Australian Broker magazine Issue 7.16

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ISSUE 7.16 August 2010

‘New normal’ must be faced head on

First credit union licence granted

 Higher cost of

South West Slopes Credit Union is the first Australian Credit Licensee under new laws regulating consumer credit governed by ASIC

funds will challenge brokers to find greater business efficiencies: St.George Mortgage brokers will have to adapt to a “new normal” when it comes to higher cost of funding, banking sector competition and commissions. Efficiencies in their cost base must be created if they are to capitalise on a permanently changed market dynamic.

St.George general manager for intermediary distribution, Steven Heavey, said brokers – just like banks – had to face up to a new market reality. “Money’s not as cheap as it used to be – and it’s never going to be that cheap again.

I think the reality is that there is a ‘new normal’ in terms of funding, and cost of funding in particular,” Heavey said.

The resulting environment is one where brokers will be under pressure to find efficiencies in their business operations or scale up, if they are to continue to maintain levels of profitability.

“I think for brokers, in order to be effective, they need to get a reasonable return for their effort,” he said. “We all have to realise we are operating in a new environment and we all have to look at our own efficiencies – and brokers are no different to myself.

“I’ve had to run this business with less FTE than previous years, so everyone has to constantly be

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Licensing leverage ASIC’s new licensing regime has presented compliance headaches for some, but has raised the bar for brokers and in marketing of services Page 24

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Steven Heavey

looking (whether you are a broker or a bank) at your cost base and how efficient you are, and at different ways of improving that,” Heavey said. This “new normal” will not necessarily mean further commission cuts, however.

“People automatically jump to the conclusion that commissions are going to be cut, but they need to understand there are many drivers that go into the profitability of

third party distribution,” he explained. Heavey singled out loan life, loan size, and products per customer. “The way I look at profitability in trying to recapture margin, is I have multiple levers to pull, and I don’t always pull the commission lever, because that’s one of many I could use to improve the profitability of this channel.”

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Spring into action Many commentators are predicting a post-August 21 Federal election ‘spring’ to action for the property market. How to make the most of the mini-boom Page 26

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ACL application mistakes leading to illegal deals

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EDITOR Ben Abbott COPY & FEATURES JOURNALIST Kevin Eddy CONTRIBUTOR Laura Carew

Unwary brokers could be in danger of operating illegally if they have fallen foul of two easily-made mistakes under the new credit licence application process.

Lesley Wood, general manager of the Australian Loan Company, told Australian Broker that she was aware of brokers running into problems due to registering as individuals prior to the new credit regime coming into force.

“The problem affects companies where there are multiple directors: if the directors each registered individually as persons without registering as the overall company, they are having to submit a whole new application for the company, as it does not exist in ASIC’s eyes,” said Wood. “This also raises concerns over whether the brokers in question would be able to legally operate while this process is taking place.”

However, ASIC has confirmed that the directors can continue to operate as registered persons in their own right – although it warns that they cannot carry on business through the company as the company is not registered.

ASIC has also confirmed that anyone in this position can apply for an ACL through the company, by submitting an application in the name of the company and electronically attaching the

normal supporting documents.

Once the ACL is issued then they can cancel the individual registrations or let them expire.

Alternatively, affected brokers can apply for relief and a late registration as detailed on ASIC’s website and Infosheet 127.

The second issue that has reared its head relates to registration as credit representatives. If a business decides to become a credit rep under another firm’s ACL, both the business and any loan writers need to be accredited as credit reps with ASIC. Indeed, businesses are at risk of having to stop writing loans if they make this mistake, said Jon

Denovan, senior banking and finance partner at Gadens Lawyers in Sydney.

“I think many misunderstand this,” he commented. “I know of one medium-size broker group who has already made this mistake. When getting appointed as credit reps by their aggregator, they only had their companies appointed as credit reps. This means they can’t write any loans until their loan writers are also appointed as credit reps,” he said.

Denovan explained that companies appointed as credit reps in effect can’t do any loan writing under the new laws, as this has to be done by ‘human beings’ or ‘natural persons’ under the common law legislation. These ‘natural persons’, therefore, need to be individually accredited by ASIC. The situation is only made more confusing by the fact that the reverse is true if a business applies for its own ACL: directors and employees are automatically covered in this situation, and there is no need for them to be registered as credit reps.

PRODUCTION EDITORS Jennifer Cross, Moira Daniels, Carolin Wun ART & PRODUCTION DESIGN MANAGER Jacqui Alexander DESIGNER Lucila Lamas SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Kerry Buckley MARKETING COORDINATOR Anna Keane TRAFFIC MANAGER Stacey Rudd CORPORATE DIRECTORS Mike Shipley, Claire Preen MANAGING EDITOR George Walmsley PUBLISHING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil

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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

Jon Denovan

Lesley Wood

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Bouris calls on pollies to help borrowers The former founder of Wizard Home Loans has called for the federal government to introduce a seventies-style homeowners’ rebate.

Mark Bouris, now chairman of wealth management firm Yellow Brick Road, said that instituting a rebate of up to $1,500 for taxpayers (not including those in the highest tax band) would help the property market as well as “rewarding those who get hammered by the Reserve Bank every time there’s a growth spurt in Australia”.

“Stimuli like the First Home Owners Grant only inflate prices

and puts money in the pockets of developers and banks,” said Bouris.

“By giving a means-tested rebate, limited to a certain type of borrower, you limit pricing distortions and you reward those who are paying their mortgages, rather than it just being a gift.”

Bouris added that the rebate could be a temporary measure, and could help mitigate the effects of likely interest rate rises by banks due to the price of wholesale funding.

“There’s definitely going to be a bank rate rise after the election, due to the increasing cost of funds,”

he said. “Consumers are ultimately powerless in this situation – which is another reason why the government should consider some kind of fiscal relief.”

Bouris also commented that independent rate rises from the major banks would be detrimental to the whole mortgage industry and that it would have a knock-on effect on non-bank lenders – who ultimately obtain a large proportion of their funding from the Big Four.

“What we’re likely to see is a situation where there are fewer lending transactions,” said Bouris.

“I think we’ll see banks protecting and ultimately trying to ‘blow out’ their margins rather than worrying about market share. It’s going to be a margin game from hereon in.”

Mark Bouris

Bouris was positive about the Reserve Bank interest rate outlook for the next few months; however, he predicted that we will not see another central bank rate rise this side of Christmas.

Heritage makes a channel comeback Heritage Building Society will ramp distribution through the broking channel back up to 50% of all originations, following a sharp reduction in broker-sourced loans

John Minz

during the financial crisis.

The mutual’s chief executive John Minz said the group had reintroduced its standard variable rate and professional pack products to its preferred broker distributors in July, as part of a renewed push.

“We’re budgeting for an increase of what comes out of the [third party] channel,” Minz said.

During the financial crisis, Heritage culled the number of broker partners through which it distributed its loans, back to “those that gave us more significant support”. However, Minz has flagged the possibility it could again expand distribution through additional broking groups, based on continued economic and market improvements.

“There was a business decision behind the partners who were retained, and at some point if we have to revisit who those set of parties are we will… ” he said.

The group is confident it has the support of the third party channel despite the cutbacks, having taken a “relationships-based approach” to handling the move and not “throwing the channel away”. The move to slash broker-sourced loans was part of Heritage’s pursuit of a “balanced, prudent banking model”, focusing on maintaining a diversified and cost-effective range of funding sources.

“What we wanted to do in 2009/10 was concentrate on a range of measures, and they include how much we could lend

and grow the balance sheet, how much we could get in the front door in funding…” Minz said. “We finished the financial year with a liquidity ratio of 19.2%, which is very high, and this gives us a buffer to allow us to lend more than what we did in 2009/10.”

The conservative strategy saw the group announce an eleventh consecutive year of record pre-tax profits for the year ended 30 June – a result of $42.3m, or a 17.9% increase. Overall loan approvals reflected a retreat from the broker market, down to $1.3bn from $1.4bn. However, the group said mortgage lending initiated through its 59 south-east Queensland branches grew to $782m in 2009/10, up 28 % from $611m.

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Pre-approval confusion hurts borrowers Confusion over what a preapproval for a home loan actually means is costing potential house buyers dear.

Justin Doobov, managing director of Intelligent Finance in Sydney, has warned that some buyers are purchasing properties solely on the basis of pre-approvals – with the outcome that lenders are declining loans post-exchange.

“There are some lenders and some brokers who are not clearly explaining to their clients that pre-approvals cannot always be relied upon, and can be cancelled at any time,” said Doobov. “About once a week, we are introduced to a new client who has had a pre-approval originally arranged by another lender or broker, has

subsequently either been the highest bidder at auction or exchanged on a property, and the original lender has, for whatever reason, not wanted to fund the loan. These clients then want to engage us to find them a new lender that will fund the loan – otherwise they will not be able to complete the purchase.”

Doobov, an MPA Top 10 broker, argued that some pre-approvals are essentially worthless. “Some lenders do not even verify the supporting documents that you send in with the application. This is putting a client at further risk of the lender not honouring a pre-approval.”

Doobov suggested that more consistency from lenders on

Support for second tier needed: Foley

Gerald Foley

National Mortgage Brokers’ managing director Gerald Foley has called on brokers to support non-bank and second-tier lenders – or risk having competition in the market further diluted.

Foley said while customers should be placed in the best loan

available on their lender panel, this “may not automatically be a product from a major bank”.

“I think brokers – and it may be driven a little bit by the customers as well – have a preconceived idea that the big banks are really the only option available, and I just think they need to broaden their horizons a little bit, for the longer term benefit of the marketplace,” he said. Recently released NMB figures for FY2010 show the spread of loan sales is “still uncomfortably slanted towards the four majors”, particularly when including subsidiaries.

The group’s results show the major banks (not including subsidiaries) snapped up 72% of NMB residential loans written, with CBA taking a 26.6% slice and Westpac coming second at 20.7%.

Foley warned that second-tier

pre-approvals would help, particularly that lenders should verify all the information provided upfront to minimise any risk of them not honouring the approval later. In the meantime, Doobov argued that clients should be warned not to rely on preapprovals unless they know they are only subject to valuation.

“Our intention when we get a client pre-approved (or conditionally approved) is to ensure we put it with a lender that does verify all the supporting documents upfront, does a credit check upfront and approves the loan only subject to valuation,” he commented.

“Even so, lenders and brokers need to fully advise clients that

they have to be extremely careful with exchanging on a property that does not have a cooling-off period, as a pre-approval cannot always be relied upon.”

lenders, such as ING Direct, AMP, and Suncorp with their own diversified funding, should be supported – or they may reconsider their role in the broker market.

“As long as brokers support a broader range of brands and product, those brands and products will remain in the market,” he said.

“If brokers don’t support those brands then those businesses will make a decision to go another way to try and obtain the new lending they need to fund,” he said.

Foley said during the financial crisis, the market saw a flight to “perceived quality”, in the form of

the major banks. However, combined with the consolidation in the sector – particularly the purchases of Bankwest and St. George – control of the majority of mortgage lending had fallen to major banks.

This also applied to mortgage managers, he said, which source funding from these banks.

“You’d hope that going forward the majors maintain both brands [Bankwest and St.George] in the broker space, and understand the value to brokers and clients of having a range of product and brand,” he said.

Justin Doobov

National Mortgage Brokers: sales by lender 2009 FY Ranking 1 2 3 4 5

Sales (%) 29.7% 21.4% 16% 7.1% 5.7%

Lender CBA Westpac ANZ St.George Homeside

2010 FY Ranking 1 2 3 4 5

Note: Distribution results based on settlement of residential mortgages only.

Source: National Mortgage Brokers

Sales (%) 26.6% 20.7% 14.8% 10% 7.1%

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LJ Hooker launches loan via Firstfolio An agreement signed by Firstfolio will see the financial services group provide wholesale funding and loan administration services for the relaunch of real estate group LJ Hooker’s house brand mortgage product.

