Australian Broker magazine Issue 8.24

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ISSUE 8.24 December 2011

Home lenders next as brokers found wanting

Greg Kirk

 Mortgage lenders

have been identified as ASIC’s next target, after a review found low-doc brokers have more work to do ASIC has issued a blunt warning to mortgage lenders, saying one of the next items on its agenda will be a review of their compliance with newly-minted responsible lending legislation.

Following an in-depth review of mortgage brokers, which found the responsible-lending practices of low- doc brokers wa nti ng, the regulator is set to expand

its observation to home lenders.

“We are doing a number of other reviews of responsible lending in various other industry sectors, and one that is coming up very shortly will be a review of the practices of home lenders in the mortgage market,” ASIC’s senior executive leader of deposit takers, credit and insurers Greg Kirk said in an exclusive interview with Australian Broker.

“Home lenders didn’t become subject to responsible lending until 1 January – six months later than mortgage brokers – and I think it’s now time to look at how they are putting practices in place to make sure they are compliant,” he said.

The review of mortgage lenders

is expected to focus on procedures and processes rather than individual loans written, and will centre on the level of verification being done.

Kirk has also flagged that aggregators will be in the spotlight in coming months, due to the “important gatekeeper” role they have played in the industry in the transition to compliance.

Kirk said aggregators under the new regime tended to have quite a number of brokers as credit representatives, with many compliance procedures undertaken by brokers at their initiative.

“It is often aggregators putting in place procedures, setting standards and providing training to individual brokers, and we are keen to work with them to make sure they are compliant.”

In November, ASIC diagnosed a more ‘acute’ case of responsible lending transgressions among low-doc brokers, and urged all brokers to document their borrower interactions.

The regulator’s first verdict on brokers’ adherence to responsible lending legislation, the review was based on the conduct of 16 brokers over the period July to December 2010. It found that while brokers proved to be “generally aware” of and took steps to comply with responsible lending, some were found wanting, particularly in the low-doc market. The report singled out transgressions including not recording a consumer’s requirements and objectives Page 16 cont.

Falling ‘star’ Aggregators cheer NAB Broker segmentation ‘disparity’ removal Page 2

Russell’s reservations CBA’s Count takeover one more step in competition erosion Page 6

Christmas cheer?

Refund franchisees promised imminent sale and safe trail Page 14

Inside this issue News feature 12 2012: What’s in store?

Viewpoint 20 On FHBs and SMSF growth Analysis 22 NAB Broker seeks segments Insight 24 The pros of partnership Market talk 26 Will Perth finally perform?

Toolkit 27 Demystifying Veda scores Caught on camera 29 Deposit Power hits the track

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News NAB scores with ‘disparity’ removal Aggregators have welcomed moves from NAB Broker to remove differences between its ‘4-star’ brokers and other broker segments, labelling it a “positive step” from the lender.

After four years of the current structure, National Mortgage Brokers MD Gerald Foley said scrapping the ‘star’ system would be positive for the market’s brokers.

Foley said the expansion of 95% LVRs beyond 4-star brokers was as noteworthy as announced commission increases, which will mean 65 basis points upfront for all brokers from 1 January next year.

Previously, 90%+ LVRs were only available to 4-star brokers.

“It’s very positive from a broker level that they’ve taken away the disparities,” Foley said. “It’s always been odd when there were two brokers in the same office sitting next door to each other, one is able to offer 90% [LVR] because the customer walks in the left door, but if they walk through the right door they are offered a different proposition.” Foley said the restructure means clients will not face this disadvantage.

Connective principal Mark Haron welcomed the commission and policy changes. “It’s an excellent development, not just the commission increase but also the change to that negative segmentation process,” Haron said.

“It’s obviously a sign that Homeside intends to develop more business.”

However, Haron said although the Homeside changes were good news for the channel, the bank has still not brought its own NAB

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Mark Haron products into total alignment for third party brokers. Haron said unlike other banks, brokers are unable to compete by recommending NAB products only available direct to customers through branches.

“While it’s great from a Homeside perspective, the NAB side of things is still lagging,” he said.

Foley said NAB’s initiative was more about the group’s desire to realign its own business segmentation than a commission increase due to an ultracompetitive lending environment.

“I think at the moment that commissions are steady as she goes,” Foley said. “This is a recognition from NAB that 4-star brokers are already giving as much as they can, and they won’t see much of an uplift there. There are other very good brokers that don’t hold a 4-star rating, and now they can get some of the same benefits as 4-star brokers,” he said.

However, Haron said NAB’s move could be construed as

Falling ‘star’: NAB Broker segmentation shock • NAB Broker to pay 65 basis points upfront to all brokers for loans submitted from 1 January 2012 • Other ‘4-star’ benefits opened to all accredited brokers, including 90%+ LVRs and online valuations • ‘Star’ segmentation strategy scrapped, with aggregators and brokers to be consulted before new strategy launch by April 2012 • Separate Homeside brand and product still core part of NAB strategy

Gerald Foley evidence of heightened competition for business, with commissions another lever banks will use in addition to product pricing.

Aggregators said that banks – and particularly NAB – had not envisaged the amount of work and effort that would be required to manage a segmentation process. “It will no doubt take pressure off them having to manage issues pertaining to how star ratings were determined,” Haron said.

Foley welcomed the fact that the changes would take a level of complexity out of commission validation for aggregators. “We pride ourselves on accurate reporting and processing of commissions, and when lenders make what could be simple more complex, it adds another layer of time to what is required.

Advantedge GM of broker platforms Steve Weston welcomed the NAB changes.

“It’s a very positive move undoubtedly. We’re now seeing credit growth slowing, and brokers are becoming more attractive to lenders than maybe they have been in the years following the GFC.”  For the latest on NAB’s broker segmentation strategy, see Analysis on page 22

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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.

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Watchdog zeros in on mandatory MFAA membership The ACCC is seeking consultation on mandatory lender requirements that brokers be MFAA members.

In a letter obtained exclusively by Australian Broker, the competition watchdog has said it will undertake a review of finance companies’ requirements that brokers align themselves with the MFAA. The letter, from ACCC adjudication branch general manager Richard Chadwick, was sent yesterday to around 70 industry stakeholders, including the major banks, ASIC, the FBAA and several aggregators.

Chadwick noted in the letter that Aussie Home Loans, Virgin Money, ING Bank and Mortgage Choice had in place notifications requiring that brokers dealing with the companies hold MFAA membership. He wrote that the ACCC could revoke these notifications at any time “if it determines that the conduct to which the notification relates no longer delivers a net benefit”.

The notifications in place currently protect companies from

legal action “for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010”, Chadwick wrote.

He said the ACCC generally allows the notifications if it is satisfied the public benefit of the requirements will outweigh the public detriment. Aussie, Virgin Money and ING Bank have had the notifications in place since 2007,

and Mortgage Choice lodged its notification in 2008.

The ACCC has now called on industry stakeholders to offer comment on “the likely public benefits and effect on competition” of the requirements, as well as “any other public detriment”.

MFAA chief executive Phil Naylor said the letter was likely sent as part of a regular review of such arrangements.

“Under trade practices law, if you have an arrangement like that authorised, you have to apply to the ACCC. The ACCC hears arguments from all parties, and their decision was yes, it was legitimate. From my understanding, those arrangements are not given in perpetuity, so this is probably a review, and the arrangement may continue or the ACCC may make another decision,” Naylor said.

Compulsory MFAA membership: The notifications as they stand Company

Proposed requirements

Date legal protection commenced

Aussie Home “AHL Investments Pty Ltd proposes to require that its mortgage advisers Loans (franchisees, contractors and their sales employees or contractors) join the MFAA.”

16 February 2007

Virgin Money “Virgin Money Australia and Virgin Money Financial Services propose to Australia require brokers and authorised representatives to maintain membership of the MFAA and the Association of Superannuation Funds Australia.”

19 October 2007

ING Bank Australia

“ING Bank (Australia) Limited proposes to engage introducers to introduce prospective borrowers to it on the condition that the introducer undertakes training conducted by the Mortgage and Finance Association of Australia.”

12 November 2007

Mortgage Choice

“Mortgage Choice proposes to require franchisees and loans consultants to take out and maintain full membership status with the MFAA.”

18 March 2008

LJ Hooker snags Adelaide in drive for sticky customers LJ Hooker has added Adelaide Bank to its range of funders, with the real estate group’s finance arm expecting the move will create stickier customers for the company.

Adding to Advantedge and ING Direct in providing funding to LJ Hooker Finance, general manager Peter Bromley said Adelaide Bank will add a full range of fixed rates, as well as an offset account and secured Visa to its stable of products. Bromley said each funder

the company has brought on board has offered “unique products and underwriting”.

“The biggest thing we realised we were missing was a 100% offset product. The other one [we were missing] was a bridging loan,” he explained.

Bromley said the bridging finance available through the Adelaide funding line will appeal not just to investors, but to owner-occupiers as well. “Based on the property’s value,

people can capitalise the interest and the serviceability is worked out on the end of the debt,” he said.

LJ Hooker has spent much of 2011 expanding both its line of funding and its product suite.

Bromley said the move was part of the company’s initiative to create stickier customers through offering a variety of products along with its real estate service. “They can have an offset account, a line of credit and a secured Visa. If the client

chooses to use your products more, they tend to stick more.”

The growth of the lender’s product range is expected to drive broker volumes in the year ahead, and is targeted at offering a “complete and competitive suite” of branded products. “LJ Hooker is a brand that’s been around over 80 years, so one thing we haven’t taken lightly is to put our name and brand in front of this home loan range. It says a lot about the product,” Bromley said.

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CBA takeover approved despite Russell’s reservations The ACCC has been lambasted for “getting it very wrong” in allowing CBA’s takeover of Count Financial without stipulating the bank offload a share of Mortgage Choice.

The ACCC said in November it would not oppose Commonwealth Bank’s acquisition of planning group Count Financial, and nearly 95% of Count shareholders later voted in favour of the move. The takeover will deliver CBA a 17% stake in Mortgage Choice.

Chief executive Michael Russell said the ACCC had made a misstep in its approval of the deal.

“We’ve made it abundantly clear in the media in the past few weeks and also in our submission to the ACCC that we had no objection to the transaction, but we thought it made a lot of sense to put a

divesting order in place as the conditional precedent to the transaction. The ACCC didn’t see it that way,” he said.

The competition umpire had “got it very wrong” in its decision, Russell said, and the decision was indicative of a continuing decline in competition.

“The problem is that lender competition in this country has been allowed to be eroded bit by bit. That’s what’s been missed, and that’s what regulators over the past 20 years have missed. As lender competition shrinks, the margin between the cash rate and the standard variable rate grows.

That’s not a coincidence,” he said.

In spite of the deal going ahead, Mortgage Choice has claimed its consumer proposition will be

unaffected, and that the move would not impact the company’s franchisees. “It just means we replace one lumpy shareholder with another lumpy shareholder,” Russell said.

While the company remained opposed to CBA holding a substantial share, Russell contended Mortgage Choice’s stance was not a reflection on its relationship with CBA. “We have a great relationship with CBA. In fact, they won lender of the year at our annual conference. Our relationship with CBA has nothing to do with our comments,” he said.

At time of going to press, Commonwealth Bank had yet to indicate what it would do with its stake in the company, though

Russell said it had not influenced the bank’s Count takeover.

“We’ve obviously had discussions with CBA, and to be frank, they haven’t thought of the investment at this point. They’re now going to have to think about what this all means, and probably come back to us early next year,” he said.

Michael Russell

Industry braces for small lender consolidation The industry should expect a continued wave of consolidation over the next 12 months among lenders, which Tim Holmes may further narrow the scope of competition for consumers.

Homeloans chairman Tim Holmes told the non-bank lender’s AGM last month that directors were expecting further industry consolidation among second tiers and non-banks.

“Homeloans is actively looking for acquisition opportunities.

With fewer brands in the marketplace, this strengthens our

position as a genuine alternative to the major banks,” he said.

The prediction came as Holmes detailed a normalised net profit after tax of $8.1m for the financial year to June 2011, a decrease from $8.4m, which was attributed to “ongoing margin pressures” that have “no foreseeable improvement in the near term”.

Holmes said the group has continued to work on relationships with key broker partners, pointing specifically to the creation of an ‘Elite Broker Circle’ segmentation offering.

