Australian Broker magazine Issue 7.4

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ISSUE 7.04 March 2010

Ambitious Suncorp wants broker support

Withdrawal symptoms

Key points  Suncorp affirms strong financial position  Bank funding for 2010 locked in and secure  Looking to expand distribution beyond Queensland  Brokers a key part of this expansion strategy  New product offering a 0.2% discount for limited time  AFG, nMB say Suncorp action further sign of green shoots emerging

Harry Hills

 Mortgage growth

envisaged outside home state for bank With its funding program locked in for 2010 and reduced dependence on wholesale funding Suncorp is looking to brokers to grow its presence outside of its home state.

As the only ‘A’ rated regional bank, Harry Hills, who is Suncorp’s regional general manager for the NSW metropolitan region, said the bank was “definitely in a strong position”. Hills spoke to AB as the bank launched its assault on the major banks, with its 0.2% discounted ‘Back to Basics’ mortgage campaign, which has no establishment fee and offers full

commission to brokers.

A bulletin to promote the campaign urged brokers to encourage their clients to “bring their home lending to Suncorp Bank with this great offer.”

“There are bigger opportunities in NSW and Western Australia.

You will start to see us be more aggressive in those states, [targeting] the disaffected clients of the major banks,” Hills said.

He said brokers would play a key role in expanding into these markets, where the bank does not have a major branch network.

“We need a larger profile outside of Queensland. We have 2% of the market outside of Queensland and we want significantly more through the broker space,” he said.

Hills maintained that the bank had always been heavily committed to brokers.

Page 28 cont.

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With the government guarantee for large deposits and wholesale funding ending, what impact has the scheme had so far?

Page 22

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Diversify to survive is the game plan Brokers who are looking to diversify their businesses and introduce new products and services take note: the compact disc got it right Page 27

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Pressure is on secure options A new secure options mortgage product is being released – but information about the release is slightly flaky, says Insider Page 30

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Advantedge to take on the banks Advantedge to Aussie: Let’s talk in a year’s time

Drew Hall

Through its support of mortgage managers, Advantedge will be looking to take on the major banks.

One of Advantedge’s key priorities for the year will be getting mortgage managers “back into the fray and competing with the major banks,” CEO Drew Hall told AB. Hall said the next 12 to 18 months would be very “formative” for Advantedge on the lending side.

He said Advantedge was looking to provide mortgage managers with “very good products and service”.

“It’s a great opportunity to differentiate on the service side, where we have seen issues with major lenders,” Hall said.

Besides funding and supporting mortgage managers, Hall identified the move to national regulation as the biggest issue facing brokers in 2010.

Drew Hall told AB he was surprised at comments attributed to John Symond in a Herald Sun article (in February) suggesting some Advantedge brokers were looking to jump ship and join Aussie.

“I am surprised to an extent that it was reported accurately,” Hall said. He said being coupled with NAB helped the broker groups (PLAN, FAST and Choice) overcome a massive funding hurdle that other groups are still struggling with. “[Being backed by NAB] has created a significant opportunity for mortgage managers and brokers, as well as providing regulatory support, lobbying support, funding and the ability to help with income diversification,” he said. “These are all positive – let’s all have a look at things in a years’ time.”

“Through PLAN, Choice and FAST, this will be a big year in relation to regulation and forming the appropriate levels of support and guidance as the industry transitions to national regulation,” he said.

Hall expects to see a reduction in broker numbers over the next

12 to 18 months as a result of regulation.

“Some will opt out due to the cost hurdle,” Hall said, though he still expects the channel to expand in terms of use by consumers.

Despite expecting a reduction in overall numbers, Advantedge is looking to grow its broker contingent.

“The CEOs of the aggregator businesses would be talking to broker groups all the time, and are very much open for business,” he said.

Advantedge is also sticking with its plans to keep the three aggregator groups separate businesses.

“We have no plans to bring these together – they service distinct customer groups,” Hall said.

“Scale matters” Asked if he thought there was room in the industry for smaller and boutique aggregators, Hall said it depended on the proposition of the various groups; “They will need to have something unique, for example offering lead generation,” he said.

“Scale is very important for technology, regulatory landscape … for security of trail,” he added.

www.brokernews.com.au Publishing director.... Justin Kennedy Managing editor.....George Walmsley Editor........................Larry Schlesinger Journalist.............................Tim Neary Production editors......Jennifer Cross ...........................................Carolin Wun Design manager..... Jacqui Alexander Designer...................Jonathan Phillips HR manager.................. Julia Bookallil Marketing coordinator...Anna Keane 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

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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Beware of “cracks” in trail The future of trail commissions has again been raised, this time

by FBAA national president Peter White.

White spoke out on the subject as part of a panel discussion on the lender-broker relationship at the recent Mortgage Processing Conference which included the CBA’s Kathy Cummings and NAB Brokers’ John Flavell.

Speaking to AB after the event, White said he had been vocal about trails at industry forums last year and warned that the broking market needed to be very conscious of future trails being paid. White said the cracks were already in the ground with banks

paying no trail in the first year.

“How many times have you seen banks take something away then give back it. In 30 years in the industry, I haven’t seen it once.

The erosion has started … it won’t come back again…”

To combat this, White encouraged brokers to look at the non-bank sector where there are “no volume hurdles and trail in the first year. There are plenty of non-bank products suitable for clients’ needs,” he added.

White said he received a muted response from the audience to him raising the topic but pointed out that it was not a broker conference.

Despite this, he said the issue

Peter White

needed be raised and addressed.

Asked to comment on White’s concerns, Drew Hall, CEO of Advantedge, said he had no

similar concerns about trail. “We saw banks make their move at the height of the GFC in an environment where they could do that. The acquisition of Advantedge [by NAB] cements that recognition of value in that channel. It is a natural blocker.”

Providing a brief overview of the advent of trail in the market, White said that in the early 1990s trail was paid to mortgage managers to manage the book.

“They got 40 or 50 basis points… when the broker proposition grew, they demanded trail and they got 20 or 25bps to help keep the client and provide a service. Over the years though, other countries have stopped paying trail, though brokerage fees are higher…we’re the last man standing,” White said.

Strong broker channel drives bank loan growth Financial results published by three of the major banks as well as those filed by Bendigo & Adelaide Bank all attributed loan growth, in part, to their participation in the broker channel.

The CBA’s controversial accreditation policy did not deter brokers from promoting the bank’s mortgages, after it revealed half year results which showed a 49% increase in home loan income.

Mortgage income rose to $1.19bn for the half year ending 31 December 2009, attributed to increased market share and significant growth in outstanding home loan balances.

The bank said mortgage book growth was supported by its competitive standard variable home loan rates and a “strong branch and broker presence, with both channels continuing to outperform market growth”.

NAB’s December 2009 quarterly trading update also noted the contribution of its

recently acquired Challenger Mortgage Management business, now rebranded as Advantedge and made up of brokers from PLAN, Choice and FAST. The Challenger acquisition added approximately $4.5bn of mortgages to the NAB book.

However, the bank continued to struggle to grow its mortgage book compared to its major rivals – CBA and Westpac – with NAB reporting that by excluding the Challenger acquisition, “the mortgage book grew at approximately 0.9 times system.”

In comparison, Westpac’s mortgage book grew at 1.8 times system growth, though its quarterly update did not break this performance down into its different distribution channels.

However, in its 2009 annual results released only a few months ago (November 2009), Westpac said brokers accounted for 45% of all loans written.

Bendigo Bank, which achieved cash earnings of $139.7m (an increase of 24.4%) for the half

year ending 31 December 2009, sold 35% of its mortgages via brokers.

On a volume basis, the bank’s mortgage book stands at $42.2bn with 46.8% of this made up of “third-party mortgages”.

Presenting the results, group

managing director Mike Hirst revealed that margins were improving in the broker channel.

Hirst said there were now opportunities to grow the business via third parties who desired a “genuine funding alternative to the major banks”.

Comment: bank profits reveal divide The divide between the major banks and the rest was brought sharply into focus in February after the CBA, NAB and Westpac revealed profits in the billions of dollars, for half year and two quarterly results respectively.

Contrast the $2.94bn half year profit recorded by the CBA, Australia’s second-biggest bank, with the $23m half year profit for the Heritage Building Society, Australia’s biggest building society.

It’s even more astonishing when you consider that the Heritage’s profit result was a 50% increase on the previous year.

However, the building society did outshine its bigger rivals in at least one area – arrears.

The building society recorded loan arrears greater than 30 days at just 0.21%, compared to the CBA’s impairment expense on gross loans and acceptances of 0.55%.

