Australian Broker magazine Issue 9.01

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ISSUE 9.01 January 2012

Consolidation now the ‘elephant in the room’

Steve Weston

 Aggregation

groups are operating on thin margins and further industry consolidation may be inevitable Consolidation of mortgage aggregators is expected to continue apace in 2012, forcing the industry to assess the future viability of aggregation models.

As credit demand remains depressed and loan volumes weaken, Advantedge general manager of broker platforms Steve Weston has said aggregators will be feeling the pinch.

“Certainly all brokers know that times have become more challenging, and maybe it’s a little bit like the elephant in the room that we need to be talking about how the aggregators are travelling,” he said.

Key to the viability of these groups is the commission split they receive in tandem with brokers. Weston said many may now be suffering the results of drastic commission reductions following the GFC. “If you simply look at the aggregation businesses where they’re relying on a commission split, if you had 30% of your income effectively cut from 2008 when all the pre-2008 loans were

paid over a five-year period, that means your future profits are determined on loans with lower commissions,” Weston said.

This will mean a 30% reduction in profits, with aggregators having less room to reduce margins by the same amount as brokers, who had a hard time absorbing the hit.

“Unless you were running an extremely profitable business at that time, the only way to remain viable is to find additional revenue streams – and that’s why crossselling will become just as important to aggregators as it is to brokers,” he said.

While cutting costs may seem the easy answer to producing viable margins, Weston said aggregators are no longer in a position to do this.

“Most aggregators have been running their businesses extremely efficiently – on the smell of an oily rag – so it isn’t easy to go and find any additional material costs to remove,” Weston said.

With brokers demanding higher levels of service from aggregators, Weston said the businesses that would succeed would be the ones to invest more in their brokers, not less.

“Aggregators need to be investing more into their businesses and investing in brokers. It’s not an easy position being an aggregator at the moment,” he said.  For analysis on expected industry consolidation, see Analysis on page 16

Mandatory disagreement Mortgage players at odds over ACCC membership review Page 2

Commission clarity Brokers welcome moves to simplify commission structures Page 4

Seeking scale New market realities drive big broker mergers Page 6

Inside this issue The coalface 18 Brokers report from the frontline Viewpoint 20 How to defy the Europe gloom News feature 22 2012’s ‘best in the business’ Insight 24 Defining EDR mission creep Market talk 26 Escaping to the country People 28 An indigenous literacy odyssey Caught on camera 29 A round with Australian Financial

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News MFAA review pits ING Direct against Mortgage Choice ING Direct and Mortgage Choice are at odds over the worth of enforcing mandatory MFAA memberships among their brokers, on the back of an ACCC review of the arrangements.

ING Direct has stated it does not require brokers to be MFAA members, despite a third line forcing notification filed with the ACCC which appeared to demand this minimum.

The ACCC is currently conducting a review of the notifications, which require MFAA membership. Aussie Home Loans, Mortgage Choice, Virgin Money and ING Direct currently have the notifications in place, but ING Direct head of broker distribution Mark Woolnough said the lender merely requires AML training for accreditation, not MFAA membership.

“When becoming an ING Direct accredited broker, brokers conduct training courses – recommended

by FBAA, MFAA [and] FPA – which are part of AML training,” he said.

Brokers are not required to hold industry association membership to be accredited, though Woolnough expressed support for

association membership, saying it raised industry standards.

“While it is not mandatory for an ING Direct accredited broker to be a member of the MFAA, we see real value in such memberships.

Industry bodies, like the MFAA help to maintain a professional standard within the industry while offering education, training and networking opportunities which have proven to benefit brokers – particularly in a competitive market.”

Woolnough said in addition customers place great importance on a broker’s ability to understand and deliver on those high standards.

Mortgage Choice, however, defended its requirement for MFAA membership, saying the brokerage stood by its forcing notification, and would offer up an ACCC submission on the issue.

“While we appreciate MFAA membership is not a conditional requirement of NCCP, Mortgage Choice is committed to the MFAA and strongly believes in the need for an independent industry association,” a spokesperson said.

The topic of compulsory membership proved a hot-button

because of the prices becoming more realistic. Many buyers who have looked at the market for the past few years have a set value a property is worth in their head.

Since the prices have dropped and those properties are now in the range the buyers have thought is good value, buyers have moved quickly to secure the properties,” Doobov said.

