Australian Broker magazine Issue 9.04

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ISSUE 9.04 March 2012

ASIC: We’ve got some small fish to fry

Greg Kirk

 ASIC has admitted its enforcement action will primarily target “high risk” smaller players

ASIC’s resources will often be spent pursuing smaller mortgage industry players, rather than going after the compliance breaches by major institutions, the regulator has conceded.

Senior executive leader of deposit takers, credit and insurers at the Australian Securities & Investments Commission, Greg Kirk, said limited resources meant a decision had to be made whether to pursue larger mainstream credit providers or go after smaller operators in the credit market.

“We have limited resources, and there will never be enough resources to do what we’d like to do in the regulatory space,” Kirk said. “With mainstream providers

the things they tend to do which come in conflict with the regime are going to be on the margins.

They’re mildly in breach or there’s a [slightly] questionable practice,” Kirk said.

In ASIC’s view, smaller players are often the ones that have a more negative impact on consumers, and these “fringe” operators were more likely to flout regulations. “On the fringes you have people who are potentially operating completely illegally, or they’re licensed and don’t comply with the regime.”

Kirk said ASIC is forced to decide which area to focus on.

“There’s a constant question for us about how much of our resources we should spend on big mainstream providers that affect an awful lot of consumers, but the extent that they have a negative impact on them tends to be more minor, as opposed to spending a lot on a few small fringe players who don’t deal with many customers at all but can have a very exploitative approach and create very bad outcomes for the consumers involved,” Kirk said.

ASIC focuses enforcement primarily where there are consumer complaints.

“Our enforcement action is more often than not going to be arising from complaints, so it’s more likely to be reactive than proactive. My team has much more opportunity to be proactive, so the next step for us is to try to pick a few areas we feel are high risk,” he said.

Page 20 cont.

Bar raised again Brokers face ‘Certified Practising Certificate’ hurdle Page 2

Jail threat reprieve?

Liberation promised from NCCP jail punishment Page 4

View from Podium Software pushback tipped to fade with time Page 6

Inside this issue News feature 18 Segmentation showdown Viewpoint 22 Brokers talk on the banks Opinion 23 Funding volatility to remain Forum 24 Brokers on the MFAA Market talk 26 Refinance revival Insight 28 Getting cash flow positive People 29 Goodbye Westy

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News CBA champions broker practising certificate The Commonwealth Bank has called on the MFAA to introduce a new ‘Certified Practising Certificate’ across the broker market, which would improve broker ability to submit quality applications.

CBA executive general manager, third party and mobile banking, Kathy Cummings, said while the current MFAA requirement to raise the bar to a Diploma qualification was a good move, she was unsure if this was adding any value to improving submission quality or conversion rates.

Instead, Cummings said a new more practical certification of ability was required, to ensure that the industry was ‘more sustainable’ in the long run through the creation of channel efficiencies.

At present, Cummings said that overall submissions require repeated rework by the bank, with

some files being touched up to 10 times and files going back to credit on average 1.4 times.

Cummings said a Certified Practising Certificate would ensure brokers know what they are doing.

“We are talking about it with the MFAA. We are thinking about the sustainability of the industry, and will get behind things that add value to the industry,” Cummings said.

According to Cummings, the industry currently had its “back against the wall” when it came to broker commissions due to increased funding costs, and efficiencies needed to be created.

She said if the ‘straight-throughprocessing’ rates of broker channel-sourced loans were not improved, this could impact commissions in future, in addition to the other cost factors involved in funding mortgages.

At present, CBA has a straightthroughprocessing rate for loan applications of 34%, but said that Kathy Cummings increasing this to 50% could improve efficiency, including freeing up time for brokers themselves.

Cummings suggested that a new practising certificate requiring 90% submission quality from brokers could be one element that would ‘clean up the industry immediately’.

CBA’s top five problems with loan applications from brokers are overall completeness, supporting documentation, ID requirements, FHOG-related material, and errors with the loan documents themselves.

Bank cuts a boon to brokers: Naylor The year 2012 will see a boost for the mortgage broker job market, according to MFAA chief executive Phil Naylor.

Naylor has echoed recent comments from AFG’s Mark Hewitt, saying that mooted bank job cuts could prove a boon to mortgage broker numbers.

“Many of the new jobs to be added will be filled by former staff members of the major banks, which are seeking to control their costs while maintaining their strict lending and service practices by using MFAA accredited members,” Naylor claimed.

A recent UBS report indicated that Australian banks could slash as many as 7,000 jobs over the next two years. ANZ has already

announced 1,000 job cuts, and Westpac has cut 400 jobs, with more to be moved offshore.

Among the mooted Westpac job cuts are roles in the bank’s equipment finance division. A Westpac spokesperson assured Australian Broker that the cuts would not affect equipment finance brokers, and that their point of contact with the bank would remain unchanged.

AFG managing director Mark Hewitt previously claimed these job cuts could benefit the mortgage broking industry, saying that bank customer service could suffer as a result. He also predicted that many employees cut from bank staff would find their way into mortgage broking. Naylor agreed,

and forecast that the MFAA’s membership, currently at 11,400, could swell as a result of former bank workers finding new careers as brokers.

Naylor said broker market share for 2011 reached more than 43%, and suggested that this number could climb as banks cut back on staff and ramp up distribution through the third party in order to outsource many of their functions.

“We expect that the mortgage broker share of the market should expand further this year. We are seeing quite a few of our corporate members looking to expand their mortgage broking operations and lift their standards to meet customer expectations,” he said.

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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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Brokers could go free as NCCP jail threat reviewed A consumer advocate has flagged that criminal penalties threatening brokers and lenders as part of the NCCP’s hardship provisions could be removed.

NSW Consumer Credit Legal Centre director Karen Cox told the ASIC Summer School in Sydney that the CCLC was against the inclusion of criminal penalties in the NCCP’s hardship provisions.

Cox indicated that the NSW CCLC has been vocal on the issue, and said the government was now considering amending the NCCP in regard to these criminal penalties.

“I’m pleased to say that they’re looking at addressing that in the latest round of amendments,” Cox said.

Cox said criminal penalties forming part of the provisions had

not been a desired outcome among consumer advocacy groups.

“I’m not quite sure where they came from. Certainly, consumer advocates weren’t arguing for them. We don’t want to throw lenders in jail, [and] we don’t want to throw brokers in jail,” Cox said.

Cox suggested that including these criminal penalties could put lenders and brokers on the defensive, and actually disadvantage consumers. She indicated that the threat of criminal penalties did not necessarily create a more favourable environment for borrowers arguing for hardship variations.

“I think the criminal penalties have created a lot of unnecessary paranoia that doesn’t necessarily drive good outcomes,” she said.

Overall, Cox praised the NCCP

hardship provisions, and said they had proven a useful tool for borrowers in stress.

“A whole lot of lenders have now been forced to comply with hardship who have never had to do it before, and they’re finding it very challenging, and they’re also finding dealing with the EDR schemes very challenging.

We’re having some teething problems for some of the lenders not used to being subject to this regime, but when it works it works very well,” she said.

EDR schemes have formed the crux of the regime’s power, Cox said. While she said the CCLC would first recommend borrowers to seek help through a lender’s internal dispute resolution scheme, she commented that EDR schemes formed an additional “backstop”

Karen Cox

should IDR measures fail.

“The regime has helped enormously in that regard. The biggest impact for us in terms of dealing with hardship has been access to external dispute resolution,” Cox said.

FBAA defends backing ousted MFAA broker FBAA president Peter White has defended the association taking on a member previously ousted from rival body the MFAA, labelling the MFAA’s expulsion process a ‘kangaroo court’.

MFAA president Phil Naylor said that Chris Riotto, whose companies were found by the Federal Court to have acted unconscionably, was expelled from the association in 2004.

After being expelled from the MFAA, Riotto was granted membership in the FBAA. Naylor said details surrounding Riotto’s case would have been public knowledge at the time he was admitted to the FBAA. “If you go back and check the records, our expulsion and the reasons for it were made quite public, and no one can say they didn’t know about that,” he said.

Naylor said the Federal Court ruling vindicates the MFAA’s 2004 decision to expel Riotto.

“This is further evidence that the MFAA’s disciplinary process is very robust and thorough,” he said.

But White has defended the FBAA taking Riotto on and keeping him as a member for seven years, saying the decision was based on the best information at the time.

White, who was NSW state president at the time Riotto was admitted to the FBAA, said the ultimate decision on Riotto’s membership was not his, but that he had supported the membership bid in spite of Riotto being expelled from the MFAA. White claimed the information at the time led the FBAA to conclude that Riotto had been unfairly expelled from the MFAA. “We had a chat with him, and with his solicitor. We went through everything and determined that the guy was hung by a kangaroo court. At that time, ASIC did go

through his receivables and did a full audit on his systems and loan files, and they gave him a complete bill of health. So we had no grounds to reject his membership,” White said.

Through discussions with Riotto’s solicitor at the time, White said he had been satisfied that any wrongdoing had been on the part of one of Riotto’s employees, who Riotto had subsequently terminated.

“Are we going to say to a major bank that if one of their staff commits an act of fraud they can’t be a member of an association?”

White said.

The Federal Court found that Riotto was knowingly involved in contraventions and unconscionable conduct. White still argued that, given the information available, the FBAA acted appropriately.

“He held an ACL and was licensed in WA. ASIC had ticked off those boxes. We made the best

and only decision we could make given the information we had at the time.

This could have happened to any Peter White association. It could have happened to one of the banks, or the MFAA. We can all be heroes in hindsight,” he said.

Regardless of the association’s past decision, White has vowed it will now take disciplinary action against Riotto in light of the new information.

“If ASIC says it’s all good, it’s all good. Today they say it’s not good.

Today they’re saying something different, and so are we,” White said.

Responding to claims that the MFAA had made the wrong decision in expelling Riotto, Naylor was unimpressed.

“Clearly, we hadn’t,” Naylor. said.

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Podium pushback will fade with education Advantedge general manager of broker platforms Steve Weston has conceded that some brokers are unhappy with the aggregator’s new Podium software, but said the company is investing heavily in training its members to make the most of the system.

Since unveiling the software across its Choice, PLAN and FAST networks, Weston told Australian Broker there has been “a lot” of feedback that the system is too complicated. However, Weston likened the change to the pushback around other software updates.

“I would compare it to getting a different version of Windows.

When you first turn it on, you say ‘No, no, no! Give me my old one back.’ After three months, now do you want the old one back? No,” he said.

While Weston argued brokers would eventually become comfortable with the system, he said Advantedge would do its part

by employing an additional eight staff to train brokers in the platform. The training will include further face-to-face instruction, webinars and updates.

“It is a lot to get your mind around, so we have to do an even better job at training brokers, so that’s what we’re working on,” Weston said.

Weston called the Podium software a “powerful asset”, and said it represented a “new way of doing business” that would meet NCCP obligations and provide best practice for engaging with clients.

He said the platform had thus far received positive feedback from brokers who had not previously used PLAN software.

“We are seeing almost no issues with FAST brokers who are using it, because they didn’t have the old version of the PLAN software before podium. They’re coming from using other software, and they’re loving it from day one. But from Choice and PLAN where

they’re swapping from software they’ve sometimes used for a decade, there absolutely has been pushback,” Weston said.

Competitors have targeted Advantedge aggregators over this pushback, Weston said. However, he contended that the Podium platform was “leading the market by a mile” in independent analysis.

“It will take time for it to be accepted. I appreciate that. I fully understand why brokers, when they turn it on, would say, ‘Can I just have my old stuff back?’ That’s what I would be saying,” he said.

Flashback: Podium, and ‘sleepless nights’ At the opening of PLAN’s national convention in Darwin last year, CEO Trevor Scott commiserated with brokers put off by the group’s new Podium software, saying that it continued to give some brokers ‘sleepless nights’. However, Scott said he and Advantedge were focused on making it the “powerful CRM it can be”, and brokers that had adapted to the system were seeing benefits. The group put on a special Podium exhibition stall, to coach brokers through their most burning questions about the software.