Admittedly, it may be unfair to compare the two given the huge difference in loan book sizes, but it does reveal that building societies like Heritage are very prudent lenders.

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Ziggybid still swimming Home loans auction website Ziggybid.com.au, which began operations in November 2008, has not been impacted by the recent financial troubles of its high-profile shareholder, Olympic legend Ian Thorpe.

According to an article in the Daily Telegraph (13 February),

Key points  Ziggybid.com.au backer Ian Thorpe in cashflow crisis  Former swimmer hurt by GFC and drop in sponsorship  Website operating as usual, not impacted  Non-FAST brokers allowed to bid for business

Thorpe, Australia’s five-time Olympics swimming champion, suffered cash flow problems as a result of the GFC. Thorpe has a stake in Ziggybid. com.au which allows brokers and lenders to bid for business from borrowers. He is also the face of the business, appearing on the home page and in a series of videos, including one where he explains home loans.

A spokesperson for Ziggybid. com.au told AB the site was operating as usual. Due to it being a private company, Thorpe’s investment in the business remains confidential.

The newspaper reported that Thorpe’s “serious cashflow problems” were the result of him

“shedding lucrative sponsorship deals to focus on his university studies”.

Besides his share of the mortgage auction website, Thorpe also has interests in a Chinese private equity fund, sports drinks and tuna steaks. He also has his own brand of underwear and toiletries.

In more positive news, the Ziggybid.com.au spokesperson told AB that it had changed its policy on brokers seeking accreditation.

When it first launched the website, it drew the ire of many brokers when it was revealed that it had an exclusive relationship with FAST brokers and would not accept brokers from other aggregators.

Brokers smash bank managers on personal touch A recent survey from leading mortgage broker group Loan Market has revealed that the majority of borrowers rarely have contact with their bank manager on home and personal finance matters.

From the 660 people surveyed only 12% recorded regular contact with a bank manager, 56% didn’t know what or who their bank manager was, and 32% responded that they only heard from their bank manager when there was a problem.

David Johnston, director of Property Planning Australia, wasn’t surprised by the survey’s results. “One of the main reasons the broker market has grown over

the past 10 years is because of that lack of service from banks and bank managers from a lending point of view,” he said.

Johnston suggested that borrowers are increasingly looking for someone who offers a financial planning approach.

“The biggest commitment a borrower will make is their home loan. Borrowers are looking for someone to make sure they structure their loan correctly to achieve the maximum number of benefits, but also someone to talk to in the long run about whether they should buy, sell, hold or invest,” he said. “Banks just don’t offer that service.”

Scott Beattie, business

David Johnston

development manager at Cube Home Loans, agreed. “Brokers provide a much more personalised service, the way banks used to.

The days when you used to get dressed up with your parents to go meet the local bank manager are gone,” he said.

However, ANZ representative Stephen Ries maintains that customers have the ability to organise their loan face-to-face at a time and place convenient to them. “Mortgage brokers remain an important part of our

Ian Thorpe (L) with Glen Spratt, founder of Ziggybid

This has since changed, though the website still favours FAST Brokers. “We will allow other brokers to bid for loans provided they are properly accredited. The only difference is that a non-FAST broker pays our fee in advance after they win the bid whereas FAST collects the fee on behalf of Ziggybid,” the spokesperson said.

distribution network, “said Ries.

“But customers also have the option to work with us directly when organising their lending needs.”

While bank managers may be able to build a presence in the community, they don’t hold their positions long enough to create strong relationships, said Justin Doobov, managing director of Intelligent Finance. “Most clients don’t want to walk into a bank or deal with someone that has a nine to five mentality. Brokers pick up the call 24/7. We know our clients and focus on the solutions that suit them,” said Doobov.

Xavier Quenon from Go Mortgage sees the survey results as a big plus for the broker proposition. “At the end of the day, brokers provide unbiased advice.

From the perspective of a mortgage manager, we can provide the personal service that the banks have lost. We are the point of contact for the client for the lifetime of their loan. I don’t think the banks can change that.”

Read the latest issue of Australian Broker online www.brokernews.com.au ASIC has suffered a spate of embarrassing courtroom losses of late, but the soon to be credit regulator, appears to be equally out of touch when it comes to the licensing of mortgage brokers.

Just before Christmas, ASIC saw its case against mining magnate Andrew Forrest and his Fortescue Metals Group rejected

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ALI weighing up options in Mortgage Shield stoush The battle between insurance providers Mortgage Shield and Australian Life Insurance (ALI), who both sell their products via brokers, has turned ugly.

ALI is considering its options and has not ruled out legal action following an e-mail campaign by Mortgage Shield which labelled ALI’s referral-based products an

“inferior option” for brokers’ clients.

In an e-mail newsletter to brokers, Paul Davies, director of Mortgage Shield, wrote: “Over the past few years, there has been a number of different ‘No-Advice’ insurance providers, ourselves included … Are you an ALI user?

If so, there is help available …

Readers not impressed with campaign Comments submitted on Broker news suggested brokers were not impressed with Mortgage Shield having a go at competitor ALI. “I automatically distrust companies who feel they have to slag their competition. If Mortgage Shield had operated in a professional manner I would have looked into their offering. Now though, they seem like cowboys,” wrote ‘Robert’.

A similar sentiment was echoed by ‘Brett’ who wrote: “A golden rule where slamming your competitor.... never mention any names! A little crass and a sign of desperation.”

For more responses from readers go to: http://www.brokernews.com.au/news/breaking-news/inferior-offeringmortgage-shield-taunts-ali/40302

These products are ideal when talking to clients who are about to commit to the biggest decision of their lives, by offering them a solution. But, by offering them an inferior product to what is available, are you really helping them?” When brokers click on “help available” the link fires up an e-mail to Davies with the headline: ‘’I’m an ALI user – Please help!’’

Davies stood by the e-mail when speaking to AB, claiming he was coming up against a lot of brokers “who don’t know any other option”.

“They have been misled about what insurance offers are out there for them. Some think ALI is the ‘be all and end all’,” he said.

Robert King, head of corporate development, marketing & product at ALI, said a number of brokers had forwarded on the Mortgage Shield e-mail. “We obviously don’t agree with this and intend to take

this up directly with Mortgage Shield. We don’t see any value in making further comment,” King said. Asked if ALI was considering legal action, King said: “Not at this stage but [we’re] keeping [our] options open.”

Rather than choose to “tap on” an additional service to the client for the sake of an extra commission, Davies wrote in the e-mail that smart brokers “would actually take the initiative to align themselves with an industry professional ... or train themselves up to integrate insurance into the advice of the loan.

Through its parent company PDFinancial Group, Mortgage Shield offers brokers the ability to become licensed and sell insurance as a sub-authorised representative. “This gives you access to a variety of insurers, not just MLC or Tower because most clients can source a better deal elsewhere,” Davies wrote.

ALI has been successful in recruiting brokers to offer their clients three months-free risk insurance cover in a no-advice referral arrangement. Brokers are also incentivised with iPods and cameras for top referrers.

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Brokers show support Stringent for high LVR products selection process for potential franchisees

Sarah Eifermann

The decision by mortgage manager Australian First Mortgage to introduce a fulldoc 95% LVR product aimed specifically at first homebuyers has been welcomed by brokers.

The arrival of the new product comes as financial comparison website Rate City noted a significant drop in high LVR products.

According to Rate City only 20 loans are now offering 98% LVR and only 89 are offering 97% LVR – a drop from 355 such loans in 2008.

Glen Spratt from Mortgage Port believes the product is a necessary addition to the mortgage market.

“Just because someone is borrowing 95% doesn’t make them a poor credit risk,” he said.

“The first home owner grant has been whittled back and with less cash available the 95% loan is needed.”

Mortgage planner Sarah Eifermann from SFE Loans agreed. “There’s definitely a call for it in the marketplace,” she said.

“The banks have driven the savings pattern over the past 10 years. When they suddenly

lower their LVR it makes it hard for first homebuyers who haven’t saved a deposit,” said Eifermann.

Eifermann believes that as banks lower their LVR, brokers will find it “more difficult to offer a variety of products” to their clients.

“If you’re an existing client of some of the big banks and you’ve had a credit card or car loan with them you can sometimes borrow up to 95%. But it’s really tough for people that can’t save,” she said.

Stressing the difficult position of first homebuyers in a rapidly increasing housing market, Jim Ellis of Smartline said that there was “a definite need for high LVR products for genuine borrowers.”

“By the time a first homebuyer has saved a sufficient deposit the property they are looking to buy becomes out of their price range,” said Ellis.

In today’s tentative lending market it appears the new product from AFM is seen as good competition.