Affordability continued to improve across most capital cities as 2011 drew to a close. September

COPY & FEATURES NEWS EDITOR Adam Smith PRODUCTION EDITOR Sushil Suresh 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

Mark Woolnough

ING Direct says its ACCC notification requires brokers to undergo training, not hold association membership. The notification reads: “ING Bank (Australia) Limited proposes to engage introducers to introduce prospective borrowers to it on the condition that the introducer undertakes training conducted by the Mortgage and Finance Association of Australia.” issue on the popular Australian BrokerNews online forums, with brokers sounding off against the idea of membership requirements.

A variety of brokers argued they were obsolete in an NCCP regime.

‘Realistic prices’ to spur buyer action Top brokers believe falling home values could spur buyers into action in 2012 as prices become “more realistic”.

MPA Top 100 Broker Justin Doobov of Intelligent Finance has predicted that the market could begin to stir in 2012 as falling prices start to woo borrowers. Doobov said he has still seen good buyer activity in his market, and expects this to continue as prices drop.

“I think a lot of activity has been

brokernews.com.au

EDITOR Ben Abbott

marked the third consecutive quarter of improving affordability, according to the HIACommonwealth Bank Housing Affordability Index. The Index is now 5.2% above the level registered in September last year.

“Affordability looks to now be trending in the right direction and with interest rate cuts in November and December we will hopefully see this trend continue,” HIA senior economist Andrew Harvey said.

CORPORATE DIRECTORS Mike Shipley, Claire Preen CHIEF OPERATING OFFICER George Walmsley PUBLISHING DIRECTOR 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.

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News

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

It’s simple now: Suncorp attacks ‘barriers and complexities’ Suncorp has introduced the payment of trails in year-one, as part of a raft of other changes that aim to simplify its commission structure for brokers.

From February 1, Suncorp will commence paying 15bps of trail in year one, which will increase to 20bps from year four and beyond.

In addition to this, the bank will pay a 15bp upfront bonus for brokers with conversion rates above 80%, on top of its current 50bp upfront commission.

Other changes include the payment of commission on construction loans across all geographies, and the payment of fixed and variable loans at the same levels.

Brokers have welcomed the changes, which they argue is indicative of a broader shift to commission simplicity. ACA Mortgage Solution’s Raymond Xue

said overall, Suncorp now presented a good offering compared with the major banks.

“I will keep supporting Suncorp, as their products are good, their BDMs are very supportive, and right now with their simplified trail and commission structure it gives us more incentive and encourages us to write more Suncorp business,” he said.

“They are being very aggressive at the moment, they want to grab more market share, and this is a great chance for them to grow that new business.”

Xue added Suncorp’s push to open new branches – including one in Sydney’s Chinatown – was a “very good move” that would allow his Asian client base easier access to the bank.

Xue said Suncorp’s move comes in tandem with NAB Broker’s decision to end its star rating system, meaning that

structures were becoming less restrictive and complex.

“I think it’s a trend towards simpler commissions, and that makes it easier for me to generate new business,” he said.

The Finance Professionals’ Kiran Saldanha agreed there was a push towards simplicity.

“Generally it has gone so complicated with all the lenders,” he said.

Moves including the Suncorp commission change, NAB Broker’s star rating system changes and St.George’s reintroduction of

BDMs all showed banks were paying attention, he said.

“All lenders are showing they need the third party channel to put them where they are.”

Suncorp head of intermediaries Steven Heavey said the new commission structure would provide consistency and clarity for brokers, making the bank more competitive. “Brokers are a core part of our lending strategy and we want to make it easier for them to do business with us by removing some of the barriers they may have experienced in the past.”

Suncorp commissions on residential home loans (from 1 February) Upfront

Upfront bonus*

Trail year 1, 2 & 3

Trail year 4 +

0.50%

0.15%

0.15%

0.20%

Suncorp’s upfront commission bonus is subject to 80% conversion of lodgements to settlements, to be calculated and paid on a broker-bybroker basis.

Mounting bills weighing on consumers Cost of living remains at the top of the list of worries for consumers heading into the New Year.

A recently released Consumer Sentiment Survey has found utility bills, clothing and other rising living costs have proven the biggest concern for households.

Conducted by Mortgage Choice, acting head of corporate affairs Belinda Williamson said the results show families continue to have a tough time.

“Clearly, utility bills and other living costs are biting into

Australians’ budgets, with more than half – 55% – of the respondents admitting to dipping into their savings to help make ends meet, and 7% saving more to combat the price hikes,” Williamson said.

While Australian households were concerned about their ability to pay bills and nearly half were unsatisfied with their level of personal savings, they displayed optimism about the economy.

Fifty-six per cent said they were confident about 2012.