To be channelled through LJ Hooker’s 140 home loan consultants, rather than through independent third party brokers,

the agreement will see LJ Hooker make use of Firstfolio’s web-based B2B BLOOM platform to offer its mortgage product to customers, following in the footsteps of Virgin Money, Medibank Private and AV Jennings.

In an extension to the BLOOM model launched in 2009, the processing of loan applications

In BLOOM: Firstfolio’s distribution deals Will design and build Once Home Loans’ online presence and products, and handle settlement and processing LJ Hooker Providing wholesale funding and loan administration for LJ Hooker’s house brand mortgage product Medibank Allowed the health insurer members Private access to a free mortgage health check and discounted loans via eChoice AV Jennings Allowed AV Jennings’ customers access to Firstfolio financial products and services through BLOOM Virgin Money Virgin Money customers have access to the eChoice menu, as well as free online health checks of existing loans Once

August 2010

July 2010

December 2009

November 2009

October 2008 (Before eChoice was acquired by Firstfolio)

for LJ Hooker will be completed using Firstfolio’s proprietary telephone and internet-based system.

Firstfolio chief executive Mark Forsyth said the arrangement did not conflict with its third party business. “The banks have been running multi-product, multi-bank strategies for years,” he said.

“The fact of the matter is it’s just competition. Brokers are providing a value-added service which is personal, in your face, at home, in your time, one-onone. A lot of the brands we represent have their own brand identity; the clients that go to them wouldn’t necessarily use a broker, so it’s a multi-brand channel strategy.”

In the end, Forsyth argues Firstfolio aims to provide “as much competition to the banks as possible”.

A two-month pilot leading to the agreement saw LJ Hooker receive applications for around $30m in new, house-

Mark Forsythe

branded loans, which the group said suggested strong prospects for loan volumes.

Firstfolio recorded the strongest ever month in new loans written in March.

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Pay rise please, brokers demand

Credit union granted first ASIC licence South West Slopes Credit Union has won the distinction of becoming the first Australian Credit Licensee (ACL) under new laws regulating consumer credit, governed by the credit watchdog ASIC. The mutual is a community credit union operating in south western NSW, including the towns of Young, Cootamundra, West Wyalong, Harden, Boorowa and Temora.

The group’s chief executive Steve Elsley said the mutual was “fortunate to have the resources of a strong and dedicated compliance officer” (Suzanne James) who was instrumental in ensuring the group’s strong engagement with the regulator on the path to regulation, and hence its licence.

“As a mutual, we are committed to being there for our members and our communities and that

means we take our regulatory compliance obligations very seriously,” Elsley said. “We have worked positively with ASIC to become the first Australian Credit Licensee.”

The representative body for Australian mutuals, Abacus, said in a statement it was “fitting a representative of the most responsible lending sector is number one” to be granted a licence.

South West Slopes’ compliance officer, Suzanne James, said the group had a culture of protecting members from unfair practices and had already subscribed to the new Mutual Banking Code of Practice.

“We only needed to make amendments to existing policies and procedures to achieve the benchmarks set in the new NCCP Act,” she said.

Genworth sales return to ‘normal’ Genworth Financial’s mortgage insurance sales declined in the second quarter of 2010, as a result of a “smaller origination market” as first-time buyer benefits and interest rates slowed origination rates.

The group experienced a 41% decline in new insurance written year-on-year, and a 10% drop on the previous quarter despite what the group called “stable account penetration” in Australia.

However, the group’s operating earnings increased 59%, primarily as a result of cumulative benefits from a tax law change of $16m and an “improved loss experience”.

Genworth’s acting chief executive Paul Caputo said 2009 had been a “very unique” year for

the group, due to a combination of first homebuyer stimulus measures and the reduction of interest rates to historical lows, drawing homebuyers into the market.

Caputo said the evaporation of stimulus measures and interest rate hikes had returned the LMI market to more normal levels, while buyers who would have been ready to enter the market in 2010 had been pulled forward into 2009, adding to the sales slowdown.

Caputo denied that any deliberate changes to insurance policy had contributed to the drop in sales, though he said Genworth had adjusted its stance and policies in the low-doc sector at the end of 2008, due to “concerns”

Brokers and financial planners are calling for pay rises between 10% and 30%, as economic conditions have rebounded in the wake of the GFC, and individuals have become better qualified under new industry regulations.

A Skills Index released by recruitment firm Clarius in August showed that remuneration expectations in the broking, planning and wealth management industry had increased by up to six times the national average of 5.1% in the June quarter. As a result, many smaller broking and planning businesses are facing human resources issues that could adversely impact their ability to meet client needs, the report said.

Clarius executive general manager Paul Barbaro said meeting these heightened income expectations would be a challenge for businesses in the financial services sector. “One of the main concerns currently plaguing employers is the increasing cost of retaining quality staff who are aggressive with salary expectations,” Barbaro said.

“This means that employers must meet these expectations or risk losing them to other organisations.”

Mortgage brokers responded to the report by seconding the call for increased remuneration, as market conditions improve and the overall work required to secure new

about the class of product.

The group is expecting an uptick in first homebuyer activity in the latter part of 2010, as confidence continues to improve, interest rates stabilise, and house prices normalise.

Genworth currently operates with about 200 lenders within the market, including the major banks, regional banks and credit unions, and “maintains strong relationships”.

“What we have seen is that our share of LMI business has continued to remain robust with each of those lenders, and as the market has shrunk, or come back to more normalised levels, our sales have come down,” Caputo said.

“We are continuing our partnership with key lenders in the market, and as we see economic conditions start to improve and first homebuyers and borrowers come back into the market, we will continue to

business increases.

Oracle Lending Solutions director Angelo Benedetti said given the extra work involved as a result of new legislation and the banks’ requirements, banks had less work to do. “I believe that good quality brokers need to have their commissions increased accordingly,” he said. “I know in my business, the amount of work we have to now put into each client deal represents an increase of 30%.

This comes at a huge cost to our business…” he said.

Barbaro added that blue-ribbon firms are able to offer higher remuneration, while medium to low-tier firms cannot and are more inflexible in responding to income expectations. “The longer term trend in the financial services space is a shortage of suitably qualified candidates for positions in the banking sector, and also in wealth management,” he said.

Another trend identified by the Clarius report over the quarter was a rise in the number of roles that were available for candidates, and an increase in the number of people who are looking for jobs while still in their current positions.

 For broker

reactions to this story, see Viewpoint on page 22

Paul Caputo

support those lenders and take our share of that market.”

The group’s results show that mortgage insurance loss ratios had improved sequentially in Australia from continued favourable economic conditions and ongoing loss mitigation benefits.

The group’s book value for Australian mortgage insurance at quarter end was US$1.5bn (A$1.65bn).

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HSBC no plans to use brokers Despite indications in August HSBC would look to expand its mortgage lending book after a strong profit announcement, the bank has confirmed it will not reconsider using third party introducers.

Currently, HSBC does not distribute mortgages through brokers, and a spokesperson for the group has confirmed that the bank has “no plans” to change this strategy. “Our business model is relationship-based –

we’re focused on cultivating ‘main bank’ relationships in which our clients hold multiple products with us, and we think this is best done directly,” the HSBC spokesperson told Australian Broker.

The position confirms previous statements made by head of personal financial services at HSBC Australia Graham Heunis late last year, who said the group did not believe it could add value to customers via the mortgage

broking channel. Heunis said it was not possible for HSBC to be a trusted advisor while working through intermediaries. “It’s not an area we want to play in and we have no intention of doing so,” Heunis said at the time.

HSBC originally quit the broker space in December 2006, selling its broker originated residential mortgage book to FirstMac. In early August, HSBC Australia reported a pre-tax profit of $152m for the first half

WA ‘good place for brokers’

Eravanan Rao

The newly-appointed FBAA Western Australian state president said brokers in the state are well-placed to develop their businesses over the next few years. Eravanan Rao, whose appointment as FBAA state president was announced in July, thinks that WA brokers’ experience with a state licensing regime could stand well in the face of the new national credit licensing regime.

“To some extent, the experience that WA brokers have had with state-specific licensing means that we’re in a better situation than brokers in other

states,” said Eravanan. “Even so, I believe having a national licensing regime will be good for all brokers, as well as providing better consumer protection.”

He also believes that the economic situation in his state means there are opportunities for brokers, both existing and new. “There’s a huge market here in WA, and a great opportunity to build up a business – especially for brokers who can provide a top-level, individual service. As FBAA WA state president, I hope to be able to give something back and support brokers in complying

of the year, up 28% over the same time last year. Residential mortgages held by the group were valued at $7,293m, up 28% from the $5,694m in the first half of 2009.

HSBC chief executive Paulo Maia said that the group would be looking to increase its relatively small share of the local mortgage market by growing its business in what it terms the “mass affluent” market, or those earning more than $88,000 a year.

with the new rules and developing their businesses.”

The FBAA’s national president, Peter White, said that the body is fortunate to secure Rao’s services. “Aside from his professional capabilities, Eravanan is passionate about the industry and he believes fervently in the values of the FBAA and what it stands for,” White said.

Rao began his career in the mortgage industry in 2001 with Choice Home Loans, but soon established his own brokerage and is now the principal of Rao Future Finance.

He also holds an A-Class licence in WA.

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CBA launches iPhone property app CBA has launched an iPhone app to help house hunters “keep on top of the property market”. Among a wideranging suite of other features, the CommBank Property Guide allows users to contact agents or CBA mortgage representatives directly.

James Sheffield, CBA’s general manager for mortgage wealth, reassured AB that the direct loan facility was not intended to cut out brokers. He added that brokers who had seen the app prior to launch had been positive about its potential, and defended it against concerns that it could encourage property ‘impulse buying’.

“Buyers can’t actually apply for loan and secure approval within the app: they will still need to liaise with a lender and go through the standard lending practices and processes,” added Sheffield.

Other features available allow customers to evaluate the profile of a property including the number of bedrooms and bathrooms, the price guide and auction data; search for properties in any location and view the sales history of individual properties as well as recent sales in the local area, and calculate monthly home loan repayments on a particular property.

Mark Murray, CBA’s general manager for consumer marketing, said the app “builds on the bank’s commitment to superior customer service by delivering greater value and enhanced benefits”.

Mortgage demand plummets as stimulus disappears Demand for new mortgages tanked by 20% during the June quarter when compared with the same time last year, figures from credit reporting agency Veda Advantage have shown. The result is the largest year-on-year quarterly drop in mortgage credit demand in the six years Veda Advantage’s Credit Demand Index has been measured.

The 20% drop in the June quarter followed a 15% year-on-year fall in the Jan-Mar quarter of 2010. This was also the second consecutive year that a decline was measured year-on-year in the June quarter, with last year’s result down on 2008’s figures by 18%.

The biggest falls in mortgage applications were in Queensland, down 28%, NSW, down 23% and Tasmania, down 22%. Meanwhile, WA fell by 21%, SA by 19%, the NT by 19%, and ACT by 12%. However, mortgage applications nationwide did manage to outperform 2010’s Jan-Mar quarter, after a rise of 2.3%.

Veda Advantage head of external relations Chris Gration said rising interest rates and a “saving rather than spending” mentality was holding Australians back from taking on debt. “Australian consumers appear to be continuing the saving habits adopted during the 2009 downturn. Evidence suggests many people continue to focus on paying down debts rather than extending their credit,” Gration said.

First homeowner stimulus activity also buoyed the market in 2009, leading to a natural tapering off in mortgage demand in 2010. Interestingly, Gration said that wilting demand for housing loans occurred concurrently with an increase in automotive consumer credit demand with a trend towards buying new cars.

The group expects the new responsible lending laws, beginning for most in January 2011, will provide more confidence for consumers and a possible corresponding boost to credit demand.

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New Resi CEO details next steps The head of consumer advocacy at Resi, Lisa Montgomery, has been propelled into a newly-created role as chief executive officer, as the group seeks to intensify competition with the major banks.

Previously run by an executive committee that included Montgomery, the decision was made that “the time was right” to consolidate the leadership of the business, according to Montgomery.

“It is indeed time for a new role to be created, and particularly as non-banks begin to come back and the appetite for non-banks starts to come back for borrowers,” she said.