“We’re starting to see smaller lenders fill the gaps left by big banks which is good for the industry,” said Damien Roylance of Property Planning Australia.

“It’s a great initiative from AFM,” said Roylance. “They’re showing their confidence in the market and in first homebuyers who are keen to break into home ownership. I say bring on the smaller lenders.”

Following a recent decision to accelerate growth in franchisee numbers, Smartline has made public its commitment to a stringent franchisee selection process.

Managing director Chris Acret said that it was vital that franchisees reflect the “performance and standards” Smartline has built its business on and that it is not afraid of putting “high hurdles” in place to maintain that quality.

An extensive interview process that includes a meeting with a Smartline director and psychological testing is required for all those looking to join the group. “We make no apology for setting the bar high for those looking to join Smartline,” said Acret.

Other mortgage broking franchise groups Australian Broker spoke to also have high expectations for potential franchisees. Tony Pennells from Wealth Today told AB that franchise opportunities were only

available to experienced brokers and financial planners with proven proficiency at running a business.

“We don’t select newcomers,” he said. “We select those who can demonstrate they will succeed in the franchise process.” When asked what he looks for in potential franchisees, Pennells said Wealth Today seeks out candidates with two key qualities – proficiency and longevity.

“We only select those who are already self-employed and who have a demonstrated commitment towards customer service,” said Pennells.

RAMS national franchise recruitment manager Maria McQuillan agreed with the tough selection process required for potential franchisees. “We believe our selection process enables both us and the franchisee to conduct due diligence and research in order to make an informed business decision. The process is tough but that’s because we want to be completely transparent and set realistic expectations.”

With a process that typically involves creating business and marketing plans, competitor research, psychometric testing and a minimum of five interviews, this means a franchisor such as RAMS will “attract the very best in the industry,” said McQuillan.

For those that make the grade, ongoing support and training is provided to ensure compliance and success.

Chris Acret

Tony Pennells

Key points  AFM offering full-doc 95% LVR product  Brokers support introduction of such products  Harder for first homebuyers to save bigger deposit

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News nMB brokers get access to badged products Brokers operating under National Mortgage Brokers (nMB) will be able to offer their clients an exclusive nMB-badged loan following the aggregator joining forces with The Rock Building Society.

The variable, fixed and packaged ‘nMB Direct’ loans will only be available to nMB brokers and will not have any minimum volume hurdles.

Speaking following the launch of the product at the aggregator’s national conference on the Gold Coast, nMB managing director Gerald Foley said he has been concerned for quite some time about the high level of market share being

directed to the major banks.

“I am also worried that lenders are more and more rationing accreditations for loan writers, limiting the growth of the mortgage broker market place,” he said.

Foley said the nMB Direct loan products initiative was “exciting” because it would bring true competition back to the mortgage landscape, which is good for brokers and consumers.”

Speaking to AB, Foley said in response to the major banks’ dominance, nMB was keen to have product where it has a little more involvement in brokers being accredited.

He said he didn’t want to be

critical of banks and then launch a bank-funded product.

With funding from The Rock, he said brokers would be able to offer their clients a good sharp set of products. “The Rock does things in a very simple way without over-engineering them.

Things get done. They don’t take 14 days.”

The Rock’s mortgage and insurance broking executive, Warren Darnill, said he was enthusiastic about providing “a unique range of branded nMB Direct products, which will provide more variety in a mortgage market that is dominated by a handful of major players”.

“We have been looking at the nMB relationship as a way to write mortgages using the broker market, without the need to provide the “sales” piece.

“We have established well-

structured wholesale and retail funding capabilities, with no reliance on securitisation for new funding requirements,” he said.

Darnhill said The Rock has a centralised loan processing unit which is open to broker dialogue and streamlined credit processes.

Key points  The Rock to fund nMB suite of loans  Gerald Foley says they will provide true competition  Will also give nMB control over accreditation  No minimum volume hurdles  Products only available for sale by nMB brokers  The Rock committed to working with brokers

A new beginning for Kinglake broker On the first anniversary of the Black Saturday bushfires that ripped through Victoria last year, Damien Warren stopped for a quiet drink and a moment of reflection with his mates.

With his home and office in ashes, Warren, a Kinglake mortgage broker, faced the difficult task of rebuilding his business after losing everything to the devastating fire.

“I lost the lot,” he said. “On the mortgage side of things, I lost all of my data. My business was burnt to the ground in one day.”

With his databases destroyed, Warren had no choice but to start again from scratch.

“Because my backups were destroyed all my client files were locked up in the banks. I couldn’t do anything until a client contacted me to refinance or vary their loan, and even then I had to process them as a new

application,” he said.

If that wasn’t enough, his accreditation was cut by two major banks due to his low loan volume.

“I’m not the only broker that this has happened to. But it’s hard to rebuild your business from nothing and then lose accreditation because you aren’t referring enough clients,” he said.

Struggling with a 60% drop in his income, Warren was forced to move back to his home town of Adelaide.

“I had to move back in with my parents. I’m just lucky I’ve got the sort of parents who would take me in,” he said. “For six months I was working at mum’s table,” he joked.

“It was the best I could do.”

Thankfully, even the darkest of clouds have silver linings. Twelve months on and Warren is finally getting his business, and his life, back on track.

Damien Warren’s office after the fire

“I’m just starting to work through everything that happened. I’ve had to face the realisation that everything I’ve worked for over the past 20 years has gone out the window. But it gives you the chance to build a new life, get a fresh start.”

That fresh start includes a new business focusing on extending lease finance to affiliate brokers, and twins due in August.

“Six months ago I started to rebuild my business out of my partner Shelley’s spare room,” he said.

“I’m still struggling, but with twins on the way I’ve got to re-establish myself.”

Now settled in Adelaide, life is going well for Warren, who has no plans to return to Victoria. “Much as I love Kinglake, it’s time to move on,” he said.

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Swan: RMBS scheme has done the job

Wayne Swan

According to Federal Treasurer Wayne Swan, the Australian Office of Financial Management’s (AOFM) RMBS investment scheme has helped to restore competition among lenders.

In his 22 February economic note, Swan said AMP’s decision to cut mortgage rates by 10bps demonstrated that the RMBS investment scheme was working.

Swan said AMP managing

director and chief executive Craig Dunn had written to him to inform him of the rate reduction and to say that “this reduction in interest rates has only been possible because of the improvement to the securitisation markets flowing on from the government’s support”.

“It was also encouraging to read Mr Dunn’s statement that ‘we are also hopeful that we will be further able to reduce our rates in the coming months, as we gear up our operations in light of ongoing improvements in the securitisation market’,” Swan added.

The Treasurer said the government direction to the AOFM to invest up to $16bn in Australian RMBS had supported competition in Australia’s mortgage market, “enabling smaller lenders to lend at competitive interest rates and

maintain a higher level of lending than would otherwise have been possible during the global financial crisis”.

“As Australia recovers from the global recession and official interest rates move from their emergency 1967 levels, the government will continue to do whatever we can to boost competition in the banking system,” he said.

Swan’s comments came as Moody’s Investor Service released its Q4 2009 Australian RMBS Review, which reported that the performance of the Australian mortgage market was stable in the last three months of 2009, with delinquency levels remaining within long-term average ranges for both prime and non-conforming RMBS transactions.

Furthermore, the report said stable collateral performance was

expected to continue in 2010 in light of the improved forecast for interest rates and the labour market.

In his note, Swan also highlighted comments made by RBA Assistant Governor Guy Debelle regarding the “sizeable RMBS issues by ME Bank, Bendigo and Adelaide, Westpac and most recently AMP and Bank of Queensland.”

Debelle said the spreads on the recent RMBS issues indicated that RMBS was again beginning to provide a competitive source of funding, particularly for the regional banks and non-bank lenders which had both previously depended more on this source of funding.

Key points  AMP says government RMBS scheme helped it cut rates  Treasurer says this is evidence the scheme is working  Moody’s outlook for RMBS delinquencies good  RBA says RMBS spreads for non-banks is competitive

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movers & shakers Name: Andrew Gale From: Deloitte To: Count Financial Title: CEO and managing director Gale has over 25 years experience in the financial services industry – primarily as a Deloitte Partner and in senior executive roles in distribution, financial planning, marketing, strategy and divisional/ general management with MLC and AMP. He joins from Deloitte and will take up his appointment around the end of March.

