Australian Broker magazine Issue 9.07

$4.95 POST APPROVED PP255003/06906

ISSUE 9.07 April 2012

Boutiques big, just not big enough  NMB’s sale to

Aussie has sounded the death knell for boutique aggregation When Jeremy Fisher of 1st Street Home Loans joined National Mortgage Brokers 10 years ago, he was drawn to the aggregator because of its size. A small operator himself, NMB’s appeal lay in being a like-minded boutique outfit, where he could build strong relationships.

So when the recent announcement was made that NMB and its 200 brokers were being acquired by franchise behemoth Aussie Home Loans, Fisher was less than enthusiastic about the prospect.

“A lot of people joined NMB – and I’m one of them – because it was a boutique,” he told Australian Broker. “My business started with nothing 10 years ago and they [NMB] played a part in my growth. I believe I would have just been a number in one of the larger organisations. Now it looks like I’ve become a number again,” he said.

Though he does not begrudge NMB for the sale, Fisher admitted he would keep his options open in the wake of the deal, and would consider offers from other aggregators.

“There’s no question the brokers who joined for the reasons I joined will be looking to see what’s out there, because the loyalty will no

New broker squads Westpac trains branches to understand you Page 2

Clawback fears Extension worries show brokers once bitten, twice shy Page 4

Clients for life Non-con products could be a business building option Page 6

Inside this issue Jeremy Fisher

longer be there. I’ve stuck with them for 10 years when I’ve had a lot of lucrative offers from other aggregators,” Fisher explained.

“I’m happy for them, but it just means now I feel free to look elsewhere, whereas before I would have been hesitant.”

However, brokers like Fisher have ever-fewer places to look.

Boutique aggregators are now a dying breed as rising costs and shrinking margins make their proposition less viable.

Aussie executive chairman John Symond said the move was just the first in the company’s aggregator acquisition path, and predicted that smaller aggregators would continue to be swallowed up as the cost of business became more prohibitive.

“I think whether you’re an aggregator or broker, like most other industries, scale is very important,” Symond said. “You need economies of scale to be able Page 18 cont.

Coalface 16 SMSFs prove profitable Analysis 20 Broker numbers to dive Viewpoint 22 Lender bait, aggregator switch Opinion 23 NCCP brings back old lending Insight 24 No kidding on social media People 28 Gollan on a decade of change Caught on camera 29 Resimac talks specialist lending

2

brokernews.com.au

News ‘Broker squads’ coming to a branch near you: Westpac Westpac is in the process of rolling out more branch-based ‘broker squads’ in an effort to gain more cross-sell business from broker customers while mitigating channel conflict.

Originally piloted in WA one year ago, the broker squads are being rolled out across the country and will eventually number approximately 170 across Westpac’s 55 regions.

Westpac’s head of third party mortgage distribution, Tony MacRae, said the broker squads act as specially-trained branch hubs within a region that understands the broker channel.

“It is about bringing our key brokers and our key branches much closer together to overcome that whole channel conflict perception that may have existed in the past,” MacRae said.

MacRae said having four to five specially selected branches to deal with brokers in each region was partly ‘defensive’ in trying to overcome perceptions of channel conflict.

However, he said it was also proactively in line with bank aims.

“It aligns with the bank’s overall strategy of earning all of our customers’ business. So the closer we get, the more comfortable the brokers feel in handing the customers over to us, and the more comfortable we feel in being able to cross-sell products while respecting existing relationships.”

MacRae said ideally key brokers should feel like the branch is an extension of their operation, and branches should be looking at brokers as an extension of their salesforce.

‘Broker squad’ personal bankers are responsible for broker signups, and must understand the style of business being introduced by brokers, any relationships a broker may have across different products, and how to respect existing relationships by not targeting that business.

MacRae said Westpac had also previously eliminated any incentive for branches to target broker business.

“A number of years ago the way we measured branches was the number of products and widgets that they Tony MacRae actually sold.

Today, we measure them on direct contribution and new revenue, so the loans that the brokers write go directly on to the branch book.

So now, they get the revenue for that [broker loans] so there is little incentive for branches to rewrite loans, which may have accounted for some of the concerns of the past.”

MacRae said that senior management understood customers would choose their distribution channel, and that Westpac was working to make channel conflict a thing of the past.

“There are a whole bunch of customers out there who through their actions determine that their channel of choice is brokers. So for us to ignore the customer choice would be crazy,” he said.

BoQ vows broker drive not just a quick fix Bank of Queensland has stated it will jump back into the mortgage broker market after nearly a decade’s absence, but has vowed it is not just looking for a quick fix.

In a presentation to investors, BoQ chief executive Stuart Grimshaw has tapped mortgage broker use as a short-term priority to revive the bank’s struggling profits after it posted a $91m first-half loss.

Grimshaw called BoQ’s foray back into the third party channel a “quick win”, but a spokesperson from BoQ has claimed the lender will not look to jump in and back out of the market. “I don’t think

this is short term. Stuart is taking a holistic view of the business and is looking at a number of opportunities. It is a short-term priority, but I don’t think it’s just a quick win,” she said.

The bank withdrew from the mortgage broker market in 2004.

While it still relied on brokers to source equipment finance, the bank claimed its own branch network would provide sufficient mortgage growth. Then-managing director David Liddy had predicted the move would have a positive impact on profitability, but the bank’s spokesperson said market realities have changed

since the lender withdrew. “It comes back to the differences between now and 2004, and the percentage of the market today who are time poor and who are going to a mortgage broker… so they don’t have to do the legwork themselves,” she said.

A move back into the market creates a potential source of contention for the bank’s ownermanagers, who receive commissions under the bank’s franchise structure. But the spokesperson claimed BoQ’s return to broker use would net it a different client base than its branch network.

brokernews.com.au

EDITOR Ben Abbott COPY & FEATURES NEWS EDITOR Adam Smith PRODUCTION EDITORS Sushil Suresh, Carolin Wun ART & PRODUCTION DESIGN PRODUCTION MANAGER Angie Gillies DESIGNER Ginni Leonard

SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak SENIOR MARKETING EXECUTIVE Kerry Corben MARKETING EXECUTIVE Anna Keane COMMUNICATIONS EXECUTIVE Lisa Narroway TRAFFIC MANAGER Abby Cayanan CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – BUSINESS MEDIA Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil

Editorial enquiries Ben Abbott tel: +61 2 8437 4716 ben.abbott@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Hong Kong, Toronto brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor.

Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss

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.

4

brokernews.com.au

News

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

Smaller aggregators grab back share Smaller aggregators are grabbing market share from the big players, despite continuing talk of industry consolidation.

AFG managing director Brett McKeon recently predicted that many smaller, independent aggregators would be doomed to sell within the next 18 months.

But a recent JP Morgan/Fujitsu Australian Mortgage Industry Report has indicated the picture may not be so grim for smaller aggregators.

Fujitsu Australia and New Zealand executive director Martin North said that smaller aggregators are beginning to take market share away from broking groups at the top of the market.

“Up until about six months ago, the top two or three aggregators were growing significantly larger than anyone else. For the last six months, we’ve seen those growth rates come back a bit and we’ve seen some intermediate-sized aggregators stepping in to fill their shoes and grow greater volumes,” he said.

One of the reasons for this growth, North indicated, was a consumer move away from the major banks.

“The smaller aggregators are sourcing more loans from the second tiers. Big aggregators are becoming more and more aligned to the majors, but because we’ve seen some resurgence in the tier

twos and some of the non-banks, they tend to be more aligned to the intermediate-sized aggregators,” he said.

This shift may have been spurred by changing homeowner demographics. North suggested that a rise in first homebuyers meant greater consumer appetite for loan products which could fall outside the scope of the majors.

He said many of these products were a more common domain of smaller aggregators.

“I suppose some of the business being written now is a little different than the business being written six months ago.

“There is a higher level of first homebuyer enquiries, and there’s

also a little bit of evidence of some of the non-banks beginning to think about low documentation and no documentation loans, because everyone’s desperate to find some sort of a growth lever.

Some of those products sort of come from the smaller-sized aggregators,” North said.

However, some of the market share loss experienced by toplevel aggregators may simply be a case of growing too fast, too soon.

“Another thing to look at is that when you grow quickly as a large organisation, there are going to be some growing pains and it’s hard to continue that rapid growth,” North cautioned.

Clawback extension fears rise as Murphy’s Law bites Brokers hit by commission clawbacks are expressing a ‘once bitten, twice shy’ reaction causing fears of potential bank extensions to clawback terms.

Following the GFC, banks rolled out clawback policies to recoup costs in the event of premature refinancing. Non-banks followed when DEFs were banned by the federal government.

Connective principal Murray Lees said that those brokers who had been hit with the reality of commission clawbacks were voicing fears about them, as well as their possible extension.

“What I think has happened is that when a broker has copped one, it is really front-of-mind at that stage, and maybe becomes more of an issue in their mind than it really is,” he said.

“I would say that it is not a problem all the time and it is not universal, but when it happens it’s like Murphy’s Law – it usually comes at the worst possible time to get a clawback, like in a bad settlement month, so it has a

double impact,” he said.

Lees said while commission levels in general were being seen as ‘business as usual’ by the banks and nothing has been said on clawbacks, the possibility of extension remains.

“I think it is always there in the background,” he said.

Lees said brokers should stay close to their clients in the first instance, and that some brokers were also charging a contingency fee to clients in the event of a clawback.

He added that banks would be wise to implement fair clawback policies that took into account the concerns of brokers rather than their own bottom line desire to recoup costs.

In terms of churn, Lees apportions most of the blame to banks rather than brokers, following the bank-led pricing wars that drove a spike in refinancing activity last year.

Lees said banks make calculations based on pricing and business volume on a huge scale,

whereas brokers are focused on sitting and maintaining a relationship with the client.

“You hear the word churn, but the biggest culprits there would be banks rather than brokers. Brokers are relationship-based, they are

happy for the client to stay where they are for the most part. You are dealing with two totally different beasts in brokers and banks, and sometimes they are miles apart when it comes to looking at any given situation,” he said.

What you said on clawbacks I have received two recent clawbacks from clients who have sold their properties. Now at what point is this my fault? I could not have done anything to negate this. I don’t believe there should be any clawbacks when selling has occurred.

Todd on 29 Mar 2012 10:20 AM Agree Todd. If I’ve done something wrong, I’m happy to cop the clawback, likewise if I refinance the deal and get paid upfront again, no problem. But if the customer simply hits rough times and there’s nothing I did wrong or can do to assist, then it’s not my fault.

Rach on 29 Mar 2012 10:40 AM I’ve been using a mortgage manager where there are no clawbacks so I never have that worry. If you keep putting everything to the major banks, you’re going to keep getting the bad service and your income going down.

Happy broker on 29 Mar 2012 12:16 PM For the odd funder I deal with that has clawback, I have a clawback clause in my Credit Proposal Contract.

Melanie Burns on 29 Mar 2012 04:01 PM I have a clause as well – $550 standard charge or more if I suspect the loan will be short term. Never had any resistance.

1martym1 on 30 Mar 2012 01:14 PM

6

brokernews.com.au

News

Read the latest issue of Australian Broker online brokernews.com.au

Specialist borrowers could be clients for life: Resimac Brokers have been urged to dispel their fears over non-conforming borrowers and use alternative lending as an opportunity to diversify and lock clients in for life.

Resimac’s chief operating officer Allan Savins said following the introduction of NCCP, there were ongoing ‘misconceptions’ over specialist borrowers and responsible lending.

“There is a perception that if the product has a higher rate, that it is not suitable, but that is not true as long as the situation is of financial benefit to the borrower,” he said.

Savins said any legal risks could be mitigated by ensuring that reasonable enquiries were made by the broker, to ensure the loan is of financial benefit to the customer.

At present, Savins said the market

was an example of the 80/20 rule, with 20% of brokers understanding NCCP implications, and 80% ‘staying away’ because of the uncertainty.

However, he said specialist lending provided the opportunity for brokers to grow their businesses via ‘solution-based’ products, helping them achieve loyal clients for life.