Montgomery commenced at Resi in 2004, and has been instrumental during that time in driving business initiatives which focused on customer care and consumer advocacy – a role she will continue as CEO. Montgomery will now take on full responsibility for the day-today running and growth of the business, and will report to directors Peter James and Jim Christie, who play a more strategic role.

The group is actively recruiting for two new roles – a franchise relationship executive, and a marketing manager – to fill the gaps left by Montgomery after her

promotion. As part of a new growth push, Montgomery has revealed one of the first projects she will oversee as CEO is putting in place a delegated underwriting authority with Resi’s major funder Advantedge, which she said is scheduled to be rolled out some time in October this year.

The move will effectively bring loan approvals through Advantedge in-house at Resi – rather than having to obtain approvals from the funder – giving a new edge on client service and turnaround times.

“We are certainly looking to increase brand awareness and volume growth over coming months, and are concentrating on strategies that allow us to do that, and on the need to support our franchise network,” Montgomery said.

The elevation to CEO was seen as a “natural progression”,

Montgomery said, and added the change marked a “very exciting” transition for the entire group, which will maintain a “high calibre” team.

Lisa Montgomery

Westpac and CBA retain lead on loans

Westpac and CBA are still lending the lion’s share of bank home loans, according to new figures.

APRA’s latest monthly banking statistics reveals that Westpac had $262.6bn under loan in mortgages at the end of June. CBA,

Kathy Cummings

meanwhile, was lending $245.7bn to Australians, with $168.1bn of that going to householders and $77.6bn to investors. Between them, the two banks held 53% of the Australian mortgage market in June.

NAB was the third-biggest lender of the Big Four, with $145.3bn under loan and a 15.1% market share, while ANZ brought up the rear at $144.3bn (a market share of 15%). The largest of the second-tier banks was the Bank of Western Australia with a 3.9% market share and a total of $37.6bn under loan.

The figures have raised concerns over the market dominance of the Big Four, and especially that of Westpac and CBA. Lisa Claes, executive director of mortgages at ING Direct, believes the current situation is an unhealthy one.

“The GFC saw a flight to perceived financial security to the majors,” she commented. “However,

the post-GFC hangover is now highlighting the negative impacts this has had on home loan competition.”

Claes emphasised that competition in the Australian home loan market is vital, and will always benefit the customer.

“We encourage brokers and their customers to consider options outside the majors, with a broad range of lenders and products available, and second-tier lenders such as ING Direct offering a healthy alternative to the Big Four,” she added.

Iain Forbes, director of sales and marketing at AFM, believed consumers are beginning to look elsewhere.

“What we have seen in recent months is some borrowers now looking to use the non-bank lenders such as ourselves – indeed, AFM’s volumes of new business have increased to record levels in recent months.”

Kathy Cummings, executive general manager for third party and mobile banking at CBA, defended the bank’s record.

“Customers are looking for security and they know CBA is a large, secure financial services organisation with market leading home loan products,” said Cummings. “Our broker partners also know that we are committed to their business and the sustainability of the mortgage broking industry. They know that if they recommend a CBA home loan, we will honour that contract for now and the long-term.

“CBA maintained its loyalty to the broker channel by continuing to lend during the global financial crisis, and our broker partners recognise that,” she added.

“We have continually met the demand for housing finance, particularly for the first homebuyer market, across all our distribution channels.”

www.brokernews.com.au

INDUSTRY NEWS IN BRIEF ASIC acts against nonconforming lender

MFAA ad campaign results

The newly enfranchised credit regulator ASIC has moved to stop a nonconforming lender, PR Finance Group, from advertising “interest free” finance for the purchase of motor vehicles. Sold through its Motor Finance Wizard business, the loans were variously sold as “interest free” or “guaranteed interest free”, and stated finance was available to consumers who had credit problems or poor credit ratings and who were unable to obtain finance from other financial institutions. After raising concerns with PR Finance Group Limited (PRFG), Motor Finance Wizard was obliged to cease publishing the interest-free statements, desist from offering interestfree finance, and review its credit assessment criteria.

The MFAA’s advertising campaign highlighting the advantages of using an MFAA-approved broker has shown early signs of success. The campaign – the first stage of which ran in June and July – has seen visits to the MFAA’s ‘Essentials of Borrowing’ consumer website double, and individual page views triple. Traffic to the general MFAA website has also increased by nearly 30%. MFAA chief executive Phil Naylor said this increase demonstrates that consumers are responding to the call to find an MFAA-approved broker. “As the campaign is spread across three ‘hits’ – June/July, then September, then February/March – it is a little early to comment on its ultimate success, but the metrics we’ve received after about six weeks are encouraging,” Naylor said.

Rates stifle mortgage holder spending

Broker News goes daily, launches iPhone app

Recent interest rate hikes have caused mortgage holders to put off spending in 2010. A national survey found almost one in two Australians with a mortgage revised their buying decisions in the six month-period to 30 June, as a result of rate hikes that began late last year. The Australian National Retailers Association (ANRA) survey found 24% of respondents with a mortgage had delayed purchases of large items costing over $500 during the period, while a further 24% had only made purchases if they were on sale. Overall, 31% of the 1,000 participants in the survey said interest rate increases had affected their buying decisions on major items during the past six months. ANRA chief executive Margy Osmond said the results were unsurprising but concerning, as the retail sector had been in a “roller coaster sales environment”, and that the findings were evidence that rates were starting to bite.

Hefty deposits drive NMC response

House price increases in capital cities across Australia, making it more difficult for consumers to come up with a deposit, have driven a product response from National Mortgage Company. NMC has released a product for clients borrowing over 80% LVR (to a maximum of 90% LVR), that the group has said could save them “thousands of dollars” in getting a foothold in the market. The Smart Start product allows borrowers to circumvent the traditional requirement to pay a mortgage insurance premium, by paying a “reduced equity fee” which the group said could save customers over $2,000 in total. The fee can also be capitalised on top of the loan amount, and there is no application fee. NMC said an added benefit would be faster turnaround times, by cutting out third parties.

Australian Broker’s online Broker News newsletter has increased its frequency and changed its format to ensure brokers are kept up to date with key industry developments. Previously sent out on Monday, Wednesday and Friday, the new service will ensure informative, timely and relevant news is delivered to inboxes on a daily basis. The newsletter will now include Broker News TV video footage, to be updated regularly with cutting edge interviews, industry panel discussions, and editorial commentary. Links to the electronic versions of Australian Broker – the industry’s leading news source – and Mortgage Professional Australia (MPA) will also be an embedded as part of the new format. Meanwhile, Broker News has also launched its very own iPhone application, enabling news updates on the move.

Smaller lenders to gain from rate hikes

More mortgage holders will consider switching to smaller lenders if the banks raise interest rates independently of the Reserve Bank, according to mortgage broking group Loan Market. The current high cost of funding and overseas market conditions made it more likely major banks would act independently of interest rate decisions by the RBA, according to Loan Market chief operating officer Dean Rushton.

However, he said many borrowers are already “doing it tough”, and would consider refinancing with other lenders and this will provide opportunities for smaller lenders to pick up customers.

“Borrowers are in a position to negotiate a reduced rate with an alternate lender to minimise an independent rate rise,” he said. “Mortgage holders might have to accept some exit fees but it can be worth it as there is as much as 1% difference in some variable interest rates on offer.”

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News

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

Russell issues call to arms on diversification

Limited outlook for low-docs Low-doc lending will remain a product available to a particular niche clientele, but is unlikely to ever revive back to the levels seen in 2007 and 2008, according to LMI provider Genworth Financial.

Acting chief executive of the insurance group, Paul Caputo, said the “main issue” with the continued growth of the products has been the advent of new regulations, where “you really have to provide that a person had the capacity to repay the loan”.

“Having a person state their income makes it very hard under those regulations to get around that,” he said.

Genworth announced policy changes back in 2008 that required borrowers to provide their most recent 12 months’ worth of BAS statements, which does have the capacity to show the revenue that a business is generating.

“We feel that under those policy conditions, it does validate that a person does have the capacity to repay,” Caputo said.

However, Caputo said this is unlikely to mean there will be a low-doc revival to pre-financial crisis levels.

“We do think there still will be some low-doc lending within the market, particularly under the policy change we made back in

2008, but the volumes are going to be nowhere near what they were in the 2007/08 period,” Caputo said.

“It’s still going to be a product that does suit a particular niche market, but it’s going to be sold at lower levels than it has been historically,” he added.

Low-doc lending was recently pronounced “dead and buried” by leading industry players in a panel discussion for Broker News TV, due to a combination of National Consumer Credit Protection laws and the regulatory fallout of the global financial crisis.

In addition to local regulation, FirstMac’s CFO James Austin said low-doc lending had been “tarred by the US brush”, despite local lenders not entertaining the irresponsible practices seen overseas.

“Unfortunately, with what’s happened offshore in changes to legislation, low-doc is now dead, and that does have the unintended consequence of choking off finance to the market,” he said.

FAST managing director Steve Kane said pressure from LMI providers was adding to the tightening of credit, and borrowers “playing in the margins” would be hardest hit. “Even self-certification type transactions, I think, will come under a significant amount of pressure.”

Mortgage Choice CEO Michael Russell has issued a call to arms to brokers to expand their offerings, in the wake of a slide in mortgage lending.

ABS figures have revealed that demand for mortgages dropped across the board in June, with the total value dropping 1.9%. Russell argued that this is a result of tightened lending criteria, interest rate rises and the end of the First Home Owners Grant Boost, leading to fewer eligible borrowers wanting to enter the property market.

“What we need to do as brokers is to service our customers through providing complementary products such as mortgage protection and personal lending, while keeping home loans as our core proposition,” he added.

“This way, the broking industry can increase the impact it has on customers’ lives, financially and emotionally. At an individual broker level, it creates a ‘stickier’ client and engenders greater word of mouth and flow of business.”

Mortgage Choice’s national manager for non-core products, Simon Dehne, emphasised the importance of diversification. He commented that the aggregator had seen sales of general insurance products via partner Allianz increase from around 20 per month before last November to around 250 per month, with a conversion rate of 50%. This is thanks to a greater emphasis on offering non-core products.

Dehne added that the number of commercial loans settled had also seen a “significant uplift”, with a number of brokers seeking

Michael Russell

full accreditation to operate in the commercial space, while the penetration of risk insurance referrals has increased from 8% to 30% in 12 months.

However, FAST’s acting national sales manager, James Ashdown, introduced a note of caution – especially in the areas of commercial and equipment finance. “Over the past 12 to 18 months, the mortgage industry has seen the appetite for commercial and equipment finance continue to reduce – making it increasingly difficult for brokers to provide a holistic financial offering and, in turn, their clientele with a solid financial solution,” he said.

He added that FAST is continuing to support its members in the non-core product sphere and that its equipment finance venture, FAST Asset Finance Services, continues to be a major success. He also commented that the company will move into risk management later this year through the launch of Advantedge Financial Solutions.

“Advantedge Financial Solutions will provide members with the ability to offer their clients a range of risk products to complement the mortgage process,” he concluded.

Interest rates: period of stability ahead Interest rates are unlikely to change until November at the earliest – which is good news for the property market.

RBA Governor Glenn Stevens announced that the cash rate will remain unchanged at 4.5% in August. It had been widely anticipated that the rate would be held following better-than-expected inflation figures. Stevens commented that the underlying rate announced last week was “the lowest rate for about three years”.

This is the third consecutive month that interest rates have remained stable, and Tim Lawless,

senior research analyst at RP Data, believes that more rate stability is to come. “All the fundamentals apart from inflation are looking subdued,” he said. “There may be some increase in consumer goods over the next few months, which could spur the RBA to act after the next CPI data is released in October. However, that means that there’s very little chance of an increase before the Monetary Policy Board’s November meeting.”

This will provide some welcome certainty to the housing market, added Lawless – particularly for owner-occupiers. “The renewed

certainty over rates may even translate to a small bounce in first homebuyers,” he commented.

“However, price growth is still likely to be relatively flat for the next six months, and we’re likely to see the balance of the market swing back towards buyers.”

