Australian Broker magazine Issue 7.9 by Key Media

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ISSUE 7.09 May 2010

Broker commissions under threat  Government bans

advisor commissions Commissions paid to mortgage brokers once again appear to be under threat but this time it is the government that has the industry fearing for its survival, not the big banks. The federal government recently banned commissions for financial advisors, reasoning that the incentive leads to bad advice, leaving some in the industry to question whether mortgage brokers may be the next target. “If the government is consistent, then eventually there will be a ban on commissions for brokers,” said Peter Connolly on the Broker News website. “Different lenders provide different commission structures for brokers now, so the same logic applied to financial planners – ie, bad advice due to getting higher commissions/ self-interest, etc – can be equally applied to brokers.” Federal Minister for Financial Services Chris Bowen cited ASIC research in announcing the clamp-down on financial planning commissions. “As ASIC found in 2006, poor financial advice is six times more likely [to arise] where commissions are paid in order to get various recommendations made.” He said that a similar initiative is underway in the UK. However, MFAA CEO Phil Naylor said the situation is completely different in the mortgage broking industry. Whereas a financial planner

Tax reforms will benefit brokers The Rudd Government’s proposed tax reforms will be a gift for small business, with company tax rates falling by 2%. But will the initiative eventuate? Page 4

From low to prime Non-bank lender Provident Capital has added prime products to its offerings, providing brokers with an avenue to assist lenders with credit blemishes Page 10 Chris Bowen

sources funds from the consumer, a broker sources funds from a lender, delivering them to a consumer. “We would argue that the two circumstances are quite different,” Naylor said. “We think the argument that there is some linkage between mortgage brokers and financial planners is flawed.” ASIC will be charged with overseeing the mortgage broking industry under new regulations, and this has increased industry concern that it will apply the “poor financial advice” argument to

brokers. “With ASIC taking control of mortgage broker licencing, it is obvious that every aspect of our industry will be assessed, including remuneration,” said the National Finance Corporation’s Warren Schrodter. “One just hopes that both ASIC and the Labor government understand the key differences between superannuation commissions and home loan commissions.” page 19 cont.

Doing it differently Brokers who want to take their business to the next level are advised by Kenneth Marks, author of the Handbook of Financing Growth, to review their strategy first Page 20

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News Vow promises flexibility for brokers

Jeff Zulman

Vow Financial CEO Jeff Zulman promised brokers the flexibility to run their businesses the way they want to as Australia’s fifth-largest aggregator conducted a series of launch events around the country. “We recognise that there are many different types of brokers in our network,” Zulman said. “Some will have the capacity to gain their own licences, and will do so with our full support. Others, however, will be more suited to becoming credit representatives. All brokers don’t fit [into] the one mould and therefore it’s incumbent upon Vow to provide a flexible offering to its brokers.” The aggregator is piloting a

program that will take on the administrative work of a select group of brokers to let them focus on their loan writing. Zulman believes brokers will need to increase their offering in order to survive the commission cuts that were imposed in the past few years. “Loans that previously earned a trail commission of 25 basis points are being rewritten at much lower levels – some pay no trail in the first year,” Zulman said at the Sydney launch. “Brokers who don’t increase their output can expect to see a drop of as much as 35% of their revenue.” Vow is recommending that its brokers register with ASIC in their own right, irrespective of whether they intend to apply for their own licence, to give them sufficient time to weigh the benefits of becoming a credit representative against the requirements of gaining their own licence, once more is known about the application process. However, Vow will provide all its eligible brokers with the option of becoming credit representatives of Vow if they decide against securing their own licence. “Vow’s

Broker wins dream NY trip Melbourne broker Kris Court from Court Financial Services will be flying to New York to watch the US Open tennis championships after winning an ING DIRECT promotion. Australia’s fifth largest lender conducted a road show to promote its new interest offset home loan,

Orange Advantage. As part of the series of breakfast meetings, brokers were invited to guess how many balls were in a tennis ball canister and estimate the weight of the canister and the balls. Court will be sitting courtside for a series of tennis matches including the men’s and women’s finals.

flexibility gives brokers flexibility,” Zulman said. “If brokers are credit representatives and build their businesses to the point [where] they feel they wish to gain their own licence, they will be able to do so without having to find a new aggregator. Likewise, if brokers hold their own licences and decide they’d rather focus their energy on writing loans and growing their business without devoting resources to compliance, they can apply to become a Vow credit representative.” Vow’s pledge follows the Advantedge rollout of its proposed credit representative scheme. However, the majority of brokers spoken to by Australian Broker ticked the ‘don’t know’ box on their licensing application because of confusion as to the relative cost of the credit representative model versus the Australian Credit Licence (ACL) model. Until the government clarifies what will be involved in maintaining ACL status, aggregators will be unable to assess how to provide brokers with options that will build value to their businesses.

www.brokernews.com.au Publishing director.... Justin Kennedy Managing editor.....George Walmsley Editor............................... Luke Cornish Production editors......Jennifer Cross ...........................................Carolin Wun Design manager..... Jacqui Alexander Designer......................... Lucila Lamas 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 Luke Cornish t: 02 8437 4773 f: 02 9439 4599 luke.cornish@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. This magazine is printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry

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Loankit eyes $2bn independent broker market Speaking at the re-launch of Mortgage Choice’s new aggregation arm, CEO Michael Russell said that Loankit will not only seek to tap into the $7bn a month of loans that brokers write through aggregators but also the $2bn written by brokers with direct lender relationships. He said that as well as operating as a traditional aggregator, Loankit will also offer independent brokers the option of leasing the company’s technology. “Yes, we will be offering aggregation but also the option for those businesses who may wish to retain their direct lender agreements to simply lease the genius of our IT platforms,” Russell said. Having previously served as the head of Choice, Russell is well aware of the market his company entered when it purchased Loankit. “Rest assured, we are well aware of the maturity of the

market we are about to enter, and also have enormous respect for a number of the dominant industry participants,” he said at the official launch in Sydney. “However, we are going in with our eyes wide open and are confident that what we are bringing to market is not only genius but desperately needed for established brokers who like [Loankit head Kym Rampal] have a burning desire to grow their business.” Rampal first sold Russell on the Loankit proposition two years ago when the subaggregator was four-years-old and had around 50 brokers. Russell said that, at the time, Loankit had been unable to secure any direct lender agreements which frustrated Rampal. Russell described Loankit’s software solution as “unparalleled” web-based, electronic-lodgment capable with a CRM and a host of

Kelly: Westpac is all about relationships

Gail Kelly

Speaking at the launch of the Salvation Army’s Red Shield Appeal, Westpac CEO Gail Kelly said that Westpac’s business strategy is based on forming strong relationships. “If I had to find one word to define how we do business, it would be that word –

relationship,” Kelly told a packed crowd of about 450 at Sydney’s Four Seasons Hotel. Kelly said that the Westpac relationship with the Salvation Army went back 120 years (when Westpac was Bank of NSW). Westpac lent the Salvos the money

unique tools and services. “Additionally, the system is being delivered to market to ensure any Loankit broker will be able to operate in full compliance of the responsible lending requirements proposed in the new legislation.” The decision for Mortgage Choice to enter the aggregation space was made to expand the group’s market share. Loankit members can choose between a complete aggregation package, partial aggregation or just outsourcing their technology. According to Russell the new approach is designed to appeal to brokers who are not satisfied with a one-size-fits-all philosophy. “This is the future of aggregation – flexible membership options. Australia’s mortgage broking industry has not seen anything like it before. Loankit fills a large gap in the market with a revolutionary offering that

to buy their first property in Ballarat, Victoria in the 19th century. Ironically, the relationship worked in Westpac’s favour as well. “I’m told that in the late 1800s there was a run on banks and the Salvation Army lent Westpac money to tide it over,” Kelly told the audience. “I’m just glad I didn’t have to come knocking on your door last year.” Kelly said that Australia had been fortunate not to suffer the problems that have plagued other countries like the US and UK, but Westpac had decided on what strategy to pursue before it became apparent that Australia would dodge a technical recession. “At the outset of the GFC, when we weren’t sure what the outcome would be, we made a conscious decision to stand by our customers and business partners,” she said. “We sought to continue to lend to

Michael Russell

contains extensive ‘value add’ within one easy to use toolbox.” As Loankit targets established broker businesses, there is little chance of it cannibalising Mortgage Choice’s market. Membership options include aggregation with in-house resources like lead generation, commissions management, customer and referral relationship and real-time cash flow management; with the second option offering brokers leasing of Loankit’s technology platforms.

our customers even as others scaled back and we are determined to push even harder.” While brokers understandably are frustrated at the major banks for moving the goalposts in terms of qualifying criteria, and having delays in their processing times, it is true that if lenders such as Westpac and CBA did not have the inclination to lend as much as they did last year, broker business would have suffered. NSW Premier Kristina Keneally was on the guest list but had to pull out of the event in favour of a hospital visit with Prime Minister Kevin Rudd. That left NSW Minister for Gaming and Racing Kevin Greene to donate a cheque for $200,000 to kick-start the appeal. Kelly pledged to match the NSW government’s donation. “Unfortunately, I don’t have the cheque with me,” she said. “But trust me, I’m a banker.”