Name: Zali Rogers From: Skandia To: QBE LMI Title: Senior manager, people & culture Reporting to CEO Ian Graham, Rogers will lead QBE LMI’s human resources and culture and capability development initiatives. She brings with her over 12 years’ experience in human resources, gained predominantly within the financial services sector. She joins QBE LMI from Skandia, where she moved up through the HR ranks to become head of HR. Name: Helen Triplett From: Australian Life Insurance To: Lifebroker Title: Business Development Manager, Victoria Triplett, the top BDM at Australian Life Insurance for the last three and a half years, joins the Lifebroker team in Victoria to help broaden the aggregator channel. She spent four years with Australian Life Insurance building up her market. And Triplett has extensive knowledge of the broker market, having worked as a mortgage broker herself for a period of time.

Name: Simon Reibelt From: Rodgers Reidy Chartered Accountants To: Oasis Home Loans Title: Northern Beaches Franchisee Reibelt completed his Business Marketing Degree at Charles Sturt University and went on to work for GE Capital in their commercial finance arm.

In January, Reibelt commenced his longawaited career move as franchisee for Oasis Home Loans in Sydney’s Northern Beaches as well as providing marketing support to Oasis head office.

Name: Bart Doull From: LCollect To: AAMC Training Group Title: Business Development Manager, NSW Doull has worked in the retail and financial services industry for the past 20 years, with Coles Myer, Rams Home Loans, St.George Bank, Westpac, Bankwest and NAB. His experience with identifying and solving client problems has led him to take on the role at -AAMC where he will assist others to grow and exceed their expectations.

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News Former Lawfund exec joins Outsource Financial Outsource Financial, the new aggregator set up by Tanya Sale, has signed on Neil Lockhart, former executive director of Lawfund and Zinc chairman as its new state manager for Victoria and Tasmania.

Lockhart said he was looking forward to turning back the clock and “assisting Outsource to grow

Neil Lockhart

and become the most respected aggregator in the marketplace”.

“Tanya, Andrea [Tassis] and Carmel [Cappelleri] are well respected in the industry: passionate, committed and persistent are words that spring to mind when you think of them,” Lockhart said.

He said he looked forward to introducing the aggregator as well as Vequip (which provides asset finance and leasing to Outsource brokers) to his network in Victoria and Tasmania.

In a statement, Sale said Lockhart would bring a wealth of knowledge to the Outsource team as he was instrumental in the success of Lawfund in Victoria back in the mid-1990s.

“In saying that the members and writers are more ‘than just a name’ to outsource and that as an aggregator they care about your business, they actually mean it,” Lockhart said.

“I’ll be passing on that same message and showing that we do.”

First homebuyers did not inflate prices – RP Data Research group rpdata.com has disagreed with John Symond that the rush of first homebuyers last year (to take advantage of government incentives) artificially inflated home prices. While its weekly Property Pulse report for 17 February revealed that 191,000 first homebuyers “seized the opportunity” in 2009 and that this segment was an integral part of the property market’s recovery, research analyst Cameron Kusher said it was not necessarily the case that they artificially inflated prices as many have claimed.

“During 2009, owner-occupiers took out finance for approximately 739,000 dwellings of which 26% was taken out by first homebuyers and the remaining 74% came from non-first homebuyers.”

The report came a few days after Aussie Home Loans chairman John Symond said those

that bought houses when the sector was “out of control” last year, ended up paying inflated prices. Symond – who made his comments on the back of ABS statistics which showed the percentage of FHBs as a percentage of owner-occupied purchases dropped from 28.5% in May 2009 to 22.1% in November 2009 – said that in many metropolitan areas, prices for properties in the first homebuyer range were inflated due to increased demand.

“Over-excited first homebuyers were paying up to $50,000 more for a property just to get their $14,000 grant.” Symond said first homebuyers who missed the opportunity to enter the property market in 2009 were in the “prime position to make their first purchase, particularly in the new home sector, as the FHB market returns in 2010 to more ‘normal’ conditions”.

The RPdata.com research found that WA was the most popular state for first homebuyer purchasers during last year, while May recorded the highest owner-occupier finance commitments at 28.8%.

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19

industry NEWS IN BRIEF RBA issues warning on global recovery

A second wave of big write-downs set to hit banks in the US, Europe and Britain could deliver a setback to the global recovery, a senior RBA official has warned.

Lenders in the northern hemisphere faced large loan losses as the recession in the North Atlantic countries drove property values down, Assistant Governor Guy Debelle told a Women in Finance conference in Sydney. Although international conditions had improved substantially in the past year, significant threats continued in some of the world’s largest economies, he said. “A significant risk is that we are still yet to see the full impact of the weakness in the North Atlantic economies on the loans on the books of financial institutions.” Debelle said that while most losses incurred by such lenders had so far stemmed from write-downs in the value of securities they held, the next blow to their financial position would come from plunging house and commercial property prices.

Broker placed on good behaviour bond

Accountant, former company director and former mortgage broker Rex Charles Goldring of Meadowbank, NSW, has been sentenced to 18 months imprisonment, with the sentence to be suspended upon him entering into an 18-month good behaviour bond. Following charges laid by ASIC he pleaded guilty to two counts of obtaining money by deception under the NSW Crimes Act in relation to investments of almost $240,000 made by four investors. Goldring also assisted a number of investors to refinance their mortgages and redraw equity on their property to fund the investments he promoted.

Australian Synergies Group Pty Ltd was deregistered after its liquidation. The Commonwealth Director of Public Prosecutions prosecuted the matter.

Melbourne property prices to rise 10%

Greville Pabst, CEO of the WBP Property Group, has predicted that Melbourne property prices will rise by a further 10% in 2010, taking the median house price to between $550,000 and $600,000. Pabst, a qualified property valuer, made this prediction at WBP’s Melbourne Property Outlook seminar. He gave as his reasons for this strong surge strong economic conditions including low levels of unemployment, low interest rates and a high demand for residential real estate, fuelled by a booming population. In particular, Pabst identified the Melbourne suburbs of Berwick, North Melbourne and Frankston as hot performers in 2010, also noting that “these areas performed well in 2009.”

Home lending in decline: ABS figures

New figures released by the ABS reveal that home lending for both new and existing dwellings fell further in December 2009. In seasonally adjusted terms the total number of owner occupier loans fell in every state and territory in December 2009, with the exception of the ACT. The number of loans fell in NSW (-6.7%), Victoria (-4.9%), Queensland (-5.6%), SA (-6.4%), WA (-2.7%), Tasmania (-4.3%), and the Northern Territory (-6%).

The number of loans increased by 0.5% in the ACT. The HIA said these figures were “reflecting the unwinding of the first homebuyer stimulus and a third consecutive rate rise”.

Westpac to offer Islamic finance

Westpac is targeting overseas Islamic investors by offering a commodity trading facility that incorporates Shariah finance law, reported the SMH. The move coincides with a new focus by the Australian government on Islamic financing and follows Trade Minister Simon Crean launching a report which suggests opportunities for Australia’s banking sector to tap into Islamic investment and banking markets.

Last month, a government special committee called for changes to tax rules that ensured Islamic financing products were given equal treatment. Under Islamic law charging interest is forbidden. As an alternative it focuses on profit sharing based on the buying and selling of assets such as property. All major banks currently provide Islamic-style banking products for retail investors. Australia has more than 340,000 Muslims.

20 www.brokernews.com.au

News US association forced to sell head office The US-based Mortgage Bankers Association (MBA) has sold its headquarters in Washington DC. The sale took place less than two years since construction of the building was completed, in April 2008. The MBA had only occupied the building since June 2008.

The building was considered a financial liability and its sale comes on the back of massively declining broker numbers in the US and an equally spectacular demise in loans originated through the channel.

At last year’s National association of Mortgage Brokers (NAMB) conference held in Las Vegas, it was revealed that its membership numbers had

dropped from 27,000 to just 10,000, while loans originated through brokers had slumped from 65% to 25%.

MBA president and CEO John Courson said he was confident that, with the sale of the association’s headquarters now completed last week, the industry body could go forward in performing its mission.

“I’m well-satisfied that we made the right decision,” Courson told the Canadian press. “And there is no one happier than I am about this. It has chewed up a lot of our time and staff meetings.”

The building was sold to MBA member, The CoStar Group, one of the country’s largest professional research

organisations, which provides online access to a database of commercial real estate information throughout the US, the UK and France.

Courson said resolving the building issue, which had become a financial liability to the association, was a top priority when he took over as MBA president and CEO in December 2008. The association purchased the site at 1331 L St. NW in downtown Washington in 2007, at the height of the commercial and residential real estate boom.

Peter White, president of the FBAA, who told AB he knew quite a few US-based brokers, was not surprised to hear of the sale.

“They (mortgage bankers) had luxurious lives in 1990s ... But everyone has taken a hit, so the MBA has made a common sense business decision,” White said.