Mortgage Choice spokesperson Kristy Sheppard agreed an extended period of rate stability would be good news for borrowers.

“This will be a great relief for anyone repaying a variable interest loan or approaching the end of their fixed rate term, just as it will be for those who are looking forward to

jumping into the market during spring. A rate rise would surely have discouraged many people from acting on their property plans, be that selling up or purchasing.”

MFAA chief executive Phil Naylor injected a note of caution, suggesting that now is a good time for borrowers to carry out a mortgage health check ahead of possible future rate rises.

“Consumers should make the most of today’s decision to double check their existing home loan is still the most appropriate for their individual circumstances.”

www.brokernews.com.au

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Analysis

When white becomes the new black  A contraction

in funding alternatives is causing a blossoming of white labelled loan product, as mortgage players seek to exploit difference in a dearth of diversity

N

ational Mortgage Brokers announced a change to its nMB Direct product suite in August, with the addition of a ‘basic loan’ – priced at 6.69% – which became the most competitively priced product on its panel. The basic loan is part of the white labelled nMB Direct line launched earlier in the year, which sales and marketing director Sal Cinque has said presents a “quality option” for brokers and their clients.

Though less than a year old, the nMB Direct suitet has been met by a “great level of enthusiasm and commitment” from brokers, according to Cinque. Since its February launch, nMB Direct ranks second of all nMB non-bank panel lenders, and eleventh overall. As competition has suffered in the wake of the financial crisis, white labels have experienced a parallel explosion. It is these additions – loans packaged by aggregators, or broking groups under their own brand – that have become a new source of product diversity in a highly consolidated market. “Capital constraints and major bank acquisitions of mortgage managers has resulted in a high level of power to only a handful of lenders,” Cinque said following the basic loan launch.

National Mortgage Brokers is not the only group to see the growth of its white label offering accelerate. FAST has seen equivalent strides being made by FASTLend, which was piloted by a panel of 50 brokers in February

before a full launch in March. FAST’s MD Steve Kane said the group had targeted a top 10 position among mortgage lenders by the end of June, but $60m a month in applications from over 300 brokers has seen FASTLend jump to eighth position. Kane said this comes despite a “flight to brand”, and the challenge of selling a non-bank product in the current market.

Cinque said with product and pricing being equal, brokers will favour a lender that offers a high level of service with low trade barriers. “Given a competitive option, white labelling will be widely accepted by brokers: the objective of a broker is to provide a product that best meets the clients’ requirements; the brand is secondary,” he said.

Most aggregators, and many brokers, are capitalising on the trend by launching their own white labelled products, or are in the process of developing one.

Franchise Mortgage Choice, for instance, has indicated it is on the verge of launching its own product line, with chief executive Michael Russel having said publicly the new package for its brokers would be as competitive as the major banks. Senior corporate affairs manager at Mortgage Choice Kristy Sheppard said “white labelling does appear to be rising in popularity within the mortgage broking industry”. “One major reason is that ‘owning’ their own product allows brokerages greater control over many or all of the aspects of the home loan production process, and greater control over the quality of service they can provide to their customers,” she said.

White labels can be tweaked to suit customers’ needs and the changes in the mortgage landscape. However, brokers who go down the white labelling path will have to be careful to disclose this situation if the product ends up on the list of products they recommend to a customer.

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News

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

Club to open 25 new franchises Club Financial Services has recommitted to doubling its existing franchise network from 25 to 50 businesses in a “very short period of time”, according to the group’s director David Garner.

The group will seek to grow both organically and through acquisition, primarily in the eastern states of Queensland, NSW and Victoria, as part of an “ambitious” growth push following the financial crisis.

Club is running its second Club Academy – a two-week course for aspiring and current mortgage brokers – designed ultimately “to gain further franchisees for the

network”, Garner said. The group also aims to recruit loan consultants to work across its franchise business.

The group originally committed to doubling its branch network when it ran its first Academy back in March this year.

Garner said benefits for existing brokers in joining the group include access to the group’s mortgage manager subsidiary and its products, as well as its financial planning and accounting arms.

Club’s move comes after a rocky period for the group during the global financial crisis. “Like every other franchise broking house, we

did struggle initially with the financial crisis, partly because no one understood how deep it actually was,” he said.

The business experienced a “significant reduction” in business, Garner said, which eventually forced it to resize administration staff numbers in its head office in South Australia.

However, the group has since rebounded back to better than pre-financial crisis levels in terms of loans written, profitability and staff numbers, after re-employing staff in Adelaide.

Garner said the end result of the crisis has been good for the industry. “As economic conditions started to ease, it was the more sophisticated mortgage brokers whose businesses survived and whose services are now in demand,” he said.

The first week of the group’s Academy will bring applicants up

to Certificate IV level, while the second week will involve training in sales and marketing, networking and business techniques. Garner said successful attendees “may be offered either a position within the Club group or a franchise territory with the added incentive of no franchise fees”.

David Garner

First-home buyers returning to market

The latest mortgage figures from AFG have revealed that first home buyers are returning to the housing market.

First-time buyer activity rose by over $16 million to form 11.1% of all mortgage sales in July, with large jumps recorded in Queensland and New South Wales.

The firm’s general manager for sales and operations. Mark Hewitt, told AB that he believed this is due to natural demand reasserting itself following the First Home Owners Boost. cont. from cover

>>

Competition in banking will face further strain, for while “the more competition the better” for consumers, the increased cost of funds – which is pressuring the majors and subsequently their own delivery rates to consumers – will make it challenging for non-bank lenders.

“I think it’s a very real situation for all banks, let alone what it

first few days of August has been much much stronger, however – which bodes well for the coming spring.

“It won’t be a bumper spring, but it should be quite strong,” added Hewitt. “The likelihood of RBA interest rates remaining at their current level will boost confidence – even though an independent increase by the banks after the election is a more-or-less foregone conclusion. I think we’ll see a good spring.”.

“We always suspected that the boost had pulled forward demand amongst first home buyers,” said Hewitt. “July’s figures suggest that natural demand at this level is starting to reassert itself, and is probably assisted by the fact that price growth has slowed a little.”

Australian Bureau of Statistics figures for the June quarter confirm that house price growth has slowed, with growth at 3.1% (compared to 4.2% in the March quarter). The increase in first home buyer activity and a slowdown at

the higher end of the market also meant the average loan size fell by $7,000 to $370,000.

Refinancers formed the largest single group of borrowers, at 39.4% of the market. Hewitt commented that this mostly consisted of movement between the major banks, rather than to non-bank lenders. Investors were down slightly against last month, although not considerably so: Hewitt suggested that this might be down to greater sensitivities about a potential change in government following the federal election.

In terms of activity, Hewitt commented that the first two weeks of July were slow, but picked up towards the end of the month.

Even so, the total number of new mortgages was down 15% compared to July 2009, and 9% compared to June. Variable loans continued to be the mortgage of choice for Australians, with demand for fixed-rate mortgages dipping by 0.5%.

Hewitt added that activity in the

would be like for a non-bank lender trying to secure funding and then manufacture a product that’s competitive,” he said.

However, he said banks are “realising that intermediaries are a very important part of their distribution strategy”, leaving the broking industry in a position from which to grow.

“I think the broker proposition – and that’s choice, advice and convenience – is something that

not all banks can provide, which is why the proposition of what a broker brings to the table will never change and it’s here to stay,” Heavey said.

Major banks have continued to derive a significant proportion of their loans from third-party businesses. The industry had seen “lots of examples” of banks supporting the channel, such as NAB’s acquisition of aggregators FAST, Choice and PLAN, CBA’s

support “over a long period of time”, and ANZ deriving more business from brokers.

“There is definitely a level of support across the industry, so while it’s tough times and we are coming out of the GFC and it has its challenges, I think brokers have weathered the storm well and are positioned quite well,” Heavey said. “As the markets open up a bit, they’ll only become stronger.”

Mark Hewitt

www.brokernews.com.au Phil Naylor is the chief executive of The Mortgage and Finance Association of Australia (MFAA)

OPINION DEFINING NORMAL IN ABNORMAL TIMES

With the broking industry still recovering from the impact of the financial crisis, Phil Naylor defines what brokers can expect to find in a more ‘normal’ housing market.

See if you – or your team – are still committed In recent times, the media and commentators alike have been readily using the term ‘normal’ when describing economic growth and recovery. All too often I see the words, “near-normal interest rates”, “near-normal levels of growth”.

As paradigms in the business world have moved vastly since the financial crisis, we need to take a step back and ask ourselves: what is normal? Are the economic trends of the past decade a true benchmark by which we should measure success and recovery in the future?

I would suggest anyone working in the Australian mortgage and finance industry over the past 10 years has only ever experienced an ‘abnormal’ reality. The early noughties started with a housing boom like no other, as Australians flocked to lenders to secure their stake in the great Aussie dream. Mortgage lending in the period 2000-2003 experienced year-on-year growth of around 20% – peaking at 23.4% in 2003.

Mortgage and finance brokers satisfied the fervor and excitement of the boom by providing consumer choice and expertise – and the market grew considerably as a result. Clearly these unprecedented highs were unsustainable and not ‘normal’.

Then came the GFC which put the brakes on lending, producing another ‘not normal’ environment The First Home Owners Boost of 2008/2009 achieved its objective of helping buyers enter the market, but it also drove real estate prices up, and ignited aggressive competition amongst this buying group.

The Boost also signified a resurgence of business for some mortgage and finance brokers, as well as opening further competition amongst second-tier lenders and small players in the market. However, was this new boom ‘normal’? As soon as the grants began to wind down, we started seeing media reports on mortgage stress. Speculation ran rife and

public discussions focused on the possibility – and probability – of a housing bubble burst, and what this meant for borrowers.

According to data from the latest MFAA/Bankwest Home Finance Index conducted in March 2010, our survey respondents stated they were more likely to be easily making repayments on their loans this survey (80.2%), compared to 67.4% in April 2008.

Respondents feeling ‘some difficulty’ in meeting repayments is down to 16%, significantly lower than the 25.7% recorded in April 2008. Fewer people are ‘paying later’ on occasion and even fewer are ‘behind’.

This indicates that many buyers are aware of potential interest rate rises, and are factoring these into their decision-making process – most are meeting repayments satisfactorily.

As 2011 is fast approaching, we now face the same fundamental issues again. Limited housing supply, increasing consumer demand partly driven by increased immigration and, in some areas, foreign ownership – and the ever increasing issue of housing affordability for first-time-buyers and renters alike.

So what does the future hold and how will ‘normal’ be defined? Certain things we know for sure; consumer spending is likely to remain slow as we enter this next phase of global recovery, complete with roadbumps and challenges. Defining ‘growth’ will need to factor in new economic benchmarks and measures of success.

Mortgage and finance brokers will need to differentiate themselves through professionalism and education in order to compete in a consolidating market, whilst adhering to requirements of the NCCP. Finally, one thing is for certain, don’t judge future success by the incredible ride of the past 10 years, that cycle was just not…normal.

This indicates that many buyers are aware of potential interest rate rises

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Comment VIEWPOINT

Australian Broker asked a panel of brokers their views on current industry remuneration and commission structures, after news the industry wanted and deserved a pay rise of up to 30%

Angelo Benedetti

Claire Kilgore

Tony Petrevski

Sandra Joseph

Oracle Lending Solutions director

National Mortgages loan writer

Smartline mortgage advisor

Finance brokers have entered a new era of professionalism and are aligning themselves with accountants and financial planners. Given the extra work involved as a result of the new legislation, the banks need to do much less work.

I know in my business, the amount of work we have to now put into each client deal has increased by a further 30%.

This comes at a huge cost to our business and for us to maintain a very high standard, we need to be remunerated accordingly.

Good quality brokers must have their commissions increased, otherwise the major banks will force them to use the non-bank financial institutions and the second-tier lenders.

We encourage the majority of our clients to use non-banks and/ or second-tier lenders so they get a better deal. This also ensures our trail income is protected and makes our businesses viable.

