7073 www.mangomedia.com.au page 1 NON-CONFORMING Liberty Financial 13 11 80 www.liberty.com.au page 7

Cityweb Business Services

OTHER SERVICES Cityweb Business Services 0417 665 983 www.cityweb.com.au page 14 North Shore Mortgages (02) 8060 1825 www.northshoremortgages.com.au page 10

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

Residex 1300 139 775 www.residex.com.au page 30 Trailerhomes 0417 392 132 page 29 SHORT TERM LENDER Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2 Interim Finance 02 9971 6650 www.interimfinance.com.au page 24 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 9 SOFTWARE/IT Finware 1300 762 444 sales@finware.com.au www.finware.com.au page 25

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