“We are committed to further building on these and leveraging existing relationships to help

drive greater levels of repeat business. Indeed, this is an area of significant opportunity for us.”

Holmes said the business and others in the non-bank sector had faced challenges through the abolition of exit fees early this year, but argued that it created new opportunities. He said the existence of exit fees had historically created a competitive disadvantage for some lenders, and their removal will create a more level playing field and transparency in mortgages.

“Further, continuing channel conflict is evident between the retail and third party distribution arms of the major retail banks providing greater scope for

brokers and consumers to engage with our business,” Holmes said.

The non-bank lender is expected to seek growth in lending volumes including working closely with wholesale funders to improve and expand on its product offering.

“Product innovation is critical, particularly in the current environment, and we expect to make further progress in this area over the year ahead,” Holmes said.

During the 2011 financial year lending volumes of Homeloans’ branded products increased 21%, resulting in a 10% increase in net fee and commission income to $16.1m compared to the previous financial year.

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News Licence renewal more than ‘ticking boxes’ ACL renewal may be a simple process, but brokers have been warned that it is more than just “ticking boxes”.

Advantedge’s Steve Weston has said that as the first round of credit licences come up for renewal, licensees will need to be certain they have the documentation to back up their renewal applications. Though the renewal process is easy, ASIC will be carefully scrutinising the claims of licensees.

“I have had feedback from brokers who hold their own licences to say the renewal process is simple. There’s nothing to it, and if you just tick the boxes, you did right. But ASIC has made it very clear they are going to be reviewing the annual compliance certificates and they

will be coming to speak to licence holders to say, ‘You’ve ticked the boxes to say you have these policies and processes in place, have these manuals in place.

Show them to me.’ Now that’s where the rubber hits the road,” he said.

With this in mind, licensees will have to regularly review their compliance, Weston commented.

“Unless you’re reviewing your policies and procedures and manuals regularly, it’s not enough to say ‘I’ve ticked the boxes, there’s nothing to it. What are you talking about?’ ” he said.

Weston predicted that a large portion of the industry may begin to eschew holding as ACL in favour of credit representative status. He argued that status as a credit representative does

not diminish the value of broker businesses.

“Initially some quarters of the broking industry were saying if you held your own licence it would mean your business is going to be worth more than if you were a credit rep. That simply isn’t true.

The fact is no one I know of, if they’re getting good legal advice, would buy a business’ licence, because they’re buying all the liability. They only want to buy the assets,” Weston said.

Weston pointed to the financial planning industry, contending that as compliance came to bear the majority of financial planners moved toward dealer groups. He forecast that this move could be mirrored in the broking industry as ACL holders move toward becoming credit reps under an

Steve Weston

aggregator licence.

“If I really, truly understand the obligation of holding a licence and I’m not just ticking boxes, there’s more to it. It’s a much more onerous obligation than we’ve been led to believe,” he said.

Kirkpatrick vows expanded St.George BDM access

Clive Kirkpatrick

St.George’s Clive Kirkpatrick has vowed to expand BDM access beyond the bank’s top tier brokers, and has begun implementing a number of other service improvements.

Since taking the reins of the bank’s third party channel from Steven Heavey, Kirkpatrick has met with aggregators and brokers to ask for feedback, and has said he will implement

changes to enhance the bank’s offering to brokers.

“They told us pretty clearly what we could do better, and part of that was around our call centre management,” he said.

Kirkpatrick said changes to the management of the bank’s call centre have seen wait times cut down and service improved.

He also touted upcoming changes to St.George’s policies on BDM access.

“Formerly, if you were an accredited broker you could only deal with the call centre. We’re looking to change that, and you can expect us to announce something on that toward the end of the month,” Kirkpatrick said.

The bank has already expanded BDM access to its regional Bank of Melbourne brand. Bank of Melbourne claimed its other segmentation policies would not change, but said it had doubled its BDM team and expanded the

access following a review of its service proposition.

Kirkpatrick tipped further service announcements in the weeks ahead, including equipping its BDMs with iPads to stay abreast of credit policy criteria, and said the bank was examining several improvements to its mortgage processes, as well as ways to better push its product suite.

“We also have some decent niche products. Our products around self-managed super funds and non-resident borrowers have a decent niche market, and we could be leveraging off those better,” he said.

Ultimately, Kirkpatrick said the bank would look to develop consistency in its relationship with brokers. Following a variety of changes to the bank’s commission structures and service levels over the past few years, he contended it would be important to afford

brokers a sense of stability in their dealings with the bank.

“What we’re trying to focus on in commissions and service is just to have a period of consistency where brokers know what to expect. Our job is getting the basics right. There’s really nothing sexy in it. You just need to do the basics right,” he said.

Flashback: New roles, new faces Clive Kirkpatrick replaced Steven Heavey as head of broker for St.George in October, taking on additional responsibility for new brand Bank of Melbourne as well as BankSA under Melos Sulicich.

At the time, Sulicich identified business development manager headcount as a priority. “The view we take is that we need to beef up that presence, as it does make a huge difference in this business.

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Super freedom ‘in the Borrowers will not have marrow of our bones’: to ‘spell out’ hardship Abbott Opposition leader Tony Abbott has vowed that the Coalition will not roll back compulsory superannuation contributions if it wins government, but that the party preferred to provide incentives rather than “coerce people”.

Speaking to a Financial Services Council breakfast in Sydney attended by Australian Broker, Abbott said the Coalition would not support the current legislation to increase mandatory super contributions, but would not rescind it if they come into power.

“We have been perfectly consistent on this subject for the last two decades. We are not instinctive supporters of mandatory superannuation contributions. Our instinct is to provide incentives, not to coerce people. Nevertheless, once these things are there we don’t add to them, but we don’t roll them back,” Abbott said.

Should the Coalition gain power, Abbott said he would like to see more transparency and freedom in the superannuation system.

“What we will want to see more of if we are in government is transparency, small business and deregulation. These things are in the marrow of our bones, these things are in our DNA and these are often lacking in the superannuation system as it exists now,” he said.

Abbott conceded, however, that a level of compulsory contribution could be necessary, given the low saving rate among Australians.

“We do accept that it is very important that people have

Tony Abbott

adequate retirement incomes, particularly with an ageing population. I should also acknowledge that in a country like Australia with a strong welfare safety net, most people most of the time do not save very much, and it is perhaps important to have an element of compulsion if there is going to be the level of national saving that we would like to have,” he said.

Abbott argued that the Coalition was not “given a lot of credit” by the Government for being interested in superannuation, but was nevertheless committed to retirement savings.

“Our approach tends to be rather different to that of our political opponents. We are more into carrots than sticks. We are more into incentives than compulsion. Nevertheless, we are just as interested as they are in this whole subject of retirement savings, because it is so important to the long-term welfare of our people and the long-term welfare of our country,” Abbott said.

The onus is on lenders to vary payments for borrowers in hardship even if a borrower has not made a hardship application, COSL has said.

In a communication to members, the Credit Ombudsman Service claimed members have an obligation to consider payment variations “as soon as it becomes aware that the borrower is or may be in financial difficulties”.

This means lenders are obliged to consider variations when borrowers miss payments, even if the borrower had yet to complain of financial difficulty.

“It follows that there is no express requirement for the borrower to ‘spell out’ that he or she is experiencing financial difficulties,” COSL said.

Lenders who fail to identify financial hardship could also face losses down the road. “It is important for a lender to know when its obligation to consider a payment variation is triggered.

This is because if the borrower is able to reasonably demonstrate that a financial hardship application should have been approved by the lender at the time the borrower made the lender aware that borrower was experiencing financial difficulties, the lender is generally not entitled to recover default interest and fees

and enforcement costs from that time,” COSL said.

The industry has been urged by COSL to better publicise its IDR processes. COSL told members that borrowers were either unaware of IDR schemes, or were not being properly directed to them when they lodged a complaint or expressed financial hardship.

“We appreciate that our members are sometimes frustrated that consumers first approach us before referring complaints to them. This denies them an opportunity to try to address the issue at first instance and offer a resolution; however, our experience suggests that this is sometimes due to members not doing enough to publicise their own internal dispute resolution process, or not identifying a communication from a consumer as a complaint or not recognising that the consumer may be in financial difficulties,” COSL said.

Forty six per cent of complaints COSL receives have not been through an IDR process before proceeding. These complaints are referred back to IDR schemes, with only around half then finding their way back into an EDR scheme. The Credit Ombudsman said this proved there was “significant scope” for members to resolve more complaints internally.

Jumping up the chain of command ASIC says borrowers can bypass IDR schemes, taking their complaints directly to an EDR in the following circumstances: • The consumer has been unable to find out where to complain at IDR • The consumer has made an ‘expression of dissatisfaction’, but this has not been treated as a complaint by the licensee • The consumer believes that they are not getting anywhere at IDR (perhaps because of delay or lack of response) • The licensee has no IDR process

Stressed SMEs make desperate debtor finance push Debtor finance is on the rise amid tough business conditions, with a 4% increase recorded for the cash flow focused lending segment in the September quarter.

Bibby Financial Services national head of sales Gary Green said the rise, recorded by the Institute of Factors and Discounters, was largely expected given business conditions.

“The growth exhibited in debtor finance is not surprising, with small businesses facing increasing pressure. They are under higher stress, have more uncertain cash

flow than a year ago, face longer delays being paid and are coping with more difficult market conditions and reduced access to finance,” Green said.

Data from the Institute for Factors and Discounters shows a nearly two-fold increase in factoring turnover in NSW and the ACT over the past year. NSW small businesses are said to be embracing factoring due to restricted access to funding. “Some businesses are growing at a rapid pace as a result of the recently strong Australian Dollar, and factoring allows them

to improve their cash flow and take advantage of growth opportunities,” Green said.

The downturn in the property market may also have had an influence on debtor finance uptake, with falling median prices having seen business owners look to alternative sources of funding.

“The weighted average of prices for established houses in the eight capital cities fell 1.2% in the September 2011 quarter. This means many businesses, which were previously using a traditional overdraft secured against property,

are experiencing a shortfall in funding and need to look for alternative solutions to ensure their cash flow is sufficiently funded,” Green said.

Debtor finance doesn’t require property as collateral, instead using business receivables as the basis for lending to shore up cash flow.

Bibby Financial Services has benefitted from market conditions, with business increasing 25% over the past year. Part of this growth has been attributed to the withdrawal of CBA from the debtor finance market.

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TWO THOUSAND Get ready for ‘new normal’ in year ahead Shrinking margins, continuing price wars and a focus on cross-selling will be the hallmarks of a “new normal” for mortgage brokers in 2012

The silver lining It’s not all doom and gloom for 2012, with low growth providing potential benefits to both lenders and borrowers. “There is … considerable upside for lenders and borrowers,” accounting firm Deloitte has said. “Those lenders who can deliver on service, relationship and advice differentiation will be successful. Smaller lenders have the chance to specialise and carve out their chosen customer base. And customers will continue to experience a stable mortgage lending market which will be increasingly focused on delivering customer value.”

Deloitte’s 2012 Australian Mortgages Report has predicted the year ahead will be marked by low credit growth and costly funding as lenders continue jockeying for volumes by slashing interest rates. The double-digit mortgage lending growth that defined the 1990s and much of the 2000s will not return any time soon, with system growth tipped to be around 5%.

“The structural drivers that led to total system lending growth of 15-20% per annum during the 1990s and 2000s will not be repeated,” the report forecast.

“Such structural drivers included deregulation of the financial system, widespread emergence of securitisation funding at unsuitably low levels, and leveraging up by Australian households.”

The oft-touted “new normal” of low system growth is expected to continue, with Deloitte expecting tough times for lenders eager to achieve higher growth without poaching customers from their competitors. The company warned lenders would have to be careful to avoid churn.

“In the grab for market share, lenders need to ensure it is not simply a zero sum game and erode system level margins,” Deloitte said.

Higher funding costs could also

be crippling for non-banks in the year ahead, with most non-banks unlikely to be able to compete on price for any extended period.

Deloitte said banks may have to turn to the low-doc market or higher LVRs to maintain a profitable retail business.

Deloitte also labelled crossselling “the holy grail” of mortgage lending in 2012.

“Typically a ‘high touch’ model, this will involve lenders needing to rethink the current simplistic approach of ‘would you like insurance with that?’ which is done post-approval by often inappropriately trained staff,” the report said.