“Year on year confidence in the Australian economy has dipped; however, it is good to see the majority of Australians still see a positive economic outlook for 2012.

In fact, of those who plan to make changes to their financial situation next year, 20% of non-mortgage [holders] plan to take out a mortgage and 9% of mortgage holders plan to take out an extra one. Gen Y was the most positive about property,” Williamson said.

Property was also viewed as less risky than other asset classes,

particularly in the midst of global economic conditions. Sixty-five per cent of respondents tipped property as safer than shares.

“A number of respondents are motivated by the long term benefits of the property market earlier in life,” Williamson said.

When buying property, 64% of respondents said they would turn to a mortgage broker. The top reasons given for using brokers were their expertise in home loan products and the time saved researching lenders and paperwork.

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Drive for scale fuels Smartline merger Smartline’s mooted merger with WA-based brokerage The Mortgage Gallery is a move the businesses say will provide scale in an increasingly tough market.

Announced late last year, the franchise companies are set to finalise their merger by April 2012, with The Mortgage Gallery retaining its branding and management team.

The Mortgage Gallery founder John Bignell said the move will allow the company to compete in tough market conditions in which scale is incredibly important.

“Everyone’s probably, in recent times, looked at their cost structure as we have done. There’s

a requirement to continue to improve on technology capabilities as well. To us that was one of the major attractions to the Smartline brand; their undoubted ability in that area,” Bignell said.

Bignell said The Mortgage Gallery had operated in a “unique position” which meant scale had become increasingly important.

“We felt we weren’t large enough to be considered one of the major players, but we were a little bit too big to be considered a boutique operator,” he said.

Smartline is also set to benefit from the merger, Bignell said.

With many aggregators and franchise brokerages targeting

expansion in the WA market, Bignell said the merger will give Smartline a foothold which will deliver an edge on its competitors.

“The WA market is the most mature when it comes to mortgage broking. WA operators have a very strong footing. It’s very difficult for an East Coast operator to come in and get established,” he said. “The merger of our business to the existing Smartline business gives Smartline a substantial holding in the WA market and makes it difficult for other operators to break in.”

The merger will yield a combined group with more than 240 franchisees, settlements of $4bn a year and a combined loan

book of more than $17bn. Smartline managing director Chris Acret called the merger “a great fit”.

“Both groups John Bignell share similar values and have a similar culture – a culture of helping each other, professionalism and a real client focus. Both companies have a franchise model with a commitment to helping their franchise owners succeed and grow,” he said.

St.George CEO Rob Chapman in announcing the bank’s decision to follow parent Westpac in dropping rates across its regional brands.

“When we review our interest rates, we take into account the cost of borrowing funds on the

international market, the cost of raising deposits locally to lend to our customers and a number of other factors. It’s an ongoing process which takes the impacts of the volatile global economy into account,” Chapman said.

For more on industry consolidation, see Analysis on page 16

Banks set out to divorce RBA The big banks and second tiers may have bowed to pressure on rates following the RBA’s December cut, but borrowers may not be so fortunate next time.

The banks held out for days following the Reserve Bank’s decision to lower the official cash rate to 4.25%, before issuing a wave of cuts to pass on the full 25bp decrease.

However, ANZ chief executive Philip Chronican has sent the strong message that borrowers can no longer expect banks to kowtow to RBA decisions.

“In the face of the economic and banking crisis in Europe, our decision on the size of the interest rate change has been one of the most difficult we have made recently. Retail banking margins have been contracting as the cost of funds has progressively risen

over the last six months,” he said.

Chronican vowed ANZ would now announce its rate decisions on the second Friday of each month, but argued that bank funding costs were becoming increasingly detached from moves by the RBA. “This provides a measure of predictability for customers on when rate changes will occur and it provides us with the flexibility to reflect movements in funding costs across the full spectrum of funding sources – not solely in response to the Reserve Bank’s cash rate,” Chronican said.

Westpac group executive of retail and business banking Jason Yetton delivered a similar veiled warning to borrowers, saying the decision to cut rates was difficult in light of deteriorating economic conditions in Europe.

The same message was sent by

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News Rigoni attacks big bank broker dominance Maria Rigoni has resurfaced to rail against the power and control of the big banking institutions, which she argues is continuing to kill off independent brokers.

Formerly spearheading the now defunct Australian Institute of Professional Brokers (AIPB), Rigoni had previously indicated her intention to leave the mortgage broking industry once and for all.

However, Rigoni has penned a submission to the Australian Competition and Consumer Commission, in response to its review of lender arrangements that require mandatory MFAA membership.