Bankwest ups turnaround ante, but needs broker buy-in Bankwest has tipped processing improvements it says will aim to cut its time to approval in half.

Bankwest head of specialist banking Ian Rakhit said the bank’s goal is to see its time to approval fall from eight days to four days or less, and that it plans to do this by offering more efficient processes to its thirdparty network.

One of the initiatives Rakhit said would be in place from mid-year is a delegated underwriting authority for the bank.

“At present Bankwest will say yes to a deal, but then we have to pass it to our LMI insurer who has the final decision. That adds time to the process, but it also means as far as the broker is concerned they

say, ‘I phone up with a scenario and you say you’ll do it, but a third party also has to support it’. What QBE have said is because our lending decisions are so correct, Bankwest can make the final decision,” Rakhit said.

The bank will also be targeting a more automated application process. Rakhit said the bank is building a platform that will allow supporting documents to be emailed directly into a file rather than faxed, and will also allow Bankwest to electronically send contracts. Another initiative the bank will undertake is producing document checklists that are more specific.

“We have a checklist that brokers use, but it’s very generic and not specific to the deal.

“What we are looking to do is to bring a deal-specific checklist in as part of the application form.

That will allow the broker to say to the customer exactly what documents they need to get an approval through with Bankwest,” Rakhit said.

All the mooted improvements, however, will require broker buy-in in order to be effective, Rakhit said.

“Currently, some weeks 50% of the business I get from brokers doesn’t come in with the right information, and it’s rarely too much; it’s almost always too little.

That’s not efficient for me, and it can’t be efficient for the broker,” Rakhit said.

“A lot of these improvements, we need brokers to come to the party.

Ian Rakhit

I can put as many processes and as much IT as I want around this, but brokers have to say, ‘This is what Bankwest wants, this is what I’ll provide and I’ll provide it upfront.”

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News MFAA director prefers association competition The new independent director of the MFAA, Corinna Dieters, has said it is good for the peak broker association to have competition from other industry associations.

As a review of third line forcing

Corinna Dieters

notifications continues by the ACCC, Dieters has told the MFAA’s Mortgage & Finance Brief that competition is essential for the MFAA. “As an association, it’s good to have competition,” Dieters said.

“Some people feel there should be one body representing everyone, but that’s not a good position to be in, because then everyone will have to be members of that one association and there is no opportunity for differentiation,” she said.

The MFAA has recently come under fire for its levels of member engagement. President Steve Kane responded to critics of MFAA value, saying a survey conducted in 2009 found 22% of members were dissatisfied with what the MFAA does to represent them.

Dieters, who is chair of the Financial Planning Standards Board and director of Seaview Consulting, said member engagement was a challenge for any industry association.

“The engagement of the members in terms of the voting in elections is quite low, but that’s typical of associations – full stop,” she said.

“Member engagement is critical, but you can get quite hung up on it. You often hear, ‘We need to have bigger numbers, we need our members to be more engaged’. But in reality if you’re doing a good job, they’ll let you do it. If members aren’t happy they’ll be out in droves.”

At the time he took up the MFAA presidency, Steve Kane said he would aim to increase

member engagement over and above that achieved in previous surveys. “We need to make sure that members feel they are getting value for their money and feel they belong to an organisation that is delivering a better outcome for their business,” he said.

Kane was recently forced to defend MFAA value, following Australian Broker reports that quoted brokers questioning the value provided by MFAA. In the reports, brokers said it must remain a choice to join the MFAA, and also questioned who the body represented.

Kane has said the MFAA only represents brokers, and that the governance structure ensured that only the views and interests of brokers were advocated by the association.

Pepper assures client benefit from ‘Crack’ promotion Pepper Home Loans has said its new promotion to beat competitors’ rates will not add undue time in processing applications and would leave clients better off.

The lender’s “Give Pepper a Crack” campaign has encouraged brokers to shop a deal to Pepper once it has been unconditionally approved by another lender, and has vowed to beat competitors’ rates. Pepper director of sales and distribution Mario Rehayem said sending the deal to Pepper would not significantly prolong the time clients wait for approval.

“That’s why we commit to a two business hour turnaround time to give the broker the opportunity to understand the rates and fees. I’m sure that two-hour bracket is not going to make or break the deal.

I’ll wait two hours if I’m going to save money,” Rehayem said.

Rehayem said the promotion

was designed to draw brokers who had yet to use the lender. He said once brokers had accepted Pepper’s competing rate quote, they would experience the lender’s normal processes from application to settlement, albeit in a condensed timeframe as the supporting documentation would already be available.

By sending deals that had already reached unconditional approval, Rehayem said brokers could expect a quick turnaround from Pepper, reducing the time to unconditional approval by 40%.

“The longest time consumed in writing a loan is waiting on the broker or borrower to hand in the information. If our competitors have already issued an unconditional we already have the supporting documents, and we won’t be receiving everything in dribs and drabs,” he said.

Mario Rehayem

Rehayem said the lender chose the promotion over a simple guarantee to beat advertised rates due to Pepper’s pricing structure.

“Unlike other lenders in the non-conforming space which use technical matrices, Pepper’s pricing is based on the LVR and whether the loan is a full doc or alternative doc application. As a result of using the technical matrices, for our competitors the actual interest rate is not usually

known until the unconditional approval stage of the deal,” he said.

Brokers who participate in the promotion will also be entered in a draw to win either an iPad 2 or an iPhone 4S. “What we’re doing here is putting the borrower in a better position. What’s in it for the broker is the best product and price, and we thought why not offer an iPad and iPhone as well? ” Rehayem said.

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Big Switch see small finish

FBAA’s first conference hits last-minute snag The FBAA has been forced to scrap plans to hold its inaugural member conference this week, announcing it has been postponed until June.

The conference – themed ‘Get on your feet and cement your future’ – was slated to be held for February 15–17, until last week, but has now been pushed back to the June 13–15.

White said that many of its speakers had been locked in some time ago, but the conference was postponed due to the FBAA organisers underestimating the time it would take to coordinate bringing international speakers from overseas.

“We had key people we wanted to be involved, and we now have that sorted. It got too close to D-Day and we had to make a decision in the best interests of all stakeholders to make sure our key international guests could attend.

Some of the people are overseas and the process to get sign-off on that was three months longer than we were told,” White said.

White said he was “still handcuffed” from revealing some of the speakers, but argued that the delay to ensure the speakers’ involvement would be to the benefit of attendees.

“We didn’t want to delay it, but it’s in the best interest of everyone.

Everyone’s been involved on the buy-in as far as the decision to do this,” he said.

The conference is slated to include speakers such as Yellow Brick Road chairman Mark Bouris, ASIC’s Greg Kirk and Gloria Jean’s Coffee managing director Peter Irvine. White told Australian Broker in October that the conference would focus on practical applications and would not be a “piss-up”. He said the conference would be open to both FBAA members and nonmembers.

White said all conference attendees and exhibitors had been contacted prior to the announcement of the conference’s delay, and claimed that all had agreed to the rescheduling.

Consumer watchdog CHOICE has closed its controversial Big Bank Switch campaign with only one in 20 registrants potentially switching lenders.

The group said the campaign – a joint effort with One Big Switch – has now closed, after attracting 40,000 registrations. Of these 40,000, CHOICE said 2,000 “went on to have discussions” with lenders participating in the promotion. Those who switch lenders stand to save an average of $375 each, the group claimed.

Non-bank lenders including Firstmac, Resimac and Mortgage Ezy partnered with the campaign, which saw CHOICE receive a flat $250 per switch. The group, previously critical of mortgage broker commissions, said it would use the money received for its referrals to “help pay for the running of the campaign”.

A CHOICE spokesperson said the group had not joined in any further campaigns with One Big Switch, and was “not involved in any current group switching around mortgages, energy or any other products”. However, the spokesperson defended the value of the Big Bank Switch promotion.

“We believe that group switching has great potential to create savings for consumers in essential areas like banking products and energy,” the spokesperson said.

Though only 2,000 of the initial 40,000 registrants switched lenders, CHOICE claimed that “many more” used the campaign

as leverage to secure a better offer from their current lenders.

And in spite of the number, Mortgage Ezy Garry Driscoll chief executive Garry Driscoll praised the effectiveness of the campaign.

“We put a cap on the number of leads we wanted and we easily achieved that number. We were surprised and pleased with the quality of the leads and after initial phone discussions we passed the qualified leads on to our authorised brokers,” Driscoll said.

While Driscoll would not comment on the actual number of converted leads the lender received, he advised that Mortgage Ezy had received “additional business” as a result of the campaign, and said there were still loans in the system pending settlement.

“What we did find is that borrowers used the information and our rate offer to renegotiate their rate with their existing funder. From a borrower perspective the campaign was an outstanding success with the majority of borrowers obtaining significant rate reductions. From our perspective we were able to provide qualified leads to our broker network which resulted in additional business coming to Mortgage Ezy through our broker partners,” he said.

Arrears on the way down, thanks to RBA: Moody’s Moody’s has predicted mortgage arrears will level off in 2012, and says borrowers have the RBA to thank.

The ratings agency has indicated that arrears headed upwards over 2011, from 1.35% –1.54%. But Moody’s has said the RBA’s rate cuts last year should keep arrears steady in 2012.

“Unsurprisingly, the movement of interest rates correlates with the movement in early arrears because the rate cut affects the amount of a mortgage payment. The rate cut will stop arrears from growing as they did in 2010 and 2011,” the agency said.

The RBA cuts should also put a floor under house prices. In spite of a decline over 2011, Moody’s said house prices should stabilise over the year.

“The interest rate cuts and a strong economic environment will help stabilise prices, while limited supply will mitigate the likelihood of a downturn,” Moody’s said.

This analysis did not take into account, however, recent rate hikes by lenders following the RBA’s decision to leave rates on hold in

February. And though Moody’s said it expected arrears to hold steady for 2012, it warned that areas such as the Sunshine Coast and Gold Coast could continue to see borrowers fall behind.

“Although arrears will rise more slowly in tourist areas because of the rate cuts, they will still be much higher than average, and tourism will remain weak. The fragility of the global economy has led to high unemployment in these areas, because of the low growth in the number of overseas visitors to Australia and the high growth of Australians travelling overseas,” Moody’s said.

And while arrears may be set to fall, Moody’s predicted 2012 would see defaults rise.

Unemployment and underemployment could be responsible for an increase in the number of loans moving from delinquency to default.

“The overall unemployment rate will decrease to 5% in 2012, but the loans of borrowers working in tourism, retailing, and manufacturing will underperform because of higher unemployment in those sectors,” Moody’s predicted.

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Innovation legacy sees Weston nabbed by Barclays Departing Advantedge general manager of broker platforms Steve Weston has said he was actively scouted for his new role at Barclays.

Advantedge recently announced that Weston would depart the aggregator to take on the role as managing director of mortgages for Barclays UK. Weston said he was tapped for the role as a result of the global perception of the Australian mortgage market.

“They approached me,” Weston said. “They did a global search, and they very clearly identified the Australian mortgage market as the most sophisticated and mature in the world, and they targeted Australia to identify people for this particular role.”

Weston also pointed to his previous roles, saying the product and platform innovations he introduced had caught the eye of the UK banking giant.

“Barclays are very committed to revolutionising the retail banking

market, and they looked back even before Challenger to St.George and some of the product innovation while I was there, and the way we navigated the GFC in Challenger [as well as] the way we innovated in the broker space,” he said.

Weston said the role with Barclays would allow him to have an active part in a “major player in the global banking space” with more than 34,000 employees, and said he would continue to work with brokers in the role.

“I’m going to look after broker distribution, and about half of their new flows come from brokers,” he said.

In light of Weston’s departure, NAB executive general manager of growth partnerships Antony Cahill praised Weston’s contribution to the aggregator.