“Brokers can provide clients with a specialist lending solution, and there is no reason why in one or two years’ time they can’t refinance them into a prime loan,” Savins said.

He said the deferred establishment fee ban has helped, as brokers can more easily offer to refinance within two years.

He said Resimac’s clawbacks only

extend to one year.

Resimac has made moves to simplify its credit impairment table from five categories of borrower to three, and has published this to improve transparency, especially for those brokers who need to refresh on credit policy if they are irregular writers of the loans.

Savins said there is often a perception that there is no solution available to borrowers – particularly the self-employed – and because of a lack of bank appetite, more specialist lenders were coming back to the nonconforming market.

He added that the market was ‘anti-cyclical’ in many ways, due to the increased opportunity to write these type of loans in a market

Allan Savins

where mainstream lender appetite contracts. Savins said increased competition would only raise awareness of the viability of these loans among brokers.

‘Clear divide’ in home loan demand as sales head north Mortgage sales are continuing to rebound following a weak start to the year, but the reasons behind the rise may vary between states.

AFG’s monthly Mortgage Index for March showed a 53% rise in mortgage volumes since January, when weak seasonal demand saw the company’s numbers dip. AFG settled more than $2.9bn in loans, up more than $100m from February and a spike of $1.1bn from January.

The aggregator said the rise showed a “clear divide” in the drivers of home loan demand between the East and West coasts.

While investors dominated the market in NSW, accounting for two out of five new mortgages, they were less active in Queensland,

comprising around 33%. Investors were also quiet in WA, where loans for investment property have been decreasing since December 2011.

Instead, the Western seaboard saw strong demand from first homebuyers, which accounted for 20% of the loans sold, far surpassing demand in NSW (13.4%) and Queensland (16%).

Overall the market was driven by investors and refinancers, which accounted for nearly three-quarters of the market nationally. AFG said the activity of investors was evident in other figures, as well.

“For the second month in a row, the average new home loan across Australia was above $400,000.

However, LVRs remain steady,

indicating that buyers are not taking on greater levels of debt to fund their purchases. This also reflects the large proportion of investors in the market, who typically use equity in one property to help pay for another,” the company said.

NSW saw the largest average loan size, at $476,278, but not the highest LVRs. Both Victoria and WA had higher average LVRs, at 69.1% and 69.8%, respectively.

Fixed rates were also popular, accounting for more than a quarter of AFG’s new loans.

Major

Non-Major

Total

77.10%

22.90%

Investors

78.20%

21.80%

First Homebuyers

70.10%

Refinance Source: AFG’s February Mortgage Index

0%

29.90%

82.70%

20%

40%

17.30%

60%

80%

100%

8

brokernews.com.au

News Nothing ‘apathetic’ about equality: Flavell NAB Broker’s John Flavell has taken aim at competitors criticising the bank for shelving its segmentation model.

Commonwealth Bank executive general manager of third party distribution Kathy Cummings recently commented that lenders who fail to segment their broker channel are ignorant and apathetic to clients.

But Flavell has claimed NAB Broker has seen improving conversion ratios without dangling a segmentation carrot.

“I want to deliver a great level of service to all brokers consistently, and I don’t think there’s anything ignorant or apathetic about that,” he said.

Flavell also expressed frustration with lenders putting the blame for low conversions on broker inefficiencies.

He commented that lenders have the responsibility to clearly communicate to the channel.

“It really bothers me when lenders start to point the finger at brokers and say, ‘you guys need to get your act together’. It’s incumbent on the lender to say, ‘here are our procedures, here are our policies, this is what we can do, this is what we can’t do, this is what we need, and here are the tools to make it easy,” Flavell said.

Flavell claimed that NAB Broker’s outbound calling program had led to fewer problems around conversions.

“Our conversions continue to head north, and I reckon the biggest driver of that is telephone calls. If a broker hasn’t dealt with us before, that one phone call can solve the issue at hand, but also

set up the relationship for every other subsequent deal as well,” he said.

Flavell argued that the bank was comfortable with its conversion ratios, and said a 70–75% rate was “a good place to be”.

“I don’t expect to convert 100% of applications. Ten per cent of loans alone are going to decline for credit. It it’s less than 10% you’re probably being a little bit brutal with the market. If you get more than 15% declining that means you’re not adequately communicating your policy to brokers,” he said.

“Then you get customer circumstances that might change, and in a competitive environment where people are refinancing and lenders are trying to retain them, you lose some of those too.

John Flavell

“Between credit decline, and a little bit of the customer changing their minds and a little bit of competition, if you can turn around and deliver more than 70 cents, 75 cents on the dollar, then that’s a good place to be,” he explained.

Vow panel expands to meet move away from majors

Tim Brown

Vow Financial hopes that a new batch of four lenders it has added to its panel will offer unique options for brokers who are increasingly moving away from the majors.

The company has announced the addition of Adelaide Bank, ME Bank, Hemisphere Financial Solutions and Barnes Home Loans to its lender panel. Vow chief

executive Tim Brown said the aggregator had piloted the lenders with some of its broker network, but was now rolling out access to all of its members in the wake of a move away from the majors.

“Over the past few months we have definitely noticed a movement towards the non-major banks and other smaller and more innovative financial institutions, with 32% of our business now being done outside CBA, ANZ, Westpac and NAB,” he said.

Brown commented that this move towards second tiers has seen Adelaide, traditionally a funder of white label products, look to gain market penetration via its own brand.

“I think traditionally Adelaide has dealt with mortgage managers, and [aggregators were] probably not their domain. But, like most second tier lenders, they feel the need to expand themselves using their own brand rather than

a mortgage manager’s brand. I talked to Damian Percy, and he was very keen to come on the Vow panel after we talked about it,” he said.

ME Bank is a recent entrant to the third party channel, and Brown commented that the lender opened up a new borrower demographic for Vow. “They’ve got a really competitive offer and are affiliated with union members. It’s a product we’ve traditionally had to compete with and we’ve tried to offer alternative products because we didn’t have access to it. It means we can now solve that issue for union members who want that product,” he said.

The addition of non-bank lender Hemisphere and mortgage manager Barnes Home Loans could provide benefits for less experienced brokers in the Vow network, Brown claimed. He said the lenders were traditionally more willing to work to get deals

across the line. “What they provide potentially is a service many traditional lenders don’t provide. Traditionally, they have two or three lenders on their panel they fund through, and for the inexperienced broker they deal with them and help place their loans. For some of the harder deals they work with them and find a way to place it.

“For a traditional lender, if it doesn’t fit they won’t do it, whereas someone like Barnes will try two or three times,” Brown said.

As more of the aggregator’s business flows to smaller lenders, Brown suggested that the marketplace was seeing a shift in mood.

“This reflects the mood of the market whereby it’s not just the brokers who are looking for greater choice, but also their clients who are looking outside the more traditional financing options,” he said.

10 brokernews.com.au

News

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

‘Consolation prize’ in arrears spike

RBA moves influence homebuyers

1.52%

1.52%

0.61%

22%

25%

22%

25%

32%

29%

39%

36%

22%

29%

25%

22% 22%

25% 25%

32% 22%

29% 25%

39% 32%

36% 29%

39%

29%

28% 36%

29%

28%

28%

Looking up: Borrowers breathing easier Arrears have jumped, but a trail issue of mortgage arrears book vendor has claimed brokers increasing is a reflection that the get a “consolation prize” from an economic climate is deteriorating. extension of the average loan life.

When this happens, people are The Fitch Dinkum Index has less active in the housing market. shown an unanticipated increase That means that along with in mortgage delinquencies, with arrears going up, the average life arrears rising from 1.52% to of a loan also goes up,” he said.

1.57% over the quarter, and the While a difficult economy may ratings agency predicted things be nothing to cheer, Young said Over 50% of Good time Comfortable Experienced Expect difficulty could get worse as seasonal brokers could take some measure income to to buy a home borrowing difficulty repaying repaying Christmas spending filters of comfort in the lengthening of service debt mortgage mortgage Sept 2011 above 80% LVR through. But brokers may have average loan life.

Source: Genworth March 2012 Sept 2011 nothing to fear from the rise, as a “It’s not that arrears are good, March 2012 tough economic climate extends and to an ongoing mortgage broker Moves by the RBA provide a boost “busting for a cut”. He said this average loan life. running a business I certainly to homebuyer confidence, even sentiment was fuelled by media “In a poor housing market, the wouldn’t want to say the economy when banks don’t follow suit. reports suggesting RBA cuts were rate of churn decreases and the deteriorating is great, but the very, A Genworth study has found imminent. average life of a mortgage very small silver lining is that the that the official cash rate impacts The survey also found that increases. If you look at the boom average life of a loan is going to go buyer sentiment, regardless of how Australian consumers are Over the 50% average of Good time Experienced difficulty times back in 2004, out andComfortable so the value of the book is Expect banks react to RBA moves. The becoming more comfortable with income to to buy a home borrowing difficulty repaying life of a loan actually dropped go time up. It’s not evenrepaying a silverExperienced mortgageExpect insurer’s Streets Ahead higher LVRs and higher levels of Over 50% ofgoing to Good Comfortable difficulty service debt above 80% LVR mortgage mortgage income to buy a home borrowing difficultyhomebuyer repaying repaying down to below four years. It’s up to to lining.

More like a consolation confidence survey debt. Shields predicted that service debtprize,” Young said. above 80% LVR mortgage found 39% ofmortgage potential homebuyers average LVRs could creep up as five years now, and getting longer believe now is a good time to homebuyers feel more amenable and longer. The tougher the Young commented that this purchase, up 2% from September towards taking on more debt. environment, the longer the longer loan life could offset the 2011. RFi research director Alan “We’ve found there is almost no average life of the loan becomes impact of a small portion of Shields said the survey showed the correlation between indebtedness and the more stable the trail book arrears on brokers’ books. impact of the Reserve Bank’s and stress. Australians appear becomes,” said Trailer Homes “Say you have 100 loans on your successive cuts late last year. “The slightly more indebted than they director Nick Young. book and maybe one in arrears cash rate has a disproportionate had been, yet stress is not going Young commented that arrears and 99 performing. When you influence on homebuyer up. And if they’re comfortable with and loan life did not have a cause move to an environment where sentiment,” he said. their debt and they’re not stressed, and effect relationship, but were there are two loans in arrears, Genworth president and CEO the likelihood is they’re going to both symptoms of a deteriorating those two are not paying trail but Ellie Comerford agreed, and borrow more,” Shields said. economy. “It’s wrong to directly the other 98 loans are there for pointed out that mortgage stress The Genworth survey found 32% link mortgage arrears with longer. Net-on-net, the trail book is caused by interest rates had fallen of respondents were comfortable average loan life. The underlying more valuable,” he said. from 50% in September 2011 to borrowing at LVRs above 80%.

32% in March.

The result was up from 29% in 30+ delinquencies Arrears on the rise “Despite lenders not passing on September last year. In spite of the 90+50bps delinquencies the full of cuts, we can see higher LVRs, Shields said 1.52% the lowering of the cash rate by the Australian homeowners seem to be 1.27% RBA since September 2011 has having an easier time meeting made a significant impact on their repayments. borrower sentiment,” she said.

“The proportion of people 0.63% 0.61% Shields also pinned heightened comfortable buying at higher LVRs stress in September’s survey on is up, but the proportion of people media speculation over the Reserve both anticipating and experiencing 30+ delinquencies Q32011 Q42011 Bank’s future moves, claiming by mortgage stress has improved,” Source: Fitch Ratings September homeowners were Shields said.

90+ delinquencies 30+ delinquencies

Optimism, frustration fuel new year broker shift 90+ delinquencies

Brokers0.63% are increasingly 0.63% shifting away Q42011 from the majors as “optimism” Q42011 returns to the mortgage market Frank Paratore and some brokers become frustrated dealing with the Big Four.

Ballast general manager Frank Paratore has claimed the aggregator has seen second tiers and non-banks re-energised as brokers make a move away from the majors.

“We have seen more movement towards the second tiers and non-banks, so they’re picking up a bit more market share. The non-banks always had a pretty compelling price proposition and their service offering has always been good,” he said.