MFAA lender finalists a reflection of times A lack of non-bank lenders among the finalists for its lender of the year award and a major sponsor short-listed for the second year running has put the MFAA’s ties with the banking sector under the spotlight again.

The finalists for its 2010 lender of the year award, revealed in a press release, were named as the Commonwealth Bank (last year’s winner of the award), ANZ Bank and ING Direct.

All three were chosen based on receiving the three highest scores from members who rated them on seven criteria including product offering, BDM support, dispute resolution and overall broker support. The overall winner is due

to be announced on 12 March.

MFAA CEO Phil Naylor said all MFAA lender members (made up of banks, non-banks, credit unions and building societies, which deal with brokers) were eligible to be voted on.

Naylor would not disclose who ranked in the positions below the top three, saying the MFAA only disclosed finalists. The fact the top three lenders were all banks – two of them major banks – “probably reflected where most of the business is going” he said.

“However, in the past, smaller lenders have won, for example Bankwest, Suncorp and RAMS,” he added.

Naylor also pointed out that

despite being a bank, ING Direct was really a “small lender in the Australian context and that there were “notable large lenders which didn’t make the finals”.

Comments by readers on Broker news were critical of the Commonwealth Bank being an eligible lender given that it is a platinum sponsor of the MFAA and the exclusive sponsor of the MFAA excellence awards.

Naylor defended the CBA’s inclusion, saying the finalists were decided by the votes of MFAA broker members across seven sets of criteria.

“So the finalists are there because MFAA broker members voted them there,” he said.

Martin Silverberg

US broker became “The King” A California mortgage broker, who turned the GFC to his advantage and became a full-time Elvis impersonator, has been honoured in the US following his sad passing.

Martin Barry Silverberg, who for more than two decades worked in Hollywood as a successful mortgage broker and as an Elvis impersonator on weekends, took on the roll of ‘the King’ full-time when the housing market crashed.

Silverberg went by the stage name of ‘Marty Barry’ and was a generous man “ready to channel Elvis to help those in need”.

In 2005 Silverberg came to perform and hand out teddy bears for a charity benefiting seriously ill and developmentally disabled children.

Silverberg, who died on 7 February, had gone to a clinic in Bogotá, Colombia, where he was pursuing an alternative treatment for cancer.

22

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News analysis

Withdrawal symptoms  The government’s guarantee scheme for large

deposits and wholesale funding comes to an end on 31 March. Larry Schlesinger assesses the impact the scheme has had on mortgage lending, in particular on smaller lenders

W

hen federal treasurer Wayne Swan announced last month that the government’s guarantee of wholesale funding and large deposits would close at the end of March, he did so lauding its achievements.

The Treasurer said the scheme had supported credit unions, building societies and second-tier banks, going so far as to say that were it not for the guarantee, “all of those institutions would have experienced very, very severe difficulty”.

It is true that no Australian banks, building societies or credit unions failed since the guarantee was introduced in October 2008. Some even continued to lend, albeit at greatly reduced volumes during the GFC. They did so at a far higher cost than the major banks, due to the fact that most of them, due to their riskier credit ratings, accessed the government guarantee at double the cost of the AA rated major banks, due to its tiered nature.

Many were forced to merge in order to survive or were snapped up by their bigger rivals.

According to Mark Degotardi, head of public affairs at Abacus, the industry body representing mutuals, smaller ADIs would have accessed more wholesale funding if the guarantee price was more equitable.

“Wholesale markets continued to differentiate on price on the basis of external ratings – when the higher guarantee fee for smaller ADIs was added to this, it was simply not viable for most smaller ADIs to access wholesale funds,” he said.

The result, he explained was that the largest banks had considerably cheaper sources of funds than their competitors. “Mutual ADIs continue to have lower average rates for home loans despite these competitive barriers, but we would be able to put an even more competitive offering if we had an even playing field,” Degotardi added.

All in all, as MFAA CEO Phil Naylor explained: “I think it is commonly accepted by all that the guarantee has played a part in reducing or limiting competition in the lending sector”.

Right time to withdraw

But there is a genuine cost associated to the credit risk differential

Regardless of the state of lending competition post-GFC and post-guarantee, the overall consensus appears to be that the timing was right to withdraw the scheme and that when it was introduced, it was certainly needed.

Harry Hills, regional general manager for the NSW Metropolitan Region at Suncorp, backed the decision to pull the scheme: “No one was using it and it was distorting the underlying pricing.”

Hills said the guarantee provided the stability that the market needed at a time when funding had really dried up across the globe. He added that in the case of Suncorp, it allowed the bank to “keep its head up and out of the water, whilst it worked through tough decisions”.

According to Hills, Suncorp is well placed now that the guarantee has come to an end. Indeed, like the major banks, it was recently able to attract investors without the need for the backing of the government.

This occurred in October last year when it raised £300m ($528m) at a “reasonable margin”.

James Hickey, banking partner at Deloitte, called the withdrawal of the scheme “part of a global shift”.

According to Hickey, when the major lenders were able to tap into funding without the guarantee, “the writing for the scheme was on the wall”.

“This gave confidence to investors that there was a market out there, which was not the case when the guarantee was in place,” he said.

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A long-term disadvantage

However, the scheme has left a bitter taste in the mouth for some. While supporting the withdrawal of the guarantee, David Liddy, CEO of the Bank of Queensland, said the bank would still have to pay an extra 80bps in fees to the government, beyond the 31 March cut off.

“What I wanted to see was the cost of the guarantee brought back to par. The big banks pay 70bps, let the regional banks pay 70bps …[to] encourage competition,” he told the ABC. Liddy questioned what kind of message cancellation of the guarantee was sending to investors: “Investors are getting used to 180bps for the BoQ (150bps for the govt, 30bps margin) … now that I am sure we won’t get back to paying a 30bps differential to the major banks, investors will see they can get a higher margin from us”.

Despite this criticism of its structure, Liddy said implementing the guarantee was the right thing to do, but for those banks who continued to lend throughout the period it operated, they did so at a disadvantage – and they would continue to do so.

“We always supported a staged decline of the guarantee so that everyone was on the same playing field,” Liddy said.

On the question of restoring parity post-withdrawal of the guarantee, Hickey said when institutions paid an extra 80bps the extra margin was locked in over the life of funds issued to investors.

“Whether they should be equalised is a fairly emotive point,” Hickey said. “But there is a genuine cost associated to the credit risk differential.

“If you equalise the cost, then that raises questions about credit risk. The government is relying on taxpayer funds and must ensure it gets a return for risk,” he said.

Regardless though, as Hickey pointed out, the decision has already been made and the smaller (relatively riskier) banks will have to live with the consequences of the guarantee – paying more to attract investors, both in Australia and offshore.

Adapting to a new order

In the case of Suncorp, Hills said the bank had locked away its entire funding program for 2010 and was in a really strong position, given it is the only regional bank with an ‘A’ credit rating.

In addition, the bank has “de-risked” itself and according to Hills, now has a much healthier wholesale funding ratio, having recently reached a milestone of 70% of its funding coming from core deposits, the result of tapping into local savers.

Like Liddy though, Hills agreed that challenges remained for smaller banks in terms of investor expectations.

According to Fariborz Moshirian, professor of finance at the University of NSW, guarantee or no guarantee, smaller banks are always going to struggle to compete

Wayne Swan

with larger banks because “that is the nature of the international banking sector in the 21st century”.

Moshirian told the ABC that smaller banks would remain more reliant on Australian mortgage-backed securities as a good source of wholesale funding rather than going offshore.

In their favour, he said, smaller banks in Australia remain well rated compared to those in Europe and the US. Furthermore, Australia remains an attractive market for foreign investors because of its high interest rates compared to rates in the US, Europe and Japan.

Yet Moshirian said removal of the guarantee created a gulf between funding capabilities of the major banks and smaller banks, and he expected a rush by smaller banks to secure more funding while the guarantee remained until the end of March.

Where to now?

Harry Hills

James Hickey

David Liddy

23

So where does this leave smaller lenders and competition in general? Clearly the major banks will continue to hold the upper hand when it comes to accessing funding, be it from investors or depositors.

As a result, attracting deposits (the war in the term deposit space is well and truly in full swing) and less reliance on wholesale funding is likely to be a key priority for most ADIs, such has been the case with Suncorp.

Reports that non-bank lender FirstMac may be seeking a deposit-taking licence have not been confirmed, but the signs are there that smaller lenders do not want to be over-reliant on the appetites of institutional investors.

Encouragingly though, as Hickey pointed out, RMBS markets have begun to thaw, with even second-tier lenders such as Resimac and Firstmac witnessing greater-than-expected demand from investors for their mortgage-backed securities.