Instead, banks will have to integrate mortgage lending with their planner operations. Deloitte partner James Hickey said a focus on cross-selling could amount to a focus on branch-based distribution for banks. “I think banks are certainly looking to get that ‘holy grail’ working across their proprietary channel,” Hickey said.

However, Hickey argued banks would not abandon brokers in the year ahead, with customer demand still continuing to drive the third-party distribution channel.

“Many [banks] realise that brokers now have upwards of 40% of flows. It’s a channel they simply can’t ignore, both in terms of the primary mortgage product and cross sell,” he said.

Compliance to dog brokers in 2012

Broker headcount drain set to ebb

The task of compliance is likely to dominate the mortgage broking landscape in the year ahead, despite claims that brokers will have gotten a handle on NCCP regulations.

MPA Top 100 Broker Jeremy Fisher of 1st Street Home Loans said he expects compliance issues to continue to dog the industry and brokers will continue to struggle with the regime.

“The changes to NCCP and compliance procedures are likely to continue into 2012, making it challenging for some brokers to meet the requirements and Jeremy Fisher remain in business,” he said.

While Fisher said compliance would continue to “evolve” throughout 2012 causing difficulty for many brokers, the development may not necessarily be a negative one.

“This will probably continue, which is good for the industry as a whole, and it is also beneficial for borrowers,” he said.

Compliance concerns also won’t stop Fisher from looking to expand his business in the year ahead. “Our 2012 business development plan will include a few new goals and strategies. I am also looking to grow the number of brokers in the group over the next 12 months,” he said.

An exodus of brokers from the industry in 2011 may be stemmed in 2012, with MFAA chief executive Phil Naylor saying he expects the broker decline to taper off in the New Year.

“Broker numbers are still falling at this stage, but I think that trend will start to flatten out in 2012,” Naylor said.

As the wave of exits slows, new blood is beginning to be injected into the industry.

“The good news is that, while there have been a reasonable number of exits Phil from the broker sector, there are many Naylor new entrants continuing to join the industry,” he said.

New entrants will be subject to higher educational requirements in 2012, with the MFAA requiring all members to hold a Diploma by 1 July next year.

Naylor said 2012 would see the association continue its push to bring brokers up to speed, and to position the industry as one of increased professionalism. “[The] MFAA will be focused on ensuring all its members reach our Diploma or equivalent standards so that this can be incorporated in our ongoing advertising and PR,” he said.

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AND TWELVE 2012 a year for ‘hunkering down’

Fee-for-service ‘hot’ for some, not others

Stephen Porges

While 2011 may have been a year for expansion and diversification, Aussie chief executive Stephen Porges predicted 2012 will be one of “hunkering down”.

“This is not a year for radical change. It’s a year for hunkering down and sharpening your core business, and that’s probably what we’ll be doing,” Porges said.

Economic uncertainty largely defined 2011, and Porges predicted this uncertainty is not going away anytime soon. He said wariness will continue to filter through the economy as a result of European debt concerns and a sluggish recovery in the US. “We don’t know what’s going to happen, and what effect that’s going to have on the domestic economy, domestic bank funding, the mortgage market or our business,” he said.

This kind of atmosphere is likely to lead to more RBA rate cuts.

However, Porges said this is no reason to celebrate. “There are likely to be rate cuts, but if they come as a response to weakness in the economy, well, be careful what you ask for,” he said.

Fee-for-service is likely to be a big issue in 2012 as subdued credit growth makes for a difficult mortgage broking environment, Mortgage Choice’s Michael Russell claims.

The Mortgage Choice chief executive said brokers are likely to be discussing fee-for-advice and diversification models in the year ahead given difficult economic circumstances, but argued that Mortgage Choice is not looking toward the model in the near future.

“The economics for someone Michael Russell coming into the industry at the moment is clearly challenging and given the subdued outlook for credit growth this picture is unlikely to improve anytime soon. Revenue diversification and fee-for-advice are therefore likely to be hot topics as the year unfolds, with the latter probably more a timing issue than anything else,” he said.

The major issue surrounding fee-for-service is consumer readiness, Russell said. He argued that while brokers added material value borrowers may not be ready to accept a fee. If consumers aren’t ready for the model, brokers could see enquiry levels drop off significantly.

“Certainly at Mortgage Choice it is not on our short-term radar given our concerns around enquiry level impacts,” Russell said.

Productivity paramount, but no ‘foot off the pedal’ Companies will have to drive greater productivity in the New Year as the full force of NCCP comes to bear.

That’s the message of LJ Hooker Finance general manager Peter Bromley, who said he would look to build greater efficiencies into its broker network in 2012, and the industry at large would have to do the same.

“We’ll be looking toward efficiencies and Peter Bromley productivity gains. The other side to this is NCCP. Every broker organisation added numerous forms as a result. It’s in our own benefit to look at how we can improve the efficiency and productivity of the industry’s brokers,” he said.

This productivity drive will not necessarily have to come at the expense of growth. LJ Hooker added several funders over the year, including ING Direct, Advantedge and Adelaide Bank, and Bromley said the company add another “small addition” before Christmas.

“We’ve got a bit of growth to go, but we won’t do that growth at the expense of productivity and efficiency. I don’t see ourselves taking our foot off the pedal just yet,” he said.

‘Equilibrium’ ahead, as market share flatlines

James Hickey

Brokers are unlikely to see any market share improvement in 2012 beyond the 43% they already control, according to Deloitte partner James Hickey. “[Broker market share] has probably been in equilibrium for a while. There are always going to be years where it moves a bit higher, but it’s in a pretty steady state,” Hickey said.

This doesn’t mean, however, that brokers can’t see good volumes in the year ahead. Hickey said fierce competition between lenders could deliver benefits to brokers in 2012.

“The great news is a lot of consumers are seeing a lot of active marketing and increased awareness that the banks are offering a great deal. A lot of consumers are probably going to their broker to say ‘How do I make sense of all this?’” he said.

However, with funding costs set to remain high and lenders scrambling to maintain profits amid lower credit growth, brokers could be the ones feeling the pinch in 2012.

“Banks are looking at cost savings across their value chain, and they could have a look at broker costs,” Hickey said.

Competition could have lenders chasing ‘fool’s gold’

John Flavell

Funding pressures could mean the majority of price competition in 2012 takes place between the majors, with nonbanks left out in the cold.

NAB Broker general manager of distribution John Flavell said a difficult funding environment will make competing on price an unlikely proposition for smaller players.

“I think really the biggest challenge for the industry – not just domestically but globally – is going to be the ability to turn around and access funds, and unless you have a big strong balance sheet it’s going to be difficult,” he said.

Price wars between the banks are set to continue next year, but Flavell questioned the moves made by some of NAB’s big four rivals.

“We’ve seen a lot of specialised pricing. Maybe I’m cynical, but I think there’s been a lot of window dressing as well.

You’ll be getting towards the end of a reporting period and people will be below system growth, then they pull a lever and they’re miraculously at system.”

Flavell said NAB would compete “consistently and responsibly”. “If you’re just going to try to grow your book at any cost, it’s fool’s gold,” Flavell said.

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News Refund eyeing pre-Christmas sale but franchisees suspicious The administrator of Refund Home Loans has claimed the business could sell before Christmas.

In a letter to franchisees obtained by Australian Broker, the company’s administrator, SV Partners, has claimed it has shortlisted three potential suitors for the sale of the business.

SV Partners said it had commenced discussion with the interested parties, who are undertaking due diligence on the purchase. The administrator said a sale is being attempted before Christmas.

According to the letter to franchisees sent last Friday, a sale contract will likely include conditions that outstanding trail and upfront commissions owed to franchisees be paid on settlement.

However, the administrator warned this is likely to be conditional on franchisees waiving

their right to issue breach or termination notices to the company, or withdrawing them where they have already been issued.

SV Partners has warned franchisees that termination of franchise agreements could “jeopardise commissions owing”, and urged Refund franchisees to remain patient. However, a Refund franchisee who wished to remain anonymous told Australian Broker he was suspicious of the arrangement.

“I think the letter speaks for itself, that SV Partners wish to bully franchisees into being an asset for sale, cattle at the slaughter floor, and tell us we have no right to walk away while they serve the interest of creditors,” he said.

The franchisee called the letter a continuation of a culture within the company of “bullying that

Franchisees urged to stick around ... if they want their commissions SV Partners have told Refund Home Loans franchisees they must not issue breach notices if they are to receive commissions owed. In a letter sent to franchisees, the administrator said: It is likely that the sale contract with any party will have the conditions that all outstanding trail and upfront commissions owing to franchisees will be paid on settlement, provided: a. where franchisees have issued breach notices or termination notices to the administrators, those franchisees withdraw those notices. b. all franchisees (whether they have issued breach notices or not) will be required to confirm that they will not issue breach notices or termination notices for breaches that are alleged to have occurred by RHL prior to settlement of the sale.

borders on unconscionable conduct”.

In spite of the developments, many of the company’s brokers remain positive. Another franchisee, also speaking on condition of anonymity, said the company’s brokers are not bitter about their situation, though they wouldn’t “buy Wayne Ormond a cup of coffee”.

“Brokers are pretty positive people, so we’re thinking that’s behind us, let’s go forward. Most are leaving Refund,” he said.

The franchisee said most brokers are not holding out for a sale of the business, but are instead choosing to forge on elsewhere. He commented that the brokers who are “sitting around” as the administration process plays out are merely waiting for offers from potential buyers of the business.

“They’ve breached our contract, so we can get out whenever we want. Most people are looking for a new home,” he said.

Trail commissions are not proving a major concern either, he said.

“It’s gone. We’re all pretty much sure of that. There are some who brought a book into the business and are looking to try to recover it.

There are some with larger trails and they’re looking at ways to get that back, but most of us have got smaller trails and it’s not worth worrying about getting it back,” the broker said.

Wayne Ormond

Bitterness and negativity are also not a major factor in the franchise network. The franchisee commented that most brokers are merely looking to put the business behind them, rather than dwelling on negativity towards the business or founder Wayne Ormond.

“We’re not going to give him the time of day or anything, but everyone is of the opinion that we need to get back on track and go forward,” he said.

The broker also defended the Refund Home Loans business model, and claimed the client proposition could deliver brokers good business through referrals and satisfied clients. However, he commented that many franchisees would rather see the company put into liquidation than sold to another suitor.

“That would be the best outcome for us. If we turned around Monday morning and they said the company was being liquidated, that would be the best because then we could all just walk away.”

Borrowers warned clear of high-LVR products Mortgage broking franchise Smartline has warned prospective borrowers to think twice before taking on mortgages over 80%, and said banks are unlikely to further relax LVRs. Following recent increases to tighter GFC-induced LVR levels, Smartline has said borrowing above 80% still brings with it “significant additional costs”, singling out LMI. The broker said mortgage insurance policies protect the lender – not the consumer – in the event of a default on the loan, and that “not insignificant” LMI premiums vary “widely between lenders”.

Smartline added the amount of money borrowed above 80% significantly impacted LMI costs.

Managing director Chris Acret

said lenders were unlikely to relax LVRs any further beyond the now widely available 90% to 95% level, up from lows of 80% to 85% during the GFC. “I would expect that this will probably be as high as the lenders will be prepared to go,” Acret said.

“The GFC gave lenders somewhat of a fright, and I don’t think there’s many, if any, now who would feel comfortable offering more than 100%,” he said.

NAB Broker recently announced that it would increase LVRs to 95% for its entire accredited broking network from 1 January 2012, an expansion of an offer previously reserved for 4-star brokers. Other non-banks such as Homeloans and Australian First Mortgage have also recently added 95% LVRs to their product

armoury via their funders.

Acret said that it was mortgage insurers being extremely cautious that is often to blame for why a borrower is refused a home loan over the 80% mark.

Flashback: Higher LVRs ‘not the answer’ Before departing QBE LMI this year, then-CEO Ian Graham told the market more targeted products – not higher LVRs – were needed to aid first homebuyers. Answering the perennial question of just how high LVRs are likely to go as lenders get increasingly competitive, Graham said that the GFC had highlighted that simply lending more money was not the appropriate response to homebuyer needs. “The Australian market has always had a limited appetite for 100% [LVRs]. We certainly don’t expect that to be one of the innovations that would come back and it’s not one we would support,” he said.

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Brokers sunnier on lenders, but many still dissatisfied Brokers are viewing lenders in a more favourable light following a hit to satisfaction during the GFC, according to Genworth’s inaugural Home Grown report.