“Steve has driven a number of initiatives that have supported the strong gains we are making in broker satisfaction, including the delivery of innovative product

and service solutions for our broker partners. The role at Barclays will provide Steve with the opportunity to broaden his experience by working in an offshore market and sitting on Barclays’ UK Retail and Business Banking executive committee,” Cahill said.

Weston is set to leave Advantedge around the end of March, and said he felt proud of having successfully guided the company through the GFC. He also pointed to the broker platforms and support he introduced while head of Advantedge.

“I genuinely believe that what we have built and invested in Advantedge to support brokers will be a positive legacy. In this economic environment, it’s difficult for aggregators to support brokers, but we’ve been able to invest and will continue to invest to provide brokers with more support,” he said.

Steve Weston

I’m going to look after broker distribution, and about half of their new flows come from brokers

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News Scalability the focus of Gateway’s broker drive Scalability will be the key to success or failure as mutuals expand into broker distribution according to Gateway’s Gary English.

English, the credit union’s chief operating officer, has said that many mutuals may have trouble gaining a foothold in the broker space if they do not have the correct platforms in place.

“We’re aware of other credit unions distributing through brokers, but they’re predominantly manual, so it’s 150-page faxes and that sort of stuff, which is just not scalable,” English said.

Gateway late last year announced it would distribute through Mortgage Choice. The mutual already distributes through Yellow Brick Road, and English said the choice to distribute through franchise networks allows Gateway to put scalable processing platforms in place.

“One of the reasons we work with Mortgage Choice so well is that we’re able to deliver an electronic platform that other credit unions aren’t delivering.

We’re very conscious of brokers’ business requirements. There’s a general need from customers around the mutual offering from a

product sense, but equally important is the integration of our systems into the broker’s business model,” English said.

English said Gateway had worked to provide platforms to ensure it can cope with volumes coming from large franchise networks, developing different solutions for both YBR and Mortgage Choice.

“With YBR, we’ve developed an online portal exclusive to them that plugs straight into our origination system. With Mortgage Choice, we’ve been able to develop an integrated system that goes straight to their existing platforms,” he said.

Equally important to the success of broker distribution, English said, was that mutuals gain an understanding of the third party channel and the needs of brokers.

“You have to have familiarity with how the broker market works. We’re putting on a BDM salesforce that has direct experience in that space, because the touchpoints with brokers are really important. It’s not always about price of the commission they may earn.

It’s about consistency and reliability,” he said.

HelpMeChoose supresses Mortgage Choice results Mortgage Choice has seen itself hindered by its comparison site, HelpMeChoose.com.au, and has said a complete management overhaul is in order.

Announcing the company’s half-yearly results, chief executive Michael Russell said the company saw an 8.5% decline in net profit after tax in the second half of 2011, which Russell put down to the performance of the comparison site which Mortgage Choice acquired in 2010.

“While HelpMeChoose.com.au did not perform to revenue expectations, and was the prime reason for lower than expected net earnings, we have implemented the necessary changes to remedy this result. Adjustments include a complete management restructure,” he said.

In spite of the poor performance of the site, Russell said Mortgage Choice’s aggregation arm LoanKit was performing well.

“We have continued to invest in both our acquired businesses.

LoanKit is currently growing to expectations, with broker numbers increasing by 20% in the six months to 31 December 2011 and monthly settlements are now in excess of $100m,” he said.

Russell also claimed productivity gains for Mortgage Choice franchisees, saying the company’s brokers hit “near-record highs” of 32 settlements per loan consultant, up from 28 in the previous six months. The group’s loan book also increased, growing 5.6% over the half to $43.5bn.

“It is extremely satisfying to report healthy revenue, recruitment growth, and improved broker efficiencies in a market where borrowers remained conservative,” Russell said.

Mortgage Choice will also make its first foray into financial planning in the next financial year.

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Choice links with Mortgage Ezy Choice Aggregation Services has announced an expansion of its panel with the addition of Mortgage Ezy. Choice CEO Stephen Moore touted the addition of the mortgage manager, saying Mortgage Ezy provided an attractive proposition to the company’s brokers. Moore said Mortgage Ezy’s proposition to brokers was one that made it unique on the aggregator’s panel.

“There are a few things that we found really appealing. The first one is that they have no commission clawbacks. That’s something we’ve been quite vocal about for some time. It’s not that every broker gets hit by clawbacks.

It’s about the true spirit of partnering with someone and ensuring equity in the relationship,” Moore said.

Moore also pointed to the mortgage manager’s flexible commission structuring, and said it would enable brokers to specifically tailor certain deals to alter their level of revenue.

“The big point of difference is the commission structure. Within the structure there’s the option to increase the trail up to an

additional 0.5%. That means for some brokers and some of their clients, there’s an additional source of revenue they can build into the rate. One of the reasons it’s perfect is it’s dollar for dollar.

If they add 0.05% to the trail it adds 0.05% to the rate. It’s very transparent,” he said.

This flexibility, Moore said, would allow brokers to either offer a more attractive rate to a client or increase their own revenue levels where appropriate.

“If the broker has a client with a more complex deal they have the ability to increase their revenue commensurate with that work,” Moore said.

In addition to its proposition to brokers, Moore said Mortgage Ezy had a “sharp” product suite to appeal to consumers, as well as high levels of service.

“They have a really good track record of fast approvals with a good national support structure,” Moore said.

Mortgage Ezy CEO Garry Driscoll said the lender shared a similar “cultural ethos” with Choice, and vowed to provide a “higher level of competition” to the aggregator’s members.

Bank hikes to scuttle confidence boost Consumer confidence has finally seen a boost from last year’s rate cuts, just in time to potentially take a knock from bank rate hikes.

The Westpac–Melbourne Institute Index of Consumer Sentiment increased by 4.2% in February, finally showing the delayed effects of consecutive RBA rate cuts late last year. However, the index remains 5.2% below its level a year ago and 13.6% below its level two years ago.

Westpac chief economist Bill Evans said the timing of the survey could also make it difficult to read, and that recent bank hikes could send consumer confidence back downwards.

“The survey period was February 6 to February 10. Media coverage for February 6 and most of February 7 gave households strong reason to believe that the Reserve Bank was about to cut interest rates for a third time.

While there was some speculation

that the commercial banks would not pass the cut on in full, respondents were likely buoyed by the prospect of even lower mortgage rates. Of course, the last three days of the survey were marked by disappointment that the Reserve Bank had not cut rates, speculation in the media that the Bank was likely to be on hold for the foreseeable future, and other speculation that the commercial banks were now likely to actually raise rates,” Evans said.

He pointed out that the impact of the banks’ eventual rate rises had not been captured by the current survey, but said the index was 4.2% lower for responses received following the RBA decision compared to the first two days when borrowers still expected a rate cut.

Evans also expressed disappointment at the Reserve Bank’s decision to keep rates on hold in February.

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ARAP to save clients from costly default Brokers can now avail themselves of a new solution that will save their clients from the costly last resort of a mortgage default, allowing them to get back on their financial feet.

The new service, ARAP (Agreed Risk Adjustment Purchase), acquires mortgage debt from struggling clients, to protect their equity and allow them to remain in the property.

ARAP shareholder and executive director Greg Campbell said it is designed to help property owners with reasonable equity who can’t satisfy primary and secondary lending criteria.

Campbell said the genesis for ARAP actually came from discussing the delinquent files of finance brokers and meeting with a number of brokers and their clients.

“In nearly every case we reviewed, the client had an

overwhelming desire to retain the property, however crippling default interest rates and high mortgagee legal fees meant that they not only lost half the remaining equity, but they also lost their ability to re-establish themselves.”

Campbell said ARAP is a real estate transaction where the property is held in trust for the client. ARAP receives a fee, which Campbell said is comparable to normal real estate agency commissions and less than half the cost of refinancing in the secondary market. As part of the procedure, the finance broker is also paid, and can retain the client after the ARAP process.

“At the conclusion of the ARAP term the once potentially delinquent client will most likely satisfy normal lending criteria.

ARAP provides finance brokers with an opportunity to make

income from delinquent clients at both ends of the transaction,” Campbell said.

Campbell said that before the “pioneering” ARAP option, there has been no financial incentive for brokers to manage their delinquent borrowers.

“The industry does not presently have a solution or service for delinquent borrowers.

It is therefore extremely difficult if not impossible for a broker to arrange finance for one.”

From the incumbent lender’s perspective, they are also able to avoid the process of mortgagee-inpossession while still receiving the repayment of the debt.

ARAP assessments to date have varied in asset value from $390,000 to $15m. Campbell said ARAP had assessed over $200m worth of property in the last six months. He said he was first attracted to ARAP because of its

Will clients come out further ahead?

“Based on one client’s experience, they would have been at least $40,000 better off with ARAP on their $570,000 property instead of their house being sold through mortgage-inpossession. After experiencing MIP on one property they became an ARAP client to protect their other property.

More importantly, under ARAP the client stays in their property, retains their credit worthiness and gets at least 12–24 months to get their financials in order, not to mention the emotional relief on themselves and their family.”

Greg Campbell, ARAP

genuine ability to assist families and business people experiencing mortgage stress.

AMP adds 10% to mortgage book AMP Bank has reported growth of $1.1bn in its mortgage book during the calendar year 2011.

In its 2011 investor report, AMP said that its banking arm had consistently recorded above system mortgage growth of 0.8% per month last year, compared to market growth of 0.5%.

The $1.1bn increase in mortgages marked a 10% year-onyear increase in its mortgage book.

The banking division contributed $61m to AMP’s company-wide operating earnings, up from $42m in 2010. Overall,

AMP’s entire business reported a net profit of $688m for 2011, which was 11% down on the previous calendar year period.

AMP said that the growth in mortgages had largely been funded by an increase in deposits – by $2.4bn (or 50%) – during 2011.

The increase in AMP Bankrelated revenue was put down to an expansion in the net interest margin to 1.54% from 1.38% during the year, as well as its mortgage growth. AMP Bank has approximately 100,000 customers, and distributes directly and

through third party mortgage brokers and financial planners. Its mortgages are 75% funded by on-balance sheet assets, and 25% by securitisation.

AMP Bank’s head of sales and marketing, Stephen Craig, previously flagged “significant double-digit” growth in mortgage lending, 75% of which comes from brokers. During 2011, AMP’s underlying profit – its preferred measurement of performance – rose to $909m from $760m in 2010. Underlying profit accounts for market volatility.

The full-year 2011 results included merger and acquisition and transaction costs associated with the merger with AXA. AMP CEO Craig Dunn said while challenging market conditions continue to impact the business, the new AMP is well positioned to continue delivering on its growth strategy, while maintaining disciplined capital and cost management.

“The new AMP is stronger competitively, and has a more diversified, balanced mix of business,” he said.

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INDUSTRY NEWS IN BRIEF Brokers seize on NCCP exodus Brokers remaining after the NCCP introduction may be starting to see benefits from less competition. Wollongongbased IPS Home Loans’ Paul Wright said November and December 2011 were the best months in nine years, and NCCP was playing a part.

“Those figures are an indication of where the market is, despite traditionally slower months,” he said. “There are a number of factors. There was the end of the first homebuyer stamp duty concession in NSW, and we saw a lot of investors coming into the market late last year,” he said. “There has also been a reduction in competitors since the NCCP – that has come into play.” Wright said that he does not see as many brokers in his local area of Illawarra as he used to prior to NCCP, leaving him with a bigger slice of the pie.

Banks ‘crying poor’: Ryan Intouch Finance CEO Paul Ryan has accused the major banks of peddling a “sob story”.

The majors have been unanimous in their claims of margin pressures arising from swelling funding costs. But Ryan has rubbished the claims, accusing the banks of “spin”. “The banks are riding high at the moment, enjoying record profits, market leading returns on equity and lavish remuneration packages for their management team, yet they continue to cry poor,” he said. Ryan said he welcomed backlash from the government and media over the banks’ recent out-of-cycle rate hikes. He urged consumers to “hold the banks accountable”. “Recently we’ve seen an increase in rates coupled with the announcement of major job losses.”