Hickey said credit unions and building societies (CUBS) were also expected to use RMBS as a source of funding as things started to improve. “In addition, CUBS can compete on deposits,” he said.

As for an overall prognosis, Hickey said there was opportunity for smaller lenders in 2010 to “restart their engines and their lending capacity”.

Hickey expects this to occur in the second half of the year, based on hopes of further strengthening of the securitisation markets.

Should that occur, what smaller lenders will have (and have always had) in their favour is generally better service and customer satisfaction ratings.

Those that can access funding at reasonable cost might then, as Suncorp is planning to do, look to engage more with the broker market to grow their business outside of their home territories.

As to competing on an equal footing with the major banks, well … there’s more chance of the Reds winning the Super 14!

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Inside economics

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

Reasons for optimism The short and long-term outlook for the Australian economy looks bright, according to economist Shane Oliver, all of which provides a relatively favourable back drop for Australian assets

W

hile the worry list for the global outlook is still significant – Chinese tightening, high public debt levels, a shift towards populist policymaking in the US – there is plenty of reason for optimism concerning the outlook for Australia. This is both in terms of the coming cyclical economic recovery and also from a longer term perspective.

From growth slow-down to growth rebound

After its worst slow-down since the early 1990s recession, Australia’s economy is set to rebound over the year ahead. In 2009 the Australian economy is estimated to have grown by 0.9%. This seems low but far better than was expected a year ago, and is significantly better than what occurred in other developed countries. For example, GDP contracted 5% in Japan, 4% in Europe and the UK and 2.5% in the US. Australia’s relative resilience is owed to a range of factors including tougher bank lending standards and a stronger financial system; a shortage of houses; the quick application of significant monetary and fiscal stimulus; the relative resilience of demand from China and a sharp fall at the height of the crisis in the value of the Australian dollar, which acted as a shock absorber.

Over the year ahead Australia is likely to see a strong recovery in growth reflecting: • A rebound in housing construction activity – finance approvals for the construction of new dwellings and significant growth in building approvals point to a strong increase in housing construction this year.

While housing finance has recently dipped, it fell from a very high level and it is likely to remain strong on the back of the improving jobs market. Housing starts this year are likely to be around 165,000 dwellings – up from 135,000 in 2009 but still well down from underlying demand, which is now around 200,000 dwellings per annum.

• National income is likely to rise strongly, supported by a 40%-plus increase in prices for iron ore and coal (spot prices for iron ore would even suggest a 90% rise).

• A solid turnaround in business investment – on the back of stronger profits which are expected to rise 20% this year, the recovery in business confidence from the 2008-09 slump and a large number of mega-projects, particularly in the resources sector with the top ten projects alone having an estimated cost of $240bn.

• Solid consumer spending, on the back of high levels of consumer confidence, an improving labour market (with unemployment now back down to 5.3% and likely to fall below 5% over the next 12 months), and more tax cuts from July (worth $5.80 a week for a

worker on $80,000 and $13.50 a week for a worker on $120,000). The recovery in wealth over the last year is thanks to higher house and share prices and still-low interest rates. While mortgage rates are on the rise, they are still low. For example, a family with a $300,000 mortgage on the standard variable mortgage rate currently has an annual interest bill of $20,100 pa, but this is down from $28,800 in mid-2008. Even if expectations for a 1% rise in interest rates by year end come to pass, this will still be relatively low at $23,400.

• Strong growth in public investment – as stimulus spending on infrastructure and schools flows through.

Our leading indicator for the Australian economy is pointing to growth of around 4% over the year ahead.

This has a number of implications: • Interest rates have further to rise but with inflation likely to be around 2.5% by year end, thanks to the strong Australian dollar and spare capacity in the economy, the process is likely to be gradual, taking the cash rate up another 1% or so; • Unemployment is likely to fall back below 5% • The budget deficit is likely to improve faster than projected by the government, as growth comes in faster boosting revenue and cutting spending.

The 2009–10 budget deficit is likely to be $20bn less than the November projection for a $57.7bn deficit, bringing forward the return to surplus to around 2013–14.

The lucky country rides again

At the end of the 1990s Australia was seen as an ‘old economy’, lacking much exposure to the ‘new economy’ driven by information technology. Partly reflecting this, the Australian share market had been a relative underperformer versus global shares for the previous decade or so and the Australian dollar was sinking to new historic lows versus the US dollar.

By contrast, as we commence a new decade, Australia is looking a lot brighter, reflected in a range of factors: • The Australian dollar has recovered from a record low of just $US0.48 to near parity in recent times • Australia is the only OECD country not to have had a ’recession’ in 2008–09 • The price Australia receives for its exports relative to what it pays for its imports (ie, the terms of trade) is back up around levels not seen since the 1950s There are four reasons to remain optimistic about the relative long-term economic outlook for Australia. First, Australia’s major export markets – with the dominance of high-growth Asian countries – have relatively strong growth prospects compared to the world as a whole, which is dragged down by debt-constrained advanced countries. The potential here is highlighted by China, which is now Australia’s biggest export market. China’s industrialisation process still has a long way to go – per capita GDP is still just over $US3,000, the percentage of the population in urban areas is still just 45% and despite being the world’s biggest car market, per capita car ownership is only where the US was in 1917. The upshot is demand for raw materials is likely to remain

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strong for several decades as China continues to industrialise. The same goes for other emerging countries such as India and Brazil. This suggests the boost to Australia’s national income from the resources boom has a lot further to go.

Second, Australia has relatively favourable demographics compared to other developed countries.

While our population is ageing, thanks to a higher fertility rate and high levels of immigration, it is growing faster than most countries and this is projected to remain the case at least to 2050. As a result, Australia’s labour force (which is a key driver of economic growth) will keep growing solidly, whereas in many developed countries, including Japan and parts of Europe, it is already declining.

Third, Australia is not lumbered with a massive public debt overhang. The graph below shows budget

Budget Deficit, % GDP

UK

12

Ireland

10

Portugal

8

Spain

6 4 2

Concluding comments

Public debt blow out - Australia is low risk

14

China

US

High risk

Iceland

OECD Avg

Euro Area

Germany

Greece

Japan

Italy

Australia Emerging Avg Low

0 0

25

50

75 100 125 150 Gross Public Debt, % GDP

Source: IMF, OECD, AMP Capital Investors

Corporate Australia commits to tolerance Some of Australia’s biggest corporate entities, including a number operating in financial services, have signed up to a new program aimed at making workplaces more responsive to the needs of gay, lesbian, bisexual and transgender (LGBT) employees.

The program, called Pride in Diversity, has the backing of ING Australia, investment bank Goldman Sachs JBWere, property group Lend Lease as well as the Australian Federal Police, Telstra, IBM and KPMG. Director of Pride in Diversity, Dawn Hough, said it was Australia’s first employer-support program for inclusion of LGBT people and is all about “helping Australian employers introduce human resource and diversity policies that specifically support LGBT staff”.

Though predominantly aimed at larger businesses with bigger workforces, Hough said the program was open to businesses of all sizes.

“We target companies with 200 employees or more – but we are

deficits against public debt, as a percentage of GDP. The countries most at risk have high budget deficits and high public debt levels, including Greece, Iceland and Japan (ie, countries in the top right corner of the chart). By contrast, Australia is in the bottom left corner in the very low risk category.

Fourth, the Australian financial system is relatively strong with low levels of non-performing loans and signs that the bad debt cycle is likely to have peaked. With the Australian financial regulatory framework performing well through the recent global financial crisis, a significant re-regulation of Australian banks is unlikely, compared to say the US where a tougher approach is being proposed. So apart from international influences, the supply of credit is unlikely to be as constrained in Australia as in other advanced countries.

All of these considerations point to relatively strong growth in Australia in the decades ahead.

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200

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Australia’s relative resilience is owed to a range of factors including tougher bank lending standards and a stronger financial system…

None of this is to say Australia does not face problems and risks – household debt and house prices are relatively high, manufacturing and some service industries will be under pressure as a result of the resources boom, the two-speed economy is alive and well, productivity growth needs to be boosted (as the government has noted) and there is always a danger of hubris setting in. However, unless things go terribly wrong, these problems should be manageable and allowing for the normal cyclical ups and downs, the big picture outlook for Australia is pretty positive.

This should augur well for the relative performance of Australian assets – bonds, property, infrastructure, equities and the Australian dollar.

happy to talk to anyone who wants to get involved.”

According to Pride in Diversity, diverse workforces provide responsive customer service and lead to better employee sales performance – two good reasons for brokers to embrace the LGBT community from a recruitment perspective.