Paratore theorised that many brokers may also be frustrated from their past dealings with the majors. “I think probably a few brokers, just from the frustration of dealing with the majors, have said ‘let’s try one or two deals with a smaller lender and see

how it goes’,” Paratore said.

This shift towards smaller lenders does not necessarily represent a significant change in their proposition, Paratore said, but could rather indicate that messaging about lender competition is finally finding some traction.

“I don’t believe anyone has any vastly superior products, but I think hopefully all the drumbeating about non-banks over years and years and years has caught on. It could also be a sign of a little more optimism in the

market which is helping to see more of the spread move back to the non-banks and second tiers,” he said.

However, Paratore said many brokers remain fixated on sending deals through a small number of major lenders.

“With the industry doing the bulk of its business with a few institutions, under the NCCP, is that the best option? No disrespect to the lenders, but if a broker is doing the bulk of their business with CBA or NAB, you have to ask the question, ‘why?’ ” he said.

Sept 2 March

12 brokernews.com.au

News

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

Cross-sell must escape ‘do you want fries with that’ mentality The industry has been urged to avoid a “do you want fries with that” mentality as brokers increasingly Rachael Witton seek out ways to diversify their income.

Debt Rescue operations manager Rachael Witton has stated that brokers looking to diversify should make sure they do not fall prey to a “dilution of skills” as a result. While Witton said diversification was necessary, she called on brokers to be “traffic controllers” rather than trying to work across a range of financial services.

“If [diversification] is delivered correctly and someone has the necessary qualifications, by all means, go for it. But if they’ve been a finance broker forever and have just done a couple of units in financial planning, I don’t think it’s the right thing,” she said.

Witton argued that the “onestop shop” model of holistic financial services was possible, but was rarely executed well.

“A lot of people have a mechanic, and a dentist, and a financial planner and a finance broker, and don’t want one person to have all those answers. I don’t believe one person or one firm can deliver all that. There are

those out there who are doing it well, but they’re not found on every corner and I don’t think they should be,” she said.

Instead, Witton said brokers should look to referral relationships. She commented that brokers should position themselves as experts in securing finance, but also be willing to admit the areas in which they do not have expertise.

“You’ll always look better in the eyes of the client by identifying what you don’t know and finding someone more appropriate to meet the client’s needs in that area. I realise we have to shore up our client base, but I don’t want to see us move into a ‘do you want fries with that’ mentality. Brokers need to be proud of their profession and stand up and say ‘this is our profession’,” she said.

Witton also does not believe brokers have to fear the foray of financial planners into the industry, but can instead form healthy referral relationships with planners without the need for “feeling threatened or feeling like we’re competing”.

“With our expertise in this area, I don’t think financial planners really want to be crossing over into finance broking. Each one has its own specialty and needs its own qualification. If you’re working on the fringes, something has got to give,” Witton said.

Brokers should capitalise on cash flow concerns Brokers have been called on to latch onto debtor finance as small businesses express concern over meeting cash flow needs in the year ahead.

The Bibby Barometer Index, measuring small business expectations has found that 22% of SMEs said their survival was threatened in the last 12 months by a lack of access to cash flow, and small business expectations of the economic environment have decreased by 6%. Bibby Financial Services national sales manager has told Australian Broker that the results portend a jump for debtor finance, as many SMEs eschew traditional bank lending.

“Banks do require too much security, and we’ve been aware of that for a long time. The factoring industry is growing and maturing, and it’s something we’re trying to encourage the broker channel to grow with given the opportunities present to diversify their revenue base,” Green said.

Green said brokers have traditionally been unfamiliar with the debtor finance market, and had failed to take advantage of the additional revenue it could present. However, he indicated that this was slowly changing as the third party channel matured.

“Things are improving gradually. Firms like Bibby are very broker-friendly and brokerfocused, but it is a bit of a slow burn as the channel matures and the debtor finance product penetration increases. Half of our

new opportunities are sourced through the broker channel,” he said.

Green claimed the sector presented increased opportunities for brokers, with more SMEs looking to access debtor finance.

Bibby research suggested that 64% of businesses with $1m or more in turnover believe bank lending requires too much security, and while Green conceded few brokers are debtor finance specialists, he argued that brokers should look to add the products to their repertoire to increase the opportunity for revenue diversification.

“It is a niche product. Debtor finance certainly doesn’t have the scale of traditional bank lending products, but it’s all about strengthening their relationship with the client base. Debtor finance is another tool in their toolkit,” he said.

‘Bad, clunky’ construction lending on the way out

NAB has touted improvements to its Homeside construction lending, which it conceded had been “bad and clunky”.

NAB Broker national manager of sales performance Adrian Cunningham has told a gathering of brokers in Sydney that the bank identified construction lending as an area of improvement for Homeside.

“To be honest, construction lending at Homeside, if you’ve dealt with us in the past, has been

really bad and really clunky. The communication around the process, particularly during the draw-down phase, has been quite poor. We’ve identified that as a real weakness we had in our suite of policies and invested time and energy in it,” he said.

Cunningham said the bank had responded by appointing a dedicated team of construction case managers to handle files from unconditional to final draw-down.

“These case managers are trained on the nuances and intricacies of building construction. They’re not shy talking to builders,” he said.

He commented that Homeside had also made changes in the way it interacted with construction clients.

“When you have the final progress payment, we actually give the client the option to receive that cheque from a NAB branch in person. It’s about keeping the client in control of the transaction and making sure they’re fully comfortable with what they’re doing,” Cunningham said.

A major change to the Homeside construction policy has been around product, Cunningham said. He stated that this was a change about which many brokers may be unaware.

“You can now take our Homeplus product on construction loans. Previously, you had to take our Performance Line of Credit, which was priced slightly higher.

The Homeplus product means your client gets access to our best

rates, and it also means they get access to cheaper fees and the credit card package that comes with the Homeplus product,” Cunningham said.

These improvements, Cunningham claimed, had already yielded tangible results. He said the appointment of dedicated case managers who understood the construction process made the process more efficient.

“One of the key things we’ve seen is turnaround times. It previously used to take somewhere around five days or longer to process progress payment requests, and now we’re getting that done in 24–48 hours. It’s largely because we’re cutting out a lot of the driftwood and the to-ing and fro-ing in communication.”

brokernews.com.au

13

NFC targets niche investors National Finance Club has announced a suite of products targeting property investors, which it claims will fill niche gaps in the market.

The products include an alternative documentation loan, an SMSF loan product and a National Rental Assistance Scheme loan. Firstfolio executive general manager of retail distribution, Andrew Clouston, said the products will offer brokers a solution to niche investor markets, and would help brokers diversify their income “in light of continued softness in residential property markets”.

“We have designed these products carefully for niche investor markets, and have worked hard to ensure they are well priced. We believe they will be well received in the market and will strengthen the position of our affiliated brokers in a competitive market,” Clouston said.

The company’s alternative doc loan will be aimed at self-employed borrowers looking to borrow up to $1.25m. Clouston said the product would ensure a “quick and easy” settlement period, and that income would be verified through a declaration of financial status and supporting accountant’s letter.

“There is growing demand among

self-employed borrowers for hassle-free loan products with streamlined verification and settlement processes, and this product meets that need,” Clouston said.

Andrew Clouston Clouston commented that the SMSF product aimed to help SMSF members build a “conservatively geared asset portfolio” while meeting complex compliance requirements. NFC piloted its SMSF loan in late 2011, and Clouston said the lender had recorded “strong interest and uptake”.

“Gearing can be a highly effective way to boost long-term returns from an SMSF strategy, and it opens up new asset classes, particularly real property, to self-managed superannuants,” he said.

The company’s NRAS loan will allow individuals to invest in rental properties with guaranteed income from the government under the National Rental Affordability Scheme.

NFC said all the products would be available to accredited brokers, and that a 24-hour accreditation process was available to non-accredited brokers.

Audits imminent as motor finance sector gets it ‘very wrong’ ASIC is not far off auditing the motor vehicle finance sector, one industry body has claimed, and many in the sector are getting compliance “very wrong”.

The FBAA is conducting compliance training for motor finance professionals, and president Peter White has claimed many in the industry are failing to meet NCCP obligations.

“We found that many of the motor finance professionals in the broker part of this sector were well on top of their NCCP obligations, but with some minor tailoring required. But the car yard finance side of things had many variations – some right and some very wrong – even from some motor finance lenders,” he said.

White said the sector ran into confusion “especially where the point of sale exemptions under the NCCP lies or where it doesn’t, versus when the car yards are acting as a consumer finance broker under the full regime of the NCCP”.

White said the FBAA had previously warned that regulations relating to motor vehicle finance could cause trouble for the industry.

“The biggest problem is the legislation was written with home loans primarily in mind. From day one of the meetings with Treasury, the FBAA highlighted the problems for the motor finance sector, if this was not properly focused on, and the right language used and understood,” White said.

In light of this, White said the FBAA had commenced compliance seminars for motor vehicle finance “with the knowledge and well wishes of both ASIC and Treasury”. “[We have] now educated a few hundred motor finance professionals nationally, with more roadshows to come. ASIC is not far off auditing this sector, and we were directed to educate as many as we could before these audits begin,” he said.

White commented that education was tantamount in light of the imminence of ASIC audits.

“The last thing we want to see is ASIC auditing this sector and [the sector] being belted for not complying to the full extent of the NCCP,” White said.

14 brokernews.com.au

News

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

Conflicts could spear brokers in property advice

John Moore

Brokers providing property investment advice have been warned to beware of conflicts of interest.

Forrester Cohen International chief executive John Moore has commented that brokers advising on investment property can fall prey to conflicts of interest. Moore

said referral relationships with property investment services only provide a limited range of properties, which could see brokers pushing properties which are not entirely suitable to a client’s circumstances.

“The problem has been in the past where the broker innately has an interest in getting a deal across the line,” Moore said.

Moore commented that Forrester Cohen’s platform, which he said “breaks the relationship between the advisor and developer”, helps to remove any conflict of interest questions.

“Brokers fundamentally don’t have a conflict of interest in this situation because they don’t have any direct relationship with the developer. That allows them to provide independent advice to their clients,” he said.

The company has tipped the launch of its platform – which

provides access to investment property listings, independent research and managed commission payments – into the mortgage broking sector. Moore claimed the company was currently communicating with “a lot of the larger aggregators” to roll the service out to brokers.

“The key thing is that, because we don’t sell property, the goal is to ensure a compliant operation of the property investment marketplace. That’s a big attractor for some of the aggregators,” he said.

Moore said providing independent property advice was “absolutely” an area of diversification brokers should pursue, arguing it provided brokers with a stronger service proposition and “stickier” customers.

“I’m sure there’s a lot of frustration when clients say, ‘I

want to buy this investment property’, and the broker is trying to find the loan, whereas there can be a much better service proposition than just finding a loan. Brokers have a very trusted relationship with their clients, and it makes sense for brokers to have that level of service in terms of property advice,” he said.

But Moore warned that brokers could find themselves facing potential compliance pitfalls by offering investment property advice which focused on pushing specific properties.

“The broker has access to a wide range of investment opportunities, and can model the outcomes of those investment opportunities to suit the client without having any interest in selling any particular properties. Brokers will go to other companies and they will provide only the properties they have access to,” he said.

Fixed rates bank fave as DEF ban bites

Analysts say glory days gone for good

An analysis has claimed recent rises in fixed rates have been a response to last year’s unilateral ban on exit fees.

Damian Smith The past six months of fixed rate competition have seen nearly one in 10 borrowers opting for fixed rate products, according to research from Canstar. Inverted yield curves have increased the profitability of the products for banks, but one industry figure has drawn a correlation between banks’ fixed rate and the DEF ban.

“Many lenders have been offering fixed rates lower than their variable rates since August last year, following the banning of exit fees for variable loans on July 1, making fixed loans more valuable to lenders,” RateCity chief executive Damian Smith said.

In analysis carried out for News Ltd, RateCity has claimed recent upward moves on fixed rates were attempts by banks to offset the cost of the government’s exit fee ban. Banking representatives, meanwhile, told News Ltd the moves on fixed rates were solely a response to shifts in the yield curve and the expectation of steady rates from the RBA.