It’s not whether brokers want an increase in commissions or salary, it’s whether lenders are going to increase commissions paid to brokers. The GFC presented a great reason for lenders to reduce commissions – and this trend is not liable to reverse, irrespective of market recovery.

Lenders are actively putting on roadshows to educate brokers on how to proactively cross-sell to clients to increase income streams. The cynics might think they are preparing us for further commission reductions, however, as an industry we are earning across several product ranges. Education and licensing is not a reason to expect an increase in commissions from lenders. Education and industry qualifications will give rise to justifying a fee-for-service – which is another godsend for the lenders as this will be reason enough for them to further reduce or stop commissions.

I believe that broker commissions are currently at minimum levels, but it would be unfair to expect them to increase in the short term.

While the increased education requirements and costs of ASIC licensing adds to each broker’s business, overall benefits to the industry will more than offset these costs.

Those unable or unwilling to commit to meeting the new professional standards will exit the industry, so client confidence in using brokers increases.

It is up to the broker now to take advantage of the new market conditions, diversify their businesses and earn additional income by offering further services to clients, without necessarily depending on the lenders to provide higher commissions.

By providing this as an add-on service it also makes clients ‘stick’ in the long term.

Mortgage Solutions Australia mortgage specialist

FEATURED VIEW

rates and calculator ‘tweaks’.

This has meant that often we, as brokers, have to re-submit deals that fall short due to previously acceptable policies being changed, or valuations coming in short of expectation. This ends up costing the brokers more in time and direct costs, and in some ways adds costs to the banks, who are double and triple handling the files. The combined effect of reduced commission and double file handling has a significant effect on the broker efficiency.

On the flip side it is not all bad, electronic lodgment through platforms such as Nextgen and Pisces have allowed for fairly simple re-lodgment of files and some time saving but overall a higher cost for all in the industry.

Where are we now? I believe that lender policies have stabilised and over the last few weeks I have seen lenders with an

appetite for business that was not evident a year ago. This indicates a small recovery pattern and some level of optimism out there.

The NCCP will and should lead to a thinning out of the brokers (estimates say 25%) and a whole new level of professionalism.

This in turn will lead to lower costs for the banks due to better submission quality, less numbers of inexperienced or part-time brokers that don’t know the products that well (and hence need more time and effort) and more efficiency from renewed appetites for risk at the lenders.

It will take upwards of 6–12 months for these changes to come to fruition, but I believe that they should be reflected in the bottom line of the brokers – the very same brokers that will be spending more money on compliance and consumer protection under the NCCP.

Rael Bricker House & Home Loans managing director

We have to look at the past to understand the future. Over the last few years the banks have been somewhat of a moving target and through necessity have tightened up on lending through policy changes, interest

In 2009, Australians received average salary increases of 1.71%, and there is a predicted increase of between 3 and 5% in 2010, given the expected strengthening of the global financial position.

Mortgage brokers have accumulated cuts of up to 28.5% in upfront commission and 40% in trail, coupled with significant increases in workload – covering those tasks previously performed by financial institutions which are adding to their processing costs.

To avoid channel conflict with the financial institutions, we do more to maintain customer relations.

Brokers have diversified their product range and on-sell other products such as insurance to maintain their income. More education, more compliance, more expense – less pay! What other industry would find this situation acceptable?

I believe that commissions should also reflect to broker/office level and should be paid accordingly.

When you are part of a large aggregator group where a small number of brokers miss an efficiency target with a lender (although some are unrealistic) this impacts on the whole group, not just those who missed the target. There needs to be a middle road where potentially commission (and efficiency bonuses) are paid at a level where control exists. For example, a sole trader is 100% in control of their metrics and should be rewarded accordingly. Similarly, a single office where all brokers follow the same policies and procedures should also benefit from meeting the metrics where they (and the sole trader) are currently affected by factors outside their control in whether they meet these metrics with the lenders.

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FORUM BOURIS ON BUYERS, VALUING PRE-APPROVALS AND THE SECOND TIER When National Mortgage Brokers’ managing director Gerald Foley called for brokers to support second-tier and non-bank lenders or risk them disappearing, brokers strongly agreed. Here’s what you said, on this and other issues, on the BrokerNews forum We currently use second-tier lenders, and more brokers should. Yes, some of their customer service needs improving, possibly due to staff numbers. We need to give them more credit…

Commented by: Peter at 04 Aug 2010 11:54 AM Good on Gerald! We, the broker community, now need to do loans that are “not unsuitable” for a client’s needs, and that can mean the second-tier lenders. We need not only to consider these lenders but the non-bank sector as well. They all offer viable alternatives. Really, brokers are lazy. We got into the habit of supporting the ‘Big Four’ during the GFC, even though two in particular tried to cut commissions and trails. Stop being habitual and use alternatives when appropriate.

Commented by: country broker at 04 Aug 2010 11:00 AM If they want the business then they need to work with brokers by giving better service, work on their credit decisions/policies and come up with products that can be sold.

Commented by: Melbourne broker at 04 Aug 2010 10:56 AM

Yellow Brick Road’s Mark Bouris sparked debate with his recommendation to ‘bring back the seventies’, with a homeowner’s rebate to help borrowers.

Anything that reduces the manipulation of the property market must be a good idea. Bouris is right: government interference with grants is absolutely crazy. It doesn’t help the consumer, only all those who benefit from a real estate sale – agents, bankers, brokers, developers, solicitors, state governments, stamp duty, REI, RPData – the list goes on.

Commented by: Wayne at 04 Aug 2010 10:11 AM I understand that entrepreneurship and business drives and creates wealth, but maybe the housing market should not be an area where wealth can be created by those who do not build new dwellings. Maybe it should be that if people want to invest in property it should only be in the new home sector… anything that makes it easier for people to buy but also pushes prices higher will never be a workable alternative. It will only feed those who make money on turnover and growing debt.

Commented by: Walter F at 04 Aug 2010 10:32 AM Let the free market decide where the price of houses should be. More manipulation will only distort the true level further. Should house prices recede, then the buyers will come back into the market when true value is perceived. At the moment, houses are far too expensive due to the decades of easy credit, and as a result of interest rate manipulation by the federal bank.

Commented by: Paul at 05 Aug 2010 03:37 PM

Mortgage broker Justin Doobov highlighted a problem with customer (and sometimes broker) understanding of lender pre-approvals, eliciting heated debate.

Of course they are worthless. Unless the loan is conditional it means nothing. Preapprovals go into a holding pit and approved by a computer. No docs are verified!

Commented by: broker at 28 Jul 2010 10:05 AM Lenders should always pre-approve loans after passing the mortgage insurer’s approval guidelines when applicable. The only thing that may impact unconditional approval is the valuation, and confirmation that the client has the funds to complete the purchase.

Commented by: Peter at 28 Jul 2010 06:15 PM I may be missing something here – why would any lender provide an unconditional loan approval where no COS exists? Also, a pre-approval must be conditional upon other requirement/s to be vetted … further, at any time up until settlement, a lender can withdraw the loan offer even if contracts have been signed and returned…

Commented by: Peter Simmons at 28 Jul 2010 01:10 PM

To join the debate, visit

www.brokernews.com.au/forum

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Insight EXECUTIVE COUNSEL

Kym Rampal

Head of LoanKit, Kym Rampal, shares with Australian Broker how he has succeeded through perseverance, and tips IT as the new frontier for brokers who want to amplify success

Licensing as leverage The new licensing regime under ASIC may present compliance headaches for many, but in raising the bar for brokers, will it also give them a new string to their marketing bow?

Name a business leader you admire and why?

Allan Moss. He was first involved in the submission to the government to form Macquarie Bank in 1983 and then ran it as a CEO very successfully for 15 years, which saw Macquarie gain a great reputation and skyrocketed their share prices. He is an inspiration.

What main goal/s got you where you are?

I’ve kept my sights firmly on producing a leading-edge product/service that aims to excel in the mortgage broker world. Price and profits were secondary to the main goal of producing a market-leading product that offers flexible, tailored solutions to established broker groups not satisfied by a ‘one-size-fits-all’ philosophy.

Is success due to talent, hard work, or luck?

Success is 90% hard work. Luck and talent can share the remaining 10%.

What character trait has helped you most?

My ability to dust off reversals and rejections and plough on towards my objectives.

What is the key to great business relationships?

Solid, satisfying business relationships are formed and strengthened by understanding – then accepting – the other side’s point of view and needs. It is also about actively seeking a resolution and an agreeable path in the event of disagreements.

What’s the first thing to look at when growing a business?

Building a network is the first important step. Without the support of one you end up spending an inordinate amount of resources on ineffective marketing.

What’s the best piece of advice you’ve ever received?

To not give up, from my school principal. Actually, he called me stubborn when I refused to do something.

He meant it as a criticism but followed it up by saying that the stubbornness could stand me in good stead if I applied it in the pursuit of goals.

What trend are you currently watching?

I have a strong IT background in addition to many years in the mortgage industry, so I’m keeping a close eye on new marketing techniques for the property and mortgage markets. There are some very innovative internet and iPhone based apps that have come to the surface, which open up the possibility for a new assault on the property buyer market.

What is your next big ambition?

I am determined to ensure our industry is fully aware that LoanKit is a superior, flexible alternative to rigid aggregator models. We provide brokers with independence when other aggregators often try to imprison them within their model, and that we continue our commitment to that promise.

O

n 1 July the mortgage industry woke up to a new regulatory reality. Most industry participants have welcomed the new NCCP regime, which they feel will not only usher in a new era of professionalism in broking, but will rid the industry of poor or bit-part players.

Director Lisa Sanders, of Loan Management Services, said the new regulations require brokers and other industry participants to maintain a higher standard of practice. “I believe this will encourage better service, which will give consumers greater confidence and more reasons to use a broker,” she said. But do these regulations also provide marketing-savvy brokers with new opportunities to differentiate their service offering, or raise the way they are perceived by their clients?

Business coach Jen Harwood said that being licensed or a member of an industry body carries with it “a lot more credibility”, a quality “that is marketable”. “It shows you are not some backyarder that has decided to go into business, and you have the qualifications and credibility to service clients,” she said.

Where should I display my accreditation?

• Email footers • Newsletters • Business cards • Website • Stationary • In conversation Source: Jen Harwood, International Business Champion

Licensing upfront

The question then is how to communicate this to the best advantage for your business. Is it possible to leverage your new licence to deliver genuine benefits for the bottom line? The industry now requires all brokers to hold Certificate IV or higher, and Sanders said these qualifications “can be noted in advertising material and displayed in the broker’s office”.

She adds they should be displayed in newsletters, and communicated as part of client seminars and information evenings, on brochures and marketing material, as well as on business cards. Harwood agrees, saying licences and qualifications should be displayed to cultivate a perception of professionalism. These details should also be communicated in regular conversation.

Smartline director Joe Sirianni said NCCP establishes the reality that brokers have met minimum entry requirements as established by ASIC, and that they follow responsible lending guidelines and also belong to an external dispute resolution program. “This can be communicated to the client in marketing material and simply conveyed to the client at initial interview,” Sirianni said. “Obviously they need to display their licence/ACL at their point of representation, they should disclose this to the consumer and advise them of their

Jen Harwood

Joe Sirianni

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rights and explain they do belong to an EDR program just in case there is an issue.”

Displaying membership of industry bodies such as the MFAA or FBAA will place brokers in an even better position when it comes to client perception, the experts said.

Shifting perceptions

Licensing has long been labelled a watershed when it comes to raising a perception of professionalism. “I believe it will definitely improve clients’ perception as service and standards of practice improve,” Sanders said. “In the past there has been very low entry requirements, and you would have people writing loans with little or no practical experience. I think the market was flooded with ‘order takers’ which has given the industry a bad name.”

Sirianni said he suspects that as more consumers are aware of the licence criteria, client perception may change over time. However, he said “we all know that holding a licence does not automatically prove that you’re professional and competent … the reality is that under NCCP, a consumer has the capacity to at least raise a complaint to ASIC, and all brokers must have external dispute resolution processes. This means we will be held accountable if things do not meet the client’s expectations.” Sirianni said this should ensure brokers are responsible in handling consumers, improving the service proposition of the industry.