Renovation on borrower backburner Homeowners are choosing to put off renovations as they deleverage debt and focus on saving. Loan Market has pointed to ABS figures showing a 7% decline in refinancing for renovations over 2011.

A spokesperson for the company has claimed more Australians are prioritising saving and debt reduction over home improvements. Refinancing, however, is on the rise. While refinancing for renovations is falling out of favour, the number of households refinancing for a better deal was up 20% in 2011. Loan Market claimed the “most significant number” of refinances occurred in the latter half of 2011 as the lending landscape became more competitive and the RBA made successive cuts to interest rates.

Vegas lure adds to Intellitrain spike Intellitrain has seen a 60% increase in enrolments since October last year, and part of the increase in numbers is being put down to its Vegas promotion.

Intellitrain has been running courses in each major city around Australia.

General manager, projects and marketing, Byron Gray, said the increase was due to a confluence of factors including the

MFAA Diploma deadline and a once-off Vegas promotion. “Clearly the looming MFAA deadline has impacted things, but more importantly feedback from brokers who undertook their Diploma early last year and the increases they’ve seen in their business – particularly in such a tough market – have spurred others on,” according to Gray. “Our Vegas promotion definitely increased enrolments; that chance doesn’t come up every day.”

FHBs partnering for buying power New research from Mortgage Choice has revealed that up to two-thirds of first homebuyers planning to purchase within the next year will not be buying on their own. The company pointed to a trend of de facto couples, friends, relatives and even work colleagues partnering together to afford property. “Sharing a home loan commitment with one or more people provides borrowers with the opportunity to split the cost of the property and the associated expenses, so that loan repayments are noticeably less than what they would be if they were buying solo.

Another benefit is if the combined funds equate to a deposit of 20% or more of the purchase price, it will negate the need for LMI,” the company said.

Citi rates rise after RBA decision Citibank’s fixed rates took an upward turn after the RBA decision in February.

After aggressively cutting rates last year, rates (at time of publication) had risen to 5.99% for 1-3 year fixed rates (up from 5.75%), while four and five-year fixed rates have been priced at 6.15% and 6.4% respectively. Citibank head of broker distribution Aaron Milburn said that as mentioned in December 2011, Citibank had expected that fixed rates would very soon reach their lowest levels through this cycle. He said the recent decision from the RBA to maintain the cash rate at 4.25% had meant swap rates had started to “increase rapidly”. “In a matter of three days the 3-year swaps increased by over 30 basis points; this meant cost of funds for fixed rates have started to rise and Citibank has adjusted its rates to reflect this,” he said.

Queensland investors returning Investors are flowing back into the Queensland market as prices fall and rental demand strengthens. The REIQ has claimed the Queensland investment market has “turned a corner”, with investor activity up 16% over November.

The organisation said that the activity remained below historical averages, but was being driven by lower interest rates.

“After being in hibernation for most of 2011, investors are starting to return to the market,” REIQ chief executive Anton Kardash said. The REIQ predicted that a trend of strong demand would continue, and said vacancy rates had tightened in many areas across the state at the end of December.

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SPECIAL REPORT: SEGMENTATION

Invitation only: MacRae unveils ‘Platinum’ club Westpac has launched a new ‘Platinum’ top tier broker segment, which it will detail at a series of road shows across Australia in February and March.

The bank, which recently moved to defend broker segmentation offerings, said the new Platinum tier would be an exclusive top tier segment, available to brokers by invitation only. The new segment will be placed above the Advantage + tier, which will remain in place.

The bank said Platinum brokers would be offered “exceptional, priority service, Westpac’s quickest turnaround times including same-day conditional approval”.

Platinum brokers will also receive Platinum branding recognition, “numerous personal premium banking benefits” and discounts on Davidson Institute seminars and courses.

“Brokers are an important business partner at a local level, with around 45% of the bank’s mortgages delivered via the mortgage broker channel,” distribution head Tony MacRae said.

“Our aim is to bring our broker partners and Westpac’s team of local bankers closer together to build deep and strong business relationships, and Platinum helps us achieve this by rewarding brokers who work closely with us and really delight their customers,” he said.

MacRae will meet with its new Platinum brokers and other key

Time warp: ‘Platinum’ a trip back to 2004

Steven Heavey

Tony MacRae

business partners at a series of upcoming road shows in February and March, with the theme ‘Building Great Partnerships’.

The bank has committed to segmentation, despite NAB’s move away from the model.

“I think we should acknowledge that across the major lenders, we each have different business strategies, and this has meant we will all have varying viewpoints and opinions about the use of segmentation models,” MacRae said.

Westpac hopes to develop long-term partnerships and provide value to top tier brokers.

“This involves recognising those brokers that have supported us for a long period. This is simply about value for value, and we are keenly aware that high performing brokers want to be recognised for their contribution to their lender partner’s ongoing success,” he said.

Westpac’s move to use ‘Platinum’ branding for its new top tier segment follows in the footsteps of a former incarnation of St.George’s

tiered broker system.

The new ‘Platinum’ brand, which will sit above Advantage +, resurrects that of its now-subsidiary institution St.George, which launched a ‘Platinum’ offering in October 2004.

St.George’s Platinum offering, which preceded the ‘Flame’ segment launched by Steven Heavey in 2007, included a

CBA ‘Diamond’ defends segmentation A Diamond broker has praised segmentation programs, and called CBA’s segmentation policy the best in the market.

Commenting on the popular Australian BrokerNews forum, MPA Top 100 Broker James Green of Oxygen Home Loans defended bank segmentation policies.

“It’s simply wrong to put a high performing broker that rarely makes mistakes behind another broker that creates blockages and slows the whole production line down,” Green wrote.

Green praised Commonwealth Bank’s segmentation program, which he called the best in the market.

“CBA has probably the best segmentation program in the

designated call centre number and was staffed by its most experienced consultants.

‘Platinum’ brokers were promised priority service over other calls in the broker support queue, ensuring them faster service than their competing brokers.

In its announcement this week, Westpac said Platinum brokers would be offered “exceptional, priority service, Westpac’s quickest turnaround times including same-day conditional approval”, along with other personal incentives.

CBA has claimed it was first to implement segmentation in the Australian broking market, when it provided ‘advocates’ preferential treatment from relationship managers in 2002.

CBA’s ‘Diamond’ program was launched in January 2009, after St.George’s ‘Flame’ service.

market. I personally have seen the benefits of the CBA Diamond service offering and don’t know what we would do without it,” he said.

Green also defended Westpac’s Advantage + service, calling it “outstanding”. He said segmentation was critical to reward top performing brokers.

“Segmentation is important because low volume and inexperienced brokers cause blockages. Our experienced team can’t afford to have an urgent buyer [or] loan held up by these blockages,” he said.

The majority of commenters on the Australian BrokerNews forums took aim at segmentation programs, criticising them for penalising borrowers who might be subject to lower tier service.

Segmentation: Like insurance in the 1980s

Max Franchitto

A financial services consultant has branded current bank strategies for mortgage broker market

segmentation like the insurance channel of the 1980s.

MGF Consulting’s Max Franchitto claimed that segmentation strategies, including Westpac’s following its new ‘Platinum’ tier launch, raise tough client interest questions.

“This is good news for brokers writing lots of business and I am sure the benefits will be appreciated, but how do they translate into “end customer” benefits?” Franchitto asked.

“Once again, the banking channel is doing what the life

insurance channel was doing in the 1980s: working at winning the channel, and not the end customer.”

Franchitto, who is a consultant with experience across the financial services industry, said a string of benefits provided to top tier brokers could lead to a conflict of interest. As part of its ‘Platinum’ tier launch, Westpac said it would offer invited Platinum brokers “numerous personal premium banking benefits as well as discounts on courses.

“Could this prejudice ‘meeting

the client’s needs? After all, how does a mortgage applicant benefit from a David Institute course, given that the broker they deal with should already be of a considerable level of professionalism?” Franchitto said.

Both Westpac and CBA have strongly defended their segmentation strategies. Both banks have reiterated the need to more closely understand and work with their higher volume introducers, to ensure benefits both for these brokers, and the end client.

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Cummings derides ‘apathetic’ competitors The Commonwealth Bank has labelled competitors who do not segment their accredited brokers as “ignorant and apathetic” when it comes to their broker customers’ clients.

Following moves from NAB to scuttle its star segmentation strategy last year as it became obsolete under NCCP, CBA has lambasted non-segmentation commitments.

CBA executive general manager of third party Kathy Cummings said organisations who do not segment could be considered ignorant and apathetic when it comes to clients.

“Customers are increasingly financially savvy and actually demand a point of difference for brokers to compete for their business,” Cummings said. “This dictates a corresponding need for us as manufacturers and as partners to brokers. Segmentation demonstrates an in-depth understanding of a broker’s business goals and aspirations.” She said brokers asked for segmentation because they wanted bank service to match their business demand.

“Segmentation rewards brokers who

have taken the time to learn our products, policies and processes. This means their applications are of a much higher quality, which allows them to get processed quicker. Just like an airline’s frequent flyer club the more you fly the better service you get. Your loyalty is rewarded with faster check in and special offers.”

The Commonwealth Bank now segments its brokers into a top tier Diamond category, followed by Gold, Silver, Bronze and Mass Market brokers.

Diamonds are offered premium service levels, education and other partner benefits, which Cummings said demonstrates the bank’s “commitment to meeting their business needs”.

However, she said CBA is committed to all its accredited brokers – not just Diamonds – and that they were placed in these categories based on volume, application quality, conversation rate, arrears and growth of business.

Cummings questioned the quality of segmentation strategies, which she said had followed CBA’s initiative, saying other lenders had pursued them with “mixed success”.

Segmentation should put customers first: Rakhit Bank segmentation must ensure end customers are not disadvantaged, according to Bankwest.

Bankwest head of specialist lending Ian Rakhit told Australian Broker the bank is in favour of segmentation strategies, so long as they do not punish the end customer.

“Bankwest supports segmentation. We offer a more dedicated, quicker service to brokers in our Premium Club, and that’s the group of regular supporters who provide around 25% of the bank’s business. At the same time, however, it’s important for Bankwest to ensure the remainder of broker originated mortgages receive a good level of service,” Rakhit said.

This “good level of service” means that any queue of work the bank processes must be handled within an “acceptable” service time, Rakhit said.

“We have to ensure our Premium Club brokers get first class service, but that the remainder of our broker originated customers still receive service that is above expectations and allows the transaction to complete in a timely manner,” he said.

As a result, Rakhit said banks must walk the line of rewarding high

conversions, deal quality and volumes, while ensuring customers receive high service levels regardless of the broker they choose.

“There is a customer at the end of every transaction, and we must always keep that in mind. That customer is looking to buy property in a timeframe or to refinance with Bankwest in a smooth and speedy manner,” Rakhit said.

“We’ve got to make sure the customer remains at the centre of the transaction.”

Rakhit said that he would be comfortable in garnering more than a fair share of the market from Premium Club broker advocates even in an NCCPregulated environment.

“We don’t have any benchmarks, but being a lender traditionally in the 10–12% share range, I’d be very comfortable if we were taking double that. I don’t think that would be difficult,” he said. “There will be times that the pricing is so sharp that we are first choice, and there may be times when brokers are working from a certain referral source that restricts the banks that will take their business. But I would suggest someone giving us 25% of their business wouldn’t cause me any headaches,” he said.

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Mortgage demand ‘bottoming out’

St.George launches broker iPad app

Mortgage enquiries have fallen for the eighth consecutive quarter continuing a “steady bottoming out” seen since the GFC. Veda’s Consumer Credit Demand Index has shown that demand for credit still remains low. Overall credit demand remained flat for 2011, with demand for home loans and credit cards continuing to fall.

Veda head of consumer risk Angus Luffman said the result for the final quarter of 2011 was surprising, with the holiday season failing to ignite demand for credit.