The “historical drivers” of housing credit growth have disappeared, and those anticipating their return may face a long wait.

The JP Morgan/Fujitsu Australian Mortgage Industry Report has predicted that the sluggish credit growth environment in Australia is here to stay as households continue to deleverage and banks become more risk-averse. JP Morgan banking analyst Scott Manning has said that the factors driving credit growth in the past – such as the “generational shift” to lower interest rates, booming housing price growth and a strong demand for investment properties – have disappeared. Manning claimed these drivers are unlikely to return any time in the near future.

“We believe that overall household gearing tolerance has reached a peak at current levels given the substantial expansion in housing credit over the past 20 years. We are forecasting system housing credit growth to remain at mid-single digits over the coming years, relative to the mid-teen growth rates experienced prior to the global financial crisis,” Manning said.

A subdued lending environment will become the future norm, Manning said. He pointed to a “fundamental shift” in risk appetite; not only for consumers,

Regardless of the reason, Smith said fixed rates were beginning to rise from the unusual lows seen last year.

Canstar’s research indicates that lenders have dropped three-year fixed rates an average of 111bps since June last year, but Smith said the trend is not set to last much longer.

“We’re in a historically unusual phase, where 92% of lenders in RateCity’s extensive database currently have three-year fixed rates lower than their standard variable offering. But in the long run, we wouldn’t expect three-year fixed rates to be below variable rates, so it’s not surprising to see these rates start to creep upwards,” he said.

Indeed, Smith said, fixed rate pricing is already beginning to rise, with lenders such as ANZ, Suncorp and Citibank lifting the rates in recent months “Three-year fixed rates are starting to rise for the first time in 10 months. The average three-year fixed rate – which is the most popular fixed term by borrowers – is the highest it’s been since December 2011, at 6.36%,” he said.

In light of the movements, Smith urged borrowers considering fixed rates to lock in now, before the rates continue their creep upwards.

but for lenders and regulators as well.

“We expect future housing credit growth to reflect a return to fundamental Scott Manning factors including normalised loan to valuation ratios, modest investor participation in the market and increased costs of funds,” he said.

Lower interest rates helped drive housing credit during the 15-year period to 2006. The shift saw credit growth skyrocket to 15.2%. But JP Morgan and Fujitsu said this tolerance to debt has substantially decreased since the GFC, with the proportion of households taking on new debt falling to 3.3% per annum.

In light of this subdued environment, Manning said banks will have to find new strategies to combat lower demand. And merely repricing mortgages to woo borrowers may not be enough, he indicated.

“More recently gearing tolerance has declined despite lower interest rates. This could be due to a number of factors including concerns around sovereign debt, global economic growth and the repricing of domestic mortgages by many local banks reflecting the higher cost of deposits and term funding,” Manning said.

brokernews.com.au

15

INDUSTRY NEWS IN BRIEF Online not just for first-timers Second and third-time buyers are just as eager to search for borrowing options online.

Brokerage group MoneyQuest, which generates leads via an online brokerage model, said online enquiries over a 12-month period prove that the channel attracts a cross-section of borrowers at various stages of their borrowing lifecycle.

MoneyQuest joint managing director Julian Mattatia said talk in the industry usually focused on online channels not being suited to second and third-time buyers.

However, a sample of over 15,000 leads generated by MoneyQuest’s online lead generation sites show that refinancers were highest at 32%, followed by first homebuyers at 25%. Investors accounted for 21% of enquiries, while people moving made up a 12% slice.

AMA nominations open Nominations have opened for the industry’s prestigious 11th annual AMA Awards. Businesses and individuals have been invited to nominate brokers and brokerages worthy of recognition for their outstanding performance across 21 award categories. This is the first step in the rigorous judging process for the AMAs and will be followed by extensive industry research to identify the most worthy finalists. The AMAs are the longeststanding independent awards event for the mortgage broking industry, and provide the most prestigious accolades for mortgage professionals. Nominations can be submitted online at www. australianmortgageawards.com.au – get your nominations in today!

Rate plea follows FHB drop First homebuyer activity has taken a significant hit, as one broking business has pleaded for rate cuts. Loan Market data has revealed a 20% decline in first homebuyer activity for March. The drop was felt most severely in NSW and Victoria, with falls of 25% and 23% respectively. Queensland was the only state to see a rise. A Loan Market spokesman suggested that the RBA’s rate hold as ensuing out-of-cycle moves from lenders had scared off many would-be first-time buyers.

Best of the best, for those who remember While last year’s MFAA conference may be a blur to many bleary-eyed participants who hung around a bit too long at the annual FirstMac party, it’s drawn the attention of industry awards honouring big events. The organisation’s 2011 National Convention has been handed the NSW award for Best Association or Government Meeting at the NSW Meetings and Events Industry Awards, and the MFAA said it is a “strong contender” for the National MEA Awards.

“We are delighted to win the NSW Association or Government Meeting of the Year Award, and are pleased to see that the 2011 Convention was a great success and high value experience for our members,” MFAA events and sponsorship head Paula Kennerson said.

Australia’s top franchise brokerage – revealed The top franchise brokerage in Australia has been revealed this month by MPA magazine – and it’s not Wendy Higgin’s multi-award-winning Mortgage Choice franchise. Choice Home Loans Leederville has taken home the first MPA Top Franchise Brokerage trophy, awarded in partnership with ING Direct. Principal Marco Meloni attributed the brokerage’s success to putting the client first, as well as support offered by aggregator Choice.

“It’s the backing and the expertise. Choice is fantastic with its quoting system and its CRM; it has great BDMs, very personable.

You don’t feel like you’re in a big organisation, it still feels like a family to us.” “A great team, working together, can achieve significantly more than the sum of its parts,” said MPA editor Kevin Eddy.

AFM crosses codes with Bulldogs partnership Australian First Mortgage has thrown its support behind another footy code as it eyes greater visibility among brokers.

The lender has announced its sponsorship of the Canterbury-Bankstown Bulldogs for the 2012 season, with national sales manager Clint Hawthorne calling it a “strategic move” to raise the company’s public profile. AFM earlier this year announced it would sponsor the AFL’s Greater Western Sydney Giants.

Hawthorne said at the time the move highlighted the lender’s “underdog” status. Hawthorne said the company’s new sponsorship would “emphasise our position” as an alternative to major lenders. The company also announced David White as joint managing director.

Have you visited MPA’s home online?

Australia’s mortgage and finance professionals now have even more industry news and business content available online with the re-launch of Australian Broker Online and MPA Online. Rebranded as Australian Broker Online, this website will continue to provide the cutting-edge news, opinion and analysis to which the industry has grown accustomed.

The new MPA Online brand will contain high-end business content including special reports, profiles and interviews with industry leaders.

Readers can now visit this all-new site and can also sign up to MPA Online’s e-newsletter, which will deliver original content. Key Media managing director of business media Justin Kennedy said this move “provides our readers with more access to a broader range of content”.

16 brokernews.com.au

News THE COALFACE SMSFs in vogue at Choice Capital

Living in the now, as hard work pays off

Albert Parkbased brokerage Choice Capital is a step ahead when it comes to capitalising on the SMSF Josh Durrant lending market.

Broker Josh Durrant at Choice Capital said the business saw an opportunity early in SMSFs due to its structure as a mixed financial planning and mortgage broking business.

“We saw an opportunity there, particularly with the uncertainty in the sharemarket,” Durrant said.

“In Australia, bricks and mortar have been seen as a solid investment for a number of years – there are drops and dips but in general growth and stability has been shown over a long period of time.

“With the uncertainty in the sharemarket, people want something more stable – we saw it as a good opportunity to educate our clients and a lot of them have since come on board,” he said.

Choice Capital markets its SMSF expertise to its existing client base, which has been built up over a 10-year period since the business started from a commercial lending base.

“At our SMSF seminars, the financial planner will talk about how the structure of an SMSF works, we’ll have a real estate agent or buyer’s advocate talking about the property market, and

Easi Home Loans managing director Dean Riordan is having an easy time of the Perth market this year due to reliable repeat business and investors looking back at the market.

Speaking with Australian Broker in March, Riordan said that the enquiry level from borrowers has been ‘very good’ this year, particularly due to a raft of attractive fixed rate offers that began late last year and continued into the new year.

Riordan said that most of these new enquires were coming from his stable of existing clients, which he had built up over a long career in the mortgage broking business.

“Ninety-five per cent is repeat or referral business, so I am either doing business again for existing clients or existing clients are referring me to their friends or family,” he said.

“I’ve been in this industry 13 years, and I have religiously looked after clients, in the good times and bad times, and I’m now even getting a second generation coming through, with mums and dads recommending me to their kids,” he said.

“Some brokers live in the now, as opposed to wanting that repeat business,” he said.

The fixed rate spike has led to an ‘organic’ spurt of enquiries from existing clients, rather than Riordan having to generate business through active direct marketing.

finally a broker will then talk about how to structure the loan and how the banks will assess their application. The seminars are all based around educating our clients.

“The feedback and business opportunities that have been created from it have been fantastic,” he said.

Durrant said SMSF advice fits well within its holistic business model, where brokers work hand-in-hand with planners to advise clients across more diverse financial needs across the business.

“When the broker sits down with a client and they go through the client profile forms, they will ask questions about their current financial position and what they are looking to do in the future.

Some of those questions will relate to superannuation and insurance, which can lead to the client being introduced to one of our financial planners,” he explained.

Choice Capital added the financial planning arm to the business over five years ago.

Durrant said since then it has gone from “strength-to-strength”.

• SMSFs provide holistic addition • Client seminars yield leads • One-stop-shop model a success

• Repeat business drives enquiries • Perth more attractive to investors • Lender appetite strong

“I’m in constant communications with clients anyway, so it just naturally happens that way, it doesn’t take much for a client to hear something and come to ask what I think,” he said.

Riordan said that the rest of the year looked promising, due to his opinion that the Perth market has hit bottom, and investors would start to step back in as the market swings up.

“We see a lot of opportunity in the investor market again,” he explained. “I think there is an upside to it coming – I’ve been saying so for a little while.”

Riordan said that investors have realised the fundamentals of the Perth market were strong.

“At the moment we have cheap prices, a low vacancy rate, and high rental yields. We’ve also got mining on our side, and interest rates have come off, so everything points to investors coming back to the market again,” he said.

He added that lenders in WA were contributing to the positive outlook, as they were “yelling and screaming” for business. “At an enquiry and lender level, it’s really been fantastic.”

Tarot shows positives for women in business Balancing work and family can be tough on women in mortgage broking, but for Loan Market’s Sarah Thompson the outlook is bright, especially after her last tarot reading. “She said we are going to have a fantastic year ahead,” Thompson said.

The tarot reading was just one of the more light-hearted highlights of Loan Market’s first ‘Women in Business’ event in Melbourne, which included more weighty issues facing women in an industry that has been traditionally dominated by men.

“It was a good opportunity to have a chat with other women in this and similar industries,” Thompson told Australian Broker.

“We talked about the differences between men and women in the

mortgage business – particularly about the family commitments, and the pressure that comes with having those added responsibilities.”

Loan Market Victoria and Tasmania sales manager Beth Poyser said the event featured a panel discussion on the topic of “being female in a maledominated industry”.

“It’s so important to ensure that we get together as a group to share ideas and get to know the other female brokers in our company and within the industry,” she said.

Poyser said mortgage broking is an industry increasingly drawing female entrants.

“Loan Market has 35 female brokers in Victoria and

Loan market greets ‘Women in Business’

Tasmania, while five of our top 20 brokers in those states were women. I have also had fantastic career opportunities at Loan Market after starting with the company as an administrative assistant,” she said.

Thompson said the event was attended by a lot of mothers.

“One of them even brought their child along, which screamed for a

while before they ended up leaving,” she said.

Loan Market plans to host more of the events in the future.

Thompson, for one, said she would be attending.

“It was pretty successful. Since then I’ve had a lot of interest from people who would like to come next time around, so it’s definitely something that will grow.”