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News RBA: Banks’ share of market at its peak

Reserve Bank of Australia Assistant Governor Guy Debelle has predicted that the four major banks’ share of the home loan market has peaked and the mortgage industry will start to see the pendulum swing to other players. Giving a speech on the state of the mortgage market, Debelle outlined the history of the

home loan market in Australia to illustrate just how much that market share has swung over the past 30 to 40 years. “So we’re at a point at the moment where the share of the four major banks is as high as it’s been but, as I said, I think there are reasons to think that we’re probably at the peak and it will

start to go back,” he said. “As I said, ultimately, what we care about is where the level of borrowing rates are, not necessarily who’s setting the rate which gets it there – but it’s something we certainly keep an eye on.” He said there are signs that the major banks’ share has already peaked and there is evidence their share is declining. Asked about his views on the outlook for the mortgage industry, Debelle said that brokers could expect housing credit growth of 7–8%, which is where it is at the moment. This is less than the 20% growth rate that was occurring in 2006 and 2007, he said, but that the new growth rates are more sustainable. “You’re starting to see a few more players come back into the housing market,” he said, adding that regulation in the industry will deter some from re-entering the market. “Thinking back, in 2006 and 2007 there were some fringe players in the market, both in the

lending and also in the brokering side, which probably weren’t good for the industry,” Debelle said. “We’ve had a bit of a shake-out of that, which I think people in this room are probably happier to see rather than anything else. And so for the core part of the industry, I think the outlook is actually pretty reasonable going forward.”

Guy Debelle

MFAA continues to discipline members Don Hoang and his company, E-Mortgage Wise, have been expelled from the MFAA for falsifying documentation on a loan submission. “Hoang of E-Mortgage Wise Pty Ltd engaged in dishonest conduct by manufacturing, and then submitting to a lender, incomesupporting documentation from a company he knew to be false,” the Mortgage & Finance Association of Australia’s disciplinary tribunal has said. “Additionally, Hoang failed to act with all due skill, care and Phil Naylor

diligence by submitting mortgage applications to various lender documents which have since been identified as fraudulent.” The MFAA has also expelled the accredited mortgage consultant and the company of which he is director, E-Mortgage Wise in Springwood Victoria, for misconduct. MFAA chief executive officer Phil Naylor said the industry body has a well-defined Code of Practice which demands high standards of behaviour, ethics, expertise and experience.

“As the MFAA represents the majority of Australia’s mortgage brokers with over 12,500 members, we take this responsibility to members and to borrowers seriously,” he said. “We have strongly lobbied for the past four years for consistent, nationwide regulation of mortgage brokers and welcome the passing of the National Consumer Credit Protection Act, but will continue our strong approach to disciplinary matters as we believe it is in the best interest of consumers and our members.”

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News First homebuyers prefer brokers Mortgage brokers are gaining the trust of new entrants to the market, with the latest research showing that the preference for mortgage brokers by first-time buyers has increased from 30.8% in the last survey to 32.7%. The latest Bankwest/Mortgage & Finance Association Home Finance (MFAA) Index showed that satisfaction with mortgage brokers has also increased to 7.5 out of 10, from just seven a year ago, widening the lead over the banks. “This is a great result and we look forward to working closely with brokers to keep them at the forefront of buyers’ minds,” said Aaron Milburn, Bankwest head of broker sales. The research shows it is the 30 to 39-year-olds who will most likely use a broker, with just over

a third (38.8%) saying they would go straight to a professional when seeking out a home loan. These latest results show a continuing trend of trust building between brokers and their clients. MFAA CEO Phil Naylor said that now trust has been established it is time for brokers to take the next step. “Findings from the Index clearly show mortgage brokers have regained the confidence of consumers; they now need to differentiate themselves from banks and non-lenders and stay ahead of the curve,” Naylor said. “Whilst the majority of consumers are still selecting banks as their preferred loan source, there is visible improvement in the broker market. The challenge for brokers

is to continue offering services desired by consumers and delivering these with professionalism.” Brokers were not the only winners from the survey that saw satisfaction with non-bank lenders leap to 74% from 64% in the last survey. “Mortgage brokers still beat the banks across all aspects and topped overall satisfaction,” Naylor said. “The main reasons for choosing brokers included knowledge of personal circumstances, having a reliable contact point and keeping rate increases to a minimum.” Naylor said that consumers are becoming more understanding of what a broker brings to the table but that the industry still has much to do to achieve the same level of awareness it received from just a couple of years ago. Perceived consumer benefits include undertaking the groundwork (76.4%), offering a wide loan range (72.4%) and

having expertise on a range of mortgages from numerous lenders (72.0%). “There are significant changes taking place in the credit industry today – all of which are evolving the broker market rapidly,” Naylor said. “We believe consumer demand will help steer the broker industry into a future of higher professional standards and ethics.”

Aaron Milburn

Government gifts brokers a tax cut

Brokers are set to benefit if the Rudd government is able to push through their proposed tax reforms, after it announced that small businesses with less than $2m in revenue will see their company tax rate fall from 30% to 28%.

The Labor government will have to convince a currently hostile Senate that a huge tax on major mining companies is justified, in order to fund its tax cuts. The 2% reprieve for small businesses is also less than what the independent Henry Review

recommended, but Treasurer Wayne Swan said the government remains openminded on whether it will be lowered further in the future. “I recognise the independent review recommended the company rate of 25%,” Swan said. “This isn’t affordable right now but depending on future revenues from the super profits tax, we have an open mind on whether 28% is a final landing point.” The changes go into effect from 2012–2013 and include the ability for brokers with a good accountant to be able to depreciate assets in a single pool at 30%, as well as take advantage of the instant small business asset write-offs, which are worth up to $5,000. “Reducing company tax will

create new jobs and grow the economy right around the country – to the ultimate benefit of all Australians,” the Treasurer said. “This does simplify the tax system for millions of small businesses in this country and that reform should not be underestimated.” Brokers seem to appreciate the government’s recent efforts with the majority of comments on Broker News being positive. “It’s a great start as long as you have a good accountant and can still get enough business in through the door, then you can benefit from the lower comp tax and new depreciation allowances,” Ben Hall wrote. “Nice to see a trickle back to small business for a change!”

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Provident to provide path from low-doc to prime

Provident Capital has long been associated with the nonconforming market but now the non-bank lender has added prime products to its offering. It intends to provide brokers with the opportunity to give their clients a roadmap to transition from low-doc to prime. “In today’s market, few lenders can truly claim that

they are able to cater for a borrower who may have a blemish on their credit record, and then work with them to offer a refinancing solution as their record improves,” Provident Capital’s group national lending manager Steve Sampson said. He added that brokers can now benefit from a suite of

single-source products to address the needs of practically every borrower’s situation, allowing them to transition from low-doc to prime. Provident Capital has been able to leverage its performance over the past 18 months to secure several funding lines, which it will use to offer prime and lite-doc products to clients. Sampson said that he hopes having a complete suite of products will help position the company as Australia’s leading non-bank lender. “This is an important step in our journey which supports our overall strategy to expand our product offerings and service support for both brokers and borrowers alike,” Sampson said. “Our targets are bullish yet, with the demand we’ve encountered coupled with the broker support strategies we’ve been building, we’re feeling pretty optimistic.” He said the lender has placed an emphasis on assisting

brokers in reaching out to potential clients through the preparation of a lead generation manual, as well as sample marketing plans and letter templates. These will be made available for accredited brokers on the Provident Capital website along with other support material such as loan documentation and product and document matrices. “Anything that we can do to help brokers succeed is at the forefront of our thoughts,” Sampson said.