However, PFS Financial Services’ Daniel O’Brien said that on a day-to-day level, the average consumer won’t really notice the impact of the new licensing regime.

A negative screen

In the end, it may be that licensing is more effective in weeding out the industry’s unwanted elements, than adding significant value to an individual broker’s marketing arsenal. O’Brien, who featured in MPA’s Top 100 Brokers list in 2009, said the regulation would succeed in cutting out a lot of “dead wood” or “dodgy” brokers, giving more opportunities to professionals. “Even if you are the world’s worst broker, or if you are a dodgy broker you are still likely to be getting business,” he said.

Sirianni said licensing is unlikely to provide a competitive advantage. “Holding a licence/ACL is now simply a necessity to work in our industry. All brokers must be licensed or operate under an ACL, so there is no point of differentiation.”

Marketing an ACL over a credit representative licence would also have little impact, Sirianni said. “If brokers hold a licence or operate as an authorised credit representative under an ACL, they must all adhere to the fundamental guidelines of the legislation and, accordingly, see no real difference in marketing one or the other,” he said.

O’Brien said he is more likely to market his AMA Broker of the Year Award, which he won back in 2008, or his association memberships as points of difference.

Pushing the envelope

With licensing now the norm, Harwood says brokers will have to continue to push forward if they are to succeed in standing out from the crowd. “Every professional needs to be a lifelong learner. If you are not learning in your industry about your industry, and about dealing with clients and your customers, then you are not moving forward.”

Ongoing education will become more crucial for those who want to keep up, not only with changing regulations but also with marketing and industry trends. Sanders, for one, is currently studying for her Diploma in Financial Services, and intends to add financial planning services to her business. “That’s the plan,” she said.

WORK IN PROGRESS  How do I motivate and mentor my co-workers?

If there’s someone on your team not meeting the targets they need to meet, it may be they need extra motivation or mentoring to ensure they (and the business) are getting the best value out of time spent at work. The focus in this situation needs to be on building the individual up, and giving them the support and skills they need to get results for the business: Listen: Sit down and listen to their perspective. It may be they don’t have the systems needed, or are not as confident in some areas. Circumvent excuses.

Provide support: Provide emotional support, through constant encouragement, understanding – and maybe even some time off if required. Blaming does not help. When you are pointing at someone else, there’s three fingers pointing back at you.

Source: Warwick Merry, The GET MORE Guy

Create checkpoints: Set up regular checkpoints, eg, a set number of daily sales calls. This ensures some accountability, and the staff member will not feel alone.

Assign a mentor: Provide examples and advice on strategies and tactics they can use day-to-day, or assign someone in the business to this role, to build up their knowledge and skillset.

25

MY WAY Intelligent Finance managing director Justin Doobov tells Australian Broker success can be helped by project management, exceptional service Justin – and a good dash of Doobov integrity

What is your greatest business achievement?

Winning the Australian Mortgage Awards for Best Customer Service. While we’ve won a number of awards to date, the broker market truly differentiates itself through the customer service it can offer. For Intelligent Finance to be recognised by clients and the industry as providing the best service in Australia was an absolute honour.

What’s the key to getting business?

Don’t focus on making a profit initially. What we did was provide the best customer service experience that a client had ever received. They tell their friends and colleagues about how happy they were and the snowball effect starts. We still take this approach today as it is more cost-effective to build clients through strong referrals than through advertising.

What goal/s have got you where you are?

I hate losing and I genuinely love helping people. My primary goal has been simple and I’ve never strayed from it: give every single client a great experience, regardless of the size of their loan. I get the same thrill from seeing someone succeed in purchasing a studio apartment as I do when someone buys a waterfront.

Who has helped you the most, and how?

The support and loyalty from my team has been the driving factor to being able to provide market leading customer service. My team always go the extra mile and share in my dream of growing Intelligent Finance.

What character trait do you most value in yourself?

Integrity. I would not arrange a client’s loan with a lender that I would not use myself. Many of the loans we arrange are with lenders that do not pay the highest commissions, but my clients have put their trust in me, and I would never do anything to jeopardise this.

How do you stand out from the competition?

We project manage the whole purchase and refinance process, putting ourselves in the middle and acting as the conduit to make sure everyone involved in the transaction (eg, client, accountant, solicitor, real estate agent) is informed of where the loan is up to at all times. This is an important aspect of our customer service promise.

Encourage performance excellence: Though the focus should be on getting co-workers up to speed, poor performance shouldn’t be tolerated, as a culture of excellence should be cultivated. A formal warning may be needed, and a progress improvement plan.

What do you say when the going gets tough?

Two years ago when the lenders cut commissions by up to 40% we had to almost double the volume of loans settled every month, in order to make the same profit. We have a saying in our office that ‘success is the only option’ and it has become part of our culture.

Celebrate success: When success is achieved, celebrate it. Success breeds more success.

What’s your next greatest ambition?

To write 50% more in loans next year using the same resources that we have now. Once these efficiencies are in place, we plan on scaling the size of the team.

26

www.brokernews.com.au

Market talk

Spring into action

That confidence seems to be returning. The WestpacMelbourne Institute consumer sentiment index rose 11.1% in July, and the ‘Time to Buy a Dwelling’ index, which is published alongside the consumer sentiment index, jumped over 15%. Early figures from aggregator AFG suggest that mortgage sales were already increasing – although its general manager for sales and operations, Mark Hewitt, cautions that market participants shouldn’t get too excited.

“The market should be quite strong, but it won’t be a ‘bumper’ spring,” he says. “The likelihood of RBA interest rates remaining at their current level will boost confidence, but even though an independent increase by the banks after the election is a more-or-less foregone conclusion, I think we’ll see a good level of activity.”

Fail to prepare…

Commentators are predicting a post-election ‘bumper spring’, and you can make the most of it

I

t certainly feels like it’s been a long, hard winter – both in terms of weather and in the property market. Rate rises, withdrawal of the First Home Owners Grant Boost and political uncertainty culminating in a federal election has meant that in many places, the seasonal dip has been longer and deeper than usual.

However, many property pundits are predicting fresh growth on the horizon, with what could be a bumper season. Traditionally strong for house sales anyway, many believe that spring could see a surge in activity. Angus Raine, CEO of Raine & Horne, believes the combination of a number of factors points to a spring ‘mini-boom’.

“We’ve seen historically low sales volume over this winter, particularly in the larger capital cities,” says Raine.

“That’s been due to a number of factors, such as the rapid rise of interest rates, economic uncertainty, speculation over the federal election date, and even the poor weather.”

However, with the election soon out of the way and the RBA looking unlikely to touch interest rates until November at the earliest, there’s a potentially unprecedented period of stability on the way. All that is missing is confidence. “Consumer confidence is the key,” Raine says. “That’s the X factor, and it’s something that can change quite quickly. If the market is confident, you can be in a mini-boom before you know it. ”

So, there’s likely to be an increase in activity, and it may well exceed the usual spring market bounce. It’s essential, says Kristy Sheppard of Mortgage Choice, that brokers are ready to make the most of it. “Brokers should already be communicating to their customer database and getting word-of-mouth going,” says Sheppard. “Basically, it’s all about exciting people about getting involved this spring, and making sure that you’re at their side.

“You should be getting in touch with existing customers and relevant audiences using direct mail, such as newsletters educating them about opportunities, or event invites – perhaps with some kind of spring theme. Try and find out where potential buyers are looking, and what they are looking at. Get involved in open houses, property education seminars, and perhaps try and get some local media coverage,” she says.

Sheppard also recommends cultivating business and community contacts, and stresses that brokers need to make sure that they are at the top of referrers’ minds – such as real estate agents, valuers, accountants, solicitors and so on. It’s worth going for coffee or a lunch referral if you haven’t seen them face-to-face for a while.

“It’s also worth thinking about business contacts outside the immediate property industry,” she adds. “Get out into the community. For example, instead of getting your administration person to fetch coffees or lunches, go yourself so that you can talk to local businesses and make sure that you’re at the top of their mind when they speak to their customers.”

It’s not all about marketing, though. Brokers should also make sure their systems are shipshape too – especially following the implementation of the consumer credit regime. “Ensure all of your processes, systems and checklists are finetuned and up to date, and make sure your staff are fully up to speed,” says Sheppard.

“Making sure you get the most out of your employees is crucial too. Make sure that staff are able to pick up where others leave off, so that you don’t miss out on opportunities if people are out of the office. You should also encourage your staff to get out there and network, and it may be worth considering volume incentives if you’re not doing so already,” she adds.

Consumer confidence is the key: if the market is confident, you can be in a mini-boom before you know it

www.brokernews.com.au

MARKET NEWS IN BRIEF

NUMBER CRUNCHING

Australia short half a million houses by 2020

Auction clearance rates: Week ending 25 July

Australia’s housing shortage is set to rocket to a shortfall of nearly half a million dwellings within 10 years.

According to the Housing Industry Association (HIA), the national shortfall of dwellings – currently estimated at 190,000 – will widen to 466,000 by 2020 due to the growth in population. HIA chief economist Harley Dale also blamed planning constraints for the projected increase.

“At the end of the day, the lack of adequate, affordable land supply is at the heart of the problem,” he told the Australian Associated Press. “The number of processes a development must go through is higher now than was the case 10 years ago. We are regressing rather than progressing in terms of the bureaucracy involved in building a new home.”

Overseas buyers to scoop up 9% of housing

Foreign investment laws that were reinstated last April are failing to dampen foreign interest in property, according to a NAB survey. The quarterly residential property survey of 250 real estate agents, developers, owners and fund managers revealed they believed 9% of all house purchases over the next 12 months would be made by offshore buyers – or 47,000 of the 520,000 properties up for sale.

Restrictions on foreign investment were lifted during the credit crunch as part of the economic stimulus measures, but were reinstated in April to prevent overheating in the market. The Real Estate Institute of Australia has investigated whether the Foreign Investment Review Board has been strictly adhering to the guidelines.

Melbourne expands growth boundaries

The Victorian Parliament has approved the release of 24,500 hectares of new land for residential development on Melbourne’s fringes, to meet increasing demands for growth in housing construction.

The expansion of Melbourne’s urban growth boundaries by 43,600 hectares will open the way for construction of a possible 134,000 new homes. The state’s Growth Areas Authority said the 24,500 hectare batch of land will be opened for residential housing, services, facilities, open space and infrastructure.

The Victorian government has appointed the Growth Areas Authority to work with landowners, the development industry and local councils to complete 40 Precinct Structure Plans across Melbourne by 2012, thereby creating 90,000 promised new homes.

Stock levels still rising, warns SQM

Residential real estate listings continued to rise during July, according to SQM research. Total national online property listings rose by 5.1% – the third successive month to show an increase in supply. SQM Research managing director Louis Christopher suggests that this shows an “increasingly softening market”, especially since listing numbers have historically remained flat or recorded a marginal drop during the winter months.

“Vendors have been more often than not failing to get the price they’re after. The old stock hanging on the market is competing with new stock coming on, resulting in an increase in overall supply,” said Christopher.

Clearance rate

Number of auctions

Sold

Sydney

64.2%

405

260

Melbourne

63.8%

530

338

Brisbane

35.9%

78

28

Adelaide

60%

60

36

Darwin

n/a

7

1

Perth

21.4%

14

3

Canberra

66.7%

24

=16

Hobart

45.5%

11

5

27

Auction clearance rates: Week ending 1 August Clearance rate

Number of auctions

Sold

57.5%

=405

233

Melbourne

67.5%

502

339

Brisbane

22.9%

96

22

Adelaide

48.6%

37

18

Darwin

25%

8

2

Sydney

Perth

26.7%

15

4

Canberra

55%

20

11

Hobart

16.7%

6

1

Analysis: Auctions continue to run at lower volumes and clearance rates than the peaks of spring 2009 and autumn 2010. However, volumes still remain higher than this time last year, especially in Melbourne and Sydney: this means that, although there may be more properties on the market, actual auction sales remain consistent with July/August 2009.