18 brokernews.com.au

News to operate efficiently, and it’s becoming more and more difficult for smaller players in any distribution channel in the broker world to justify compliance and technology costs.”

Symond said he is a firm believer that consolidation will continue among aggregators, and that the market would see fewer surviving small aggregation outfits.

“Bigger outfits can better justify spending on infrastructure, on technology and on compliance, whereas a smaller outfit doesn’t have the resources. Even if they did, they couldn’t justify the expense when the business is tiny and on such skinny margins,” Symond said.

Fisher agreed that consolidation looks set to continue, and expressed disappointment that smaller players like NMB may no longer have a place in the industry.

“There’s a little bit of disappointment, because they’ve done well to grow the business to where it’s at, and I don’t think 200 brokers under management is a small number. Unfortunately where we’re heading is where smaller aggregators are squeezed out by larger players,” he said.

National Mortgage Brokers on the other hand claims it was not squeezed out. Instead, managing director Gerald Foley said the company wanted to get ahead of the curve.

Foley said the business had continued to see good volumes, growing its settlements by 10% for the 2012 calendar year thus far and its loan book by 8%, so a merger was not an imperative.

However, he thought that the added scale brought through the Aussie deal will put the aggregator ahead of the change happening in the market.

“I think there’s a lot of talk in the market about consolidation and the need for growth and sustainability, and you have the option to get in front of the change

Gerald Foley

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

Tiffen & Co upbeat about changing hands MPA Top 100 Broker Gerard Tiffen is decidedly optimistic about his aggregator NMB being Gerard Tiffen purchased by Aussie. Tiffen said the scale will provide better benefits for Tiffen & Co. “From a broker’s perspective, you hear about the things the AFG guys do for their top 20 brokers, and I think, ‘Wow, how awesome is that? How do we get some of that?’ I think that’s another thing that might change.

The level of opportunities will get better,” Tiffen said.

Tiffen called the acquisition “100% a good thing”, and said it could provide options for both Aussie and NMB brokers.

“Aussie brokers may be saying, ‘Hang on. Why am I paying Aussie for this when I could do it myself?’ They could move over to NMB. Likewise, there could be NMB brokers saying, ‘Boy, it’s tough out there. I’d love to have a name like Aussie behind me and get some leads.’ They can flip over to Aussie,” he said.

John Symond

or follow it,” Foley said. “It requires a different level of investment and engagement now, and it’s important to have the capacity to roll with whatever changes come along.”

Foley conceded that many smaller aggregators are having a tough time. “I do see smaller aggregators wondering where the growth is coming from. It can’t be a matter of just offering more commission. You have to have a competitive proposition on a lot of fronts,” he said.

For Fisher, though, NMB’s competitive proposition of being boutique is now gone. In an environment where such boutique aggregators are becoming an endangered species, brokers who prefer the model may have to look for an entirely new proposition.

“It may call for a new group of power brokers to get together and form a co-op. It may be a little bit of ‘watch this space’,” Fisher said.

Brokers to see boost from confidence swing A swing in confidence in the housing market is filtering through to on-the-ground brokers as Australians express more faith in the future of property.

The Smart Investor Index has shown a 45% swing in property market confidence for the three months to March, more than erasing a 35% downturn the previous quarter. MPA Top 100 Broker Warren Dworcan of Rate Detective Home Loans said he is already seeing the impact of a return of consumer confidence.

“Probably the best sign of that is some of the pre-approval applications we’ve had sitting on the sidelines where people are looking for property to purchase, they’re actually finding property that’s suited to them. Valuations are also coming up slightly higher than they were, which again is another indicator that some confidence is coming back,” Dworcan said.

Working in Osborne Park, WA, Dworcan said a better rental market in Perth is also providing a boost to his business.

“In Perth we’ve seen a drastic increase in the rental prices, and that brings investors back into the market in a big way because the yields are becoming more attractive,” he said.

The Smart Investor Index also saw a massive increase in confidence in the global economy.

Australians’ view of the global economy skyrocketed 218% as concerns over Europe and the US began to fade. Dworcan said Australians are becoming increasingly globally aware, and

are sensitive to shocks coming from other economies around the world.

“When we see difficulties with Warren Dworcan overseas funding and a slowdown in developing countries, that affects our mining industry. I think the average Australian reads the newspaper and sees the clear issues going around the world, and they’ve become a little more cautious about how that affects us here,” Dworcan said.

Overall economic sentiment improved 22% for the quarter, with job security proving the only area in which Australians’ confidence has fallen. With sentiment on a whole heading up, Dworcan said brokers can see tangible benefits.

“When we see these confidence levels improving, it does bring results quite quickly and that’s very positive,” he said.

Smart Investor Index March quarter 2012 (Quarterly movement) • Overall sentiment +22% • Individual finances +18% • Job security –4% • Property market +45% • Sharemarket +62% • Personal cash levels +12% • Bonds +16% • Investing +25% • Australian economy +10% • Global economy +218% Source: Smart Investor

brokernews.com.au

19

News Out-of-cycle hikes see banks cop it from customers satisfaction, with CBA coming third at 77.3% and Westpac at the bottom of the pile with 75.8%.

NAB gained the most traction in overall satisfaction over the year, while CBA saw the greatest increase in satisfaction among its home loan customers, improving by 9.2%.

Smaller banks continued to outdo the majors in the estimation of their customers. Heritage Bank was the top performer, with 91.9% satisfaction, while ING Direct rated 90% satisfaction and Bendigo Bank saw an 89.8% satisfaction rating.

Banks pay customer satisfaction price for hikes

Westpac

CBA

ANZ

NAB

77.4%

77.9%

78.7%

79.5%

77.9%

78.6%

77.3%

Feb 2012

77.6%

Jan 2012

75.8%

is worth noting that Westpac was the next to announce its home loan rate increase and as a result it also showed a significant drop in the satisfaction level of its home loan customers,” Morris said.

NAB recorded the largest drop in overall satisfaction, but Morris said this was due to a decline in satisfaction among non-home loan customers. The bank’s home loan customer satisfaction rating remained “virtually unchanged”, Morris said.

“This may have something to do with the fact that they were the last of the Big Four to announce an increase in their home loan rate,” he said.

The banks have still managed to hold onto the overall satisfaction gains they clawed back over the year. NAB remains in first place, with 78.7% satisfaction, up 6.5% since February 2011. ANZ held onto its second spot at 77.9%

76.3%

Customers have delivered a message to the majors following February’s rate hikes, with the banks declining in satisfaction ratings for the first time since March 2011.

Roy Morgan Research’s monthly banking satisfaction survey has indicated banks saw their first decline in customer satisfaction since March 2011, and out-of-cycle movements following February’s RBA rate hold were the culprit.

Communications director Norman Morris said holding the dubious position of first mover has proven to bring the most customer heat.

“On this occasion it was the ANZ who increased their home loan rate first and as a result their home loan customers showed the largest drop in satisfaction among the home loan customers of the Big Four. This was despite the fact that the increase in the ANZ rate was the lowest of the Big Four. It

Total Big Four

Source: Roy Morgan

More homes underwater, but most Aussies still in good shape The proportion of mortgage holders underwater has risen over the last quarter, but most Australians continue to see good returns on their homes.

The RP Data Equity Report has shown that negative equity across the nation rose from 4.9% in the September quarter to 6.4% for the December quarter. Properties in Queensland’s tourism regions and sea change markets have been especially hard-hit, with more than one out of five homes in some regions now worth less that its purchase price.

“Far North Queensland and the Gold and Sunshine Coasts have the highest instances of negative equity at 22.6%, 19.4% and 15.3%, respectively. Other lifestyle markets such as Western Australia’s Lower Great Southern and South West and Wide Bay-

Burnett in Queensland and Richmond-Tweed in NSW also show high levels of negative baseline equity. The result is reflective of the recent market conditions across many lifestyle regions,” RP Data said.

Length of ownership appears to play a crucial role in negative equity numbers, RP Data said. Of the Australian homes currently underwater, more than 75% were purchased less than five years ago.

“It is noteworthy that although this is a large portion of all homes in negative equity, only 15.8% of all homes purchased within the last five years are currently worth less than their purchase price,” RP Data said.

While a small portion of homes are in negative equity, a further 9.2% have equity levels below 10%. But there’s brighter news for

most Australian homeowners.

Forty-two per cent of Australian homes are now worth more than double their purchase price.

Though this number has fallen slightly from 43% in September, overall levels of equity remain high. In total, 55% of Australian homeowners have properties which have risen 50–100% in value since their purchase.

“The strong growth in Australian property values over the recent growth cycle has been the major reason why most regions enjoy quite a strong level of baseline equity. Over the five years to December 2011, capital city home values have increased by about 15%, providing a significant boost to most homeowners over this period,” RP Data said.

Top five areas of negative equity Statistical Division

Proportion of homes in negative equity

Far North, Qld

22.6%

Gold Coast, Qld

19.4%

Sunshine Coast, Qld

15.3%

South West, WA

15%

Lower Great Southern, WA

14.2%

20

brokernews.com.au

Analysis Broking industry to face dwindling numbers

It’s a lot of the older, banker types that are leaving the industry

B

Martin North

A dramatic decrease in broker numbers has been tipped, but it’s not all bad news

roker numbers have decreased dramatically since the advent of the NCCP, but the bloodletting is far from over.

The lastest JP Morgan/Fujitsu Australian Mortgage Industry Report has predicted that broker headcount will continue to shrink as the industry adjusts to the “new normal” of low credit growth.

Fujitsu Australia and New Zealand executive director Martin North believes this rationalisation could be dramatic.

“My theory is in Australia, we’ve already seen around 30% exit the market, and there’s probably about that number left to go,” North told Australian Broker.

On the other side of the globe in the UK, there has been a squeeze on broker numbers during and following the GFC. North has forecast that Australia could follow a similar path.

“If you compare the number of brokers to population we have here to the UK, we have twice as many broker numbers as in the UK. In the UK, there was a rationalisation of broker numbers through the GFC, and that has continued since then. The number of brokers there has halved from that lower number,” he said.

The catalyst behind all this is the increased cost of doing business. Commissions were eroded through the GFC while mortgage demand suffered. The combination of these factors may continue to drive brokers from the industry.

“If you look at the commission pools, they are so much lower than previously because the number of loans written has gone down. At the same time, the costs – and this is partly NCCP and partly the additional obligation placed on brokers by lenders – of writing business and managing business have gone up. In an atmosphere where the pool of commissions is going down and the cost of business is going up, I don’t think we’ve seen the end of the rationalisation,” he said.

A glimmer of optimism

It’s not all bad news for the broker channel. North said the industry has begun to see an influx of talent. And as younger brokers enter the market, they bring with them a savvy for changing client interactions.

“There are a lot of new brokers coming in who are younger and better trained, and they’re doing well.

It’s a lot of the older, banker types who are leaving the industry. I do believe that channel change and the demand for online services will fundamentally change the ways brokers need to interact with customers, and some brokers will find that harder and harder,” North said.

Moreover, should North’s 30% reduction come to pass, he believes the brokers left following the shakeup may find themselves in an enviable position. North had previously predicted that broker share of the mortgage market had topped out at 41%, but in late 2011 Fujitsu reported broker share had increased to 43%, and was headed back towards pre-GFC levels. As market share grows, the future could see fewer brokers writing significantly higher volumes.

“I actually think chances are that total volumes through brokers will continue to grow as new banks enter the market and existing banks try to trim their own costs,” North said.

Whether or not the industry is culled as significantly as North has predicted, he warned that brokers will have to adjust to the housing market’s “new normal”.

“It’s not all doom and gloom, but people need to get their head around the fact that there’s not going to be a massive rebound in home loans or house prices going through the roof. We need to develop new strategies in a lower growth environment,” he said.

FORUM It was Bank of Queensland on brokers’ lips last month, as the lender vowed to return to brokers to shore up its balance sheet (Broker backflip as BoQ seeks profit turnaround, 29/03/12).

However, the lender will have to work hard to win over the market They swing back into broker world again so we can save the day. There will be a lot of brokers who will be hesitant.