Steve Sampson

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FBAA teams up with new broker resource The Finance Brokers Association of Australia has partnered with Brokerpedia, a new online resource that provides brokers with up-todate lender policies, in an attempt to help its members write more loans. “Gaining timely access to accurate lender policies and other information is a key frustration for brokers,” FBAA president Peter White said. “This information is critical for brokers to effectively provide clients with the best finance and mortgage options.” He describes Brokerpedia as an intuitive search engine that enables brokers to pinpoint specific and up-to-date lender information. “Until now it has been difficult and time-consuming to access [lender policies], but Brokerpedia is set to change this,” White said. “I have no doubt that it will be an invaluable resource which will enable brokers to work more efficiently and provide clients with the very best service.” While the service is available to FBAA members free of charge, non-members can register for the resource for a monthly fee. Brokerpedia aims to help brokers when they are unable to reach a BDM for clarification on lender policy – a scenario that brokers are all-too-familiar with. For example, if a broker is with a client and wants to know something as specific as whether Westpac will accept a serviced apartment and if so, at what LVR, then all they need to do is type in ‘Westpac serviced apartment LVR’ into the text box and press enter. Brokerpedia promises to deliver the relevant information in seconds. “We’ve been testing the site with brokers from Connective (aggregator), and a common theme from the feedback we’ve received is that Brokerpedia assists to write more loans simply by reducing the opportunity for clients to ‘shop

Peter White

around’,” said FBAA Brokerpedia representative, Andrew Chinn. “When a broker is waiting for a BDM to return a call with clarification on unknown criteria of a loan, it gives the client an opportunity to leave and try elsewhere,” he added. Chinn said that opportunities to service borrowers with more complex loan requirements are also supported by Brokerpedia, as the site enables brokers to better understand the full scope of a client’s loan options. “With all the lender policies at the broker’s fingertips, opportunities are now available for many clients who may have otherwise been turned away as there were no obvious loan products suitable for them,” he said. “Similarly, brokers have also been able to identify better solutions for clients and upgrade them, for example, from a low-doc solution to a prime mortgage with better rates and terms.” Brokerpedia has been developed over the past five years and the site has evolved from being a website containing accurate policy information to become an up-todate resource on lender criteria. It is equipped with auxiliary tools and information such as loan calculators, and all forms for the various lenders are housed and can be downloaded.

Soaring land prices underpin home loan growth The cost of residential land continues to rise, with a new report showing the median price of raw land has increased by 2.2% to a record $185,222. The HIA-RPdata.com Residential Land Report shows the weighted median land price for Australia is growing at an annual rate of 14% at the end of 2009, the fastest pace since mid-2004. Meanwhile, the volume of land sales fell substantially in original terms, down by 4.6% in the December 2009 quarter compared to a year earlier. HIA chief economist, Harley Dale, said that over the year to December 2009, new house prices (excluding land) grew by 2.8%; building materials prices increased by 1%; labour rates fell marginally – yet median land prices jumped by 14%. “Throughout the last housing up-cycle, land values consistently grew at a substantially faster pace than construction costs and the general rate of inflation. Only six months into a new home building recovery, this situation is happening all over again,” he said. Sydney remains the most expensive residential land market in the nation with a median price of $275,000. Outside the capital

cities, the Sunshine Coast in Queensland is the most expensive land market (median price of $249,000), followed by the Gold Coast ($241,000), the RichmondTweed ($235,000) and Illawarra ($197,500) regions in NSW. According to rpdata.com national research director Tim Lawless, the recent fall in land sales volumes is likely to set off a few alarm bells. “With Australia’s population growing at a rapid rate and housing undersupply worsening, we should be seeing land releases and consequent sales volumes rising, not falling,” he said. “The shortfall in available land is already being seen in higher land prices.”

Harley Dale

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ASIC taking proactive approach to moving into broker space National Mortgage Brokers managing director Gerald Foley said ASIC is taking a proactive approach in getting to know the market it will soon be overseeing, after a number of nMB members were contacted by the regulator. “From all reports, it seems ASIC is taking a very proactive and moderate approach in moving into the mortgage space,” Foley said in an update to members. “I was really comforted to hear from one broker, who uses our ‘nMB Loan

Selector’ as part of her fact-find process, that ASIC was very pleased that this process was already built into a broker’s business practice.” Foley said that brokers were finding the registration process easy to complete and not too time-consuming and urged brokers who had not yet done so to register. “We are starting to receive supplier requests to provide details of our registered brokers, so it’s important to

remember if you’re not registered with ASIC before 30 June (or appointed a credit representative) you will have your accreditations cancelled,” he said. “To enable us to collate and report to our suppliers, we are asking for registration to be completed and details supplied to us by the end of May.” Brokers still have plenty of time to decide which model to adopt once they have registered with ASIC – and many will wait until it becomes clear what the costs of each are before making a decision. But Foley said that more information is needed before nMB can say how much it will cost to be a credit representative. “We are currently finalising procedures, costs and requirements for brokers to make

Gerald Foley

an informed decision,” he explained. There is still a level of detail to be advised and understood by industry in this regard. The ongoing compliance requirements and costs appear to be the main determining factor in what is the best way forward for each business.”

Firstfolio to swallow Apple

Firstfolio is showing no signs of slowing down the buying spree that has seen it acquire LeaseChoice, Xplore Capital, Loan Services Australia and First Chartered Capital. It announced that it plans to buy Tasmania’s Apple Group for $4.25m.

Firstfolio will acquire all of Apple Group’s assets, which include a $600m loan book. The deal for the wholesale mortgage distribution and financial services company follows on from a joint venture signed between the two companies in March 2008, under

which Apple was the exclusive distributor of Firstfolio’s mortgage products and services, including new Loan-branded mortgages. “Over the past 15 years the owners have built a client portfolio of near to 6,000 small and medium-sized businesses and high-net-worth individuals,” Firstfolio chief executive officer Mark Forsyth said. He added that it was Apple’s long-term growth strategy that Firstfolio found attractive. “Under our ownership and with secure access to a greater scale of wholesale funding, we will look to accelerate Apple’s expansion

ambitions across Victoria, Queensland and NSW,” he said. Apple managing director Rob De Soza said that he expects the industry to “rapidly consolidate” over the next 18 months. “Economies of scale, funding and the ability to provide tailored financial solutions and seamless service are where the industry is headed,” he said. As part of the transaction, Apple Group directors Rob De Soza and Gary Cumberbatch will join Firstfolio’s executive committee. Firstfolio said the transaction, once completed, would add $1.1m in pre-tax earnings this year.

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INDUSTRY NEWS IN BRIEF ANZ turns focus to mortgages

The new CEO of ANZ Australia, Phil Chronican, has made overhauling the bank’s mortgage division one of his first priorities. “We were sleeping a bit in mortgages, so I am focusing on two things,” he said. “[First], the risk view we took to step back from higher loan-to-value ratios, which made sense with higher unemployment but not so much now the economy is turning. [Second], as volumes have picked up we have had some operational issues, the physical ability to approve and settle in a timely manner.” ANZ is still ranked number one in customer service, but CBA is breathing down its neck. “This market is very challenging, very competitive,” said Chronican. “The competitive intensity is so great, you have to keep doing it.”