“To see such a marked reduction in the use of credit by consumers in the period leading up to the Christmas holidays is unusual; the final quarter of the year is typically a time when there is stronger demand from consumers to obtain new credit,” Luffman said.

The quarterly fall in mortgage enquiries saw home loan demand finish the year nearly 10% below 2010 levels. The decline was seen across all states except NSW, where the market was bolstered by a rush of first homebuyers at the latter part of the year.

Demand for credit cards also

St.George has tipped the release of an iPad app it says will be the first specifically for the broker market.

The Mortgage Broker Toolkit app will include serviceability, LMI and stamp duty calculators, as well as a resources library with up-to-date information on the St. George product suite.

The app will also be available for the bank’s regional BankSA and Bank of Melbourne brands.

St.George mortgage broking senior manager of systems Gary O’Sullivan said the bank developed the app due to the growing popularity of iPads in the mortgage broking market.

“We did some research in the market on the number of brokers in the marketplace with iPads.

There’s a considerable number of brokers using iPads; about 2,500 that we know about. That actually shocked me,” O’Sullivan said.

O’Sullivan said the app will provide brokers with “up-to-theminute” information on St.George products, and will aid brokers in client meetings.

“I like to think about it as a

broker who has a briefcase. In that briefcase would be brochures, serviceability worksheets and all the things like that they take with them on an appointment. With the app, they don’t need all that,” he said.

Simplicity was also a primary concern in the app’s design, O’Sullivan said. He indicated that the app would be easy to use for brokers accustomed to iPad functionality. The app’s functionality will also expand over time, with O’Sullivan tipping future updates to add new features.

O’Sullivan said the app’s ultimate appeal would lie in the ability to immediately update new product, pricing and serviceability information.

“If a broker is carrying brochures, invariably those brochures are going to be out of date. If they’re out of date, they’re going to provide the wrong answer or information.

What we’re trying to do is ensure they have up-to-date information all the time,” he said.

Some of the “high risk” areas ASIC has tackled include oftmaligned payday lenders, as well as mortgage brokers specialising in the low-doc market. While Kirk flagged last year that the regulator would also turn its eye to lenders and aggregators in the coming months, he said “fringe” players in the market were often the ones to generate complaints.

NSW Consumer Credit Legal Centre director Karen Cox agreed that smaller operators were often responsible for violations with more severe impacts.

“I wouldn’t like to say that the mainstream never do anything wrong, but the nature of what they do wrong is very different,” Cox said.

Cox said there were “isolated rogues” within mainstream institutions, as well as “systemic

problems” requiring enforcement action, but indicated that a large number of complaints came from businesses operating at the margins of the market.

“I wouldn’t like ASIC to turn their backs on the major institutions, but maybe the tools they need to deal with them are somewhat different,” she said.

While some small players may generate complaints of much more brazen disregard for NCCP regulations, Kirk left open the question of whether ASIC’s resources are best devoted to these few rogues rather than focusing on businesses impacting a much larger number of consumers.

“A lot of examples tend to be from the fringe, and I guess they’re the colourful ones that are good to talk about, but is that where we should be spending our resources?” he said.

took a hit, with applications recording their largest December quarter decline since 2009.

“In addition to consumers being more circumspect in their use of credit, the decline in credit card application may be attributed to the rise in the use of debit cards and the introduction of responsible lending laws in 2011, which has led to more steps being added to credit card application processes,” Veda said.

Personal loan applications, meanwhile, saw a boost. While Veda said personal loan demand had grown at a lower level than in the past, applications were up 2.4% in December. The result was the fifth straight quarter of gains for personal loans.

“Interestingly, personal loan volumes started to exceed those of credit cards for the first time, for six out of the 12 months, culminating in a 3.8% increase over the course of 2011. The rise may partially be attributed to a seasonal spike in demand for car loans around the end of the year.

However, there was growing demand from a younger demographic in addition to a clear rise in Western Australia,” Veda said.

Lenders hike as RBA holds The Reserve Bank decision to hold rates steady in February has triggered a wave of rate hikes, with the big four leading the way.

ANZ became the first bank to move on rates, making its announcement on the second Friday in February, as promised. The bank lifted its standard variable rate 6bps to 7.36%. But while taking with one hand, the bank gave with the other, cutting its three-year fixed rate by 15bps to 5.99%.

Westpac followed ANZ, lifting its standard variable rate 10bps to 7.46%. Westpac Group executive of retail and business banking Jason Yetton said the move reflected the bank’s increased funding costs, and defended the rate rises as ensuring a strong banking system.

“Australia benefits from a strong banking system that supports the Australian economy. We need our banks to be strong to protect the interests of all Australians, whether they be depositors, homebuyers, retirees, business borrowers, employees or shareholders. Over the past four months intense competition for term deposits has increased their cost to us by around 0.30%, while wholesale funding costs have also risen significantly,” Yetton said.

Commonwealth Bank and NAB rounded out the moves by the big banks. CBA announced it would raise its standard variable rate 10bps to 7.41%.

While the bank came under fire for slugging homeowners, it did deliver a fillip to depositors, lifting its six-month term deposit rate by 20bps.

NAB became the last major to move, increasing its standard variable rate by 9bps. But the bank made good on its vow to beat its major bank rivals, maintaining the lowest rate among the big four at 7.31%. The move will also apply to Homeside and UBank products. Second tiers followed the majors, moving an average of 10bps each according to data from comparison site RateCity.

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PRODUCT NEWS

Homeloans pitches split loan discounts

Resimac steady on specialist lending

Homeloans has launched a new split loan that will give its Ultra and Ultra Plus borrowers discount incentives to fix a portion of their loan.

At the highest reduction off its quoted fixed Ultra Plus rate of 6.24%, the new ‘combo loan’ will be available at 5.99% per annum (one, two or three-year fixed) on loans of 75% LVR or less.

The loan offers a discount of 0.15% off its rate for fixed portions up to 50% with LVRs higher than 75%.

Homeloans said while it has always offered split loans, the new product was different in offering these discounts, as well as the ability to combine them with lower LVR discounts.

Homeloans general manager Greg Mitchell said the market was ripe for split loan products.

“Homeloans’ research has shown unprecedented polarisation

Non-bank lender Resimac has reaffirmed its commitment to the specialist lending arena, saying it will not rely on “promotional gimmicks” to market its products.

Resimac chief operating officer Allan Savins said the specialist lender’s recent policy changes – including a simplified borrower credit classification, increased loan amounts and LVRs and new cash out and default policies – show its appetite to grow in the nonconforming market.

“Resimac is committed to providing a specialist lending offering with real differentiation.

We don’t focus on promotional gimmicks but on delivering broader products and policies to suit borrowers who may not meet traditional lending criteria,” Savins said.

Recent changes to the lender’s non-conforming product suite include offering unlimited cash out

between those who have the intention of fixing and those who do not, suggesting that the market is genuinely ‘sitting on the fence’ about which is the right option,” he said. “So the split loan has never been more relevant.”

Mitchell said the concept had been tested with a selection of brokers and it had been “widely welcomed” as a proposition which is relevant in a market with multiple rate movements.

“In light of current interest rate movements with both variable and fixed rates mortgages, there have been some very competitive offerings in the market, and Homeloans continues to prove its agility in providing products which suit different needs,” Mitchell told Australian Broker.

The Ultra Plus package includes an annual fee of $330, with a quoted fixed comparison rate of 6.68%.

Allan Savins

up to 80% LVR across its specialist products. Savins claimed other non-conforming lenders were not adequately servicing borrowers requiring specialised products.

“Some lenders who operate in this space simply don’t have the policy to meet the needs of true specialist borrowers,” he said.

MKM Capital drops rates, fees Non-conforming lender MKM Capital has announced cuts to its rates and fees, as well as the introduction of a new, non-coded product.

The lender has dropped rates on its low-doc product from 8.95% to 8.45%, and has reduced its risk fee from 3.75% to 1.95%.

MKM Capital operations and marketing manager Michael

Watson said, “changing [the] mix of products” allowed the lender to lower rates and fees. “Becoming end-to-end enables us to be more inclusive and less niche dependent,” Watson said.

The lender has also released a new non-coded product, badged MKM Private, offering a 25-year term with capacity to pay confirmed by an accountant’s declaration.

“We have been asking brokers to identify what they want to see in non-conforming products and pricing. The initial feedback has been encouraging and we are excited to be offering the changes.

The lower pricing is particularly competitive and the new private product ensures we are an end-to-end non-conforming solution,” Watson said.

Michael Watson

22

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Comment VIEWPOINT

Daniel O’Brien, PFS Financial Services

Are you top tier? Brokers have their say on segmentation in response to the banks, while experts warn against ‘dabbling’ in the SMSF market

James Green, Oxygen Home Loans

Pros, cons and segmentation “If you are giving a lot more volume than the guy down the road, you should get priority – that’s business 101.” That’s the view of PFS Financial Services’ Daniel O’Brien on segmentation – but it could well have been said by any top tier broker. “You reward the loyal supporters or loyal customers with better service or something that the guy down the road doesn’t have.”

As banks bicker about the advantages and disadvantages of segmenting their brokers – with CBA and Westpac on the one hand, and NAB and ANZ on the other – top tier brokers say both their businesses and their customers benefit from preferential treatment.

“It’s preferential service to us really,” says James Green of Oxygen Home Loans. “We deal with a lot of customers buying property through McGrath [Real Estate], and so it’s quite important that we deliver them a turnaround in quite a short period of time.”

Green says that using traditional channels, Oxygen would sometimes be unable to meet fast required timeframes given by its borrower clients.

“Segmentation allows us to deliver a rapid turnaround time to those borrowers that we couldn’t’ get normally,” he said.

According to Moshe Moses of Niche Lending, segmentation brings efficiency for his business.

“Segmentation has brought in efficiencies for the banks, and likewise for us, but it has also given us a service delivery platform that we can provide to our clients,” he said.

However, as Moses explains, there are both pros and cons to the strategy, and that this has split broker opinion. “There are two banks who are not in favour of segmentation, and there are others who are. Likewise the brokers are in the same mindset,” he says.

Moshe Moses, Niche Lending

“Obviously, segmentation brings along with it the issues of controlling of commissions,” Moses continued. “But then again it also ensures a serviceability that we can provide to our customers, so until the market does turn around, it is one where there are positives and negatives towards segmentation as a whole.”

There are also challenges making the grade for new entrants, which Green says sets back young guns competing with top tier brokers in their own offices.

“We might have two brokers in the same office servicing the same referrers, and if one has the preferential service offering and one doesn’t, then the one that doesn’t is usually looked over, and all the business goes to the other broker,” Green says.

“That is a big disadvantage, especially when you have a really good up-and-coming young gun, someone who is hungry and wanting to do the business, and isn’t able to deliver the same preferential deal that the person sitting right next to them can.”

O’Brien says this gives younger brokers something to aim for in the future. “It’s something that we have all had to build our way up to… You have to start from somewhere, and for those who aren’t at the level of becoming a ‘Flame’ with St.George, well it gives them something to aim for,” he said.

But where does the balance lie in sharing loans among multiple lenders, but finding a home within their top tier segmentation offerings at the same time?

O’Brien says this is about building strong relationships with a core group of lenders.

“Any good broker should have a handful of banks that they use – but I don’t think there is any great need to be supplying loans to 20 different banks. If you deal with five or six lenders, generally you can build up a better, stronger relationship,” he said.

Matthew Kidd, Omniwealth

Craig Morgan, SMSF Loans

The dangers of SMSF ‘dabbling’ Interested in dipping your toe in the SMSF market? Well, dabble at your own risk.

“You need to be all the way in, or all the way out,” says Craig Morgan from SMSF Loans.

“What I am seeing at the moment is a lot of people dabbling in this area, and a lot of non-complying transactions being put together, and those things are going to come back and haunt people later.”

Omniwealth’s Matthew Kidd agrees. “It’s not just like walking into your branch and getting a bank loan. We have had previous experiences with brokers who said they understood SMSFs and they didn’t: there is a big difference between saying you understand it, and actually understanding it.”