Brent on 29 Mar 2012 10:16 AM Why would a broker go back to them now when we have so many choices like ANZ, Homeside, Bankwest and even the CBA who are keen to see the business they write with the brokers increase. They also backed the broker channel during the GFC fall out. I will not be going near them.

Country Broker on 29 Mar 2012 10:17 AM

This sends a good message to the banks that the broker channel really does underpin their business. Let’s see the support it deserves.

Robert on 29 Mar 2012 10:31 AM So with this statement they’re already saying they’ll just be in it for a good time, not a long time? As soon as things improve, they’ll just dump and run again?

Rach on 29 Mar 2012 10:43 AM In my opinion any additional lender available to the broker channel is a plus.

The more lenders the stronger is the broker offering of choice.

Welcome back BoQ, the brokers will improve your bottom line with an efficiency internal salaried staff cannot match.

John Black on 29 Mar 2012 10:51 AM

They are joining the bandwagon of Members Equity, and credit unions that have returned to the broker space because the pie is so much smaller and they have no chance of reaching growth projections.

Keith Bridges, 29 Mar 2012 10:55 AM Macquarie, CUs and now BoQ. Suncorp is also providing us with an improved commission model. Next will be RAMS… MLH on 29 Mar 2012 11:22 AM

BoQ has defied brokers in the past – in and out of the broker space. See how long they hold up in the broker market until they decide everything is rosy again and close off again.

Hope they have their systems and processes worked out before they open up.

ChrisC on 30 Mar 2012 12:10 PM  To vote in our latest online poll or get involved in our forum, visit our home page at brokernews.com.au

Poll: Is independence an important consideration in your choice of aggregator?

With aggregator competition heating up, businesses are using the independence card as a recruitment tool – but does it matter to you? We asked brokers for their thoughts

48% Yes Source: Australian Broker Online

24% No

28% Doesn’t matter

brokernews.com.au

21

Review

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at brokernews.com.au

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 8.7

Headline: NAB Broker explains service snafus (page 4) What we reported:

NAB Broker last year vowed to deliver “compelling, consistent” service after conceding that a one-off technical glitch in December of 2010 had led to a negative perception among brokers.

Speaking to brokers in Sydney, the bank’s general manager of broker distribution John Flavell said it was no good for the lender to be “good one minute and terrible the next”, and vowed that he would lift broker satisfaction levels. He said the bank already had seen a shift in satisfaction from 39% to 55% in the months since the snafu.

What’s happened since:

Flavell has won himself some considerable favour with brokers over the last year. With NAB Broker’s latest figures indicating an 83% broker satisfaction rate, it appears Flavell’s vows have gained traction. He also won praise for the lender when he did away with its star segmentation program, extending top tier benefits to the bank’s entire broker network. The bank also saw its average turnaround times reduced from 7.5 to five days. NAB Broker national manager of sales performance Adrian Cunningham this year tipped further service improvements, including a drive to reduce the number and complexity of Homeside loan documents.

Headline: ASIC moves to axe ageism (page 4) What we reported:

In response to fears that the NCCP would cause lenders to lock out older borrowers, ASIC last year released a regulatory guide to prevent age discrimination. Then-ASIC commissioner Peter Boxall said the regulator was concerned over reports that older borrowers could be refused loans due to lenders taking an “unnecessarily restrictive” approach, and argued that reasonable financial enquiries could reveal other means by which a loan could be serviced, even if borrowers had no continued income stream. Boxall contended that the NCCP should not serve as “an inflexible barrier” for any borrower profile.

What’s happened since:

Brokers have continued to express concern that older borrowers could be left in the cold by the NCCP. Earlier this year, Assistant Treasurer Bill Shorten, in a letter obtained by Australian Broker, urged brokers not to be “rigid” in applying the rules of the NCCP. Shorten said NCCP regulations were “intended to apply flexibly enough to allow consumers to continue to access credit in line with their personal circumstances and lifestyle needs”. He assured brokers that the intention of the NCCP was not to lock out borrowers, and echoed Boxall’s comments that brokers and lenders could verify older borrowers’ ability to repay without the need for an income stream.

Headline: First homebuyers confident amid contradiction (page 8) What we reported:

First homebuyers last year showed a surprising level of confidence, given the fact that a rising proportion expected to have difficulty meeting their mortgage repayments in the year ahead. Genworth’s Homebuyer Confidence Index last year saw 19% of all homeowners express concern about meeting their mortgage payments over the coming 12 months, while 24% of first homebuyers thought they would struggle. However, first homebuyers were less likely to have actually experienced any difficulties making repayments. Seventeen per cent of first-time buyers said they had experienced mortgage stress, versus the market average of 21%.

What’s happened since:

Successive RBA rate cuts last year have buoyed homebuyer confidence this year, and so far even some out-of-cycle hikes by the banks haven’t managed to dull it. This year’s Genworth index found homebuyer confidence rose 2.1% to its highest level since March 2011. Thirty-nine per cent of respondents tipped now as a good time to buy a home, up from 36% in September 2011. Mortgage stress eased off as well, falling from 25% in September to 22% in March 2012. First homebuyers remained confident, with only 16% expecting any difficulty meeting their mortgage repayments, and confidence levels among the buyers rising to pre-GFC levels.

20

brokernews.com.au

Comment VIEWPOINT

Whether it’s a lender ‘bait and switch’, or intensifying aggregator competition, Australian Broker TV doesn’t shy from the controversial issues. Find out what our pundits had to say

Game on, as aggregators seek you

Lisa Montgomery, Resi Home Loans

Brokers lose from ‘bait-and-switch’ Beware lender ‘bait-and-switch’ tactics – or you might just get burnt.

That’s the message from broker Justin Doobov of Intelligent Finance, who said having been around for a while, he has learned to focus on consistent service – not just rate.

“The easiest lever to pull is the pricing lever,” Doobov explains.

“They pull the lever and get more business in the front door, but the problem is a lot of them haven’t created a good back-end to be able to process it, so they’ll get the deals in the front-end and they can’t process it.

“They get unhappy clients, unhappy brokers, slow turnaround times and their service suffers.”

This focus is not just about lacklustre service, but also business profitability. After all, who wants a client base full of rate chasers that value price, not service?

“Brokers that focus mainly on chasing the cheapest interest rate will lose value in their business, because effectively they are building a client base that are price shoppers. You need to make sure you have a loyal client base who wants your service, at a competitive price.”

Although she hails from a non-bank lender well-versed in providing short-term rate offers to encourage introductions, Lisa Montgomery of Resi says service is a key consideration.

“There is no point in moving from one of the Big Four to another one of the Big Four,” she says.

“I think if brokers are smart – and they are smart – they will move that loan to a second tier or they’ll move it to a non-bank

Justin Doobov, Intelligent Finance

The easiest lever to pull is the pricing lever opportunity where there is going to be a more holistic service proposition for the borrower.”

Doobov agrees that service over the long term is critical to a broker’s business.

“You should be looking for a lender that has not just looked after you today by offering you a cheaper rate, but one that historically has looked after your clients, one that historically has competitive pricing, one that historically has had good service, and one that you know has got the systems in place to support you as a broker,” Doobov says.

“You don’t want them to be pulling the pricing lever to get business in the door today to meet certain internal volumes ... and next week won’t be able to service your client…”

Montgomery says that the market will lend itself to more price-focused refinancing, as banks continue to move outside the Reserve Bank of Australia cash rate.

“It’s a matter of concern that the banks will be increasing rates outside of cycle and they will continue to do that this year,” Montgomery says. “Everyone that I am talking to is indicating that it is probably going to happen again in the next couple of months.

“That is going to create some opportunity for refinancing. That opportunity is really available right now as there is activity going on because people are after a lower rate,” she says.

Have you noticed just how intense the competition between aggregators is getting? If AFG and Connective have anything to say about it, then maybe you should take notice.

“I think because there has been a fair bit of movement and transitioning of broker groups between aggregators, it really has heightened competition,” says Connective principal Mark Haron. “Those aggregators who are losing a lot of broker groups have finally sort of realised and are trying to do something about it,” he says.

Chris Slater from AFG says this competition heat is good for brokers overall.

“If you look at a typical AFG broker, they have access to better technology today than they have ever had, they have access to better marketing support than they have ever had, and better on-ground support than they have ever had,” he says.

“So the fact that we’ve had to continue to invest and have been forced into a more and more competitive environment has been a really good thing,” he says.

Haron agrees. “Ultimately it is great for the brokers in terms of them getting their aggregation services at a cheaper cost, it also means they get improved access to systems and technology. I think the majority of aggregator groups and certainly Connective are always looking to improve our service and improve our systems, so as we are sort of leading the way with that, of course the other aggregator groups are having to lift their game,” Haron says.

Slater argues that brokers are

Chris Slater, AFG

The fact that we’ve had to continue to invest and have been forced into a more competitive environment has been a really good thing looking for technology, and investment in technology, helping them to become efficient in the way they handle licensing and their businesses, as well as marketing support and onground support, helping them to retain existing clients and source new ones. However, he said aggregators also need to fulfil their promises.

“What I have really seen in the last six months is a flight to transparency and a flight to security,” he explains. “Brokers have just become more and more aware that we have seen a few organisations that basically ran their business model saying, ‘our offering is better than everyone else’s in the market, we are going to give a lot more back, and those organisations have fallen over.

Brokers are now starting to say we actually do want to see some transparency about your business,” Slater says.

Haron said brokers should be demanding more from their aggregator. “I think most brokers are finding they should be getting better service from their aggregator, and if not then they should be asking why not, and getting them to lift their game,” he says.

Mark Haron, Connective

OPINION

NCCP: lending like it used to be ‘Old school’ lending is just making a comeback under NCCP, a fact which should not scare brokers away from alternative lending, argues MKM Capital’s Michael Watson One of the first things I was taught when I entered finance was the ‘Five Cs of Banking’; Character, Capacity, Capital, Conditions and Collateral. The first four points determine a borrower’s likelihood of paying. The final point focuses on whether the lender’s security will be sufficient in the event that any or all of the first four checks fail.

The hierarchy of the Five Cs underlies the historic principles of lending: ensuring the borrower is likely to pay, can afford to pay, will continue to pay and in an enforcement situation will not create a loss. Finance pre-GFC saw wholesale abandonment of these fundamental principles. Credit criteria were eased, exceptions were the norm and loans were written that would make an old-time banker turn in his grave.

Was it all bad? No – it afforded credit to applicants who were outside the parameters of traditional lenders, and gave capital to Australia’s biggest economic generator: small business. However, lenders in the US were certainly reckless.

The high-LVR ninja loans will surely confound economic historians as they ponder the logic of no recourse lending to those without income or a financial stake in the transaction.

Australian lenders remained prudent by comparison and although writing loans in record numbers, generally maintained overall sensible parameters.

Nonetheless, the Australian low-doc and non-conforming industry has been tainted by the cavalier behaviour of our overseas counterpart.

The political fallout from the GFC spawned the National Consumer Protection Act 2009, which was greeted with hysteria, panic and an exodus of industry participants. Now with the dust settling and the hyperbole easing, this much is clear: the NCCP doesn’t kill off low-doc lending.

The NCCP doesn’t kill off non-conforming lending. The NCCP simply reminds us as finance professionals that the Five Cs need to be addressed.

Character: The borrower’s likelihood of meeting future obligations

While also incorporating credit history, ‘Likelihood of meeting future obligations’ ties in closely with a cornerstone of the NCCP, that a lender must make reasonable enquiries about the borrower, their requirements and objectives: a loan which is not in the borrower’s best interests and does not meet their long-term objectives is unlikely to be one they feel compelled to pay.

Capacity: The ability to generate the cash flow to repay from normal operations

This is where the NCCP really bites the dubious Michael Watson lender. Under the NCCP, lenders must make reasonable enquiries to ensure a borrower can repay the loan without substantial hardship, while taking reasonable steps to verify that financial information. Some thought that this aspect of the NCCP would spell the end of lowdoc and non-conforming lenders. It hasn’t.

Rather, lenders have simply needed to explore what combination of evidence constitutes reasonable enquiry and that the evidence is reliable and verifiable.