Banks tighten lending criteria to new investors

As investors flood back into the property market, the major banks are taking a cautious approach, tightening criteria for new customers even as they relax LVRs for existing clients. Over 35% of all mortgages written in March were for investors. Westpac recently changed its maximum LVR from 92% to 97% for existing clients and 87% for new customers. ANZ has made similar changes while CBA and NAB have tightened criteria for all investors. Yet mortgage brokers report that, since the GFC hit, banks have become increasingly difficult to deal with. “Banks are slow at responding or reticent to lend – getting finance is incredibly difficult,” Firstfolio CEO Mark Forsyth said. “Credit officers rather than the marketing people are still running the banks.” Forsyth was also concerned about the current lack of product innovation from the banks, although he expected conditions to improve over the next six months.

ALCo targets brokers

The lending industry is at a turning point with the introduction of legislation allowing ASIC control, according to Australian Loan Company (ALCo). One of the new requirements introduced through legislation is for brokers and aggregators to obtain an Australian Credit Licence (ACL), but it says brokers can opt to join an aggregator that will hold the licence on the broker’s behalf. “In order to service their members under the new legislation, the aggregator should also be able to provide a compliance service for their members, saving the broker exhaustive effort and time in developing their own internal framework,” it said. ALCo was one of the few prepared for the change in legislation, with its business model including operational procedures to assist brokers to become compliant.

Borrowers think savings equal discount

Borrowers often wrongly believe holding a savings account with a bank will result in an automatic interest rate discount when they take out a home loan, a survey by mortgage broker Loan Market has found. A survey of 152 of the company’s brokers nationwide found misplaced confidence in getting a discount was one of the main misconceptions borrowers had about banks, along with confusion over preapprovals for home finance. Loan Market chief operating officer Dean Rushton said more than one in three brokers who responded to the survey listed “borrowers who thought they had a pre-approval, when really the bank only checked borrowing power” as the top misconception about banks. “There can be a lot of confusion and misunderstanding about how the home loan market works,” he said. “A lot of borrowers also believe that if they are a current client of a bank that they will automatically get a bigger discount when they apply for a home loan, but that is not the case.”

Abacus: major banks security perception unfair

New research which confirms that major banks benefit from the perception that they are more secure than other regulated banking institutions should prompt the government to take more action to promote competition, Abacus says. Research conducted recently by BrandCentral found customers are more likely to take their business to one of the Big Four, in spite of them believing credit unions and building societies behave in a more responsible manner. Abacus CEO Louise Petschler said this demanded a “stronger response” from government, through a pro-competitive public awareness campaign. “Such a campaign could be funded by spending a tiny fraction of the $5.5bn in fees flowing from the Guarantee Scheme for Large Deposits and Wholesale Funding,” she said.

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SMSFs spur property investment Australians are increasingly using self managed super funds to invest in property rather than shares, according to accountancy firm Chan & Naylor. “Increasing awareness of the potential of SMSFs to borrow and invest is

creating new demand for residential property. It seems Australians feel comfortable with property as an investment class,” said CEO Sal Carrero. According to Carrero, the financial crisis prompted many

Australians to question whether they could invest their own money better than their super funds. “Compulsory superannuation has meant that Australia has one of the largest pools of retirement savings. Even if a small percentage of the nation’s $1.3trn in superannuation savings are directed into residential property, it will add substantially to the demand for limited housing stock. Adam Preen, a legal researcher from Sydney, said that he is looking at taking his money out of a managed super fund and placing it in an SMSF so that he can buy property. “I’m going to get a better return on a property than I would if I left it in a managed super fund. What did you get last year – 10%? Less than that, and the year before it went backwards,” Preen said. “If you’d bought into the

housing market you’d get at least 6% if you bought smart and that doesn’t even include your rental yield.” Carrero said that clients are becoming more comfortable holding their retirement savings in property rather than shares. “The GFC prompted many Australians to ask themselves whether they could invest their own money better than their super funds, which is one of the reasons that SMSFs are growing in popularity,” he said. “From a risk management perspective it is perfectly reasonable that investors are seeking to spread their investments into property.” Carrero said that SMSFs are no longer the exclusive domain of the wealthy, with savings of $150,000 sometimes enough to financially justify creating a SMSF.

Mortgage applications down 15% 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000

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 Consumer applications for mortgages fell by 15% in the January–March 2010 quarter, compared to the same period in 2009  Mortgage applications were also down by 8% compared to the previous September– December 2009 quarter  Mortgage applications fell steeply in Queensland (21%) and NSW (20%)

Consumer mortgage inquiries by month trading day adjusted October 2002–March 2010

Feb-03

Key points

Veda Advantage, which conducted the research, said the data highlights how effective the government stimulus boost was in bringing forward mortgage demand. “One consequence of a withdrawal in government incentives is a relatively sharp drop-off in housing credit demand in 2010,” spokesperson Chris Gration said. “Consumer mortgage applications have fallen substantially in this quarter, possibly influenced by rising property prices and a lowering of government assistance for first homebuyers.” Additional mortgage data from Australian Finance Group suggests that first homebuyers continued to decline as a proportion of the overall market in March 2010 to 10%, down from a market share of 28% in March 2009. Veda Advantage’s bi-annual

No. of inquiries per trading day

Brokers are continuing to feel the effects of the first homeowner exodus, with recent research showing mortgage applications fell by 15% in the first three months of 2010. This marked the first quarterly decrease in consumer mortgage demand since the December quarter in 2008.

Source: Veda Advantage analysis April 2010

Australian Debt Study shows a significant shift in consumer behaviour towards saving, with a rise in intention to reduce debt over the next six months. Personal loans were also impacted by consumer’s desire to shun credit, with applications falling by 1% in the January– March 2010 quarter.

However, while the fall in mortgage applications can be attributed to the removal of the government stimulus boost, the decline in personal loans has been ongoing since the start of the financial crisis. This was the 10th consecutive quarterly year-on-year decline in personal loan applications.

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Broker brands risk falling into ‘trust trap’ New research has found that Australia’s leading financial service names may be in for a shock when the recovery in markets does not lead to an equal recovery of trust in their brands. The research, commissioned by marketing firm endgame communications, found that 68% of potential clients wanted their brokers to be open about fees in order to build trust. After that, following through on promises was cited as a reason to trust their financial service provider with 60% saying it was of paramount importance. While the first is not really a problem for brokers, the second condition could provide a problem and highlights the importance of managing client expectations. As a thirdparty distributor, brokers are often not able to accurately say when a loan application will be reviewed by a lender. This means that brokers who are able to find lenders and BDMs

that are quick to respond to their queries will have an easier time retaining customers and building trust, than those who are unable to follow through on their promises. “We have behavioural biases that predispose us to trust, but when that trust is repeatedly abused it can be very hard to regain,” endgame managing director Sally Wells said. However, in a potential positive for smaller operators, the research also found that the size of a financial institution played an ambiguous role in the formation of trust. “Some people associate size with solidity and comfort, while others associate it with a loss of engagement and poor communication, factors that are actually critical to building trust,” Wells said. “Brands that have effectively built and retained their consumers’ trust have done so by engaging in a two-way interaction.”

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News

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

AFG: mortgage sales fall to $2.3bn emergence of a two-tier mortgage market, with the proportion of investors surging as sales to owner-occupiers decline. Property investors accounted for 36.9% of all mortgages arranged in April, the highest such figure AFG has ever recorded. This compares with 10.2% for first homebuyers and 16.3% for upgraders. The balance of new mortgages organised in April, 36.6%, were arranged for refinancing purposes. “Investors are somewhat more insulated,” Hewitt said. “They may have the option of rent rises or negative gearing to protect them. This is why we’re seeing the emergence of a two-tier mortgage market.” LVRs are also dropping with the average LVR in April sitting at 63.3% compared to 73.7% a year ago. Yet this is to be expected, considering the growing proportion of relatively well-funded investors, as well as the decline of first homebuyers over the past 12 months.