The mortgage insurer’s CEO, Ellie Comerford, said brokers are now seeing better service and channel commitment from lenders, and this was beginning to pay off.

“Almost half of brokers agreed the quality of service they received from lenders was good – a 10 percentage point uplift on last year’s findings – while 39% agreed lenders were committed to the broking channel, representing a seven percentage point improvement,” Comerford said.

In spite of the uplift, nearly a quarter of mortgage brokers still indicated they did

Mortgage market perceptions: Brokers vs lenders 52%

Brokers Lenders

57% 46%

44% 32%

Saw lending increase in 2011

34%

Saw lending decrease in 2011

Expect better volumes in 2012

Source: RFi

not believe lenders provided good service, and another quarter said they did not think lenders were committed to the broker channel. The survey also found brokers were most dissatisfied with loan processing, with 86% if them tipping it as the key area in need of improvement.

Brokers were also at odds with lenders over where lenders should target their technology improvements and product innovations. Both lenders and brokers tipped first homebuyers as the demographic most likely to benefit from product innovations. However, brokers put more emphasis on self-employed borrowers, with nearly a quarter of those surveyed saying innovations could help self-employed clients, compared to only 9% of lenders.

Nearly all brokers said lenders had room for improvement in technology innovation, and 85% said tech improvements should focus on improving processing. Broker portals also came under scrutiny, with 74% of brokers asking lenders for better platforms.

Looking to their own businesses, brokers expected refinancing activity and property investors to drive loan volumes in 2012 and beyond. Refinancing was expected to make up 31% of all lending over the next 18 months, while investment lending was tipped to account for 25% of volumes. First homebuyers and upgraders were not anticipated to make a major return to the market, with expected volumes from these demographics falling to 20% and 22%, respectively.

Outlook gloomy for FHB deposits More than a third of renters do not believe they will be able to save a deposit anytime soon, and close to half believe they will have to find a better job to afford property.

An ING Direct survey has revealed only 21% of prospective first homebuyers believe they will be able to save a deposit within the next three years. Of those who are renting or do not already own a home, 36% indicated there was “no way” they would be able to save a deposit in this timeframe. Forty-one per cent said they would have to find a better job or even take on a second job in order to save a deposit.

Potential first-time buyers living in capital cities showed even less prospect for saving a deposit, with only 13% saying they could do so within three years. This is less than half the proportion of regional first homebuyers.

The poll also revealed disparity between high income earners and low earners.

Forty-one per cent of respondents with household income of more than $100,000 expected to be able to save a deposit, as compared to only 8% of those with household income below $40,000.

A recent Loan Market survey also highlighted the difficulties faced by prospective buyers trying to save for a deposit. A survey of the company’s brokers indicated an overwhelming 77% had seen first homebuyer deals scuttled most often due to the lack of a suitable deposit. Loan Market COO Dean Rushton said in spite of many first homebuyers wishing to return to the market, many were illprepared for property purchases.

“First homebuyers are back in the market as a result of the interest rate cut and rising rents and they currently make up more than 50% of Loan Market’s housing finance enquiries, but many potential first-time buyers don’t get to first base in their quest to achieve home ownership because they haven’t saved enough money for a deposit,” he said.

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News beyond the immediate home loan, not taking steps to verify a borrower’s income, not making proper inquiries into living expenses or not recording an assessment of repayment ability.

Kirk said there was “room for improvement” and that to protect themselves against potential disputes, brokers needed to ensure borrower interactions were documented.

“I think an element of a number of these risks is making sure that enquiries are made and are in fact documented,” Kirk said. “Because if a borrower later comes along and raises a question with ASIC or an EDR [External Resolution Scheme], and says this loan was inappropriate, if a broker has made reasonable enquiries but doesn’t have the records to show that, they are very vulnerable in that sort of dispute,” he said.

However, Kirk said there was as much positive news for the industry as negative, as the NCCP had marked a period of “significant change”. “I would stress that we were looking at the first six months, and the regime had only just begun, so the responsible lending requirements were very new,” he said. “There’s been a lot of ground to cover, so we are definitely pleased to see the level of consciousness in regard to responsible lending.”

ASIC, MFAA in verification clash ASIC and the MFAA are at odds over the income verification onus being placed on brokers, although Kirk has said it is not possible for brokers to shirk their responsibilities.

Are you responsible?

10 steps for avoiding ASIC’s ire

Phil Naylor

Following the review of broker adherence to responsible lending guidelines, ASIC acknowledged letters from accountants as “suitable verification of income”, most often used for non-PAYG borrowers. However, the regulator said “best practice” would involve brokers verifying the consumer’s actual level of regular income and the basis on which these income statements are made. ASIC suggested brokers are obliged to include comments on the client’s previous earnings and any underlying information included, as well as detailing the accountant’s length of engagement by the client.

While MFAA CEO Phil Naylor said he expects to find common ground with ASIC, the association is in disagreement with the extent of these recommendations.

“We think maybe the ASIC recommendations go too far, in that they potentially could be interpreted as requiring more documentation, which would take away the attraction of low-doc products,” Naylor told Australian Broker. “But we accept ASIC’s contention that brokers must have

Lenders should share verification burden Lenders and brokers should be sharing responsibility for responsible lowdoc lending, rather than letting newly enfranchised regulator ASIC push the weight of verification on to brokers.

Liberty Financial’s national sales manager of personal business, John Mohnacheff, has come out in support of the MFAA’s stance on low-doc verification.

“It’s going to take some time for ASIC to get a better understanding of how brokers can and do operate,” Mohnacheff said, arguing that there should be a “happy compromise” between broker and lender responsibility.

“The investigative powers of a lender are much greater; lenders have got access to a lot more information than a broker will ever have,” Mohnacheff said.

For example, lenders are able to statistically analyse borrower applications, allowing them to assess whether stated income is “about right”, based on occupation, location and age.

Brokers should not be responsible for checking the veracity of accountant’s letters, he added.

“The relationship is not between the accountant and the broker, the relationship is between the accountant and their client. A broker can ask that they provide as much as they can, but it is not up to a broker to adjudicate if that information is right or wrong.

“As long as a broker can provide as much as they deem they are able to, then the lender can look at it and make a decision,” he said.

Mohnacheff said the low-doc lending area has many “peculiarities” depending on the lender, and the expectation that brokers should be able to know all of them is “unjustified”.

1) Brokers should ensure they adhere strictly to their own responsible lending guidelines (their credit policy) 2) Brokers need to investigate and record the consumer’s mediumterm to long-term objectives. It would be best if file notes (and other material) are readily accessible.

3) The consumer’s identified objectives should be prioritised. For example, is the cost of the product the most important thing for the borrower?

4) Brokers must record the steps taken to verify the consumer’s income, and cannot rely only on statements from the consumer.

5) It is inappropriate to rely solely on estimates of future earnings to verify a consumer’s self-employment income without a form of appropriate verification.

6) It is inappropriate to rely solely on a living expense figure sourced from a lender’s or LMI’s calculator. Although benchmark figures can be useful for verifying living expenses, it is still appropriate to make reasonable enquiries into (and verifications of) actual living expenses. If the consumer self-reports living expenses and that amount varies from the benchmark figure, further enquiry should be made into the anomalies.

7) Consider taking steps to verify expected ongoing fixed expenses, such as other existing loans that have not been refinanced. If in doubt, check it out!

8) The file should record how a consumer’s ability to make repayments has been assessed. Many brokers have historically relied on calculators supplied by the proposed lender or mortgage insurer. Now brokers are responsible for ensuring they have a reasonable basis for relying on these tools.

9) ASIC questions whether it is appropriate to impose an interest rate buffer on other loans being retained and not simply the loan being documented.

10) Letters from accountants are suitable verification of income, but best practice is to ensure the accountant’s statement confirms the consumer’s actual level of regular income, specifies the basis on which the statement is made, includes comments on previous earnings and the underlying information supporting the statement, and identifies the period for which the accountant has been engaged.

Source: Gadens Lawyers

a role in reasonably satisfying themselves of the appropriateness of a low-doc product, it’s just coming down to how you do that,” he said.

Following the release of ASIC’s recommendations, the MFAA said brokers should be seen in tandem with lenders, with brokers fulfilling only ‘preliminary’ assessment.

“Lenders often take the ‘base’ information provided by brokers, and make further enquiries, and then conduct their own verification and credit assessment. It will be very inefficient – and indeed unworkable – if brokers are expected to duplicate these additional enquiries, verifications and assessments.”

The MFAA said sources of this information may even ‘go on strike’ if they have to provide the same information twice, or even more, to satisfy the needs of the broking channel.

However, Kirk said “it is not possible under responsible lending to contract out the responsibility of making an assessment”.

While he said certificates from accountants play a “useful role” in assessing non-PAYG borrowers,

brokers “need to go beyond that”.

“Best practice would be to make sure that what is coming from an accountant includes or specifies what the borrower’s income is, and better still attaches the source document for that,” Kirk said.

“It is not enough to get a certificate from an accountant which says that a borrower can afford a loan without saying anything about the basis of that assessment of a borrower’s financials and circumstances.

“If, as a broker, you seek to rely on a certificate and it turns out that the accountant did so in error or did so inaccurately, then the broker is the one in breach of legislation,” he said.

The MFAA contends that it is “quite appropriate” for brokers to assess based on preliminary and limited information and verification. “The consumer is protected because the final decision is with the lender,” it said. Kirk acknowledged that depending on the circumstances of the borrower, the enquiries and verification required is scalable, and in most cases will not be in a position to get as many as a lender.

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Avoid ‘old school’ approach to low-docs Too many brokers have an “old school” approach to low-doc lending, according to low-doc specialist Graham Graham Reibelt.

Reibelt Following the release of ASIC’s examination of low-doc brokers, Oasis Finance Solutions’ Reibelt has claimed he was not surprised the regulator found compliance risks among the brokers it monitored.

Reibelt said many brokers took a pre-NCCP approach to low-doc lending, from a time “where even BDMs advised brokers how to tweak a low-doc application to make it work”.

ASIC’s review of low-doc broking identified a number of instances of brokers not recording a consumer’s requirements and objectives beyond the immediate purpose of the home loan, not taking steps to verify a borrower’s income, not making proper inquiries into borrowers’ actual living expenses or not recording an assessment of a borrower’s ability to make repayments. The watchdog said while brokers proved to be

“generally aware” of and took steps to comply with responsible lending obligations, “there is room for improvement”. Reibelt said brokers needed to begin applying the same standards to low-doc loans as they did to other deals.

“Brokers need to take a less complicated approach with low-doc applications and treat every application as if it was a full-doc without tax returns, because that’s all it is,” Reibelt said.

To this end, Reibelt’s company has developed special software to process low-doc applications, leading to what he said was a “consistent and allencompassing process”. Nevertheless, Reibelt said the NCCP had brought about some “unquantifiable requirements” for low-doc lending, which would remain untested until a court ruling.

“Brokers are rightfully uncertain about low-doc broking due to ASIC inability to give rulings. Having a new regime in place where everyone is worried about being the first party in court to test out an aspect of it doesn’t make for a very cohesive workplace,” he said.

Reibelt also expressed concern that ASIC had expectations of low-doc brokers that went beyond the requirements imposed by lenders.

“It’s a strange world when a broker can be guilty of not complying with the NCCP even though they have fully complied with the requirements of the lender,” he said.

ASIC site removes broker bashing An ASIC consumer site which previously warned consumers they may be better off dealing with a lender than going through a broker has been changed to cast brokers in a more favourable light.

The MoneySmart website, which has been named the best government website at the Australian Web Awards, previously included a “Smart tip”, which warned borrowers that brokers were under no obligation to find borrowers a better deal, and said borrowers could be better off dealing directly with lenders. MFAA chief executive Phil Naylor told Australian Broker in September that the warning was “a relic of the past before NCCP,” and said the MFAA was requesting that ASIC remove or re-word the warning.

The site has now been changed, with the offending “Smart tip” altered to advise borrowers to “shop around” themselves, as well as use a broker. Rather than implying that brokers may not offer the best deal, the site’s copy now points out that brokers do not have access to all lenders or products.

The MoneySmart site also informs borrowers that brokers can offer a variety of loan options, and can help select loans and manage the mortgage process

through to settlement. Borrowers are told that “a finance or mortgage broker can save you time and money, but you should still do your own research”.