Capital: Equity the owner has put into the transaction The NCCP doesn’t specifically mention equity positions of applicants etc. However, the emphasis placed on meeting the borrower’s objectives has put the brakes on maximum-LVR lending for the sake of it.

Cash-outs are generally limited to verifiable purposes. Further, there’s no doubt that post-GFC LVRs have reduced as lenders have moved to ensure borrowers have oldfashioned ‘hurt money’ in the deal.

Conditions: The market the applicant operates in is stable, or will not threaten the business

The NCCP broadly covers this point when asking lenders to consider ‘suitability’. The borrower’s objectives must be considered in a broader context. For example, property market projections have resulted in a dearth of development finance.

Collateral: The security pledged by the borrower

An unfortunate feature of lending is that a borrower’s best-laid plans do not always materialise and security needs to be realised from time-to-time. The focus of the NCCP is to ensure the credit assessment is sufficient to minimise events of default and mortgagee sales. With the requirement for IDR/EDR processes the security is further protected and lenders need to ensure their policies and assessments align with the NCCP requirements.

The Five Cs tell us that the NCCP shouldn’t be considered scary and won’t kill off legitimate products or opportunity.

Low-doc and non-conforming lending is still alive and well, and most lenders were already operating in an NCCP-compliant manner. The NCCP simply ensures that lenders and brokers follow some old banking standards to ensure the interests of vulnerable borrowers are protected. And there’s nothing new about that.

Michael Watson is operations and marketing manager of non-conforming lender MKM Capital

24

brokernews.com.au

Insight

No kidding on social media Former broker and IT sales professional Dean Lynch has some advice for brokers – get your head around social media quick, or hire a ‘kid’

W

hen IT sales manager Dean Lynch was in mortgage broking prior to selling out in 2010, he was an early adopter of new social platforms – largely because he hired a “kid”.

“I hired an assistant straight out of school,” he said.

“When she came on-board, she showed me what was going on, where younger customers were engaging, and it seemed that if I wanted to access active first homebuyers and those looking to save, I needed to be in that space.”

Lynch, who now is a general sales manager at Australia Wide I.T, said he initially paid his assistant to promote his business through social media, then learned some tricks himself.

“I don’t think it was too challenging. They say if you want to know something about IT, computers and social media, hire a kid. That is what I did. I was shown by someone who used it all the time, who understood it and who had grown up with it,” he said.

Lynch said there is a definite “pay-off” for being involved. “It was a great avenue for connecting with customers. It is an efficient and powerful medium.

Thinking back, there were a number of instances where I can relate sales to social media programs.”

These transactions often came after answering client questions or engaging with them on particular issues that he had raised via his social networks.

Lynch said brokers should endeavour to get involved in social media, and that the industry was currently lagging other related industries, including real estate agents.

“I look at all the people I am connected to, and real estate agents tend to be using it very well, but brokers are not really using it at all. It could be that real estate agents are often young people, and they are educating their employers about it and saying this is the space they need to be in. Brokers employ older people, who maybe are not as in touch with it.”

Lynch said the lack of industry take-up meant there were opportunities for growth.

Facebook fan engagement tips 1.

2.

3.

4.

Best time to post: 8pm–7am Best day to post: Wednesday Daily posts: one to two (quality, not quantity) Weekly posts: one to four times (don’t overcrowd friends) 5. Length of posts: 1–40 characters is best 6. Best way to spark a dialogue: ask questions 7. Best structure: fill in the blanks (increases engagement) 8. Best keywords for deals: “coupons” and “$ off” 9. Best coupon offer: cash discounts 10. Post type: text only (keep it simple) Source: Digital media coach Jeff Bullas

Listen, don’t just wait to speak Sales trainer Sue Barrett says listening is the most important sales tool available – find out why, and how you rate on the active listening scale

H

ow long do we actually listen to another person before we start interrupting? How quickly do our own thoughts take over and we start thinking about what question to ask or what we need to say in reply even before they’ve finished speaking? Do we find ourselves interrupting the person to give our own opinion or finish their sentences before they are finished?

If this sounds like you, then you’re not listening, you are just waiting to speak. As a native American proverb says, if we keep waiting to speak rather than listening we shall remain deaf.

Listening effectively

Many people, especially salespeople are not trained to listen effectively. Salespeople often worry more about what questions they should ask than paying proper attention to how well they listen. I used to think that questioning skills were our most powerful communication tool, but over the years I’ve come to realise that listening is the number one, most powerful communication tool of all. Listening is an essential part of communication and it is not the same as hearing. Being a good listener requires patience and a willingness to pay attention and

Active listening • Refrains from evaluating the message • Tries to see the other’s point-of-view • Attention on words spoken and on the customer/ person’s thoughts and feelings • Suspension of personal thoughts and feelings to give attention solely to the customer/person • Displays empathy • Verbal and non-verbal cues to indicate listening • Takes notes • Use of verifying, clarifying and paraphrasing to confirm what they have heard

understand another person, even when we don’t agree with them.

Listening effectively helps us solve problems at work or home. Listening helps us learn and see the world through the eyes of others. Listening opens our understanding and enhances our capacity for empathy and opens up the possibility of potential with one another, which is a primary goal of salespeople and their businesses.

Listening is particularly effective when disagreements arise. Effective listening can reduce the time it takes to solve problems, settle disagreements and bring back harmony and effective workflow.

However, due to all sorts of reasons, we do not listen as well as we should. Dr Piyal Walpola, a Canadian medical doctor who writes on Wisdom through Mindfulness, reports that one clinical research study examined different parameters of emergency medicine residents taking a medical history. The study concluded that only 20% of patients completed their presenting complaint without interruption. In other words, 80% of patients were interrupted during their initial presenting complaint. The average time to the first interruption was only 12 seconds! I wonder what the average time to interruption by a salesperson in a client meeting is? Use the ‘Active listening’ checklist in this article as a guide.

Improve your listening

A sure-fire way to help improve your listening skills is to make sure to take notes, it really does make you a better listener. Another tip is to create a positive, open space in your own mind, freeing yourself of any prejudices when you are listening, regardless of the other person’s initial impact on your own perceptions and judgments. It can be a challenge to let go of judgments but it can be learned.

Hopefully we all know what it feels like when we have been listened to. We feel great knowing the other person understands us. We feel a sense of connection. There is clarity and we feel we can move on in a purposeful manner.

26

brokernews.com.au

Market talk

Our patchwork population

A

ustralia’s strong population growth is usually touted as one of the major factors putting a floor under house prices. As long as there are more people flooding into the country than there are houses to put them in, the theory goes, house prices won’t suffer any precipitous falls.

If this is true, there may be some cause for alarm in the fact that population growth has slowed noticeably, falling below long-term averages. But, as is always the case with the Australian market, the picture varies greatly from region to region.

Recent numbers from the Australian Bureau of Statistics show that population growth across the country fell in 2010–11 to its lowest level since 2006. At 1.4%, the annual rate of growth was below the country’s five-year average of 1.8%. But while growth may be abating on a large scale, markets around the country are still booming.

Population growth may have slowed, but some areas of the country are still booming Growth on the fringe

More affordable outer suburbs around Australian capital cities continue to swell in size. While capital city growth overall slowed, growth in the outer suburbs drove an increase of 224,000 people in Australia’s capital cities over 2010–11. In fact, two-thirds of capital city growth happened in the outer suburban fringe. Of the 10 fastest local government areas in the country, six were in the suburban fringes surrounding Melbourne and Perth.

Melbourne’s suburban fringe supplied the area with the country’s strongest growth, with the local government area of Wyndham increasing 7.8% for the year. Outer suburbs across smaller capital cities also saw some of the strongest growth in their states or territories. The largest population increase in Adelaide came in the outer suburb of Playford, while fringe suburbs around Hobart, Darwin and Canberra also saw strong growth.

Growth in the middle

Last year’s growth story was largely one of urban sprawl, but not all inner-city suburbs were exempt. Sydney and Melbourne’s inner cities had some of the largest population increases in the country, growing by 3,500 and 2,500 people respectively. A rejuvenated Perth also saw strong growth. Perth’s inner-city local government area was the fastest growing in the nation, increasing by 3.7%. Brisbane’s sprawling LGA also saw its inner-city numbers swell, with population in the statistical local area of City Inner surging by 6.6%.

Growth in the city

Melbourne has yet to pip Sydney as Australia’s largest city, but it’s making a valiant effort. Once again, Melbourne saw the largest population growth of all Australia’s capital cities, growing by 1.6%, to 4.14 million people. The record is one the city has held for a decade.

Sydney saw weaker growth at 1.3%, but managed to stay ahead of its rival at 4.63 million inhabitants.

Capital cities continued to outpace the rest of the country in growth, with population increasing by 1.6% across the capitals as compared to 1.2% in the rest of Australia.

Perth chalked up the fastest growth, with its population increasing by 2.5%. Darwin, meanwhile, only managed to increase by 0.5%.

Growth in the country

When it comes to regional Australia, there’s country and then there’s country. The growth tale for regional Australia was largely one of proximity. Major regional cities and regional areas closer to major cities saw growth rates largely on par with the capitals, increasing by 1.5%.

But more remote areas failed to draw strong increases in population, growing by only 0.7%. Strangely, areas classified as “very remote” managed to grow faster than those merely classed as “remote”, with a population increase of 0.9%.

Growth by the numbers Queensland saw its fastest growth outside of the populous Southeast, with Cook growing by 6.4% and Gladstone growing by 3.5%

While Darwin was the slowest growing capital city at 0.5%, it accounted for 75% of the Northern Territory’s population growth and was home to 56% of its population Inner regional areas of Western Australia benefited from the mining boom, growing by 3.7%, while the state’s major cities increased by 2.4% For the fourth year in a row, the combined population of Canberra’s northern suburbs was greater than that of its southern suburbs

Adelaide’s outer fringe suburb of Playford was the fastest growing LGA in South Australia, increasing by 3%

Source: Veda Advantage

Melbourne’s growth of 66,900 people was the largest of all the Australian capital cities in 2010–11

The six fastest-growing LGAs in NSW were all within Sydney, including Canada Bay (3.0%) in the inner west, Camden (2.8%) in the outer south-west, and Parramatta (2.5%) in central western Sydney.

Tasmania’s West Coast LGA, home to many of the state’s mines, saw the fastest rate of population decline, with numbers shrinking by 2.1%

brokernews.com.au

27

Adelaide tops Sydney, Darwin for liveability Adelaide has again been tipped as Australia’s most liveable city, with Sydney and Darwin ranking at the bottom of the list.

A Property Council of Australia study, now in its second year, has found residents of Adelaide are most pleased with their city, narrowly edging out Canberra. Sydney and Darwin residents showed the greatest dissatisfaction with their cities.

While residents of Adelaide and those of Sydney and Darwin varied greatly in their assessment of the cities, capital city dwellers across the board were scathing in their assessment of factors such as housing affordability and public transport.

“Australians know what makes a great city, and they rate our cities poorly in housing affordability, environmental sustainability, congestion and public transport.

These results should shock governments into action,” Property Council national policy director Ken Morrison said.

Access to affordable housing was the area in which capital cities rated poorest, with only 34% of respondents approving of their city’s performance. Respondents were also asked to rate their state or territory government’s performance in housing policy, with the newlyousted Queensland government ranking highest and the NSW government receiving the lowest score.

While Sydney copped a beating from its residents, the city did see the biggest increase in its liveability score of any capital.

Sydneysiders rated their average approval of the city’s liveability at 58.2 out of 100, up 3.1 points from last year. But Property Council NSW executive director Glenn Byres said the city still fell “well short” of residents’ expectations, and that Sydney’s management needed “major surgery”.

“They want smart growth – defined by an unbreakable consensus and commitment to deliver on a plan that offers the jobs, infrastructure and housing Sydney

needs,” Byres said.

While Sydney residents ranked the city high on employment and economic opportunities, a vibrant cultural entertainment scene and good weather, the city received woeful scores for its traffic

congestion, cost of living and access to affordable housing.