Mortgage sales fell by 15.6% between March and April this year as successive interest rate rises have taken hold, according to Australia’s largest mortgage broker. The AFG Mortgage Index showed that the $2.7bn of mortgages arranged in March fell to $2.3bn in April. This figure is also 17.5% lower than the $2.8bn arranged in April 2009. AFG brokers in NSW witnessed the largest fall in sales with the value of loans written falling by almost 20% from March sales. Queensland

suffered the next biggest drop-off with a fall of 16.4%, followed by South Australia (15.9%), Western Australia (14%) and Victoria (8.7%). “Every month we go through this ‘will they or won’t they raise interest rates’ debate,” said Mark Hewitt, general manager of sales and operations, AFG. “It’s hard for ordinary families to make the huge financial decision to buy a property when they don’t know what repayments will be in three months’ time, let alone next year.” This has resulted in the

Mark Hewitt

ALCo tries to sway brokers using targeted compliance model Australian Loan Company (ALCo) believes the upcoming regulation provides the perfect time for brokers to evaluate what their aggregator is doing for them and determine whether it will be ready for the new licensing regime. ALCo claims that while most aggregators are now anxiously watching the clock, it is one of the few prepared for the change in legislation, due to its position as a subsidiary group of Professional Investment Services (PIS) – a network of financial advisors and accountants. “By modelling all facets of our business, including compliance, training and development on the established PIS model, we have enjoyed a reputation with lenders of being a quality service provider,” said ALCo general manager Lesley Wood. ALCo said that, in order to service their members under the new legislation, an aggregator should also be able to provide a compliance service for their members. This would save brokers the time and effort in developing their own internal framework. ALCo is the latest aggregator to offer brokers the opportunity to operate under their Australian Credit Licence. Advantedge was the first to give brokers the choice of becoming an authorised credit representative or holding their own licence. At its official launch recently, Vow Financial also said brokers will have the option of coming under its licence or obtaining their own.

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The future of housing Is this what the Australian home of the future will look like? Designed to fit in with the country’s unique climate as well as the lifestyle of a typical middleincome family, Australia’s first Zero Emission House has been built and opened near Melbourne. The AusZEH demonstration house was built 30km north of Melbourne in the community of Laurimar in Doreen. The cost of the house, not including the land package, is a little less than $300,000, according to a partner on the project, designed by the Henley Property Group. Solar panels on the roof will produce enough electricity to supply all the operating needs of the household ensuring that it emits no greenhouse gases. It is estimated that almost 13% of Australia’s greenhouse gas emissions are due to home energy. For the next year, the house will become a home for an Australian family and a laboratory for CSIRO, which helped build the project. Dr Alex Wonhas, the director of CSIRO’s energy-transformed flagship, said the uptake of zero-emission housing in Australia could have a significant

cont. from cover

However, it does seem that the current government is aware of the differences between the two professions, with Bowen seeking to reassure brokers that their income is not under threat via these reforms. “There’s a different regime that applies to mortgage broking and that applies through our national credit reforms,” he explained. “Mortgage broking is quite

impact on reducing emissions nationwide. “CSIRO scientists estimate that if all the new housing built in Australia between 2011 and 2020 were zero-emission houses, 63 million tons of greenhouse gas emissions would be saved,” he said. This is the equivalent of closing all of Australia’s power

stations for 100 days or taking all of our cars off the road for almost three years. The house has been fitted with an energy management system developed by La Trobe University and CSIRO, which tracks energy use in the home and provides feedback via customised reports to household members. This

information on the performance of the ‘living’ house will be used to identify ways to improve the design of future zero and lowemission houses. Other consortium members on the house include Delfin Lend Lease, Sustainability Victoria, SP AusNet, Telstra and the Victorian Department of Human Services.

different to the issues that we’re talking about here today but they are regulated through the national credit reforms.” Michael McClure of Buyer’s Choice Home Loans does not believe that broker commissions will go down the same route as financial advisors, because brokers provide a valuable competitive force in the mortgage marketplace. “Without us, the public would undoubtedly be paying higher rates, getting little

or no choices and enduring standard bank service,” he said. “The commission paid by lenders to brokers is for introducing qualified loan applicants, preparing and submitting loan applications and associated documentation.” McClure added that, if the third-party distribution channel disappeared tomorrow, customers would see no reduction in the cost of getting a loan and would find themselves at the mercy of the

majors, with no competitive advantages or professional advice. Financial planner Steven May said he thinks it would be difficult to untangle commissions from the broking proposition. “I think at the moment that commissions are entrenched in the mortgage industry,” he said. “If the consumer won’t pay for advice from a mortgage broker, does that just mean that the Big Four banks eat it all up and there’s not a lot of competition anyway?”

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Column MARKS

WHAT COULD YOU BE DOING DIFFERENTLY?

Kenneth Marks, a certified merger and acquisition advisor and author of the new book, the Handbook of Financing Growth, looks at what brokers can do to take their business to the next level Is your company taking advantage of market churn and chaos to refresh its growth strategy? Regardless of a company’s size, stage or industry, everyone has felt some impact from the recent years’ of economic turmoil. For many people, it has been devastating, requiring them to significantly shrink their business, lay off employees, close facilities and hunker down before the upswing comes. Some have been forced to file for bankruptcy and liquidate, for others the impact has been more of a mild distraction, causing worry and distress in markets and niches that have otherwise continued to flourish. Being optimistic, the exciting part of a crisis like we have experienced in the last two years is the ability to easily effect change. Think about it. When business is good, the company is profitable and customers are happy. It is difficult to spur improvements, reinvent what’s inevitably going to be obsolete or make bold moves. The risk of rocking the boat – or the inertia to stay the course when things are working – can be difficult to overcome. But when crisis hits, everyone – employees, suppliers, customer, lenders and shareholders – expects action. An environment is created enabling leaders to make strategic moves to strengthen their company’s market position to compete in the next wave, or to shore up in the event of a double-dip. So what is your company doing differently to take advantage of the opportunity to change? What strategic move or moves has your team embraced? Start by reviewing the direction of the business: 1. Clarify the goals and objectives of the shareholders 2. Revisit the company’s strategic plan with a fresh set of eyes. Consider the basic growth strategies used to navigate the emergence of industries or to avoid being squeezed out when a market contracts 3. Identify the ‘secret sauce’ of the company. How does it need to be competitively positioned and differentiated? 4. Focus on activities and strategies to sustain or move the business into a leading position for greater long-term success Once direction is clear, management can develop the strategy to meet a future desired state. This should result in initiatives that will move the company forward. A

common question asked is ‘how do we think about growth strategies?’ From a big-picture perspective there are two fundamental approaches: organic (internal) and external. While the two intersect and overlap at times, and both can involve investment, we can separate them for discussion. 1. Organic strategies: involve leveraging the strengths of the existing business and building from within. This approach could mean accelerating penetration in existing markets through new initiatives. It could also mean finding new distribution or delivery channels. 2. External strategies: tend to involve other companies and investment outside the current business. With one or more numerous strategic aims, a common external growth strategy is the acquisition of another company to quickly capture customers, add capabilities, or access new technologies. The same objectives can be achieved with less risk/similar benefits by entering into strategic partnerships or joint ventures. Defensively-exposed companies may consider merging with a competitor for cost efficiencies, or shedding weaknesses while gaining complementary strengths. Keep in mind that combining two poor-performing companies doesn’t necessarily make a better company. An interesting dynamic is playing out in many industries now: good companies with bad balance sheets need capital and can’t get it, so they are forced to sell or trade at distressed levels. Some of these good companies over-leveraged themselves; others are in a precarious position because of portfolio rationalisation by their current investors. Strategy must be coupled with solid operating execution. All the plans in the world don’t matter if the business can’t do what it commits to with the resources it can harness. Consider increasing the operating tempo of the company and challenge performance expectations. It is all too easy not to drive the extra mile required to excel when there is no external pressure or the situation isn’t critical. Lastly, don’t be afraid to trim the losers or weak players. That is, trim the products, services, customers, suppliers and employees that are draining the organisation or distracting the company from focusing on the valuecreating, forward-looking business. Execution starts with having the right team.