But property pundits are pushing SMSFs, as are lenders – what’s the catch? Morgan says that SMSFs come with a lot more risk attached. “Unfortunately this is an area where you cannot rely on the bank’s instructions, because the lenders themselves are putting people into non-complying transactions,” he said. “They might well suit the bank and they may feel they give the banks the best possible protection, but somewhere along the line an auditor is going to pick that up and the question is ‘should the broker have acted to avoid that?’ ” Kidd says there are a number of things that can go wrong. “There are a lot of pitfalls such as setting up a non-complying fund – for example, the bear trust wasn’t set up correctly. You may have a lender that hasn’t ticked the box along the way and it can’t settle, and that is purely because the broker can’t understand what the responsibilities are of a trustee.”

However, SMSFs remain an opportunity – if you do them right.

Pink Finance’s Nicole Cannon said the market is ripe for brokers to offer SMSF services to their clients. “I think in the height of

Nicole Cannon, Pink Finance

You need to be all the way in, or all the way out the GFC, when clients had everything in their super and their balances started to drop a little bit, people started looking at ways to diversify their superannuation or retirement assets, and this is just another tool that’s not just shares – it’s not putting all your eggs in one basket,” she says.

“There’s a massive opportunity for brokers,” says Kidd. “Go out and find out how it all works, study it, so when you are liaising with financial planners and accountants, they can see that you have done the homework. I think once a broker can get themselves to that position, the stronger the relationship they can build with accountants and financial planners – and their business is going to do a lot better. If you have the opportunity to set yourself apart from your competitor, absolutely why wouldn’t you do it?”

So what do you need to know?

Morgan said it’s not that simple.

“Definitely, they need to know the SIS Act Section 67 back-tofront, but they also need to have a good general awareness of the SIS Act across the board, and they need to know where that butts up against things like taxation law and estate law. There is a lot to know if you are going to get this right,” he said.

“Of course, you are not going to give that advice to the client because you’ll be stepping beyond what your licence allows, but you have to be able to have these conversations with the accountants and the financial planners and the lawyers, and indeed you need to be able to push back on the banks when they are getting it wrong,” he added.

brokernews.com.au

23

OPINION

Funding more expensive as uncertainty prevails Bank funding can be a difficult issue to comprehend, and yet it has a direct impact on your business.

Resimac’s Mary Ploughman explains the current state of funding The developments in Europe are impacting global fixed income margins. Currently, wholesale funding is available – but only on a relative value basis.

Spreads have widened significantly, which has been illustrated by the pricing of the recent flow of covered bond deals by the major banks. If we look back to 2009, pricing for unsecured senior funding for the banks was at around 80 basis points. By this time (February) last year it had risen to 100 basis points, but in the last year it has risen quite dramatically, as evidenced by NAB’s recently priced $1.5bn transaction at +185bps.

In 2012, we are yet to see any RMBS issuance; however we believe pricing relative to last year has increased significantly in line with covered bonds and unsecured margins. Notwithstanding the increase in pricing, one positive outcome of covered bonds has been the emergence of a new array of domestic investors in secured funding deals.

The Eurozone crisis will continue to play a major role in the direction of credit markets and bank funding. Ratings downgrades of sovereigns, banks and corporates, as has been witnessed in Europe and the ongoing possibility of a disorderly Greek default has had a deep impact on the cost and more importantly, the availability of credit flows.

At the end of 2011, the European Central Bank offered half a trillion euros of threeyear loans to European banks in an attempt to open up wholesale markets and ease borrowing conditions, and even though this was largely successful in evading a banking

Mary Ploughman

crisis in Europe, the interbank market remains cautious, and this uncertainty continues to be reflected in the cost of funding available to all financial institutions including Australia. Even though Australia doesn’t have a major exposure to European banks or sovereigns and is therefore protected somewhat from the unfortunate scenario of a Greek default, Australia is a net importer of capital and as such these events occur in markets where we source funding from.

Europe is evolving on a daily basis and while it is still unclear as to how the greater EU will emerge, it is generally accepted that in order to meet BASEL III capital targets, European financial institutions will have to significantly reduce the size of their balance sheets to manage sovereign debt exposures and comply with new regulatory capital requirements.

The outcome of this will be credit rationing amongst the Euro banks.

The uncertainty which prevails is likely to persist for the near future, as conditions in Europe continue to be monitored. In the meantime funding costs for banks or nonbanks need to be reflected in mortgage pricing, for a bank or non-bank to be able to run a viable business.

Ultimately as markets stabilise, funding costs will reduce, which will flow on to mortgage rates, and ultimately consumers would benefit from lower rates.

The uncertainty which prevails is likely to persist for the near future

24

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Comment FORUM

Brokers clash over pros and cons of Podium Podium has caused many PLAN, Choice and FAST brokers ‘sleepless nights’, though Advantedge suggested the pushback will fade with time. Here’s what brokers had to say on this, and other key issues.

I’m interested to read all the posts in regard to the new Podium software.

We have been on board with Podium since mid-November, and initially there were some teething problems as we had to adapt and change how we used the system.

This is not at all unlike when electronic lodgement first came to market and everyone complained; now we all get annoyed if a lender doesn’t have electronic lodgement capabilities.

The trick that most have overlooked is upon completing the training, they went away and didn’t use the system. Months later they found it hard and of course it was difficult. I’ve had many Choice members in Victoria speak to me about this and the first question I’ve asked is, “Did you do the training?”. Most said they didn’t have the time. One can assume these are the ones that are mostly now having the issues.

There is also still this misconception among some that you have to be online to use the system, but this is not the case.

There is the briefcase which gives you the ability to use the system

In part I agree with disgruntled brokers. This was my first reaction after being switched over in November 2011, there were quiet a number of adjustments to be had. Very challenging when you have a few deals on the run. I can say now after making a focused effort that I would not go back. Once the client’s data is in the system it makes the next deal as easy as ‘updating previously gathered information’ and it all autopopulates into the application. Like all good software there is a major thinking shift needed to stay on top of the changes, but at this stage three months on I am happy with the result.

Getting used to new software – Broker on 17 Feb 2012 10:21 AM I have been heavily involved with software design in past industries, and this is not

offline and then this syncs with the system as soon as you are connected. It’s brilliant for those times, especially when the internet connection is playing up.

I’m now a heavy user of the system and find it fantastic – never have I been able to pull as much information on my database as I do now and it’s giving a much better environment to target market my database to drive more business. If you have any loan writers under you, it’s a great tool to keep on top of their activity and performance upfront straight from the system.

Sure there are still some bugs, but when isn’t there when a massive piece of software is introduced? It’s a matter of working through these to get the system continually improving.

But that takes us as the frontline brokers to pick these up – no amount of research prior to “go live” will ever pick up everything.

In short, this is a great software package, it’s extremely powerful, you just need to invest the time to get to know it.

Leith Wickstein on 17 Feb 2012 12:45 PM

about training. It’s about software that is NOT intuitive, and poorly designed. Yes it does what it should, but I am one of the most computer and software savvy people I know, and every day I get confused and angry. It is obvious that whoever designed this did not use state machines, nor just a simple flowchart on how deals are entered.

Another Unhappy Choice Broker on 17 Feb 2012 10:42 AM I have been using the system for several months and yes it was a little complicated in the beginning.

However, I took time out of my business to learn it inside out so that ultimately I could use it to the fullest extent. Once the data is in there you just need to make some minor adjustments to income, assets and liabilities and it is all pretty much ready to self-populate. I have now

had to do additional loans for clients who are in the system and it is fabulous. The best advice I can give is take the time to learn it, I would not be without it now.

Contented Broker on 17 Feb 2012 10:48 AM I had the misfortune to be one of the first users to be migrated over to it. That was mid-2011 and I am still struggling with it. It’s built around compliance with no thought given to some of the basic tasks that any broker uses daily. It appears that everyone has had an input into it except the people that matter – the brokers.

Annoyed broker on 17 Feb 2012 11:31 AM Whilst Podium does have some positive aspects such as an excellent compliance tool, with relatively easy access to legal fees and LMI details, there are still far too many negatives to the software to consider it a “powerful asset”.

Podium software is clunky, taking too many clicks to manoeuvre, making it time consuming; it is non-intuitive, requires too much duplication of data entry that then needs to be deleted to assess affordability or when transferred to lodgement CRM, has glitches that allow unauthorised brokers to view client details that are not affiliated to their business – and so the list goes on. Podium has potential, but desperately needs to be upgraded to become a more efficient sales tool.

Experienced Finance Professional on 17 Feb 2012 11:43 AM I am a PLAN member and have been in the industry for over 30 years. People by nature are reluctant to change.

Unhappy brokers get out of your comfort zone. I have had Podium since November and yes it was hard to use at first but like anything new there are always going to be issues. But let’s face it, we learn from mistakes. Every time I use Podium now it is becoming easier and I learn something new with how to use one of its features. In 12 months’ time we will be saying what was all the fuss about? The training section of Podium is a great source of information. However, you will only learn from using it.

Coast Broker on 17 Feb 2012 11:55 AM All work and no play makes Jack a dull boy!

Podium Shining on 22 Feb 2012 02:03 PM

Backlash against the MFAA and its value to the industry continued on the forum, as MFAA president Steve Kane defended MFAA value (Dissatisfied MFAA brokers a minority: Kane) The MFAA have done an excellent job building the membership base to now. They have done a great job assisting with legal obstacles and challenges we face with licensing.

This movement relates to the future of the association.

How is the MFAA going to grow its membership base and revenue?

Oxygen has supported MFAA since inception and we have two brokers currently volunteering their time to further support the association’s development.

The facts are the MFAA needs to ramp up its value proposition and not rely on a passive compulsory membership base. This includes facilitating the hard debate between its sponsors and its core membership base. Hard debate on a variety of subjects including: • Membership growth from the sponsor’s staff and contractors e.g. bank branch representatives • Developing deeper partnership between brokers and the sponsors e.g. balancing broker commissions with the bank’s profitability objectives Win/Win debates, not like in the current environment, which is often explained to me by the MFAA as “we have been told we can’t discuss this, it may upset the sponsors.”

James Green on 14 Feb 2012 01:34 PM

With the greatest respect to Steve Kane, whilst my personal view is the MFAA is a wonderful organisation that does great work, if the requirement of compulsory industry membership was removed by all lenders as condition of accreditation large numbers of brokers would exit faster than a colony of ants on a blueberry muffin.

Paul Gollan on 13 Feb 2012 10:57 AM Perhaps the MFAA would be better served by understanding why so many negative comments are made about MFAA’s lack of contribution to the broker area rather than simply saying that most of their members are happy.

Alwyn Beardmore on 13 Feb 2012 11:32 AM  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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25

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 8.4 Headline: Banks prep premium service sweeteners (Cover) What we reported: An investigation by Australian Broker last

year found that the major banks were on the cusp of rolling out new service offerings to their top tier, high volume brokers. The initiatives were planned to provide upper echelon brokers with faster turnaround times, detailed credit information and a host of other client service extras. ANZ and St.George tipped that they would roll out loan contract printing for their top tier segments, following the lead of Commonwealth Bank. NAB and Westpac also touted new perks for their top segments.

What’s happened since: The very concept of segmentation has

come under fire of late. NAB sparked the debate over the relevance of segmentation programs when it canned its star rating system and applied the perks across its entire broker network. St.George actually preceded NAB by tipping an expansion of BDM access outside its Flame segment. Following the moves, Westpac said it would stand firm in its segmentation strategy, but days later announced a new top tier. CBA also stood by segmentation, with Kathy Cummings saying competitors who did not practice the strategy were “ignorant and apathetic”.

Headline: Hockey blasts ‘inevitable’ DEF ban (page 2) What we reported: Shadow Treasurer Joe Hockey told Australian

Broker last year in an exclusive interview that the government’s unilateral ban on exit fees looked set to go through, despite widespread industry opposition. Hockey called the DEF ban “fairly inevitable” as it involved a change to regulations rather than a legislative change. He warned that, should the ban go through, lenders would merely find new ways to recoup costs. Hockey’s warnings were echoed by lenders, with smaller lenders claiming the changes could make their business models unviable and drive them out of the industry.