Besides encouraging a more tolerant workplace, broker groups who join the program will be provided with targeted recruitment and marketing support, exclusive use of the Pride in Diversity logo and access to networking opportunities within the LGBT community Mortgage broker X Inc has for some time offered a “gay friendly” home loan service and proclaims on its website that its “national broker team mirrors the diversity of our community and that means if you are gay and would prefer to meet with a gay broker, we can offer you that service”.

Dean Rushton, chief operating officer of Loan Market Group, said: “X Inc Finance respects and supports the rights of every community group – ethnic, religious and sexual preference”.

Hough said research showed that up to 60% of LGBT people experienced some form of harassment at work during their careers, four times the rate of the general population.

Govt focus on competition The industry body representing credit unions and building societies has written to the Federal Government urging it to make restoring competition in lending a key budget priority.

In its budget submission, Abacus said the smaller banking institutions – in particular, the mutual banking sector – could help keep the major banks honest, and called for improved access to funding for smaller institutions.

It also urged the government to make a statement about competition in retail banking in the budget.

Head of public affairs at Abacus, Mark Degotardi, told AB there was a need for more government help to support smaller lenders outside of the major banks.

“We are encouraging the government to act decisively to stimulate competition, which is very much linked to the problem of inability to access affordable funding.

“The state of competition in the retail banking market demands further public policy action,” he added.

Despite the imbalance between the major banks and smaller lenders, Degotardi said mutuals were “already competing”.

“We have highly competitive interest rates on both loans and deposits, our members tell us we have the best service in the market and we have more than 4.5 million members.”

Furthermore, Degotardi said mutual ADIs have high levels of capital, strong liquidity and much lower non-performing loan ratios than either the regional or major banks.

“We are responsible lenders that are able to put our members first because our customers are our shareholders. So our prognosis is extremely good,” he added.

According to Degotardi, mutuals continue to do well in the retail deposits market, a key source of funding for the sector.

“We don’t have a funding problem if we simply want to maintain market share and let the major banks continue to dominate the market and make extraordinary profits from their customers.

“However, mutual ADIs do not think that this is a good outcome for Australian consumers and therefore we want to provide better choices for consumers.

To fund market share growth, we need more diverse sources of funding,” he added.

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Feature

One year on What a difference 12 months can make … or maybe not. Australian Broker reflects on the stories that made headlines in the magazine one year ago

Issue: Australian Broker issue 6.4 Headline: “Foley demands fair deal” (cover page) What we reported: In his address to brokers at the National Mortgage Brokers (nMB) conference on Hamilton Island, managing director Gerald Foley said it was time for the banks to give something back to brokers, following the introduction of complex commission models and settlement times for brokers, which at the time had blown out way beyond those for branches and retail channels. “The banks owe us better processing and settling of loans. They have reduced our commission and attempted to change our behaviour. In return we now have poorer processing than before,” Foley said in a stirring speech.

What has happened since?

On the eve of nMB’s 2010 conference, brokers may well

Gerald Foley

reflect that there has been some progress over the last year with processing times returning to more acceptable levels, though certainly not in line with those at branches and via retail channels.

Notably, NAB Broker’s John Flavell apologised to brokers last year for the service meltdown.

However, the bank has stuck with its complex star-rating commission model. On the positive side, St.George simplified its commission model last year.

Headline: “Government should freeze LVRs” (page 8) What we reported: Firstfolio CEO Mark Forsyth called on the Government to intervene further in lending by “assessing what each bank’s lending criteria is” and “freeze more credit restrictions”. His comments came as banks tightened up their lending policies, reducing LVRs. Forsyth urged the government to set LVRs at between 80% and 85% and return to “pre-crisis credit criteria”. While he admitted this was a little risky given that the government had already guaranteed the funds, it was a way to get momentum back in the market.

What has happened since?

With the decision to withdraw the wholesale funding guarantee on 31 March now taken, it appears that the Government has reduced its interventionist approach to credit markets and let them take care of themselves.

As for Forsyth’s hope that the government should step in and set LVR policy, the opposite has occurred with the major banks being free to reduce LVR and tighten up their lending criteria.

2010 looks like being the year when lenders are left to fight it out among themselves.

Headline: “WBP: plenty of opportunities out there” (page 18) What we reported: Also speaking at the National Mortgage Brokers conference in Hamilton Island, WBP CEO Greville Pabst said that despite the depressed state of the

Mark Forsyth

property market, opportunities abounded for brokers. Pabst pointed to a number of future growth areas that would boom as a result of big infrastructure projects, with a few of these being in his home state of Victoria.

These included the EastLink freeway project in Melbourne which, he said, would benefit the suburbs of Frankston, Dandenong and Mitcham – all close to the interchange. Another notable project mentioned was the Geelong Bypass, which when completed would give an enormous boost to surf-coast towns. He said brokers should focus their efforts on properties in Melbourne under $600,000.

What has happened since?

Greville Pabst has not changed his view of the Victorian property market or the hot spots he mentioned a year ago.

At a recent WBP Melbourne Property outlook breakfast, he was again spruiking the state’s housing market to grow and pointing out some of the hot spots

Frankston represents excellent affordability below Melbourne’s median

he mentioned at the Hamilton Island conference in 2009. Pabst forecast a further 10% growth in the median house price in Victoria to $550,000–$600,000 in 2010 and identified the Melbourne suburbs of Berwick, North Melbourne and Frankston as being hot performers.

Frankston made the hot list for the second year running, with Pabst calling it “Dandenong by the sea”. Frankston represents “excellent affordability sitting well below the Melbourne median and offering the advantage of a seaside location,” he said.

Greville Pabst

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Roger La Salle is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on innovation, opportunity and business development. Matrix Thinking is now used in more than 26 countries. www.matrixthinking.com

business guru

Diversification lessons from the compact disc Brokers looking to diversify their businesses and introduce new products and services should take note of how the compact disc was introduced into the market, writes business guru Roger La Salle Failure is the norm To anybody involved in the business of new ventures, new products and new services the risks are well understood.

Indeed, statistics would show that most new ventures fail, either totally or in reaching anywhere near their forecast revenue targets. Most of all, really new things have an alarmingly high failure rate.

Would you believe the facsimile machine was actually patented in 1898? That the personal computer would have been a flop had it not been for the development of word processing and spreadsheets; that the photocopier took more than 10 years to come into common use and the internet more than 15?

Whilst business is tough and fraught with risk; businesses that are founded on really new and novel concepts is even tougher.

Humans resist change It is common knowledge that people resist change, for change has the potential to disrupt life and the status quo and may lead into unchartered waters. Better to remain the same and let life go on. This is quite a normal outlook for most people and quite understandable – after all, who want to embrace the risk associated with change?

Innovation, which has as its underlying principle the value adding of incremental changes to things, represents little risk for business and customers alike.

Just look at the motor companies. They are reluctant to completely redefine their models and bring about potential market disasters such as the infamous “sea change” model Edsel Ford of the 1950s.

Instead, what car makers do is incrementally improve models. Make slight changes, and perhaps every four years, in step with their competitors, bring out slightly modified shapes, but most often retaining the same generic name, such as the Ford Falcon or Ford Mustang.

This is safe and people adopt such incremental change with little or no difficulty.

Whilst innovation (defined as “change that adds value”) properly implemented can largely remove market risk, what is the risk mitigation strategy for really novel ideas?

The answer lies in “coupling” Would you believe that one of the most successful technology products in history was the compact disc, and what a new and novel technology this was – but its impact was immediate, despite its total novelty?

How did this happen?

The answer lies in clever marketing where the CD was not introduced as some weird “off the wall” contraption, but simply as a better vinyl record. The novelty and newness of the CD was virtually eliminated by coupling it to the “common or garden” record. It was not new, it was just a better way of doing something we were all doing: purchasing, playing and storing music.

This is a classic example of coupling. Relate what it is you have to the market norm and sell it as simply a better way of doing things we are already doing.

There are countless examples of this, even simple ones such as the cordless phone; not a new contraption, but a common phone released from the shackles of its permanent wire connection.

What’s the message?

The simple message is that when launching something of high novelty, try and remove some of the novelty – by relating it in some way to things or products people are already doing or using.

Couple to the existing mindset and the risk of failure will be far reduced.

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News off the cuff Dean Rushton,

Chief operating officer, Loan Market Group What was the last book you read?

On The Road by Jack Kerouac.

What CD is currently playing in your car stereo?

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

San Diego. It’s got that Californian climate and lifestyle coupled with the Mexican influence to keep it interesting.

“The End” by the Black Eyed Peas. I’m hoping the kids won’t notice it’s missing.