“It’s not only a great honour to have won, but the effect on my career and reputation has been outstanding. I would highly recommend entering the awards, and wish all this year’s finalists good luck”

PAUL BIEG

WINNER: YOUNG GUN OF THE YEAR - FRANCHISE AMA09

September 24, 2010 The Westin Hotel, Sydney

Online nominations now open www.australianmortgageawards.com.au Official event partner

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Feature

How high will rates go?  Interest rates are on the rise. AMP chief economist Shane Oliver looks at the factors pushing rates up and explores where they are likely to end up

he Reserve Bank of Australia has increased the cash rate five times from its low of 3%, taking it back to 4.25%. Moreover, the consistent message from the RBA has been that more interest rate increases are likely. In simple terms, the official cash rate was cut to generational lows of 3% early last year to help minimise the impact of the GFC on the Australian economy. Yet, with the economy avoiding recession and growth now back around trend, it’s hard to justify interest rates remaining below normal levels. There is little doubt Australia’s economic growth has improved and the case for abnormally low interest rates has well and truly passed. While housing finance data and retail sales have recently been soft, indicators for job advertisements, employment, car sales, house prices, auction clearance rates, business investment and export earnings are all pointing to strong growth ahead. Our leading growth indicator for Australia is predicting strong growth of 5% in the future. However, while growth may be back at trend – and probably heading above – the key questions are what is the “normal” level for interest rates and secondly, what is the risk we will go beyond this level some time in the next few years?

The normal interest rate

Most economists regard the normal or neutral rate of interest (above which monetary policy bears down on growth and below which it stimulates growth) as being roughly in line with the economy’s long-term nominal growth rate. So with an inflation target of 2.5% and real potential growth thought to be around 3.25%, for a long time the neutral rate was thought to be around 5.75%. However, last year there was increasing talk of a ‘new normal’ rate, subsequently given credence by the RBA itself. This took its lead from the fact it is actual borrowing rates that businesses and households pay that matter. Due to increased bank funding costs, the banks’ borrowing rates were running at an above-normal margin relative to the cash rate. For example, over the decade prior to 2008 the standard variable mortgage rate averaged around 1.8% above the official cash rate, whereas it is now about 2.9% higher. This would suggest that the normal cash rate has fallen by one percentage point or so, taking it to around 4.75%. With the cash rate now at 4.50% this would suggest there is not a lot further to go up in terms of returning the cash rate to normal.

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

Similarly, the average standard variable mortgage rate of 7.15% is now not that far below the average of 7.5% over the last decade and a half. All this would suggest interest rates are now pretty close to normal, with only another 0.25% or 0.5% increase required.

The new normal interest rate

However, a counterview is starting to emerge, suggesting the normal level for the cash rate is actually still around 5.5%. This view accepts that the spread between bank lending rates and the cash rate has widened but argues the potential real economic growth rate of the economy is actually around 4%. Over the last few decades, Australia’s real growth rate averaged around 3.25% pa and it has been thought this represents the longer-term potential growth rate of the economy, reflecting labour force growth of around 1.7% pa and productivity growth of around 1.5%. However, several factors may be working to push Australia’s potential growth rate up towards 4% pa: • A large increase in immigration levels is driving an acceleration in labour force growth. The increase in the working age population in Australia is now running at 2.2% pa, its highest level since the mid1980s. Even allowing for some scaling back in immigration levels suggests labour force growth could be running around 2% pa over the next few years • The ‘super-cycle’ in commodity prices is providing a big boost to national income, and hence the economy, that will likely continue for many years to come, short of some event terminating the industrialisation of China, India and other major emerging countries. For example, the 90% increase in iron ore prices and 50% increase in coking coal prices will provide a $35bn– $40bn boost to national income (equal to 3% of GDP). In fact, the RBA has even cited this as a reason not to delay raising interest rates • The boost to national income from the mining sector, plus strong public sector infrastructure spending, has pushed growth in the capital stock (ie, the stock of factories, machinery, commercial buildings and infrastructure) to its fastest pace in almost 40 years. This is likely to boost productivity growth. If potential real economic growth has been boosted to 4%, then allowing for 2.5% inflation this would suggest the normal cash rate (before allowance for wider spreads on bank rates) has increased from 5.75% to 6.5%. Allowing for wider bank spreads brings the normal rate back to 5.5%. The bottom line is that on this basis the RBA still has quite a bit more work to do to return interest rates to normal levels. Rather than one or two more 0.25% rate hikes, this would suggest that there might be another five to go, just to get back to normal.

So how high will the cash rate go?

Regardless of what the normal level is, the experience in past cycles suggests at some point the cash rate will

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likely rise above normal. In the last tightening cycle the cash rate peaked at 7.25% in 2008. As in any cyclical upswing the reason this time around will be simple – if growth rises above the potential for a while (as our leading indicator suggests is possible), this would be seen as likely to push inflation above target levels. On this basis some are now suggesting the cash rate could well rise to its 2008 high of 7.25% at some time in the next two years. However, there is good reason to believe this won’t be necessary as it would likely create significant problems for the Australian household sector. While the ratio of household debt-to-income has stabilised at around 155% over the last few years, it remains extremely high (well above that for other countries) and has recently started to increase again. Similarly, the proportion of household disposable income used for debt interest payments is starting to rapidly increase again. In fact, the vulnerability of the household sector may have increased a bit lately, as the aggregate debt figures likely mask faster repayments by older households with a mortgage, but high average debt levels for the group of borrowers who recently entered the market on the back of the First Home Owner Grant Boost. This group is likely to be highly sensitive to rate hikes. The 2008 experience highlighted the vulnerability of the household sector – essentially, when rates started to push above 9% real consumer spending slowed sharply in early 2008, quite clearly indicating that the RBA had gone too far. As a result, the Australian economy had slowed to a virtual crawl in 2008, even before the GFC hit in the December quarter of that year. The pressure on households was only relieved when the RBA started slashing interest rates from October 2008.

A counterview is starting to emerge, suggesting the normal level for cash rates is still around 5.5%

A move back to a 7.25% cash rate would be far more negative for household cash flows this time around, as it would imply – on current bank lending margins – a standard variable mortgage rate of 10.1% which is well above the 2008 peak. This would take the proportion of interest payments to household income well above the 2008 high, which is why it won’t be necessary and so most likely, won’t occur. If the economy was already slowing significantly in 2008 when mortgage rates went above 9%, the same will likely happen this time around. This all suggests the cash rate is more likely to peak around 6% or just above, probably in 2012, rather than head on up to its previous highs. This scenario would imply that mortgage rates will likely peak at around 9%.

Conclusion

While wider bank lending spreads have reduced the normal level for the official cash rate, possibly to 4.75%, strong immigration levels and structurally higher commodity prices are likely pushing levels back up to around 5.5%. On this basis, it’s still likely the RBA has a bit more work to do to get the cash rate back to normal. What’s more, it is highly likely the cash rate will rise above this level in 2011–12. However, the heightened sensitivity of the household sector – given high debt levels – will likely see the cash rate top out at around 6% or just above in 2012. We are allowing for another 0.25% cash rate hike in either May or June and the cash rate rising to 5% by year end, before moving up to a peak of around 6% or just above in 2012.

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Feature OFF THE CUFF Michael Watson

Operations and marketing manager, MKM Capital What was the last book you read? For the Term of his Natural Life; a book written in 1870 which followed the experiences of a convict and a group of people whose lives kept influencing each others’. If you did not live in Australia, where would you like to live? Somewhere in Italy or France would sit well with me. Basically, anywhere with good food, good wine, good weather and good stuff to look at! If you could sit down to lunch with anyone you like, who would it be? My wife Carolyn, of course! In Carolyn’s absence, I’d invite musician Les Claypool, comedian Shaun Micallef, cricketer Shane Warne and ABC Classic FM breakfast radio host Emma Ayres. Les because he’s such an influential muso, Micallef’s one of the funnier people in Australia, Warnie, say no more – and because the group all have virtually nothing in common, Emma Ayres to keep the conversation moving along with pleasant wit and well-timed puns. What was the first job you ever had? I grew up on a dairy farm so my first job was farm work around home. We had a herd of about 600 cows and I learned about a hard day’s work and the value of persistence day in, day out. What do you do to unwind? I work full-time, have a wife and two children (three years and four months) and am halfway through completing an MBA. Not a lot of unwinding goes on! When I do get the opportunity to unwind, it’s usually either having a few beers and Friday night footy or going on a long run.