However, MoneySmart falls shy of providing a ringing endorsement of brokers. Borrowers in financial difficulty are still urged to seek out lenders and EDR schemes rather than brokers, and are warned off refinancing. The site also warns that brokers could be influenced by the level of commissions paid by lenders.

The site has nevertheless drawn traction with borrowers, with a Sweeney Research survey indicating 82% of visitors found the site useful and 91% took some further action as a result of visiting the site. ASIC chair Greg Medcraft said more than one million people had visited MoneySmart since its launch.

ASIC’s Smart tip: The ASIC MoneySmart site offers advice to customers dealing with brokers, saying: “As brokers do not have access to all credit providers’ loans, you should also shop around yourself to see what deals are out there”.

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News

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

THE COALFACE Daniel Di Conza, Acceptance Finance, Melbourne

Paul Hunt, Darwin Home Loans Darwin mortgage broker numbers are dwindling fast as compliance and the poor local market take their toll, but for Darwin Home Loans director Paul Hunt there is plenty of upside.

Speaking with Australian Broker, Hunt said that the region is seeing a marked decrease in the number of brokers, evidenced by thinning numbers at local MFAA meetings.

“Before we were consistently getting between 25 and 30, and now we are getting somewhere between 15 and 20. We think there has been a drop-off of about 25% in active brokers,” he said.

Hunt puts the Darwin broker exodus down to the impact of compliance and a “very flat market”, but says there are upsides.

“It’s the same pie, but less players,” he said.

Hunt said the last six weeks have seen a surge in first homebuyer inquiries, largely as a result of the announcement that INPEX will build a $25bn LPG plant in the area.

“The low-end is very active, with a lot of first homebuyers worried that they are going to be priced

Laurie Parkes, FrontRunner Mortgage Group, Bathurst The Bathurst market is booming, and FrontRunner Mortgage Group’s Laurie Parkes says he’s seeing record months from the influx of demand.

Parkes said he has seen a massive uplift in the latter part of the year. Whereas the middle of the year saw little action, September brought the business its second-best month ever and November saw further record settlements.

“I don’t even want to tell people about it, because things are going so well that everyone would want to move to Bathurst

out of the market – prices will just soar once that [the LPG plant] gets built,” he said.

Hunt said this is causing a lot of units and low-priced houses from the high $200K to low $400K range to be “snapped up”. “People have got fairly aggressive with signing contracts,” he said.

However, Hunt said that first homebuyers account for only 10% of Darwin Home Loans’ business, which comes from referral, and that the high-end of the market remains lacklustre.

“What it does is push the stuff under it up a bit, and it has a domino effect of some sort, but that transition hasn’t been seen in the high-end yet, that is still very flat despite a lot of stock.”

Hunt said another RBA cut could help. “If there is another RBA decrease there may be enough people who realise prices have corrected enough and cause positive sentiment for buyers.”

Only a week after US President Barak Obama visited the city, Hunt said the added international attention was “good for Darwin”.

He added that Obama was “warmly welcomed” by locals.

and I don’t want them all up here,” Parkes said.

Working in a regional market has its own challenges, and Parkes said the key is knowing which lenders to use to get deals through.

“You need to know your postcode restrictions and the limitations those impose, and which lenders to deal with to get around those regional peculiarities,” he said.

Sales and demand have been strong in Bathurst, with first homebuyers rushing to beat the 31 December Stamp Duty deadline proving a particularly strong market segment. With demand high, Parkes said he had yet to look outside the mortgage market for revenue opportunities.

“Thinking outside the square” and diversifying is the only way to maintain and grow revenues in the current market says Daniel Di Conza, who is looking to utilities provision as his next step.

Speaking with Australian Broker, Di Conza, CEO of diversified financial business Acceptance Finance, said the business is embracing further diversification because it is ‘absolutely necessary’.

“Our business has had to look outside the square to maintain the same volume levels. While the core business is stable, you need to write more to earn the same amount of money,” he said.

Acceptance Finance’s turnover is split between mortgage broking (60%), asset finance (10%) and financial advice (30%), with leads generated via referral, particularly planners and accountants.

However, Di Conza said the business has focused in recent times on building new partnerships.

“Over the last 18 months we have made arrangements with property investor groups, such as home buying services and buyers advocates – it’s given us a different stream of clientele,” he said.

Di Conza said diversification enables the business to “put a fence” around the client to make sure that other competing providers don’t “get a foot in the door”.

And next on the agenda is energy supply. “We are looking at how we can offer utilities, for example power and energy, which will enable us to brand our own energy “I know I’ve got to diversify, but it’s just a matter of finding the time to do it,” he said.

There are no plans to implement a fee-for-service at FrontRunner Mortgage Group, with expectations that it would not work in the Bathurst market.

“In my market it’s a very bad idea, because I reckon we get paid a pretty decent amount,” Parkes said.

While FrontRunner receives a strong flow of business from referrals, the location of the office has also proven of benefit.

“I’ve opened an office in the centre of the city and that absolutely works for me, because we get walk-ins all the time. I’ve spoken to brokers with offices in

Daniel Di Conza

business – we could even call it Acceptance Energy,” he said.

While margins will not make it a profit centre in its own right (the business will even consider donating the proceeds to charity) it is expected to make clients more ‘sticky’. “It’s more about giving every client another touch point with Acceptance Finance,” he said.

However, Di Conza has warned brokers not to rush into partnerships just for the sake of it.

“I would do one thing at a time.

What I have noticed is that broking businesses are trying to do too many things at once. What I would do is stick to what you are good at, and introduce one at a time.”

Di Conza said Acceptance Finance had made “plenty of mistakes” with new partners, and that the transition had taken a lot of “plodding along” over a period of 10 years.

“You learn from those mistakes.

People should look to expand their services, but they need to do it cautiously. Any mortgage broker who is trying to do insurance, financial planning, leasing – become an overnight one-stop-shop – are likely to disappoint a lot of clients,” he said.

Laurie Parkes

Sydney who said they’ve had three walk-ins in the last four years, and one of them was to ask for directions,” Parkes said.

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News Our reputation in need of CRIA repair The credit repair industry is in the initial stages of banding together to repair an admittedly “bad reputation”, John Dickinson through the formation of a new credit repair industry body.

Branded the Credit Repair Institute of Australasia (CRIA) and equipped with a newlyminted Code of Practice, the association is promising to provide standards for a “much maligned” industry.

Spearheaded by Oasis Credit Repair and industry veteran Graham Reibelt, the nascent association includes other key players in the industry, such as Clean Credit (John Dickinson), Trimarchi & Associates (Joe Trimarchi) and We Fix Credit (Alicia Candido).

CRIA spokesperson Simon Reibelt said the credit industry had until now “deserved its bad reputation, with many operators overcharging for the service they provide or in many cases don’t provide”.”

There are even operators charging as much as $1,000 just to have a client complete a Veda Advantage complaint form.

These practices have to stop,” he said.

The founding members of the CRIA hope a binding Code of Practice will be a way for brokers and clients to differentiate between possible “dodgy operators” and ethical credit repair firms.

The Code of Practice includes pledges not to charge nonfundable or refundable fees for things the credit repair agency knows cannot be done, or just charging large upfront fees in

An honourable code: The CRIA commitment summarised

general.

Reibelt said in forming the CRIA a number companies offering credit repair declined any interest in joining a body with a binding Code of Practice, particularly because of these fee measures.

CRIA foundation member John Dickinson said “the industry has needed something like this for a long time so the ethical and professional credit repair firms be seen as just that”.

Reibelt said he expects that 15 to 20 members will eventually join the CRIA. The CRIA does not expect to start marketing until 2012, having only launched in early December.

According to CRIA data, over 25% of adults have a credit issue or error on their credit file and they have the right to have any disputed entry challenged professionally.

• Members will act with honesty and integrity and in the best interests of the client, treating all clients with respect, courtesy and understanding • Members will obey the law, and keep all client information confidential • Members will not charge a fee for credit repair if the member knows or suspects there is little or no chance of the repair being successful, without permission of the client • Members will not charge a fee for providing assistance with the removal of any credit enquiry • Members will maintain an Internal Dispute Resolution scheme

AFM reboots ING Direct funding line Mortgage manager Australian First Mortgage has resurrected its retired funding line with ING Direct, allowing it to launch a new range of ‘Platinum Option’ products.

AFM director and head of credit David White said the funding agreement with ING Direct had been suspended by mutual agreement as a result of the GFC. “We had a relationship with ING before the GFC, and it was a good relationship, but we agreed to suspend the agreement, and it was never reignited until now,” he said.

White said the time was right to reboot the funding line, with the expectation the products on offer from the second tier bank would fill niches within the mortgage manager’s suite.

AFM was particularly interested

in catering for new purchases up to 95% LVR plus either capitalised LMI, or the group’s reduced equity fee alternative to LMI. Now launched as the ‘Platinum Full Doc’, AFM previously only offered loans up to a maximum LVR of 90%.

Construction is now also available within the Platinum range, another extension to AFM’s suite. White added the Platinum range offered competitive one to five-year fixed rate deals.

“We now have a broad range of funding options for brokers. We have a multi-ranged residential program and a multi-ranged commercial program under one roof,” he said.

White added AFM would launch an SMSF offering within the next two weeks as a result of

the ING Direct deal, which he said would complete a “total lending package” for brokers.

The new Platinum range includes both variable and fixed term loans and lines of credit, while two low-doc options are also available. All products in the Platinum range will be subject to clawback of upfront commission of 100% in the first year and 50% in the second year.

National head of sales Clint Hawthorne said the new product range would provide more variety and strengthen AFM’s proposition.

He declared 100% commitment to brokers.

“We continue to develop our

David White

product range to allow our valued broker customers with viable alternatives to the major banks.”

• ING Direct funding results in AFM ‘Platinum Option’ • To fund purchases up to 95%, as well as construction • SMSF offering to complete ‘total lending package’

20

brokernews.com.au

Comment VIEWPOINT A ‘massive’ opportunity, with limited recourse “Brokers can really benefit from this space – it’s enormous.”

That’s the view of the perennially optimistic Tony Hayek, CEO of Blue Wealth Property.

But which space is he talking about? The answer is SMSFs – or self-managed super funds.

The sector – which has gone through an ATO-inspired ‘limited recourse’ boom in recent years – is seeing heightened interest from brokers. For Hayek, the case for getting involved is clear.

“Eighty-four per cent of Australians are retiring on less than $21,000 a year. Eighty-four per cent!” Hayek recently told Australian BrokerNews TV “This means that if a broker is in a position to educate their clients, they can potentially change their life, and if you can potentially change the life of your clients, what kind of impact does that have on your business? You get more referrals, you retain them for longer, you get more repeat business from them and when they are out at a barbeque, they then tell everybody about it,” he said.

Jason Nelson at Niche Lending is seeing a surge of SMSF interest, coming primarily from accounting referral partners, who are seeing more demand from their commercial clients.

“The rules seem not to have

A rate cut from the RBA and increased appetite from first homebuyers has given a fillip to the back-end of 2011, with growth opportunities such as SMSFs adding to the spice been attractive to them previously, however many accountants that we deal with are wanting to talk further about self-managed super fund lending,” he said.

“They have got existing clients that already own the commercial property within their own names – they are business owners – and quite a few of them are looking at transferring that property into a self-managed super fund.”

Nelson said just about every client that is buying a new commercial property for their business is also seeing SMSFs as the most attractive offer going around.

Part of the recent popularity surge is being attributed by most – including by SPAA technical director Peter Burgess – to a positive draft ruling that recently came out of the Australian Taxation Office, allowing renovations to be made on SMSFheld property assets.

“There was some confusion or some uncertainty around the way a number of these limited recourse borrowing arrangements worked prior to this draft ruling from the ATO. “There was certainly a lot of confusion and a lot of uncertainty around whether you could improve the asset, and that was a big deal for people who wanted to purchase properties via these arrangements,” he said.

For Blue Wealth Property’s Hayek, SMSFs are none other than a “massive trend”.

“I can tell you from the experience and the shift in our business that it is real. It’s not something that might happen, it’s happening,” Hayek said.

“We sell hundreds of properties every year to investors all around the country. And three years ago, only one in 20–25 properties was to an SMSF; now, one in six-and-ahalf properties is to an SMSF. “And we sell a lot more property now than we did three years ago.”