What’s happened since: Few people in the mortgage industry

have stepped forward to defend the wisdom of the DEF ban, but the doomsday scenarios predicted by both Hockey and lenders have yet to come to pass. Hockey was right in that lenders did find new ways of recouping their costs: clawbacks. However, smaller lenders have yet to be driven from the market, borrowers have yet to capriciously jump from loan to loan, and brokers have yet to lose their trail books to incessant clawbacks. Whether or not the ban had any material impact on competition, it did not cause the sky to fall in.

Headline: NCCP ‘caution’ halves low-docs (page 6) What we reported: Research from Loan Market last year

suggested that low-doc loans had fallen to just 5% of the company’s overall lodgments, down from 10% the previous year. The broker said the decline coincided with many low-doc lenders exiting the market, effectively locking out some borrowers. Loan Market chief operating officer Dean Rushton said lenders were being more cautious as a result of the NCCP. Homeloans Ltd general manager of operations and funding Scott McWilliams agreed, and predicted that some borrowers would not be able to source finance.

What’s happened since: Rumours of low-docs’ demise have been

greatly exaggerated. Low-doc and non-conforming lenders have remained active in the market, in spite of fears over the ramifications of the NCCP. MKM Capital marketing manager Michael Watson recently claimed that some brokers had withdrawn from writing low-doc loans out of concerns over compliance, but those who remained in the market segment were writing more business. Meanwhile, ASIC conducted a review of low-doc brokers last year, finding that there was “room for improvement” on compliance.

Headline: St.George reviews commission changes (page 10) What we reported: St.George took a step back from a policy of

halting brokers’ trail income on loans 30 days or more in arrears following feedback from brokers. The bank’s then-head of intermediary distribution Steven Heavey said St.George would revert to its previous policy of cutting off trail payments after a loan reached 60 days in arrears, rather than 30 days. He conceded that industry feedback had called the move to a 30-day period an “unfair measure”.

What’s happened since: St.George last year made another

shake-up to its commission structure when it revived year-one trail commissions. Heavey said, once again, the decision had been made due to feedback from brokers. He conceded the importance of trail in year one, and said he hoped the change would encourage more brokers to consider using the lender. However, Heavey claimed St.George had not seen a drop-off in broker volumes as a result of its previous move to remove year-one trail.

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Market talk

Off to greener pastures With exit fees removed, interest rates heading back up and borrowers more aware than ever of better deals on offer, 2012 could be the perfect storm for a wave of refinancing

H

ome loan borrowers can be fairly entrenched in their ways. A Mortgage Choice survey late last year indicated that only 36% of homeowners would be spurred towards refinancing their home loan by a fall in

interest rates.

Of these lethargic homeowners, 41% said they would not switch, as they were content with their current interest rate setting, while 9% said they were in a fixed rate facility and did not want to pay break fees. Most surprisingly, 14% said they simply couldn’t be bothered exploring refinancing options.

The game may have changed since the survey, however.

The survey was conducted before the successive rate cuts that ended 2011, and it’s possible that these cuts actually coming to fruition may have awoken a few borrowers from their peaceful slumber.

Perhaps more importantly, the survey was well before the Reserve Bank’s decision to keep rates on hold in February, and the ensuing political and media melee as lenders jacked up mortgage rates out of cycle. Borrowers may have been content to put refinancing in the too hard basket when their lenders were staying put or reducing rates through much of last year, but could these hikes be the catalyst for a wave of refinancing?

A move on the horizon

The numbers so far don’t reveal all that much. AFG’s latest mortgage index suggests that refinancing has held stock steady over the past few months. Refis accounted

An ounce of prevention

Holding steady Refinancing has yet to shoot up following bank and RBA moves, but the year ahead could see a wave of switching

Investors First Homebuyers Refinancers

Jan-12

35.9%

15.8%

37.3%

Dec-11

37.8%

15.7%

36.2%

Nov-11

38.4%

15.8%

37.8%

Oct-11

35.6%

16.4%

37.9%

0% Source: AFG

20%

for 37.8% of the market in November, 36.2% in December (following the Melbourne Cup Day cut, it should be noted) and 37.3% in January. However, ABS figures have shown that refinancing in 2011 was up 20% on the year before, and Loan Market has claimed the majority of this activity took place late in the year.

Moreover, the numbers have yet to reveal what borrowers shaken by the February rate increases might do. Certainly, the abolition of deferred establishment and exit fees last year paved the way for a borrower exodus that has yet to eventuate, and as already tight affordability levels fall in the wake of the interest rate moves, at least one property analyst believes 2012 could be the year of the refinancer.

Janusz Hooker, CEO of LJ Hooker, has pointed to research his company commissioned by pollsters Galaxy, saying borrowers could be refinancing in droves over the year ahead.

The Galaxy poll found that 46% of homeowners who entered the market in the past two years are now looking to refinance. Around 22% are looking to refinance in the immediate future. Hooker said interest rates were the primary factor causing consternation for around 20% of borrowers looking for a better deal.

“After the 2011 interest rate cuts, homeowners are closely watching the market to see what will happen next.

Our research has shown that new homeowners are concerned about interest rates and are very much aware that a spike in the cost of living could affect their home loan repayments,” he said.

40%

60%

80%

100%

The move to refinance may ultimately be a preventative measure for many Australians. Recent Moody’s data has indicated that arrears are set to fall over the year, and 42% of respondents to the Galaxy survey claimed to be living well within their means, so the recent rate hikes may not have put borrowers’ backs against the wall just yet. But Hooker said homeowners are feeling the pinch of mounting living costs, and rate hikes would continue to exacerbate this.

“Although Australians are taking steps to ensure that they are meeting their financial commitments, new homeowners are clearly feeling increased pressure to stay on top of bills and mortgage payments. A lot can happen to a family’s living and financial circumstances over two years,” he said.

Of course, not all borrowers looking to refinance are motivated purely by mortgage pressure. The Galaxy poll found that 32% of those looking to refinance would do so in order to help buy an investment property. A further 17% said they merely wanted to consolidate their debts.

However, with political and media rhetoric lambasting the banks for their rate hikes and the option of refinancing kept ever in front of consumers, 2012 could be the year homeowners finally begin to abandon ship.

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27

Housing data favours the bulls: SQM It may be too soon to celebrate a recent surge in housing finance, but a property analyst has indicated the result seems to favour property bulls.

SQM Research managing director Louis Christopher has said the recent rise in housing finance numbers for December bodes well for the housing market, and could signal the start of a recovery. He pointed to ABS data showing a 2.2% rise in owner-occupied housing finance approvals, including a 2.8% rise in first homebuyer numbers.

“This is a housing measurement that we closely follow. Time and time again it has been a solid confirmation indicator as to the overall

strength of the market and any turning points. It has rarely given off false signals,” Christopher said.

Christopher said the data showed a “clear, rising trend of housing finance approvals”.

“It appears this trend started around June 2011 from what were very, very low levels of activity. Notably, there has been a clear pick up in the overall number of first homebuyers, which has been commonly seen in recent years as a sign that the market might be recovering on the back of new demand,” Christopher said.

In spite of this recovery, Christopher warned that “no one should be getting overly excited yet”, as housing finance “just crossed over” lows hit during 2008.

Christopher also warned that the data did not indicate which portion of the market was driving the increase.

“There have been two very different views portrayed by media outlets on these numbers.

The mainstream media has stated that the index was driven by investors, while the more sceptical commentators suggested that the numbers were driven by NSW first homebuyers who were cashing in on an expiring stamp duty concession. The opinion being these first homebuyers won’t be around anymore following the expiry of the benefits and so the market will remain in a downturn,” he said.

Any increase brought about by NSW first homebuyer activity as a result of stamp duty concessions could have skewed December figures, Christopher warned. Should this be the case, Christopher said it could be difficult to draw a trend from the figures.

“There is a risk here that NSW may drop off again, bringing the overall numbers down.

This has happened after the end of each successive housing stimulus package,” he said.

Bank rate hikes could also serve to scuttle or delay any recovery, Christopher said. However, Christopher claimed that the figures seemed to indicate a positive trend.

“We will give this result largely in favour of the bulls. There does seem to be some evidence pointing to drivers beyond NSW first homebuyers,” he said.

A clear pick up in the overall number of first homebuyers may be a sign that the market is recovering

NUMBER CRUNCHING Credit demand heading down 2011 vs 2010

Q3 2011 vs Q4 2011

Q4 2010 vs Q4 2011

9.4% 2.5%

2.4%

5.9%

Home loan market share for 2011

Non-bank lenders

0.0% -4.0%

-4.8%

-9.9%

-9.9% Personal loans

Home loans

Credit demand Source: Veda

84%

Wholesale lenders Source: ABS

At a glance…

Credit cards

11%

Building societies

4.9%

2%

3%

Major banks

3.8%

-3.5%

Majors continue dominance

5.1% 10.3% *

*January’s unemployment figure as calculated by the Australian Bureau of Statistics

*

*January’s unemployment figure as calculated by Roy Morgan Research

28

brokernews.com.au

Insight if you consider them and put in place appropriate risk management, you may be ahead of the competition when the proverbial hits the fan.

Surviving everyday volatility Volatility has become more obvious this year due to global economic factors, but you can buttress your business against the ebb and flow with these tips from Sue Hirst

M

ost successful business people I’ve spoken with believe 2012 will be tough for some business sectors. We’ve heard about the two speed economy – meaning mining-related businesses and the rest. Whatever sector you’re in, it pays to recognise and mitigate risks and capitalise on opportunities.

A recent NAB Quarterly Business Survey stated, “business confidence deteriorated across all industries in the September quarter, with the largest deterioration in finance/business/property – likely reflecting recent volatility in equity markets – followed by manufacturing – probably reflecting continued strain caused by the relatively high AUD. Confidence was strongest (and positive) in mining, followed by construction, where it was neither expanding nor contracting. Particularly weak confidence was recorded in finance and manufacturing.”

Here are some tips for thriving in 2012:

1) Constant business model improvement

It’s the way you operate, or how you deliver your product or service, and how you fund business. Your business model can be a ‘fluid phenomenon’, something that is constantly tweaked to achieve maximum efficiency and performance. It’s worthwhile engaging the help of an advisor who understands business models. Having the right model can make business life smooth whereas having the wrong model can result in constant struggle.

Few business owners pay enough heed to their business model. We often hear “that’s the way it has always been done or that’s the way we do it and it works”. This may be so, but could you do it better? Could you fine tune, add, delete or maximise the higher profit producing areas and reduce the low profit ones? Could you find easier ways of distribution or delivery? What about staff? could some contribute better in other ways?

Some businesses have had a rough couple of years and are getting to the end of their resources 2) SWOT Analysis

Have a look at your strengths and how they help you compete in the marketplace and ask how you can build on them. Look at your weaknesses and consider what they’re costing and how you can improve them. Opportunities can be found in places you may not think of. For example, in our business, ‘cloud commerce’ has shattered geographical barriers, so we’ve begun offering services to geographical areas previously impossible. Threats can be environmental and beyond your control. However,

3) Constant improvement

We can all find constant improvements that, when added together, make a huge difference to business efficiency and results. The key to constant improvement is listening to staff, customers, suppliers, shareholders and advisors.

The best way to capitalise on constant improvements is to have good systems in place that enable absorption of improvements. That way when you come to sell your business you’ve built a solid asset that can be handed over to a buyer and odds are you’ll get a premium price. A systemised business is easier to sell to a new owner.

4) Cost management

Direct costs are those that are absolutely necessary to deliver a product or service, such as service labour or purchase of product, and are the biggest target for improvement. Research your industry and technology to find better ways of operating. A small improvement in direct costs can have a huge impact on your bottom line.