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

Clint Eastwood. Not just because he’s had a brilliant and varied career but I’d also like to chat to him about the plot for his latest movie, Invictus, about the 1995 Rugby World Cup. It’s about the missing scene of the All Blacks being food poisoned before the final (it’s a Kiwi thing).

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

Be dedicated in your research and planning and then singular in your belief in your business.

What was the first job you ever had?

Delivering furniture. The words “watch the wall” still bring me out in a cold sweat.

What do you do to unwind?

Read or spend time at the beach.

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

As a working student I spent the equivalent of three months pay on a stereo & speakers. My ears are still ringing.

Don’t ignore social media Brokers that dismiss social media (Facebook, Twitter, LinkedIn, etc) as ‘just a fad’ and rubbish its business value are missing out on an opportunity to connect with customers.

Social Media in 2010, a report by business intelligence provider Datamonitor, said financial services providers had failed to realise the opportunity presented by this medium.

According to Datamonitor, online media is the most popular source of financial advice for consumers globally, with 30% of Australians using price comparison sites, calculators, online blogs and reviews to help them make their daily financial decisions. cont. from cover

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

An architect.

Where was the last place you went on holiday?

Nusa Dua, Bali. Great place, great people.

In September last year, Serge Scekic and Jim Sharif, from Aussie Dee Why, sold a home loan with the initial point of contact being via their business Facebook page.

More recently, in January this year, mortgage manager Resi launched an “integrated social networking platform”, offering customers and others updated property market information and informed comment.

Resi’s head of marketing and consumer advocacy Lisa Montgomery said borrowers in an information-rich environment were looking for alternative ways to source material, which can empower them and help them in their decision-making.

Another mortgage manager – Nationwide Lending – also has a dedicated Facebook page to update brokers with all the latest news, while Mortgage Choice has a Twitter feed.

Anna Large, an analyst at Datamonitor, said social media has altered the face of the digital space over the last five years with web users around the world spending more time on social networking sites, surfing reviews, watching videos, and writing or reading blogs than anything else on the internet. According to Large, while financial services providers have come to recognise the advantages of the online channel in providing online services and ‘pushing out’ messages to acquire and retain consumers, “web advancements and the rise of social media have

facilitated a dramatic shift in power from businesses to consumers, enabling consumers to ‘push back’.

“As a result, providers have been slow to recognise the necessity of communicating with their customers through this channel, or acknowledging the opportunities presented by the medium in terms of retention and acquisition,” she said.

The reason for the poor adoption, is the belief that social media is ‘just a fad’, that sites have huge churn and consumers sign up but are essentially non-committal and quite happily move on when new sites are launched. “The latter may be true to a certain extent, said Large, but at the same time “consumers have proven their receptiveness to this channel”.

“Like many lenders during the GFC, Suncorp exercised its funding issues, but we are pleased to see them starting to re-emerge.

“Other lenders are also starting to talk to us about joining our panel so it appears some appetite is returning to the market,” he added.

National Mortgage Brokers managing director, Gerald Foley was equally pleased with the Suncorp move.

“It looks quite good … all signs are there that opportunities are opening up,” he said.

Referring to the actions of the major banks, Foley said: “Anyone who comes and dominates in a market, then abuses their position, creates opportunities for others”.

Hills said that Suncorp had done the “hard yards to be strong and robust”.

Besides growing its residential business, the bank is also looking to grow in the SME market. Hills claimed Suncorp was the cheapest bank in respect to small businesses. “We are in there and keen to grow.”

The Back to Basics campaign runs until the end of March.

Clarification: Cornell not BoQ owner-manager

>>

“Even when our products were not selling well we provided good support to brokers,” he said. “We’re an alternative to the major banks … all our products are available to the broker market”.

Besides its strong credit rating, Suncorp also released better-thanexpected half-year results, ending a two-year profit slump.

Mark Hewitt, GM for sales and operations at AFG, said the introduction of Suncorp’s pricing initiative and others (such as AMP) were a very positive sign that some much-needed competition was starting to return to the market.

Australian Broker would like to correct an error in a story which appeared on page 14 of AB 7.02 (February 2010) under the heading: “McGurk net draws in former BoQ owner manager.”

According to a spokesperson for Bank of Queensland, Hiba Cornell was not a Bank of Queensland Owner-Manager, but a “BOQ corporate employee on a fixed-term contract from 14 July 2008 for a period of 12 months”.

September 24, 2010 The Westin Hotel, Sydney

Official event partner

Online nominations open in April 2010

www.australianmortgageawards.com.au

30

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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

At the same time the press release also stated that Smartline has set itself a goal of increasing its franchise network by around 100 over the next few years, growing from 200 franchise offices to 300.

All of this had Insider hauling out the old calculator to do a few sums. Sticking with Smartline’s highly selective recruitment strategy would mean 10,000 people would have to submit applications for Smartline for it to achieve its century of new franchisees.

Now that’s a lot of paperwork to get through!

their parents spent 23% in 1980.

Furthermore, the average house price in 1960 was $7,000, approximately $80,000 in today’s money, which is more than $400,000 less than today’s average house price.

As for average monthly repayments – in the 1960s they were $27 compared to $2,124 today.

There was however one statistic that had not changed significantly in years – interest rates.

In 1960 the average interest rate was 5% compared to 6.64% today. Now isn’t that something to crow about!

A trip down memory lane

All the way to Hollywood

Pressure on to get secure options release right...

I

nsider hopes that mortgage manager AFM does a better job checking mortgage applications than it does approving press releases.

It took no less than three attempts for the ‘correct version’ of a press release detailing its new secure options mortgage product to reach inboxes.

The first version arrived on a Friday at 3.49pm, the second (and first amended version) just over an hour later and the third (and second amended version) the following Monday morning.

The concerning thing is that even the third version had Insider hauling out the red pen.

The second-last paragraph reads: “AFM represents good old

fashioned customer service, strength, long term sustainability, and solid alliances Mr Forbes added”.

The problem is – nowhere in the preceding paragraphs is “Mr Forbes” introduced, so unless you’re an industry know-it-all (like Insider of course) you wouldn’t know that this referred to Iain Forbes, one of the directors of AFM.

Numbers don’t add up

A

recent press release issued by franchise group Smartline stated that only around 1 in 100 franchisee applicants were successful in making it through its exclusive recruitment process.

I A

s Suncorp revealed its latest mortgage promotion – its ‘Back to Basics’ discounted loan – the regional lender took borrowers on a rather depressing journey down memory lane.

Highlighting the issue of housing affordability, Suncorp revealed that first homebuyers in 2010 would spend on average 29% of their income on the mortgage while their grandparents buying a home in 1960 spent 15% and

n a recent interview, One Tree Hill actor Bryan Greenberg revealed some inauspicious beginnings to his career as a Hollywood heart-throb. Ahead of starring in a new series, How to Make it in America, he told entertainment website BuzzSugar: “As soon as I finished at NYU, I was living in New York in a small East Village apartment with my roommate and my girlfriend at the time. I was working as a mortgage broker assistant, a caterer, bartender, waiter – it was definitely hustling to get auditions and trying to make it to Hollywood. But you have to.”

You gotta start somewhere Bryan!

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Services

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AGGREGATOR / WHOLESALE BROKER Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 19

Oxford Funding Pty Ltd 1800 850 509 www.oxfordfunding.com.au info@oxfordfunding.com.au page 27

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

LENDER Eurofinance 02 9252 8311 www.eurofinance.com.au page 15

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

Homeloans Ltd 1300 787 866 www.homeloans.com.au page 14

Banks Adelaide Bank 1300 791 679 www.brokers.adalaidebank.com.au page 13 St. George Bank 1300 137 532 page 3 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 21 Think Tank Property Finance 1300 781 043 www.thinktank.net.au deal@thinktank.net.au page 31 Debtor finance Cashflow Finance Australia 1300 788 945 www.cashflowfinance.com.au page 12

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ING DIRECT 1300 78 78 14 www.introducer.ingdirect.com.au page 9 MKM Capital 1300 762 151 www.mkmcapital.com.au page 8 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 Pepper Homeloans 1800 737 737 www.pepperhomeloans.com.au page 10

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

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

Residex 1300 139 775 www.residex.com.au page 23 Trailerhomes 0417 392 132 page 30 SHORT TERM LENDER Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2 Interim Finance 02 9971 6650 www.interimfinance.com.au page 4 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 18 Rapid Capital 07 5562 2485 www.rapidcapital.com.au page 6 Wholesale Advantedge Financial Services Pty Ltd 03 8616 1600 www.advantedge.com.au page 11

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