What’s the most extravagant gift you ever bought yourself? I played in bands throughout high school and uni, and have collected a few nice bass guitars (and the odd ordinary one). We’re building a house at the moment so I guess that can be considered an extravagance too. What CD is currently playing in your car stereo? I have a regular rotation of Appetite for Destruction (Guns N’ Roses), Sailing the Seas of Cheese (Primus) and I recently bought Florence and the Machine’s CD (Lungs), which is pretty good. When the CD’s off I’m generally listening to either ABC Classic FM or Triple J. If you could give anyone starting out in business one piece of advice, what would it be? Know your strengths, but continually review your weaknesses and focus on improving them. If I was not working in the mortgage industry, I would like to be…? Craig Willis, he’s the MC at the Olympics, the AFL grand finals, Melbourne Cup, Australian Open, etc. Basically he goes to every major event in Australia (and many abroad), does two minutes work then spends the rest of the day in a corporate box watching. Not too shabby! Where was the last place you went on holiday? A week around the Bellarine Peninsula, staying in Queenscliff, Victoria.

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MOVERS & SHAKERS Name: Jodie Hainey From: Homeloans Ltd To: nMB Title: Lending services manager Hainey has been appointed as nMB lending services manager. With more than five years’ experience in retail and commercial lending, she will bring her experience as a Homeloans BDM to the group. Her portfolio includes the management of nMB Direct loan products, nMB lending services help desk, and lender-data integrity.

Name: Ernie Reibelt From: Raine & Horne To: Oasis Home Loans Title: Blue Mountains franchisee After a period of time with Raine & Horne in sales support, Reibelt joined Oasis, first in administration and client management and now as the franchisee for the Blue Mountains (NSW) area. Reibelt’s computer and client management skills have allowed him to seamlessly take on the role as a franchisee, as well as providing support to Oasis head office. Being an Oasis franchisee is a bit of a family affair with Reibelt joining his brother Simon in the role.

Name: Patrick Ditthavong From: Loan Market To: National Finance Club Title: Business development manager, NSW Ditthavong will drive awareness and sales of NFC’s services through existing and new distribution channels, to expand NFC’s broker network in the state. His 10-year broking career commenced with Rams Home Loans, before joining Loan Market in 2005. “Patrick will focus particularly on building and maintaining strong, local relationships with brokers and his experience in the broking industry makes him ideally suited to the role,” said National Finance Club managing director, Andrew Clouston.

Name: Tricia Green From: Mortgage Choice To: National Finance Club Title: Business development manager, Queensland Green brings more than 20 years’ experience to her new role and will be central to expanding National Finance Club’s presence across the state. She worked as a loans manager at both CBA and ANZ before turning her attention to mortgage broking with organisations including Home Loans Now and Mortgage Choice. “Tricia has a detailed understanding of the needs of brokers and how to best assist them, and her addition to the team will have a significant impact on NFC’s presence throughout Queensland,” said National Finance Club managing director, Andrew Clouston.

Name: David Blackman From: Citibank To: Australian Loan Company Title: Business development manager Blackman comes from a banking background, having previously worked at both Macquarie and Citibank. He will be responsible for looking after the NSW/ACT areas in his new role as business development manager. His primary duties will be concentrating on the ALCo aggregation model and increasing awareness around the new regulation.

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Column O’DONNELL

CHOOSE THE LICENSING MODEL THAT’S RIGHT FOR YOU

Brendan O’Donnell, CEO of Choice, investigates the types of licensing options that are relevant for brokers, under the new National Consumer Credit Protection legislation The National Consumer Credit Protection legislation (NCCP) is the single biggest piece of reform ever to impact our industry. It heralds an exciting next step for mortgage broking in Australia as we lift professional standards and expand our value proposition to consumers. While it’s a watershed moment that promises to deliver great opportunities to professional brokers, it will also increase brokers’ administration, training and compliance obligations. By January 2011 all mortgage brokers will have to either obtain their own Australian Credit Licence (ACL) or become an authorised Credit Representative of another licensee. Make no mistake – this is a business critical decision. And like all major business challenges brokers face, Choice is working alongside our members to help them navigate this terrain. That’s why we’re offering our members both of the licensing options – ACL or Credit Representative. Under the ACL model, the ACL holder is responsible for their own business’ compliance. These obligations should not be underestimated and are fairly onerous. ACLs must regularly review their procedures and systems to meet their ongoing obligations. It must be established that key personnel are ‘fit and proper’ and the Australian Securities and Investments Commission (ASIC) must be notified when key people on the licence change. Financial management may be scrutinised by the regulator and as a result budget and cash-flow projections should be regularly reviewed to ensure solvency. So should your assets and liabilities and your processes for recording and monitoring all financial records. A risk management and compliance plan must be in place including maintaining appropriate insurance coverage. Procedures to ensure customers receive required documentation within set timeframes will be mandatory while the ACL holder will be obligated to ensure their credit representatives also adhere to laws and licence conditions. This will add significantly to your human resources commitments as roles and responsibilities will need to be clearly defined as will processes to assess, appoint, train and record training of credit representatives. Anyone who tells you the obligations for securing and maintaining an ACL require minimum effort fundamentally misunderstands the task at hand. There will be some broking businesses which have sufficient resources to fulfil this obligation but you

must ask yourself what value this responsibility will add to your business. I believe the core tasks that deliver revenue growth to brokers are maintaining and growing client relationships, attracting new clients, and managing and nurturing staff. It’s not administration and compliance. For those brokers who are not compliance experts and have no desire to become one, I think the Credit Representative model is the best option. In this model, the ACL will be held by a Choice-aligned company and will be responsible for the credit representative’s compliance. We’ll induct and continually train credit representatives to ensure best practice procedures reflect the requirements of the law. A team of Credit Advice managers will be employed who will work initially with loan consultants to assist them re-engineer their practices to be compliant. They’ll also review customer files and provide feedback in regards to compliance with the laws. And they’ll be available at any time whenever a Choice member who chooses to be a credit representative is not clear about compliance requirements. This is a lot to take in. We appreciate brokers are feeling some uncertainty about the impact the new regime will have on their business and the best model for them. While we expect a large percentage of Choice members value the level of support we provide and so are likely to adopt the Credit Representative model, we will fully respect and support whatever decisions our members make, and will continue in partnership to help them grow successful and sustainable long-term businesses. But I want to tackle head-on those concerns that the Credit Representative model will impact brokers’ independence. This couldn’t be further from the truth. Have a think about what makes you independent: it’s about control over your customers and how you manage those relationships, the freedom to choose the lending products you recommend and the right to select the best partners to outsource the functions that don’t reflect your expertise. They’re the decisions that most impact your business and your independence. Not maintaining training registers and ASIC notifications. These are exciting times ahead, as this reform is the right thing for our industry and for consumers. You need to choose the model that’s right for you – and for Choice members we’re committed to supporting them every step of the way.

Ask yourself what value the responsibility of holding an ACL will add to your business