RP Data-Rismark Home Value Index – June State

Property type

Median price

Monthly growth

Quarterly growth

Year-on-year

Sydney

Houses

$589,000

0.1%

0.5%

10.2%

Units

$450,000

0.2%

0.5%

11%

Melbourne

Houses

$500,000

1.3%

0.4%

16.1%

Units

$430,000

1.6%

0.5%

15.8%

Brisbane

Houses

$470,000

1.2%

1.9%

3.8%

Units

$380,000

1.2%

1.9%

7.9%

Adelaide

Houses

$409,000

0.8%

0.9%

9.7%

Units

$341,750

0.6%

2%

6.8%

Houses

$495,000

1.4%

2.8%

4.5%

Units

$420,000

1.8%

1.4%

7.5%

Perth Darwin Canberra

Houses

$538,250

=0%

0.3%

13.8%

Units

$396,000

3.8%

1.2%

15.6%

Houses

$549,950

1.4%

0.6%

10.9%

Units

$415,000

1.2%

1.8%

9.3%

Information (indicative and seasonally-adjusted) from June 2010

Analysis: RP Data’s figures for June are a sobering sight. Seasonally-adjusted median property values fell for the first time in 17 months, with only Darwin houses and Brisbane units remaining stable or increasing in price. Interestingly, it seems to be the middle of the market that has withstood the shifts best: while premium suburbs showed a fall in value of 1.8% over the quarter and the most affordable 20% recorded a fall of 0.2%, the middle 60% of the market grew by 0.2%.

RP Data reckons this is due to the top of the market being impacted by share volatility and global economic uncertainty, and the bottom being adversely affected by higher interest rates and tighter lending criteria.

All information supplied by RP Data

28

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Toolkit

Get ASIC application done right The registration phase of accreditation under the new credit licensing regime may be over – however, it’s now that the hard work really begins. By 1 January 2011, all credit providers and intermediaries must be licensed, either with their own full Australian Credit Licence (ACL) or as a credit representative of someone who holds an ACL. While the majority of the application process is straightforward, there are a number of elements where brokers should pay particular attention – otherwise they could see their applications delayed or even rejected.

Date and place of birth requirements The first area which could trip applicants up relates to the place of birth requirements. Licensees must provide certain information about credit representatives – including date and place of birth. This has been taken to mean country of birth; however, ASIC also requires information about state and town of birth.

This applies even if the proposed representative is born overseas.

External dispute resolution schemes

When entering details of external dispute resolution schemes (EDRSs) for prospective licensees, ASIC requires confirmation of the commencement date of the EDRS

the applicant uses. However, the certificates issued by the two main EDRS providers, COSL and FOS, do not include details of the commencement date – only the expiry date. Applicants should contact their EDRS provider to confirm this information.

Credit representatives and individual accreditation

One tricky aspect of registration, which was highlighted by Gadens senior banking and finance partner Jon Denovan, is that any loan writers of businesses which decide to become credit representatives under another firm’s ACL must be accredited as credit representatives personally.

Companies appointed as credit reps in effect cannot do any loan writing under the new laws, as this has to be done by ‘human beings’ or ‘natural persons’ under common law. These ‘natural persons’, therefore, need to be individually accredited by ASIC. However, the situation is reversed for a registered/licensed firm’s directors and employees, as they are automatically authorised to act under NCCP legislation.

Individual accreditation and company ACLs

Some brokers may also be experiencing difficulties due to registering as individuals. The issue affects companies where there are multiple directors: if

10 steps to an ACL

1 2

Work out what your licence will need to cover Regulatory Guide 203, Do I need a credit licence?, contains information about what your licence will need to cover.

3 4 5

Get your supporting documents together These include a summary business description, and background checks on your ‘fit and proper’ people.

6

Make sure your external dispute resolution (EDR) scheme membership is current When you apply for your licence, you must be a member of either the Financial Ombudsman Service or the Credit Ombudsman Service Ltd.

7

Make sure the details ASIC already has about you are up-to-date Check the company register, the Australian financial services licence register, and the credit registration register.

8

Work out the licence fee you will have to pay This can range from $450 for sole traders writing a small amount of business, up to $26,250 at the very top end of the scale.

9

Understand your professional indemnity insurance obligations Before ASIC grants your licence, you must demonstrate that you have adequate professional indemnity insurance in place.

ASIC will ask you to complete a questionnaire about your professional indemnity insurance, and to provide it with a certificate of currency.

10

Make sure you understand your other obligations as a licensee Guidance on this is available from the ASIC website. For detailed information on all aspects of accreditation under the new credit regime, visit www.asic.gov.au/credit.

Familiarise yourself with the licensing process Regulatory Guide 204, Applying for and varying a credit licence, outlines the process of applying for and varying your licence. The CL01 User Guide will also help you navigate the online application form.

Get information about your responsible managers You must include their qualifications and relevant work experience on the application.

Think about who you will be authorising as credit representatives You must tell ASIC about any person authorised to engage in specified credit activities on your behalf.

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the directors each registered individually as persons without registering as the overall company, they now have to submit a whole new application for the company.

This has also raised concerns over whether the brokers in question would be able to legally operate while this process is taking place. However, ASIC has confirmed that the directors can continue to operate as registered persons in their own right – although it warns that they cannot carry on business through the company as the company is not registered.

Anyone in this position can apply for an ACL through the company, by submitting an application in the name of the company, and electronically attach the supporting documents as requested. Once the ACL is issued, they can cancel the individual registrations or let them expire. Alternatively, affected brokers can apply for relief and a late registration as detailed on ASIC’s website and Infosheet 127.

Accreditations and ABNs

There are also issues when the broker or group is a company or corporate trustee and the company or corporate trustee does not have an ABN. For example, the company might be held within a family trust and for income reasons the ABN is held at the family trust level.

This creates problems when applying or attempting to load credit representatives through ASIC’s online portal, according to Lesley Wood, general manager of the Australian Loan Company.

The system does not allow the applicant to proceed, as the ABN is attached to the family trust.

ASIC has acknowledged that this is a system glitch, but applicants whose business is structured this way must lodge a paper-based form with ASIC until this situation is fixed. This needs to be posted, not sent electronically or faxed, and ASIC will apply a fee for each paper-based application.

Supporting documentation

Finally, it is also worth having all necessary supporting material ready. Denovan is aware of some applicants who have completed their application online and submitted their business description, only for ASIC to ask for their compliance plan to be sent in promptly. In some cases these applicants have been caught short without plans ready.

29

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 6.16 Headline: Brokers divided on house price outlook (page 2) What we reported: Brokers remain undecided about the trend residential property prices will take over the following year. In a survey of 329 mortgage brokers, conducted by CoreData, 44% predict Australian residential house prices to rise over the next year, while 37% predict house prices to fall. Brokers predicted the strongest price growth to be in the states of Victoria (48%), Queensland (44%) and NSW (43%), with around a third of mortgage brokers expecting a modest price increase of less than 5% in the eastern states.

What has happened since?

The year from June 2009 to June 2010 saw a rise in Australian residential property prices. Figures released by the Australian Bureau of Statistics (ABS) reveal that the price index for established houses for the weighted average of the eight capital cities increased 18.4% in the year to June 2010. According to the ABS, the biggest growth was seen in Melbourne and Sydney where prices increased by 24.3% and 21.4% respectively.

Canberra saw a 19.6% rise in house prices, while Adelaide’s prices increased by 11.6% and Hobart prices were up by 10.8%.

While brokers predicted a large increase of 44% for Queensland, Brisbane recorded a modest price increase of only 8.5%. Western Australia performed better than was expected, with Perth experiencing growth of 13%.

Headline: Aussie facing challenges with broader appeal (page 18) What we reported: In a bold attempt to broaden its appeal beyond its traditional battler client base, Aussie came up with a new television advertising campaign, headed by the slogan “Put yourself

in a better place.” Aussie’s general manager for marketing, Stuart Tucker, said the new slogan and rebrand, launched on 19 June 2009, mirrored the aspiration of its customers and the company’s growth strategy.

Liz Rowell, managing director of Red Ark Marketing, which had worked on Mortgage Choice’s then recent campaign, said the Aussie ads were a “brave departure”, and moved Aussie into the realms of the banks.

“The good thing is that it talks about the consumer’s needs and wants”, but Rowell believed Aussie “has to do some work on explaining to consumers their expertise and experience in this area. They will need to earn some credibility.”

What has happened since?

Aussie’s bold new slogan and advertising campaign, launched last year, and hoping to appeal to a larger client base, appears to have worked. In a year marked by the global financial crisis, and its negative effects on the economy and business, Aussie has gone against the trend, recording strong growth and emerging bigger and better than ever before. Aussie’s chief executive officer Stephen Porges said that 2009 had seen the number of Aussie stores around the country increase from 20 to more than 150, while the number of brokers had doubled to more

In a year marked by the global financial crisis, and its negative effects on the economy and business, Aussie has gone against the trend, recording strong growth

than 850. In the six months to December 2009, a 90% jump in home loan settlements was recorded versus the same period the previous year. Over the six months from July to December of last year, Aussie’s home loan portfolio increased by 44%.

Porges claims “we have seen the opportunity to reignite our Aussie product offering, as there is a gap in the market for keenly priced, competitive mortgage rates and services.”

Headline: Still a place for part-timers? (page 1) What we reported: With less than three months to go until ASIC licence registrations kick in, the future of part-time mortgage brokers has continued to divide opinion. Since its inception, the industry has been a flexible option for working mothers, and more recently, other professionals such as accountants, lawyers and financial planners have added mortgage broking to their tool boxes. But with the aim of licensing and new regulation being to create a professional industry mirroring financial planning, many questioned where this leaves part-time players.

Industry views were mixed: MFAA CEO Phil Naylor said there was a place for part-timers with a professional mentality.

What has happened since?

The licensing process is now in full swing – but have we seen a drop in part-time brokers? It seems like it’s still too early to say. Out of the organisations that Australian Broker contacted, few were able or willing to comment on the current presence – or otherwise – of part-time brokers. Anecdotally, the consensus seems to be that the new credit regulations will lead to consolidation for one-manband operators – whether under aggregators or with other brokers. This would suggest that part-timers may fall away; but equally, they may choose to become a credit representative of another outfit.

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Feature OFF THE CUFF

Greg Strachan National sales manager, Better Mortgage Management

What was the last book you read?

Ray Martin: Stories of my life. An inspiring read.

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

Hawaii (on the island of Maui). One of the most beautiful and friendliest places I have ever visited.

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

John Lennon.

What was the first job you ever had?

Sweeping sawdust up on a butchershop floor.

What do you do to unwind?

Go fishing. It takes your mind off everything.

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

My fishing boat, of course!

What CD is currently playing in your car stereo?

The Best of Elmo (Sesame Street): my granddaughter has been in the car.

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

Be passionate and treat people like you would want them to treat you.

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

A charter boat operator.

Where was the last place you went on holiday?

Rainbow Beach, Queensland – camping, fishing and crabbing.

Ben Abbott, editor of Australian Broker

AFTERWORD Normal. Abnormal. The ‘new normal’. This issue, Australian Broker is populated by different views from industry leaders on what the word normal actually means, when applied to mortgage broking. Are normal conditions what they were circa 2007/08, prior to the financial crisis? Or are today’s more austere (and now regulated) circumstances a better example? Perhaps the question is, is there such a thing as normal market conditions?

For an industry still very much dealing with the financial crisis fallout, there is only one thing that is certain – the rules of the game have changed. What might have been normal prior to the crisis, is not what brokers can expect from the present, or the future. That is, the change – for better or for worse – appears to be permanent. So what are the new rules? St.George head of intermediary distribution Steven Heavey outlines a new, harsher reality in this issue’s cover story. Credit is no longer cheap (and never will be quite as cheap again), banks are under continued pressure due to these increased funding costs, and brokers – though still a valued distribution arm of the banks – will have to absorb some of these increased costs. With commissions having been a target (and likely to be again), brokers will have to become more efficient, reduce costs, and seek new income streams and scale to maintain profits. As part of the value chain, brokers now face a harder, more competitive environment.