“The state government has a rare opportunity to bring together its reform agenda in a way that leaves a powerful legacy for Sydney,” Byres said.

Aussies down on their town: City scores out of 100 Darwin (57.7) Sydney (58.2) Hobart (60.1) Newcastle (60.1) Wollongong (60.3) Brisbane (60.5) Perth (62.1) Melbourne (62.1) Canberra (63.6) Adelaide (64) 0

10

20

30

40

Deposit delusions The deposit size buyers believe they have to save to purchase a property compared with how long they’ve been saving

More than 4 years

2–4 years

1–2 years

6–12 months

20

Less than 6 months

40

I have not started to save

100

60

0 Source: Genworth

Less than 5%

6-10%

10-20%

20-30%

60

Source: The Property Council’s Liveability Index

NUMBER CRUNCHING

80

50

More than 30%

6.4%

Sinking feeling

9.2%

The amount of equity in Australians’ homes based on value change since time of purchase

15.0% 41.7%

Negative equity 0-10% 10-25% 25-50% 50-100% More than 100%

)

14.5%

Source: RP Data

At a glance…

13.2%

34%

*

*The proportion of all home loans last year which were refinances Source: RateCity

28

brokernews.com.au

People Q&A pre-commission-cut levels but it has been a hard slog.

Is there anything you look back on with amusement?

There was a time when I sat on a panel on the big stage with many industry heavyweights at a Key Media conference in the early part of the last decade and planted a question about whether brokers should pay referral fees to real estate agents. I knew industry legend Aussie John Symond (the smartest mind in the mortgage industry, in my view) was dead against paying referral fees and naturally he jumped on this question and outlined all the reasons it should not happen. I was delighted the question was asked and was able to articulate a good argument in favour. Aussie John got the points from the crowd, but it was a memorable moment for me to even be on the same stage with such a legend of our industry.

Rewarding: Paul Gollan content after 12 years of achievement

With the end in mind Industry veteran Paul Gollan’s parting advice is to ‘think with the end in mind’, as he readies to leave the business he founded 12 years ago. Australian Broker asks about the joys and challenges of his decade at the helm of AMB Why are you leaving Australian Mortgage Brokers?

I turn 47 this year and there are things I want to achieve in business before I retire. Call it unfulfilled ambition.

When did you launch AMB, and why?

I previously held a senior management position at Ray White Financial Services (now called LoanMarket). In fact I was the second broker employed by that business way back in 1994.

My view was that better outcomes could be achieved by paying real estate offices a share of the trail (instead of just an upfront referral fee), but this view was not shared by my then-employer. I went out on my own, started Australian Mortgage Brokers, proved that such a model did in fact work – it actually worked very well – and since then many other groups have adopted such a model. It is probably fair to say most real estate agencies did not know trailer income even existed until AMB educated them on this fact. Sorry folks.

How did you achieve success over 12 years?

By setting ambitious targets from the start, working hard and surrounding myself with great people. There are about four or five things I would have done differently and one of my favourite sayings is you never make the same mistake twice, the second time it is a choice.

What were the biggest challenges you faced?

As a business, my belief was that there would always be a place for quality boutique operations writing good volumes and achieving above industry average conversion and quality metrics. This proved to be incorrect. As an individual, my biggest challenge has been to learn not to always express my opinions and not to be so outspoken. As a passionate advocate for broker interests and in light of some of the decisions made by some industry stakeholders this has been challenging. Some of the decisions made by some lenders in relation to commission cuts, clawbacks and broker bashing from some industry leaders have made it extremely hard to sit back and be a spectator.

What are your most treasured memories of your time at AMB?

Our 10-year anniversary conference held in Las Vegas in August 2010 – the last AMB conference (now that AMB sub-aggregates) – was a truly wonderful experience. To celebrate 10 fantastic years in business with such a great group of people, in such a great location was a truly great experience. My proudest moments have been witnessing many of AMB’s finest brokers win industry awards over the past decade and my absolute proudest moment was presenting our first ever AMB Life Membership to Peter Bentham at our 10-year celebration dinner at the Eiffel Tower Restaurant in Las Vegas. To witness the difference this great company has made to Peter’s life and many others makes me incredibly proud.

What have been the biggest market changes you’ve witnessed?

Lender commission cuts no doubt cut very deep. AMB has worked hard over the past few years and has got its profit close to back to

Looking at the market, are you optimistic or pessimistic about the future?

I was born an optimist and there is still good money to be made in the mortgage broking industry. Diversification is getting a bit over-hyped at present. Yes, brokers should ensure they are a trusted advisor who can recommended and refer planners, general insurance and other related financial services products, but there is a still outstanding earning potential available to those who are focused mostly on mortgage sales.

What do you think will define the mortgage market this decade?

Online mortgage sales. No doubt. My view is that over 50% of mortgages will be arranged in a non-face-to-face environment within the next five years, 10 years at the latest. The missing link currently is effective customer identification when there is not a face-to-face meeting and I am aware of companies who are working on

My biggest challenge has been to learn not to always express my opinions and be so outspoken systems that will get around this issue. This will happen because consumers will demand it. The boom in social networking is a clue to how many people are interacting now and given the choice between organising a mortgage online/over the phone, or visiting an office or having someone visit them, the shift will be towards the least intrusive distribution model. Banks will want to own this space of course and get a competitive advantage over brokers.

What’s your parting advice to mortgage brokers?

Think with the end in mind.

Be careful who you take advice from.

Invest in your business.

Reward yourself.

brokernews.com.au

29

Caught on camera Non-bank lender Resimac hit the road in March to talk about all things ‘Specialist Lending’. Brokers heard from speakers including industry legal heavyweight Jon Denovan, and talked footy with brand ambassador Nathan Hindmarsh

3

1

2

4

5 Image 1 Image 2 Image 3

Image 4 Image 5

6

Image 6

Image 7 Image 8

Image 9 Image 10

9

7

8

10

Quentin Urquhart, Ray Khahil and Malcolm Drummond Richard Kirby and Bronwyn Maybury (Resimac) Allan Savins (Resimac) with Nathan Hindmarsh (Resimac Brand Ambassador) Warren McLeland (Resimac) with Robert Projeski Jon Denovan (Gadens Lawyers) answers the tough questions Scott Smith (Resimac) Paul Smith and Stephen Scahiill (Loan Market) with Quentin Urqhart (Resimac) Zena Allouche and Sam Allouche greet Nathan Hindmarsh (centre) Elizabeth Biasi, Kathryn Whitney (Resimac) Nick Gray (Loan Market) and Barry Ison (Mortgage Asset Management Group) Resimac talks opportunities and outlook Stephen Maher (Macquarie Bank) Allan Savins and Andrew Marsden (Resimac) and Jon Denovan

30

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

Ahh, 2am Sunday morning, time to check on that loan application…

Have a good ‘notional’ weekend!

R

emember the good old days, when Friday meant a long, boozy lunch which inevitably went on too long, followed by two sumptuous days of freedom from those pesky client calls? Well, those days may be a thing of the past, Insider is sad to inform brokers. Yes, the banks are doing their utmost to drag their workforces into a brave new 24/7 world, where those real-time payments need to be processed NOW (yes, even on Saturday afternoons and snoozy Sunday mornings), and service needs to be available to clients at all hours of the clock. Of course, the global market is pushing these changes – of that Insider has no doubt – but have mortgages brokers been consulted? It may be all well and good for banks to implement (breathe in) “flexible and efficient

modern work practices in a way that has proper regard to the considerations of productivity and employment costs”, but what about their third party brokers?

Yes, banks will be competing with the broker channel 24/7 – that’s including when you are asleep – so you’d better be ready to answer that mobile or check your email around the clock to keep up with your big banking brothers. And what if brokers want to have a real weekend (if those days aren’t already gone)? Well, those weekends are now ‘notional’.

The right odour

Right. Looking for a property.

Plenty of stock on market, yields are about right. What do I need to think about? Oh, here’s a checklist from landlord insurance firm Terri Scheer: 1) Consider the location.

Right, gotcha, convenient, close to transport, good infrastructure.

Check. 2) Pay attention to the smell… hang on, what? The smell?

“Property managers should pay attention to strong, unpleasant or chemical odours in unexpected places”, Terri Scheer says.

What kind of buyer consciously goes sniffing about properties trying to detect unusual odours?

Well, one who doesn’t want a temporary drug laboratory in their backyard, that’s who. Yes, according to terri sheer, clandestine drug laboratories are a bit of a problem. Insurance manager Carolyn Majda, said illegal drug manufacturing could cause considerable damage to rental properties and cost the landlord thousands of dollars in repairs and subsequent lost rent.

“Rental properties may be targeted by people looking to manufacture drugs,” she said.

“Drug manufacturing can cause fumes, vapour and excessive heat to escape from windows and ventilators,” she said. Other things to watch out for? Unusual modifications to the property, and ‘unusual items’. “Certain items are commonly used to manufacture illegal drugs, including glass flasks, beakers, rubber tubing, gas cylinders, chemical containers, drums, drain cleaner, acid, garden fertiliser and cough, cold or allergy medicine,” Majda said. Well, cold medicine aside, a full drug lab would be hard to miss. Well, since there were 694 such labs discovered in 2010/11, it’s something to watch!

Those hard luck banks The banks sure have had a rough go of things lately.

They’ve copped so much public and political flak over the past couple of years, with only their billions of dollars in profit to dry their tears on. It must seem cold comfort when they’re getting a dressing down from Treasurer Wayne Swan, or basically being called liars by overseas analysts

like Société Générale’s Christian Carrillo, who said their claims over higher funding costs were “mathematically impossible”.

That’s why it must have felt really vindicating recently when RBA deputy governor Guy Debelle stated that banks really are facing higher funding costs: somewhere in the neighbourhood of 150– 155bps higher than pre-GFC, to be exact. The Australian Bankers’ Association quickly jumped on Debelle’s comments, by issuing a statement that essentially said “told ya so”, and claiming that only half these increased funding costs had been passed on to borrowers.

Of course, all this didn’t seem to make much of a difference to consumers, who slugged the banks with their first monthly decline in satisfaction since March 2011.

Seems like these guys just can’t get a break. Except, of course, when it comes to profits.

Banned for brainlessness

Insider has heard plenty of cases of brokers getting banned for perpetrating fraud, but he recently stumbled upon the first instance of someone being banned for merely not noticing it. The ban-happy FSA, the peak body for brokers in the UK, recently tossed out the director of a broking business because he was asleep at the switch when someone at his company committed fraud. The FSA alleged that the director was essentially too incompetent to notice one of his brokers changing an income statement to the tune of £40,000. The banned broker, despite being “closely involved with the file”, managed to overlook numerous discrepancies that his entire staff conveniently missed as well. FSA ultimately ruled the company’s director “did not meet the minimum regulatory standards of competence”. Ouch.

So take note brokers: not only can you be banned for dishonesty; you can also be banned for outright stupidity.

brokernews.com.au

Services

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

AGGREGATOR / WHOLESALE BROKER Choice Aggregation Services 1300 135 389

ING DIRECT 1300 656 226 introducer.ingdirect.com.au Page 7

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

Liberty Financial 13 23 88 www.liberty.com.au Pages 3 & 15

TECHNOLOGY PROVIDER

www.choiceaggregationservices.com.au

Page 11

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

EDUCATION

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

TAFE NSW -Southern Western Sydney Institute 13 SWSi (13 79 74) www.SWSi.tafensw.edu.au Page 6

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

FINANCE Semper Capital Pty Ltd 1800 SEMPER (1800 736 737) enquiries@semper.com.au www.semper.com.au Page 21

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

Star Gate Group 03 8420 3000 www.stargategroup.com.au Page 13

WHOLESALE Resimac 1300 764 447 www.resimac.com.au Page 17

OTHER SERVICES PLAN Lending 1300 787 874 www.planlending.com.au Page 5 Versara 1300 CAVEAT (228 328) www.versara.com.au Page 4

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

31

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

Residex 1300 139 775 www.residex.com.au Page 19 RP Data 1300 734 318 Page 23 Trailerhomes 0417 392 132 Page 27