On FHBs, and the year-end ‘perfect storm’ Have you ever seen a ‘perfect storm’ for first homebuyers? If not, NSW state manager for Australian Finance Group, Chris Slater would suggest that you look around you.

“We are in an environment where interest rates are low – so affordability at the end of the day is up, and borrowing capability is up,” Slater recently told Australian BrokerNews TV. “We are seeing vacancy rates that are low, and we see that housing prices are down. So from that perspective, we think it’s a perfect storm for first homebuyers.

We are really pleased to see first homebuyers returning in the numbers that they are,” he said.

Indeed, following the Reserve Bank of Australia’s November decision to gift borrowers with a pre-Christmas 0.25% downward cash rate adjustment, first homebuyers have flocked to the market in droves – at least, as far as enquiries go for mortgage brokers.

Mortgage Choice’s Mark Bambagiotti is only one broker who was riding this wave throughout November. “Probably it is coming back in recent times to higher than natural levels,” he said. “Hopefully we are going to

see it return to natural levels in 2012, but definitely at the moment we are probably seeing a higher number of enquiries than we would normally see in relation to first homebuyers in the current timeframes,” he said.

So how can brokers capitalise?

It’s all about referrals, referrals, referrals, said Bambagiotti.

“First homebuyers tend to mix in the same circles as other first homebuyers, so if brokers are providing that service, usually they are going to get the referrals from those clients that they are speaking with at the moment.

Also, if they have strong referral relationships with real estate agencies and other referral partners, that is obviously a way to tap in to it,” he said.

Homeloans Ltd’s Gerard Hansen also suggests targeting existing client bases of older borrowers, with trusted existing relationships and the ability to assist with equity.

But while first-time buyers are testing the waters, they may not have the appetite that they used to. In fact, Hansen said there is a higher level of “cautiousness”.

“We had one couple recently approved for $530,000, for which they can definitely afford the monthly repayments, but at the same time they wanted to drop it down by $100,000 because they just wanted to feel comfortable,” Hansen said.

“They weren’t sure where the market was going and they just didn’t want to extend themselves too much. That’s a sign that the first homeowner market is more educated than they were probably two or three years,” he said.  Visit Australian BrokerNews TV at brokernews.com.au/tv to see the full story in a brand new The Big Story format with new host Donna Sawyer. Don’t miss out!

brokernews.com.au

21

Review What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and trends that made headlines in the magazine 12 months ago Australian Broker Issue 7.24 Headline: Branded brokers to take on the banks (Cover) What we reported:

Choice Aggregation Services chief executive Brendan O’Donnell departed the company last year to take on the role as managing director of BEAT Home Loans, a subsidiary of Liberty Financial.

O’Donnell predicted that BEAT would become central to a move towards branded brokerages, saying branding represented the “next wave of growth” for the mortgage broking industry. He argued that brokers could achieve greater market share through branding.

What’s happened since:

O’Donnell continues to beat the branding drum, but from a different position. Less than six months after making the move to BEAT, O’Donnell shifted to Liberty Network Services, a new retail distribution arm launched by the lender. He has remained an advocate of branding, arguing that it provides brokers with greater marketing power and enable them to “focus on their strengths” while growing their business.

Headline: Eleventh-hour disclosure reprieve sought (page 2) What we reported:

Last year as the 1 January disclosure deadline neared and the details of the regime remained uncertain, the industry scrambled to lobby for an extension. Severe delays in releasing the documents required for NCCP disclosure meant the industry would have little time to implement the regime should an extension not be granted.

Jon Denovan of Gadens Lawyers said the industry and MFAA were lobbying Treasury to delay the requirements by three months, and Aussie chief executive Stephen Porges said implementing disclosure would be “next to impossible” if the delay was not granted.

What’s happened since:

The industry breathed a collective sigh of relief as Treasury delayed the start of the disclosure regime until 1 April. As 1 April approached and there remained no movement on releasing official disclosure documents and details, the industry lobbied for – and got – yet another extension, this time until 1 August. This, too, proved too big an ask, and the disclosure regime received its final delay, finally coming into effect on 1 October. When the final version of the requirements finally saw the light of day, MFAA CEO Phil Naylor said they were largely as expected, and declared the industry ready for disclosure.

Headline: Mortgage insurance a ‘rort’: Ormond (page 4) What we reported:

Controversial Refund Home Loans founder Wayne Ormond last year labelled LMI policies a “rort”, saying that they kept borrowers trapped in home loans. He took aim at Treasurer Wayne Swan’s banking reforms and the banning of exit fees, calling the issue a “red herring” to distract from LMI. Ormond called for policies to be made transferable between lenders.

What’s happened since:

The jury may be out on whether or not mortgage insurance is a rort, but most mortgage brokers seem to have ruled that Ormond’s business venture in Refund Home Loans was a rort. The company, along with sister operations Refund Real Estate and Refund Financial, went into voluntary administration this year, with ASIC documents indicating Refund Home Loans owed just over $1m.

Headline: ‘Superbrokers’ not assured of supremacy (page 8) What we reported:

Mortgage Choice chief executive Michael Russell last year spoke out against the so-called ‘superbroker’ model in which brokers hold both an ACL and AFSL. Russell questioned whether dual-licence holders could execute either role with the required proficiency, and said the model could also raise liability concerns. Russell said that separating the role of mortgage broker and financial planner could help to alleviate potential conflicts of interest. “Conflict can be overcome with professional behaviour and proper customer disclosure. I’m just saying individuals who hold both licences and perform on both sides of the balance sheet will come into conflict more often,” he said.

What’s happened since:

Russell’s views on the issue have not changed in the intervening year. He recently tipped Mortgage Choice’s expansion into wealth management and financial advice, but said this would not be accomplished through franchisees holding two licences. “While mortgage brokers should have the financial planning capability in their tool belt, they should operate under an ACL and be a mortgage broker.

Likewise, a planner should operate under an AFSL and be a planner,” Russell said. Russell touted the company’s expansion into financial advice, saying Australia had seen “ordinary financial advice over the last decade”.

22

brokernews.com.au

Analysis

Seeking new segments NAB Broker has very publicly ended its star segmentation strategy experiment, and will need to work hard on a replacement if it is to hit new ambitious broker targets

Banks react: Commissions will stay put Despite continued ferocious price wars, NAB’s major bank competitors have reacted to NAB Broker’s commission restructure by saying they plan no immediate changes of their own. ANZ broker distribution head Meg Bonighton said the bank has never segregated brokers, and that they have always had access to the same commission structure.

“The feedback we get from our brokers is that this is very competitive, and we have no plans for any changes at this point in time,” she said. Westpac and CBA will also stick with existing commission arrangements.

A

target of 25% of all broker-originated mortgage loans might sound simply like a ‘fair share’, if the institution being referred to is any one the big four major banks.

However, when you are NAB and this will mean carving out an increase of 5% from your current broker-sourced market share, it may be more difficult than it sounds.

But that’s just what NAB Broker has set its sights on cornering next year. Head of distribution John Flavell said the bank saw good growth in its share of the thirdparty channel, and would look to continue trying to snare more broker-originated loans in the year ahead.

“We set a goal that between one in four and one in five broker-originated mortgages would be written on our paper. We’ve largely delivered on that,” Flavell said.

Having gained around 20% market share of third-party originated mortgages, Flavell said 2012 would see NAB endeavour to lift this share to 25%. The bank will look to drive its market share on the back of changes to its service and remuneration propositions.

As part of a revamp of the bank’s broker star rating system, the group announced that all brokers will be eligible for 65 basis points upfront commission from the beginning of next year. All brokers will also now have access to features previously only available to ‘4 Star’ brokers, including access to online valuations and LVRs “north of 90%”, up to 95%.

NAB Broker decided to evolve its star ratings system for one main reason: changes in the market meant the previous system had become outdated. The advent of NCCP has rendered the previous star system’s education benchmarks largely obsolete, with licensing taking their place. Also waning in relevance was the segmentation strategy’s conversion and arrears targets. “The conversion rates we’ve got at the moment are the best we’ve ever had them, and arrears are at their lowest. The relevance for that for measuring brokers has probably dissipated,” Flavell said.

Recolouring the carrot

John Flavell

A broadening of the perks previously offered to ‘4 Star’ brokers will not mean an end to NAB’s broker incentives.

With a new strategy slated for launch by April next year, the initiatives are expected to focus on delivering efficiency gains, rather than driving segmentation of the bank’s brokers.

Such service changes are pitched at driving efficiencies for the bank. Flavell pointed to a recent move by the lender to give its product teams underwriting capabilities, and said the opening up of upfront valuations would also serve as a major driver of efficiency.

“We had a lot of people say, ‘You can’t let brokers do that. You’ll get gamed and have brokers ordering hundreds of valuations, and you’ll get stuck with the cost.’ My feeling is 99% of brokers are industry-focused professionals here for the long-term and we’re not going to let 99% miss out for the 1% who do the wrong thing.

That’s paid off in spades,” he said.

In defence of Homeside

The separate positioning of Homeside products versus NAB’s branch-based products is a point of contention with brokers and aggregators, with many arguing the bank should move into line with competitors. Connective principal Mark Haron has said the bank is ‘lagging’ competitors.

However, Flavell argued Homeside allowed brokers to deliver an exclusive proposition to consumers. “If I’d not had the Homeside brands, I wouldn’t have been able to make our price for risk products available to the market, and those are exclusively available through brokers. The feedback I get from brokers is that that’s the right approach,” Flavell said.

Flavell said the “subtle differences” between the bank’s Red Star and Homeside products related largely to deals that made up only “1% of the market”. “Where there exist those subtle differences from a policy perspective, they are on things like self-managed superannuation, and there we’re able to provide some solutions to brokers on the NAB platform and fulfil it through using a loan writing specialist. I don’t have any desire to make that available through Homeside,” he explained. “Differences in policy in the past were probably driven when you got to the mortgage insurance space. Where we are at the moment is we’re actually applying the NAB policy on that to all the loans in Homeside.”

Homeside is seen by NAB as a significant source of growth. Currently, there are around seven Homeside deals for every one being written through its loan writing solutions program.

“People tend to use it as a bit of a locum service. The reason people use the NAB channel is they want to have a person manage the process instead of the system, and they want to outsource part of the fulfilment to specialists. It’s a good value proposition for brokers who want to use it.”

Consistency to win?

For brokers, consistency of service pays, and NAB Broker may be best to bring a new service proposition to market next year that focuses on providing broader-based consistent service.

And if Flavell has his way, that is just what it will achieve. For example, turnaround times have fallen from 7.5 days to four or five business days in recent months.

“We don’t aim to be the fastest in the market in terms of turnaround times. We aim to be the most consistent,” he said.

If NAB Broker is able deliver on this consistency – after feedback from its key partners – Flavell may just be able to take that 25% market share goal all the way to the bank.

brokernews.com.au

23

FORUM

‘Thank Jesus’ for the Australian BrokerNews Forum “Thank you Jesus!”

That was the recent response from Australian Mortgage Brokers’ Paul Gollan on Australian BrokerNews’ leading online broker forum (brokernews.com.au/forum), on hearing that NAB Broker had chosen to rejig its segmentation offering (see page 22).

Here’s the full text of what he had to say online comment: Thank you Jesus! Nice work NAB Broker. Banks spend a lot of time asking brokers “what do we need to do to get more business?”. Clearly NAB Broker has identified one of the answers: 65 basis points upfront plus their stepped trail structure is finally starting to get broker commission rates back to where they should be. Brokers and their families were smashed by banks during the GFC with banks citing margin squeeze. Notice net margin on mortgages has got very little airplay this year, while pricing committees at banks have been throwing around discounts like drunken sailors. RESPECT NAB! Paul Gollan on 28 Nov 2011 02:17 PM

Other brokers (quoted below) were equally pleased with the move, easily the most significant increase to broker market commissions since the onset of the GFC Well done NAB, this is a welcome move. I think it will win you significant market share.

Prisco Minichiello on 28 Nov 2011 02:32 PM Those calling for trail from day one, have you done the numbers?

Average trail after 5 years is .25%, from that point you get paid .35%. Let’s display positivity about moves like this.

Scott Hawkanson on 28 Nov 2011 03:48 PM

Meanwhile, online posters JBJB, Melbourne Broker and Tony all weighed in to suggest NAB’s next best move would be to consider the future viability of the Homeside brand.