The MFAA’s Phil Naylor adds to this debate over the definition of ‘normal’, arguing anyone who has worked in the mortgage and finance industry over the past 10 years has been operating in what can only be described as an “abnormal” reality. He argues the housing boom early in the decade, the once-in-a-generation GFC, the extra-ordinary stimulus of the First Home Owners Grant Boost of 2008/2009, and now a growing amount of mortgage stress as that stimulus dissipates, are all conditions that cannot fit the description of ‘normal’.

Perhaps the only ‘normal’ the industry can expect then – just as in life – is the constancy of change. Justin Doobov, of Intelligent Finance, tells us in this issue that being pro-active, as well as planning ahead, are the best ways to combat this uncertainty of change, which may often result in tough challenges for a business. He says when commissions were cut by up to 40% two years ago, the business had to double the volume of loans it settled every month in order to match its previous profits.

In setting out – and actually achieving this – the business was able to adapt to a new environment, and meet its vision of success being the only option.

Change will take many forms. New price and market conditions, fresh regulation in the form of NCR, evolving product forms and a changing demographic. But if change is viewed as a constant, brokers can develop a new mindset towards growing their business that enables them to adapt to new environments and succeed, rather than lamenting these changes. The concept of ‘normal’ will have to be thrown out the window, in favour of the realities of now.

FOR ALL THE INFORMATION YOU NEED DAILY

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People Aussie broker masterminds Collingwood coaching clinic

We were thrilled the players could be here to give the Demons a few tips and help them finish the season on a high

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our of AFL club Collingwood’s star players held a coaching clinic in Melbourne for Tullamarine Demons’ players aged from 12 to 16 years old in early August, thanks to the efforts of Aussie Home Loans mortgage broker Whitlam Malkoun.

As part of Aussie’s corporate sponsorship of Collingwood, the players – Simon Prestigiacomo, Simon Buckley, Jack Carter and Shea McNamara – were invited by Malkoun to run the young locals, who are all budding AFL players, through their paces.

The clinic, which was held at the Spring Street ground in Tullamarine, was followed up by a ‘question and answer’ session and a spot of autograph signing for both the young players and Collingwood fans.

“We were thrilled the players could be here to give the Demons a few tips and help them finish the season on a high note,” Malkoun said. “We hope this visit will inspire our young sportspeople to be the best they can,” he added.

From left: Collingwood’s Simon Prestigiacomo, Shae McNamara and Jack Carter with Aussie Home Loans’ Whitlam Malkoun

Econ supports spinal cord victims

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inancial advisory firm Econ Financial Services – which offers mortgage broking services – has announced it is furthering its commitment to the community by supporting Spinal Cord Injuries Australia.

Econ has pledged that a portion of the company’s revenue will be dedicated to aiding the mission of SCIA. The group will donate $100 per personal loan or insurance policy settled.

As part of the company’s pledge, Econ also sponsored a participant in the recent 11km Sutherland2Surf Fun Run/Walk, with participants in the race competing on a course that began at the Sutherland Entertainment Centre and ended at Wanda Beach. Wheelchair-bound Shannon Bates, a peer support

officer with SCIA, competed in the race with the company’s backing. A representative of the group said the team at Econ Financial Services “believes very strongly in the work that they [the SCIA] are doing, and we’re also thrilled to be able to lend our support to Shannon Bates; he’s a remarkable individual with a tremendous spirit.”

The Econ spokesperson said the group shares a mission with the SCIA. “Our missions really meet when it comes down to the human factor; one of the services we provide is retirement planning advice, which involves taking into consideration the ‘what ifs’ in life.

We focus on covering various scenarios that could affect the health and financial wellbeing of our clients.”

Banks give homeless women a hand

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AB and Westpac have joined forces with homeless magazine The Big Issue in a bid to assist disadvantaged women secure employment and training.

The two banks have become foundation subscribers to the Women’s Subscription Enterprise, which offers subscriptions to the magazine, that are then channelled to support paid employment, training and development pathways.

The social enterprise, launched in late July, will employ disadvantaged women to work as dispatch assistants, to pack, sort and collate the magazine, in a safe and secure environment. For every 100 subscriptions sold, one disadvantaged woman can be employed in this way.

Rowan Arndt, head of inclusion and diversity for NAB’s business bank, said the bank’s subscriptions would allow business banking employees to learn more about homelessness, and enable staff to raise these issues with customers.

“NAB’s contribution will help assist marginalised and homeless women, by providing employment,” Arndt said.

Sally Herman, general manager of people and transformation at Westpac, said “more and more organisations are developing socially responsible business strategies.”

Send your people news to the editor, at ben.abbott@ keymedia.com.au

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Caught on camera Sydney’s City2Surf, sponsored by Westpac, brought out a number of industry reps from behind their desks and computers, to pound the pavement from Hyde Park to Bondi Beach on Sunday 8 August

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ING Direct wined and dined the Sydney media in July, and lightened up the evening with some satirical pre-election entertainment – Julia, Tony and Kevin ‘unplugged’

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PHOTO 1: Ready for the race: Vow Financial PHOTO 2: Lloyd Whish-Wilson (Fairfax), Ben St Lawrence (Race winner) and Westpac’s chief executive Rob Coombe PHOTO 3: Runners in the City2Surf PHOTO 4: From Vow Financial: Tara Davoren (HR coordinator), Jeff Wong (founder) and Matt Mitchener (marketing manager) PHOTO 5: From Vow Financial: Bonita Newcombe, Tony Newcombe (account executive), Jeff Wong (founder), Michael Osborne (head of sales and distribution), Matt Mitchener (marketing manager), Alan Gibbons (chief information officer), Tara Davoren (HR coordinator), Jay Kwok (accountant), Jacqueline Fameli (customer service officer) PHOTO 6: Vow’s chief information officer Alan Gibbons, and HR coordinator Tara Davoren PHOTO 7: Grant Hackett, and Westpac’s chief executive Rob Coombe

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PHOTO 1: ‘Julia’ entertains the crowd PHOTO 2: ING Direct chief executive Don Koch and chief operating officer Anne Myers PHOTO 3: John Arnott (ING Direct), Charles Green (Savings4U) and Brett Morgan (ING Direct) PHOTO 4: Laurie Shaw (ING Direct, head of mortgage management), Steven Mickenbecker (Canstar Cannex) and Stevan Sipka (Canstar Cannex) PHOTO 5: ING Direct’s Lisa Claes (executive director mortgages), Paul Claassens (head of contact centres) and Sharyn Schultz (executive director) PHOTO 6: ‘Kevin’ makes a guest appearance

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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

However, while parents may resent their children’s greed, it appears even they – at times – appeal more than giving the house back to the bank. There are some who say, “my son and daughter don’t treat me well,” but they still say, “there is no way we can allow the house we have built to go to the bank”, Sridhar said.

True blue no more

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“Hey, don’t touch our nest egg...”

Honey, don’t tell the children…

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hen it comes to long-awaited retirement, any reasonable person (including Insider), would say that a couple who’ve worked hard and long throughout their entire lives to earn an income, pay off a mortgage, and put bread on the table for a family, deserve a bit of a financial break – and a chance, if necessary, to access some of the equity in their home. While reverse mortgages have pros and cons, they do at least give retirees that chance.

However, it appears children aren’t so enamoured with the products.

Recent focus group work done

by National Housing Bank in India found that reverse mortgage products are “psychologically resented by children”. Speaking with India’s Moneylife, the group’s chairman

S Sridhar, said: “It is perverse, but many children do not want their parents to have a better life.” The reason? Apparently, these children see their “legacy going away”.

“This is not universal, but I did get this feedback even from parents,” Sridhar said. “There are instances when the son or daughter-in-law will ask why they need more money or to spend on a holiday. So there is an element of psychological tension associated with this product.”

While Insider would like to think Australian progeny may be a little more understanding, and a little less greedy, one expects – human nature being what it is – these feelings are universal. If so, Insider hesitates to think about the end of the first home buyer stimulus – leaving a generation of frustrated homebuyers waiting for their beloved olds to drop off the perch.

ot on the heels of the 3-0 crushing of the NSW State of Origin team

by Queensland last month, the Blues are reeling from another body blow – the departure of shirt sponsor Aussie Home Loans.

According to The Australian, Aussie execs told the ARL and NRL of the company’s decision at the end of July. The decision leaves the code with a big empty hole – both on the Blues’ shirts and financially, as the deal was worth more than $1m a year.

Admittedly, Aussie’s departure probably isn’t a surprise to followers of footy: the company had inherited the sponsorship package when it took over Wizard last year, and had always seemed somewhat grudging about the arrangement. Aussie John himself cried foul when the revelations of Matthew Johns’ off-field sexual antics hit the papers last year, and Insider’s fairly sure that the mortgage firm is walking away with a sigh of relief – as well as grand plans for its million-dollar saving.

League executives are confident that a new sponsor for the Blues will step up rapidly, but Insider wonders about the strategic fit.

Exactly which company is likely to find the Blues’ unique mix of disorganisation, an innate ability to lose the ball at crucial moments and appetite for questionable tackling chimes with its corporate philosophy, we wonder? Answers on a postcard, please.

New shirts, new game

When rice just won’t cut it

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n a short addendum to a recent piece (“Let them eat rice”, AB issue 7.14), Insider would like to point out the willingness of Australians to forgo the most basic necessities now extends well beyond their apparent “debt servitude”.

In the previous article, it was found that one Australian family was living on rice in order to pay their mortgage – in what was considered a poignant example of increased mortgage stress.

Well, how does one explain the following? A study commissioned

by Telstra recently revealed 20% of Australians would go without food, heating or television before they would give up their internet connections. The group called this the rise of the “fourth utility” – alongside gas, electricity and water.

Well, who needs basic nutrition anyway, when you’ve got the new Broker News iPhone app?

Nebraska ain’t easy

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hen brokers are preparing licence applications for ASIC before 1 January next year, perhaps they should spare a thought for mortgage brokers in Nebraska, who are also in the throes of getting licensed at present.

Not satisfied with an application form, brokers in the state must trundle off to classes (20 hours worth, to be exact), sit (and pass, of course) tests on state and federal mortgage laws, and, last but not least, pass the added scrutiny of – wait for it – criminal background checks. Is this unfair demonisation of the profession – American Midwest style?

Perhaps brokers in the state should be flattered they are considered important enough to demand these measures – but let’s hope ASIC doesn’t get any ideas.

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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 AGGREGATOR / WHOLESALE BROKER Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 15 Mortgage House 133 144 www.mortgagehouse.com.au save@mortgagehouse.com.au pages 18 & 19 PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5 BUSINESS FINANCE Bibby Financial 1300 850 322 www.bibby.com.au marketing@bibby.com.au page 23

NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au page 17

Eurofinance 02 9252 8311 www.eurofinance.com.au page 13 Homeloans Ltd 1300 787 866 www.homeloans.com.au page 21 Liberty Financial 13 11 80 www.liberty.com.au page 3

OTHER SERVICES Financial Services Online www.leads.financialservicesonline.com.au page 11

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

MKM Capital 1300 762 151 www.mkmcapital.com.au page 2 Provident Capital 1800 668 008 www.providentcapital.com.au broker@providentcapital.com.au page 4

COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 9

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

Think Tank Property Finance 1300 781 043 www.thinktank.net.au deal@thinktank.net.au page 35

Royal Guardian Home Loans 133 455 www.royalguardian.com.au info@royalguardian.com.au

LENDER Citibank Mortgages 1300 651 059 www.mortgagebroker.citibank.com.au page 36

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Residex 1300 139 775 www.residex.com.au page 28 Trailerhomes 0417 392 132 page 26 SHORT TERM LENDER Interim Finance 02 9971 6650 www.interimfinance.com.au page 6 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 8 WHOLESALE Resimac 1300 764 447 www.resimac.com.au newbusiness@resimac.com.au

NON-BANK LENDER Hemisphere Financial Services 1300 793 742 www.hemispherefs.com.au page 7 To advertise in Australian Broker, Call Simon Kerslake on +61 2 8437 4786