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Cornish CORNISH COLUMN WHEN CLIENTS ATTACK This week, I received a disturbing phone call. Someone working in the industry, who asked not to be identified, was assaulted at his office by an aggrieved client. The broker was grabbed by the throat and threatened with a hammer. The attack went on for several minutes and took place in front of a number of office staff. The aggressor apparently had no qualms about attacking the broker in front of others, or knowing that the police had been called. This happened in a nice neighbourhood where you would not usually expect this type of incident and the broker told me that in all his years in the industry, he had never heard of such a thing happening. Thankfully, everything ended without bloodshed – however, this incident did highlight the personal safety issues every broker faces every time they have direct contact with a client or potential client in a foreign environment, possibly at night. Many, if not most, brokers are sole traders. They visit clients out of hours, at their homes, and are more likely than not, alone. Any broker that has been in the business for any period of time will know that you have to deal with disgruntled clients from time to time. A house is said to be the single most expensive purchase most Australians will make in their lives – so a client can be understandably emotional when things don’t necessarily go their way. When that emotion, or disappointment/ anger turns towards aggression and violence, a broker can find themselves in very serious trouble. I called up an employment law expert at law firm Sparke Helmore’s workplace relations and safety practice, special counsel Carlie Holt. She told me that incidents of workplace violence have been steadily increasing over the past few years, and that it is a matter that every mortgage broker should take very seriously. As if it is not bad enough that your safety can be threatened, Holt said that there were very harsh

penalties if the attack happens to one of your employees while at work. This means that if a disgruntled customer comes into your office and threatens your secretary, you will be held personally liable, including for workers compensation claims and unsafe workplace claims in a civil court with severe financial penalties. But what is even more concerning for employers is that criminal penalties also apply. Owners and directors of the company can face criminal charges for negligence and not ensuring a safe working environment for their employees. That responsibility to provide a safe working environment does not end when an employee leaves the office. If you have a small brokerage and send loan writers out to clients’ homes, then that is also considered a place of work and any incident that happens while your employee is there is also your responsibility. So what can you do about it? Holt said that the first step is to identify any potential dangers and work out systems to remove those dangers – or minimise the likelihood of your employee being put in harm’s way. These can include making sure that you have done all the research you can on your client, including looking them up on the internet and maybe even obtaining some personal information about them before you meet. If you have access to RP Data, you can do a property search on the property you are meeting at and ensure that the information matches that supplied by the prospective client. If you turn up at the appointment and the property is unlit it would be prudent to phone the prospective client and ask them to come out via their front door to meet you. Make sure they come from within the house and not from a hiding spot in the garden or from the backyard. During the appointment, if you are uneasy about anything including the tone of the conversation, their body language or you simply have a bad feeling, make any excuse and leave immediately. Brokers distinguish themselves by providing superior customer service but safety remains paramount.

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Caught on camera Vow Financial announced its arrival on the aggregation scene with a bang, by recently hosting a number of high-profile events in Brisbane, Melbourne, Newcastle and Sydney

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PHOTO 1: Craig Forman, Steve Lambert (COO, Vow), Matt Mitchener (Marketing manager,Vow) PHOTO 2: Jeff Zulman (CEO, Vow) PHOTO 3: (L–R) Jeff Zulman (CEO, Vow), Tim Brown, Steve Lucas PHOTO 4: (L–R) Kellie Hornsby (Compliance administrator, Vow), Steve Craig PHOTO 5: (L–R) Paul Roos (Sydney Swans), Tara Davoren (Vow) PHOTO 6: (L–R) Mark Uden, Geoff Smith (Director, Vow) PHOTO 7: (L–R) Concetto Cannavo, Lee Noble, Daryl White, Floyd Evans PHOTO 8: (L–R) Paul Roos (Sydney Swans), Steve Lambert (COO, Vow) PHOTO 9: (L–R) Michael Osborne (Vow), Robert Brand, James Groom PHOTO 10: (L–R) Robert Brand, Tara Davoren (Vow), Alan Gibbons (CIO, Vow)

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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

We have strongly lobbied for the past four years for consistent, nationwide regulation of mortgage brokers and welcome the passing of the National Consumer Credit Protection Act, but will continue our strong approach to disciplinary matters as we believe it is in the best interest of consumers and our members.”

Issue: Australian Broker issue 6.9 Headline: “Brokers heading for 50% of market” (cover page) What we reported: Some of the industry’s most senior players believe that within 12 months, one out of every two mortgages could be written by a broker. At an industry breakfast held in Sydney, representatives from Mortgage Choice, National Mortgage Brokers (nMB), National Brokers Group (NBG) and Smartline all agreed that despite the current market challenges, brokers’ share of the market was only heading one way. nMB managing director Gerald Foley said he believed brokers could obtain as much as 50% of the distribution pie. “Western Australian brokers got to 50% and that is now quite a mature market,” Foley said. Backing him up, Smartline director Joe Sirianni said he could clearly see brokers writing between 40% and 50%, while National Brokers Group CEO Steve Lambert said “I reckon we will get up there.” What has happened since? Well, it has been 12 months and brokers are not writing one out of every two mortgages, so it appears that Foley was a little off-base. The good news, however, is that broker usage is creeping up, with around 40% of consumers obtaining their home loan via the third party channel. That is up from a low of 35% but not quite at the high of 45% reached a couple of years ago, and nowhere near the 70% of mortgages originated by UK brokers prior to the financial crisis. With regulation on the horizon and positive sentiment being shown by consumers towards brokers, there is every

Gerald Foley

Headline: “Macquarie confirms it is up to something” (page 12)

Phil Naylor

reason to hope that Foley’s prediction will come true, even if a little later than expected. Headline: “MFAA to press on with disciplinary role” (page 6) What we reported: The MFAA will continue to suspend and expel members that breach its Code of Conduct, despite the industry’s new regulator ASIC being granted tough new enforcement powers under the draft National Consumer Credit Protection Bill. Besides being able to suspend or cancel a broker’s Australian Credit Licence (ACL), ASIC will have the power to enforce civil penalties for misconduct, including fines of up to $220,000 for an individual and $1.1m for a corporation. MFAA CEO Phil Naylor told Australian Broker its disciplinary process would remain in place, though he said it might become something of a lesser role once the new laws become effective. What has happened since? The MFAA continues to offer value to its members and the public by strictly enforcing its Code of Conduct. A number of brokers have been expelled or suspended from the industry body in the past 12 months, the most recent of which occurred earlier this month. “This Code is enforced by the MFAA through its Disciplinary Rules and Tribunal and is well-respected by the industry,” Naylor said. “As the MFAA represents the majority of Australia’s mortgage brokers with over 12,500 members, we take this responsibility to members and to borrowers seriously.

What we reported: While some time has passed since rumours about Macquarie’s aggregator project first surfaced, the lender has released comments that confirm it is definitely up to something. AB first got wind of Macquarie preparing to dabble in the aggregation space back in March 2009, when a series of industry players contacted the magazine to speak about the lender’s secretive discussions with several small aggregator groups. According to industry sources, Macquarie had held a meeting for small aggregators interested in working on a co-operative model late in 2008. What has happened since? One year on and Vow Financial has officially been launched, in a series of high-profile events around the country with stops in Melbourne, Sydney, Newcastle and Brisbane. Macquarie has brought together National Brokers Group, The Mortgage Professionals and The Brokerage to provide the industry with an aggregator group that promises to listen to its members. Vow CEO Jeff Zulman said at the Sydney launch that the group was lucky to have a strong relationship with Macquarie and that the aggregator would continue to listen to and respond to the needs of its brokers.

Jeff Zulman

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Services

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au MKM Capital 1300 762 151 www.mkmcapital.com.au page 8

AGGREGATOR / WHOLESALE BROKER PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5 Vow Financial Pty Ltd 1300 730 050 www.vow.com.au page 16 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 9 Think Tank Property Finance 1300 781 043 www.thinktank.net.au deal@thinktank.net.au page 31

LENDER Liberty Financial 13 11 80 www.liberty.com.au page 3

SHORT TERM LENDER Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2

Vanilla Loans 1300 710729 www.vanillaloans.com.au page 22

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

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

NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 10

NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au page 7

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

Trailerhomes 0417 392 132 page 26

RAMS Home Loans 1300 130 769 www.ramsbroker.com.au page 13

NON-BANK LENDER Hemisphere Financial Services 1300 793 742 www.hemispherefs.com.au page 17

DEBTOR FINANCE Oxford Funding Pty Ltd 1800 850 509 www.oxfordfunding.com.au info@oxfordfunding.com.au page 15 INSURANCE Scott & Broad Pty Ltd 02 8876 2803 www.scottbroad.com.au ms@clarkpacific.com.au page 12

OTHER SERVICES Residex 1300 139 775 www.residex.com.au page 23 RP Data www.rpdata.com page 25

Prime Finance Pty Ltd 1300 130 538 www.primefinance.com.au page 18 Rapid Capital 07 5562 2485 www.rapidcapital.com.au page 4 SOFTWARE / IT Stargate Group 1300 723 613 www.stargategroup.com.au Symmetrycrm@stargategroup.com.au page 11 WHOLESALE Resimac 1300 764 447 www.resimac.com.au newbusiness@resimac.com.au

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