Next move must be to ditch the HomeSide brand and call everyone a valued NAB customer, with normal trail on broker introduced deals.

JBJB on 28 Nov 2011 05:03 PM If NAB is serious about winning sizeable market share, then do what CBA did and drop the redundant brand (Colonial in their case) and see the real distribution power of brokers and reward us appropriately for our efforts.

Melbourne Broker on 29 Nov 2011 09:49 AM Putting all brokers on an even level is great. When is NAB going to actually combine NAB and Homeside?

Tony on 29 Nov 2011 11:41 AM

Brokers dropped everything to have their say when Australian BrokerNews revealed the ACCC was reviewing arrangements that made MFAA memberships mandatory.

This is a welcome and long overdue initiative from the ACCC. I am not against any professional association.

However, the compulsory membership of the MFAA goes against the notion of freedom of choice. Besides, the MFAA’s heavy handed approach to issues such as training through its favoured RTOs etc is repulsive. With ASIC as the official regulator, it is time that the MFAA took off its hat as self-appointed sheriff.

Scopher on 25 Nov 2011 10:21 AM Regulators should make up their mind about how serious they are with consumer protection. The NCCP act is not perfect but it goes a long way towards legitimising the industry. The MFAA provides invaluable advice to members and is an integral part of the professionalism and compliance guidance to brokers. If the ACCC was to revoke the requirement, I’m sure 99% of brokers would retain membership. Seems to me this is a futile exercise.

Prisco Minichiello on 25 Nov 2011 10:14 AM Having been a member of the MFAA for probably 15 years, I welcome this review. If you look at the benefits that the MFAA is supposed to bring to its members it is hard not to conclude it has failed. I see no reason why MFAA memberships should be compulsory.

Glen on 25 Nov 2011 10:22 AM

Poll: As the year closes, will you have written more business in 2011 than 2010?

It’s been a tough year for mortgages, with markets remaining tight due to house prices decline and global economic woes worry.

But how did our readers fare compared with 2010?.

65% 35%

No

Yes

Source: Australian BrokerNews. Poll date: 17/11 – 28/11/

 To vote in our latest online poll or get involved in our forum, visit our home page at brokernews.com.au

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brokernews.com.au

Insight

Partners in finance Taking on a partner can yield a range of benefits for your business, as long as the decision is not taken lightly, writes Port Group director Andrew Baker

Andrew Baker

W

hen Andrew Baker decided to leave his job in 2001 and start his own business, he had no idea what lay ahead, but one too many sales training meetings had tipped him over the edge and he knew it was time to ‘go it alone’. And ‘go it alone’ he did.

Baker founded Port Group, and was on his own for the first year. His business grew rapidly and before long he was working around the clock to keep up; it consumed him.

It was a year later when Anthony McDonald joined the business, and Baker was able to reap the benefits of having a business partner. In 2008, Voula Kotsiras became its third director.

Given his experience, Baker says having a partner can be great. Here are his reasons.

1) Motivation and accountability One of the biggest benefits of taking on a partner/ partners is that they motivate you to perform better. You can’t become slack and turn up to work late when your partner is punctual. Likewise if your partner is writing more deals, you naturally want to pull your weight and perform better. A partner brings out your natural competitiveness and sense of justice.

2) Complementary skills If you’re looking to take on a partner look for someone who can complement your skill set. If being organised is not your strong suit, look for a partner that is highly organised. If you like to focus on detail you should be looking for a partner that is more ‘big picture’. Taking on a business partner gives you the opportunity to add traits that will benefit your business and your clients.

3) Risk sharing As a lone trader, making a big decision can be a heavy load to carry. Sharing that decision with a business partner eases the burden. You can help each other to make the right decision. If it ends up being a bad call at least you share the blame together. It really is a case of ‘a problem shared, a problem halved.’

4) Holidays One of the greatest benefits of having a business partner is that it allows you the freedom to take holidays. Let’s face it, there’s not much point working really hard all-year round with no time for a break. In the fast-paced industry of finance, down time is essential to avoid burning out. Partners can also cover you when you are sick or attending training courses or industry conferences. A business partner can cover your load while you take time off, and that’s a huge benefit!

5) Cost sharing There are financial benefits to taking on business partners too. The cost of PI insurance can be a killer and is one cost that can be shared when people join forces. So too is the cost of support staff and overheads like office rent. Sure the profits are split, too, but a business partner will help you keep wages and drawings in check.

6) Perception Fronting up to an important meeting with your business partner can create the perception that your business is larger than it really is. This can give you power and credibility in such circumstances.

7) Opens networks A new business partner will bring with them a whole new

Choose someone you really trust and trust your own instincts about a potential partner set of networks. Do they play golf or football? Have they got an interest in motorsport or athletics? Whatever their hobbies, there’s potential for you to get involved and to make your networks grow. The six degrees of separation theory is alive and well!

8) Idea generation and business planning One of the really cool things about having a business partner is having someone to bounce ideas off. Someone who is also interested in seeing the business succeed and who won’t get bored talking about work. When you run ideas past each other you fuel each other’s imagination and give each other the confidence to try new things. As a sole trader this can get lost and you can end up in rut.

Planning for the future of your business is more likely to occur when you are part of a team.

9) Fun Of course, one of the greatest things about running a business with others is that it becomes more fun. You can have a chat and a laugh during the day and at the end of the week you can reflect over a couple of drinks.

Handle with care

Although Baker is a strong supporter of taking on a business partner, he believes it should not be a decision taken lightly.

“Choose someone you really trust and trust your own instincts about a potential partner. If your gut is telling you it’s not right, it probably isn’t,” he says.

“Work out a way to trial the person first. Insist on a probation period where you can really get some insight into what this person is going to bring to the business.”

Baker says a fair exit strategy needs to be in place from the start.

“It might all be very exciting and positive at the start, but many business partnerships end up going pearshaped down the track,” he says. “You have to go into the agreement thinking it is likely to happen and plan for it.

Think of it as a pre-nup for your ‘business marriage’.”

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Market talk

Perth could finally deliver on promises Analysts have long been touting the recovery of the WA market.

Adam Smith asks if 2012 will be the year this finally comes to fruition

B

y this time of the year, the WA market was supposed to have rebounded, buoyed on the back of strong mining investment from Mark II of the resources boom.

The REIWA, BIS Shrapnel and Access Economics all tipped 2011 as the year the Perth market would take off, with Access Economics going so far as to say it would “turbocharge” the national economy. So far, all this promised turnaround has failed to materialise.

Last year, BIS Shrapnel’s Angie Zigomanis predicted a significant upturn in the Perth market. He forecast high single-digit growth for the region as new projects came online and the labour market in the state tightened.

“New projects are already getting into gear: the Gorgon offshore gas project has already started up, and we’re beginning to see an increase in investment by the resources industry,” Zigomanis said at the time.

If median house prices are any measure by which to judge, Zigomanis was more than a bit optimistic in his assessment. The latest RP Data figures show median prices in Perth are down 5% for the year. Prices in the city have now come 7% off their peak.

These figures, however, have yet to quell optimism about the future of the WA market. REIWA president David Airey has claimed 2012 could be the year that Perth finally sees a resurgence.

“I believe the next six months will see the bottoming out of the West Australian market and that we’ll see stronger signs of recovery by the middle of next year,” Airey said.

The comments sound like more of the same, kicking the recovery can a bit further down the road and continuously promising that tomorrow will bring better results. This time, though, Airey said the “green shoots” of recovery are clear.

“First homebuyer activity has been very strong, the level of discounting by sellers has flattened out and

rental yields for investors has improved,” he said.

Indeed, REIWA data for October showed a 19% increase in reported sales. The overhang of stock in Perth is also beginning to abate, with a 14% decrease of properties on the market from June to October. While Airey said this was largely due to vendors pulling stock off the market rather than sales activity, he expressed optimism that the number of days to clear a property had peaked at 79 days, not changing since June.

Another sign that the promised recovery could finally be on its way is first homebuyer activity. As prices in Perth have fallen, first-time buyers have begun to be lured back to the market. The first homebuyer movement has not only been spurred by falling median prices, Airey said, it has caused them.

“It’s important to note that an estimated 28% of sales activity was from first homebuyers, most of whom purchase under $450,000. This is pulling the median downwards because of the increased sales of more affordable homes, with the median purchase price for a first-time buyer now sitting at $415,000,” he said.

The proportion of first-time buyers in the Perth market has far outstripped the national average. Recent AFG figures suggest first homebuyers accounted for around 16% of national sales activity. It’s this kind of activity among first homebuyers that may give the Perth market the boost it needs, Airey said. “[Potential upgraders] are waiting for a first homebuyer to purchase their existing dwelling so they can move on, and it’s a positive sign that many first homebuyers are now entering a weaker market on the back of improved affordability. This could well prove to be a good stimulus to the upgrade market which has been very sluggish, but which now might get a kick-start as the entry-level section of the market fires up, giving many trade-up buyers the financial release they have been looking for as they sell their current home to purchase the next,” he said.

NUMBER CRUNCHING Homeowner sentiment: What factor is most likely to negatively impact your finances in the year ahead?

25% or less

39%

More than 50%

10.60%

28.20% 28.70%

30%

39.80%

15.90%

Utilities Costs

15.60%

Low Income FHBs

21%

Housing costs as a proportion of income: Low earning FHBs vs average FHBs At a glance…

42%

20%

Source: ABS

40%

60%

80%

100%

*

The rise in housing costs for mortgagors over the past decade *

0% Source: Loan Market

14.60%

46.60%

Carbon Tax

Interest Rates

30-50%

All FHBs

Fuel Prices

10%

25-30%

Source: ABS

brokernews.com.au

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Toolkit

Demystifying Veda Score 1.1 Have your clients hit a wall through credit scoring? John Dickinson from Clean Credit explains the ins and outs of how much these scores can mean

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ow is it that a seemingly insignificant credit listing can stop your client from getting a loan?

It can be difficult to accept that something as small as a paid default to a phone carrier listed years ago can still have the capacity to cause so much trouble for people trying to secure credit. After all, such a listing may not at all represent your client’s current financial position or reflect an appropriate risk profile.

To better understand this we need to look at how credit scoring actually works.

Veda Advantage, Australia’s largest credit reporting agency, has made significant changes to how a credit report is presented and in turn assessed by credit providers. One such change is known as Veda Score 1.1 and in its most basic form relates to an overall credit score that is affected by a person’s credit activity and behaviour. Everything from credit enquiries, credit applications and even change of address can affect a person’s credit score.

Veda’s Score 1.1

The real purpose of the Veda Score 1.1 is to provide to a potential credit provider a single highly visible means of assessing risk. Credit scores begin at -200 and finish at 1,200; the lower the score the higher the risk is considered to be.

According to Veda Advantage, a credit score of 200 represents odds of 1:1 which means the applicant has a 50% chance of having an adverse event on their credit file within the next 12 months. For every additional 100 points, the odds double, meaning the applicant has less chance of having an adverse event on their credit file.

This chart reflects how Veda Advantage relates a credit score to risk: Veda Score 1.1

Good:bad odds

Chance of adverse event in the next 12 months

100

0.5:1

67%

200

1:1

50%

300

2:1

33%

400

4:1

20%

500

8:1

11%

600

16:1

6%

Let’s take a close look at this. Say your client has a credit score of 300; according to this scoring system they have a 33% chance of having an adverse credit event in the next 12 months. Even a credit score of 400 still reflects a 20% chance. Where do you think a credit score would need to be close to before a credit provider starts saying yes?

I’m sure many of you are thinking that a person would have to have a terrible credit history to have a credit score of around 300, but think again.

Let’s look at a real example. A person has a credit score of 390 that is due primarily to a small, paid telecommunication default recorded two years ago.

According to the Veda Advantage credit scoring system, this score indicates to a credit provider that this person has over a 20% chance of having an adverse credit event in the next 12 months. Do you think this person would have trouble getting approved? You bet.

To demonstrate what affect even a small credit issue can have on a credit score, what will happen after the same default is removed from the credit report? The credit score moves from 390 to 577. That’s 187 points, and most importantly to a credit provider the risk of this person having an adverse credit event in the next 12 months has moved from over 20% to well under 10%. That’s all that is required to turn a decline into an approval.

Applying the score

The purpose of this exercise is not to demonstrate that in the right circumstances negative credit listings can be removed from a credit file, but to show you the affect that even one small, seemingly insignificant credit event can have on a person’s credit score.