Don’t cut ‘muscle’ in business such as effective marketing or good staff, but look for ‘fat’ or resources that aren’t delivering value.

5) Cash-flow management

By 2012, some businesses will have had a rough couple of years and getting to the end of their resources. They may have had to use cash reserves, borrow or reduce overheads. If you’ve experienced cash flow squeeze for the past couple of years and can’t see light at the end of the tunnel, it may be a good time to consult an expert in finance or insolvency. Consulting an insolvency expert can make a huge difference to your personal outcome of business liquidation. They can help you navigate the rules, so you don’t end up paying an unnecessarily high personal price. They can facilitate negotiations with suppliers, ATO and banks. If your business is impacted negatively by a particular sector of the market you need to keep a close eye on cash flow. A good indicator of cash flow is calculating liquidity. A good measure of liquidity is ‘Current Ratio’. This is the result of dividing current assets by current liabilities. It shows the number of times current liabilities are covered by current assets.

Banks look closely at this ratio when lending, as they want confidence about loan repayments. Business owners need to know this for their own peace of mind. The table below is an example of current ratio calculation. In this example, for every dollar of current liabilities there are $1.79 of current assets to cover it. Keep a close eye on this ratio to identify the trend and work at improving the factors affecting it.

Current assets Accounts receivable

$100,000

Inventory/work in progress

$150,000

Total current assets

$250,000

Current liabilities Accounts payable

$50,000

Overdraft

$50,000

Short-term loan payments (12 months)

$40,000

Total current liabilities

$140,000

Ratio calculation $250,000/$140,000

1.79

Sue Hirst is the director and founder of CFO On-Call Advisers, who offer services that help businesses achieve growth and success.

brokernews.com.au

29

People Goodbye Westy, we’ll miss you!

When Advantedge’s general manager of broker platforms, Steve Weston, announced his decision to resign and leave the NAB-owned business in March to head Barclays’ mortgage arm in the UK, there was congratulations from the Australian Broker online community.

Good luck Steve, I hope it goes well.

Paul Hautaniemi on 13 Feb 2012 02:25 PM Well done Steve, you deserve it.

David on 13 Feb 2012 02:30 PM OMG. One of the very few great thinkers and communicators in our industry. A very great loss indeed.

Mick MD on 13 Feb 2012 02:39 PM What a loss – a great worker and a great friend. GOOD LUCK! David V on 13 Feb 2012 02:55 PM Well deserved Steve, but NAB

should have made it too hard for you to resign. Good people are hard to replace.

Theo Katsivas – Premier Home Loans. on 13 Feb 2012 03:37 PM Congrats Steve, great work.

Thanks for all your support over the journey mate. We’ll miss you, but it gives us somewhere to bunk with when we’re there. Cheers.

Greg @ Onyx on 13 Feb 2012 03:56 PM No surprise why Barclays wanted this innovator and thinker, he is by far the best speaker I have heard on the subjects of funding , cost of funds and the GFC as well

as aggregation in general. As a PLAN member I will miss him.

The challenge for the NAB is to find someone of the same quality to fill his role!

Country Broker on 14 Feb 2012 09:50 AM How could Advantedge let him slip through their fingers? He is the best in Australia.

Concerned on 14 Feb 2012 02:01 PM Congratulations and best wishes Steve Weston, thank you for your contribution to our industry. We already look forward to your return with anticipation with the new and exciting avenues to explore to make us better at what we do. Enjoy your time in the UK. Riverina Broker on 15 Feb 2012 09:41 AM Well done Steve. Best wishes

Steve Weston

in the new role. Look forward to the reunion in the UK during next year’s Ashes tour! Perhaps we’ll have more to celebrate in the Long Room at Lords this time round than we did in 2009!

Cheers, Ben. Ben Anson on 16 Feb 2012 10:11 AM  For our full story on Steve Weston’s departure, see news on page 11

Giant hopes, as AFM partners underdog Mortgage manager Australian First Mortgage has set its sights on big things, with the announcement it will sponsor the Greater Western Sydney Giants in 2012.

In announcing its new sponsorship arrangement with the AFL team, AFM said its business and the Greater Western Sydney Giants had a number of synergies that made the sponsorship a good fit, including being “underdogs”, as well as their Western Sydney location.

“As an up-and-coming alternative lender in the Australian mortgage industry we

see our new relationship as an excellent opportunity on several fronts,” national head of sales for AFM Clint Hawthorne said. “The GWS Giants play seven of their 11 home games in Homebush, which is where we are located. In addition, the Giants play four home games in Blacktown and Canberra, which are key areas of growth for our lending business.”

AFM hopes to highlight its strong financial position through the GWS Giants sponsorship, as well as reaffirming its commitment to mortgage brokers in Australia.

“We believe that now, more than

ever before, mortgage brokers Australia-wide should be considering alternative offerings outside of the major banks,” Hawthorne said. “We are well positioned and keen to establish new relationships with brokers at any level, residential or commercial”.

Australian First Mortgage recently added two new business managers, bringing to six its total business manager appointments over the past six month period.

In a trajectory the mortgage manager said would continue its rapid growth strategy, it recruited Craig Kitchen for its South

Australian business and Ian Cornwall in Victoria.

Kitchen was PLAN’s state Clint Hawthorne manager for South Australia, meaning he followed in the footsteps of head of sales Clint Hawthorne, who previously headed PLAN’s NSW BDM team.

Hawthorne added that AFM had added two credit staff in the past six months, in addition to its business management appointments.

Frost to heat up Ballast partnerships

Outsource appoints Kurtz as new senior exec

WA-based aggregator Ballast has recruited a manager of strategic partnerships, as it seeks to build relationships Kevin Frost with related businesses in a diversifying industry landscape.

A previous national manager of real estate alliances at Aussie Home Loans, Kevin Frost will now be responsible for identifying new partnerships for the national

Outsource Financial has appointed former senior lending executive for Finconnect, Brendon Kurtz Brendon Kurtz, to represent the aggregator to brokers in Victoria and Tasmania.

Outsource Financial CEO Tanya Sale said he is well known in the industry for his practical business development, technical support and finance broker mentoring ability.

As part of the role, Kurtz will be responsible for developing business among finance brokers, as well as

Ballast business.

General manager Frank Paratore said Frost has been charged with identifying relationships that make an “ideal fit” for the business, and that will assist in leveraging new business.

“He is working on a major partnership that will be announced in upcoming weeks,” Paratore said.

Frost is an ex-broker who built a 40-strong brokerage business under the eChoice banner. At Aussie, he managed real estate relationships with LJ Hooker Home Loans and First National Financial Solutions.

accountants, financial planners and other professionals.

“Brendon’s understanding of Outsource’s model and strategy provides a unique perspective, and his vast industry knowledge makes him an invaluable new member of our team,” Sale said.

Outsource is a boutique aggregator that provides a revenue sharing referral model for businesses who want a mortgage and finance referral service to introduce their clients to.

Sale previously worked with Kurtz at Finconnect, which became a subsidiary of the Commonwealth Bank in December of 2011.

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brokernews.com.au

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

soon comes back into third party distribution – we could certainly use some serious Bankercise.

Lick it while it’s fresh

Avast, me hearties!

T

he banks have had a rough run of things in the PR department of late. After raising their rates outside the Reserve Bank, they faced a political, consumer and media backlash of fairly epic proportions that no amount of explanation around funding costs could quell. After the firestorm they’ve endured, one would think their PR departments would be at DEFCON 5, always at the ready to head off any potential public relations disaster. The last thing they would want, after all, is to make any further move that would allow the media to cast the banks as greedy or thieving.

Yet, somehow the Commonwealth Bank allowed its mobile lenders to dress up as pirates for a company party. Evidently, no one stepped in to say, “A pirate?! Well, that’s hardly the image we want for Long John Silver’s!” The situation was parlayed into a media

beat-up which, in all honesty, probably blew the party out of all proportion. After all, CBA wasn’t even paying for the soiree. A third party was footing the bill, and Insider may be wrong on this, but he was under the impression it only cost $2 per person. Something about a buck an ear? Sorry. Ahem.

Anyway, Insider is fairly amazed no one at CBA foresaw this and put a stop to it before it hit the wires. As a result of the fiasco we hope that no one was forced to walk the plank. But Insider supposes they should have known that casting bankers as pirates is definitely bad P Aaaarrrrrr!

Again, sorry.

Bulging like Brick

Up, down. Up, down. Now lift, step forward, lift, step back. And again. Sound like your local gym class? Well, it could be. Or, it could be the sound of HSBC, battling the bulging credit waste lines of

the financially unfit Australian populace. HSBC’s latest ad campaign – hitting a range of advertising channels near you for the next few weeks – encourages customers to ‘Bankercise’, a bizarre hybrid term of the word exercise that may just find its way into common parlance postcampaign. After all, who wouldn’t want to be like HSBC’s poster boy for the campaign ‘Brick Phillips’, who has the ‘banking body of your dreams?’ – obviously those rate offers can somehow result in some nicely shaped lats and biceps. All it will take is a series of savings sessions, a personal refinancing class, and a few extra early morning investment boot camps (and a damn good name to match). The bank says the new verb – Bankercise i.e. – is defined as “getting financially fit with HSBC”. With the generous wastelines of some of the brokers in the market, let’s hope HSBC

The stamp collectors are baying for it. It’s the hottest piece of collectible sticky paper since the first post-it-note. And to top it off, it has the financial services sector licking their lips as they prepare to ditch email for some old-fashioned snail mail. Yes, it’s the latest commemorative stamp, recognising 2012 as the United Nationals International Year of Co-operatives. So why is this so eagerly salivated over by the financial services industry? Well, the mutuals out there jumped on its release, saying the stamp recognised the contribution credit unions, building societies and mutual banks had made to building the economy. “Australia Post’s series is welcome recognition for a model that has proven secure competitive, and relevant to the Australia of 2012,” Abacus’ CEO gushed. Insider thinks the fanfare and excitement is just a little overblown, unless of course you are a stamp-collecting member of a mutual that still uses the postal system. Given major bank dominance, that small portion of the population is only likely to get smaller, especially when you take into account that more of those customers are no doubt hitting the twilight of their lives. Insider will let this particular stamp go, and save his stamp-licking until next Christmas.

brokernews.com.au

Services

To advertise in Australian Broker call Simon Kerslake on +61 2 8437 4786

BANK Commonwealth Bank 13 20 15 www.commbank.com.au Page 7

FINANCE ARAP NSW & VIC – 0415 210 434 QLD, WA & SA – 0434 254 798 Page 6 Rhino Money 1300 654 355 www.rhinomoney.com.au Page 14 Semper Capital Pty Ltd 1 800 SEMPER (1 800 736 737) enquiries@semper.com.au www.semper.com.au Page 21

ANZ 1800 812 785 www.anz-originator.com.au Page 5

Versara 1300 CAVEAT (228 328) www.versara.com.au Page 4

Citibank Mortgages 1300 652 059 www.mortgagebroker.citibank.com.au Pages 16 & 17

SHORT TERM LENDER Interim Finance (02) 9982 2222 www.interimfinance.com.au Page 30

Homeloans Ltd (08) 9261 7000 www.homeloans.com.au Page 19

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

Liberty Financial 13 23 88 www.liberty.com.au Page 3

TECHNOLOGY PROVIDER Star Gate Group (03) 8420 3000 www.stargategroup.com.au Page 15

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

OTHER SERVICES RP Data 1300 734 318 Page 23

FINANCIAL PLANNING CLS Investment Services (02) 4227 4618 www.clsinvestmentservices.com.au Page 2

Pepper Homeloans 1800 737 737 www.pepperonline.com.au Pages 12 & 13

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

LENDER AMP 1300 300 400 www.amp.com.au/distributor Page 32

RAMS 1800 616 082 www.rams.com.au/about-rams/franchisingopportunities/rams-franchising/ Page 11

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Residex 1300 139 775 www.residex.com.au Page 31 Trailerhomes 0417 392 132 Page 27