I’m sure that many credit providers themselves feel the way credit scoring operates is a broad brush approach and as a result many people don’t qualify for finance when in reality they would prove to be reliable and credit worthy. The reality is that credit providers subscribe to organisations such as Veda Advantage to help them determine risk, and not applying these principles to their risk assessment processes would defeat the purpose from their perspective. Given this, credit scoring and the problems it can produce are a fact of life and are very much here to stay.

I hope this helps you to better understand how credit scoring operates and why what may appear to be an insignificant credit event can cause so much trouble for you and your clients.

John Dickinson is the director of Clean Credit, a member of the newly-launched Credit Repair Institute of Australasia (CRIA).

SCENARIO CENTRE Want to be a hero? You can, with a ‘construction rescue’ Every day, people start building without finance approved only to run short of funds towards the end of the construction. What follows is often a financial nightmare as they discover that traditional lenders are reluctant to lend on incomplete residences.

However, MKM Capital says when this scenario does crop up, there are options available for residentially-secured, endstage construction projects.

Operations and marketing manager Michael Watson says the lender has a ‘Construction Rescue’ package designed just for these types of client situations.

“Basically, if the construction has reached fixing stage, which is around 90% complete, MKM will lend against the ‘as is’ value. If construction is not this far progressed, we will still lend against the underlying land value,” Watson explains.

Options available in such scenarios are often dire. They include selling the incomplete property at a significant discount, extending the construction period for months or years to complete the construction using cash-flow, or entering into a joint venture to construct for a share

Everything from credit enquiries, credit applications and even change of address can affect a person’s credit score

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of end profits. Watson says the MKM product can be owner-builder, low-doc, as well as non-conforming and credit impaired, capturing a wide market that the majors won’t touch.

“Provided they can service the end debt, it’s NCCP compliant in every way,” he says.

For clients in tricky situations, the ‘construction rescue’ could be the lifeline that clients need.

“These borrowers are highly motivated to complete the property and will sell or refinance immediately after it is complete.

I’m not aware of any other lender willingly operating in this space. Brokers have told us this is the kind of solutions-based lending they need,” Watson says.

Ezy Capital broker Matthew Watts says being able to put clients into the MKM facility, complete the property and then refinance is “very satisfying”.“The client achieves their goal, and we’ve assisted them with a transaction they’d thought was impossible,” he says.

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People MY WAY A finalist for New Brokerage of the Year at the recent AMA awards, Prolink Finance is a fast-growing force. So how has Muzi Dandachli managed this achievement? We asked for his secrets of success What is your greatest business achievement?

Opening my own broking business; having something that you call your own actually gives a motivational boost like no other.

What’s the key to getting business through the door?

Word of mouth and referrals. We are not shy to ask clients for referrals, and we try and form a relationship with all clients and professionals (estate agents, conveyancers and accountants) so that we can maximise the influx of new business through those channels.

What goal/s have got you to where you are?

Succeeding. I set new priorities and goals and revisit them on a monthly basis. I’ve also found that name branding with every step we take is very vital. Also, marketing and setting a plan for every client, keeping them informed and delivering on the promises made.

We have started a client for life program, which means we try and do everything in our power to keep clients, through offering great service and multiple products, as well as ensuring the convenience of the entire process.

Who has helped you the most, and how?

My aggregator. They have been by my side from day dot; they have help me market my business, register

Australian First Mortgage gathered the industry’s most enthusiastic punters for its annual Melbourne Cup lunch in early November.

While only one horse could win the race, it was all smiles when the RBA decided to cut rates – by a nose

with ASIC, brand our name, as well as giving motivational boosts regularly, through education and continuous communication and revisiting our goals together.

What character trait do you most value in yourself?

I’m down to earth, and a good listener. Most clients just need you to listen to their problem and they want to hear sound advice tailored to their needs.

How do you stand out from the crowd/competition?

We offer our business on service and convenience, and we go a step or two further than the others by offering multiple products and partnerships to ensure the client is looked after. We do this with the likes of RP Data, general insurance, partnerships with legal providers and planners, as well as offering accounting partnerships that are geared towards more strategic goals – not just your typical tax agent.

What do you tell yourself when the going gets tough?

Go back to basics and call your clients. Brokers often forget that most of our business and our untapped potential gold mines are existing clients.

What is one thing you want to improve in your business?

Client follow-up, and marketing. You can never have enough of either!

What piece of advice would you give an ambitious broker?

Just do it, know what your goals are and write them down somewhere where you’ll see them every day and just get out of bed like you’re on a mission and do it.

Carn leaves Homeloans for NextGen NextGen.Net has appointed Tony Carn as its new sales director, with Greg Mitchell stepping in to fill his empty seat in a combined general manager of sales role at Homeloans.

Having left his previous role earlier in November, it has been announced Carn will be responsible for the growth of NextGen’s ApplyOnline application processing platform.

Meanwhile, previous general manager of retail sales and seven-year veteran at Homeloans, Greg Mitchell, has taken on a role that integrates both retail and third party sales roles.

Speaking with Australian BrokerNews, Mitchell said the change would allow the business to establish one sales culture and

team, and that it would focus on both retail and brokers.

Tony Carn Mitchell said the business had a “very strong” BDM presence across Australia, and while Tony Carn had been a “valuable asset”, its profile would not be impacted.

Carn has worked in the mortgage industry for over 20 years across banks, non-banks, aggregators and mortgage insurers in sales, marketing and management roles.

Carn said he would be spreading the message about productivity gains that could be achieved via the ApplyOnline system, in an environment where the focus was on “the bottom line”.

National sales role to target market share Loan Market has introduced a national director of sales role hard on the heels of “above-market” growth in Victoria.

Mark De Martino The company’s executive chairman, Sam White, has appointed Mark De Martino to the newly-created role, promoting him from his role as Victoria and Tasmania state manager.

White said De Martino oversaw growth in Victoria which saw the broker pip its franchise rivals.

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“Loan Market Victoria is now the clear leader of the branded broking groups, writing more than Mortgage Choice and Aussie Home Loans in that state. A key factor to that success has been that our Victoria operations have had a very high average broker production volume – almost double that of other states. While it is true the Victorian market has been strong, the Loan Market growth there has strongly outperformed the market,” White said.

Paul Henry is to take over as state manager for Victoria and Tasmania in January.

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Ready for the race Iain Forbes, AFM AFM’s Ken Ward John and Christinia Khall, Pacific Mortgage Group Clint Hawthorne, AFM Tanya White, AFM

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Caught on camera Deposit Power rallied the industry’s avid motorists once again in November for its annual go-kart charity challenge. In support of Chris O’Brien Lifehouse at RPA Hospital, it was the AFM team that found the speed to win this year Photography by Simon Kerslake

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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

“We’ll do one better: Not shaving until November 2012”

The pie’s the limit W

ith Movember having wound to a close, it’s only fitting to look back on the heroic efforts of so many courageous guys willing to become social pariahs for men’s health.

One such valiant mo-bro is Kiwi mortgage broker Tim Anderson.

Not content to merely sport a moustache for Movember, Anderson pulled off a Herculean feat few of us could duplicate.

Anderson ran a half marathon to raise money for cancer research (as well as for a friend recently diagnosed with breast cancer), but he didn’t stop there. He also managed to down a pie for every kilometre he ran. For those of you too lazy to work out the maths, that’s 21 pies. As one would expect, Anderson didn’t hold onto some of those pies for very long. He told a local newspaper that steak and bacon proved to be a treat, but sweet chicken and cranberry had been “stomach wrenching”.

Nevertheless, Anderson managed to finish the run in a respectable two-and-a-half hours, and quickly washed down the remaining pies with a beer. So, to sum up: pies, beer, vomiting, moustaches,

long-distance running, selfless heroism. Insider proudly doffs his cap to Tim Anderson, the epitome of all that is Man.

one mention of bondholders taking a haircut as good investors should, if their investments go bad. No, instead, the target was those pesky Greeks, who, bankers would have you believe, are responsible for the problem because of their penchant for tax avoidance – a “national sport”, according to one.

Oh yes, that’s right, those Greeks with their burdensome pensions should be paying the proper amount of tax, not spending those sunny Mediterranean afternoons dreaming up new ways to lose a few kilos so they can fit inside a tax loophole. Insider, let it be said, was disgusted. How is it that the banking fraternity can calmly direct their fire at working-class Greeks, while not acknowledging that the entire world’s banking system has managed to find itself virtually insolvent (depending on what level of reality you are willing to face), and is continuing to be propped up by taxpayers across the globe who will be paying for bank bailouts for generations?

Is there a double standard lurking anywhere in this attitude? And how about that very ‘international sport’ of corporations, which will employ the best accounting and legal advice they can afford in order to ‘minimise’ – not ‘avoid’ – their tax by tax treaty shopping.

Of course, it seems the higher the avoidance (or minimisation), the more acceptable it becomes.

Insider would like bankers to take a long look in the mirror, and realise that they will need to change these attitudes and understandings of their role in society in future, or they are likely to remain the international pariah

that they have become over the last few years.

Mad Libs: Tony Abbott edition

Insider has not been shy in the past about having a go at Treasurer Wayne Swan from time to time.

All the Swan-bashing, as well as the industry’s general reaction to the World’s Best Treasurer, could give the impression that Insider is somewhat partisan. Nothing could be further from the truth.

Insider is an equal opportunity cynic, and is always willing to dish out some well-deserved taunts to both sides of the political spectrum.

This being said, Insider recently found himself at a meeting of financial services professionals being addressed by Opposition Leader Tony Abbott. This being a room full of high-level executives with a keen understanding of global markets, Insider expected some intellectually stimulating assessments of economic fundamentals. What Insider got was roughly this: “Blah blah blah pink batts blah blah school halls blah blah blah carbon tax.” It was essentially every Tony Abbott sound bite strung together with no clear segues or overriding themes.

The Coalition touts themselves as responsible fiscal managers, and Insider thinks he’s found a perfect example of this. Rather than wasting money on a fulltime speech writer for Mr Abbott, they hired a freelancer to pen one speech four years ago, and Mr Abbott just changes the order around from time to time. Now that’s economic policy you can trust!

An ‘international sport’

Have any of you recently been to a casual lunch with a group of bankers? Sometimes, it can be world view changer, as one is treated to a view of reality often not seen on the streets. For example, Insider was recently treated to a fine piece of steak and some delicious vegetables at the behest of one of Australia’s finest banking institutions – and Insider will certainly not fault them for their food. However, while he was sitting around the table, the conversation (as all industry conversations tend to do these days) managed to stray (languidly, as the lunch was accompanied by a few glasses of wine) towards the European debt crisis – why can’t those Europeans get it right! But the tone around the table was surprising. Despite widespread recognition of the core role that European and US banks have played in the crisis, there was not

“Maybe this time I’ll change it to school batts and pink halls”

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Services

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AGGREGATOR / WHOLESALE BROKER Finsure Finance & Insurance Ph: 1300 Finsure 1300 346 787 Fax: 1800 Finsure 1800 346 787 Page 7 Mortgage House 133 144 www.mortgagehouse.com.au save@mortgagehouse.com.au Page 9 PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 15

LENDER

MARKETING SERVICES

AMP 1300 300 400 www.amp.com.au/distributor Page 5

1300 HomeLoan 1300 Home Loan 1300 466 356 (02) 8078 3872 Page 7

Liberty Financial 13 23 88 www.liberty.com.au Pages 3 & 17

SHORT TERM LENDER Mango Media (02) 9555 7073 www.mangomedia.com.au Page 1

MKM Capital 1300 762 151 www.mkmcapital.com.au Page 2

WHOLESALE Resimac 1300 764 447 www.resimac.com.au Page 11

National Australia Bank www.nabbroker.com.au Page 32

FINANCE Semper Capital Pty Ltd 1 800 SEMPER (1 800 736737) enquiries@semper.com.au www.semper.com.au Page 21

LEGAL SERVICES Bransgroves Lawyers (02) 9221 9522 info@bransgroves.com.au www.bransgroves.com.au Page 4

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NCF Financial Services Pty Ltd. 1300 550 707 www.ncf1.com.au Page 8

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

Provident Capital 1800 668 008 www.providentcapital.com.au Page 6

Residex 1300 139 775 www.residex.com.au Page 31 Trailerhomes 0417 392 132 Page 19

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