In the submission, she claims that free enterprise is a nonexistent reality for the majority of small business operators in Australia, including for small independent mortgage brokers.

“Today the major players own

the accredited loan consultants industry. They believe it is their right to determine how independent small business operators run,” she said.

Rigoni said the ACCC has allowed bigger businesses to eliminate competition by allowing them to “buy up” the industry via takeovers, equity purchases and sponsorship deals.

She referred to takeovers that have included CBA’s share in Aussie Home Loans and Mortgage Choice, NAB’s ownership of Advantedge, and Westpac’s St. George, RAMS and Bank of Melbourne businesses.

She said these larger institutions now have an inordinate amount of control over mortgage writers.

“Over the past decade the independent finance broker has been eliminated and replaced with big business controlled loan

writers. This evolution is detrimental to the public as they across the board are less able to access independent credit provider information and advice.”

Rigoni added it was a problem for small broking businesses, who are hit with accreditation ultimatums.

“They use unethical and bullying tactics to gain volumes of business from individuals and make it unprofitable for smaller players to stay in business by having third party, one-sided across-the-board remuneration and accreditation contracts in place,” she said.

Referring to accreditations, Rigoni said 10 years ago an individual did not have to be a member of any association to obtain accreditations to introduce new business to credit providers.

“The accreditation was granted after a potential candidate attended the credit provider’s

specific training sessions, satisfactorily passed their assessment process and other fit and proper Maria Rigoni tests.”

Rigoni said such arrangements do not enhance competition and offer no real public benefit.

“The notifications are nothing more than a demonstration of ‘cushy’ relationships between mates and have a direct goal of eliminating small players who could, if given a fair chance, enhance competition and make bigger players accountable for their performance,” she said.

She said requirements to be a member of the MFAA was a forced expense, and that it gave brokers no chance to ‘walk with your feet’ if they are dissatisfied with the product.

COSL to toughen up on ‘unsuitable’ lenders The Credit Ombudsman Service (COSL) has issued a position statement on responsible lending, claiming it will “get tough” on NCCP compliance among its members.

In the EDR scheme’s guidance to members on how it will deal with those who contravene responsible lending laws, COSL

has claimed the power to take action on non-compliant members when consumer complaints are brought against them.

The EDR said it could also require its members to waive or refund fees of lenders and brokers, vary repayment terms or even release borrowers from credit contracts it deems unsuitable.

What can COSL enforce in a dispute decision?

• The payment of a sum of money • The variation of a debt • The release of a security for a debt • The repayment, waiver or variation of a fee or other amount paid to or owing to the COSL member, including the variation in the applicable interest rate on a loan • The discontinuation of the enforcement action against the consumer • The stay of any execution of a default judgment, or not enforce the default judgment • The release of a consumer from a contract • The variation of a credit contract in cases of financial hardship Source: COSL

The guide said these are not mutually exclusive remedies and COSL may choose to combine them so as to produce an outcome having regard to “fairness in all the circumstances”.

Ombudsman Raj Venga said the guide was the most comprehensive statement on responsible lending issued by a non-government body.

“It will assist lenders and brokers with their new obligations and provide them with some practical guidance as to how they will need to conduct themselves when providing or arranging loans under the new laws,” he said. “It will also provide consumers and their advocates with a useful understanding of how we will deal with a claim of irresponsible lending.”

In the guide, COSL said it could determine that in the event of irresponsible lending, a consumer

Raj Venga

repay the principal amount owing under the credit contract by regular payments that would not cause them hardship, and that the credit provider may have to waive any fees and charges.

EDRs have come under scrutiny, with ASIC vowing to review the power granted to them under the NCCP, but Venga argued that COSL was “completely impartial” in its investigations.

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CHOICE bashes banks, Gateway opened as credit defends switching role union drive continues Customers of the Big Four banks are hesitant to recommend them to friends and family, a survey has found.

The satisfaction poll, conducted by consumer group Choice, found that 62% of the major banks’ customers rated their overall service as very good or excellent.

The result compares to an 89% satisfaction rating for mutuals and online banks.

The survey also found customers of the Big Four were “very unwilling” to recommend their bank to friends or family, while credit union customers were “enthusiastic proponents” of their financial institutions.

Dissatisfaction did not necessarily equate to action, however. Ninety per cent of Big Four customers said they were unlikely to switch banks, saying they were unlikely to find a better deal elsewhere.

Choice CEO Nick Stace followed the satisfaction survey with a letter to the major banks, calling on them to take practical steps to improve consumer satisfaction.

“The ultimate aim of our Better Banking Campaign is to ensure we don’t have to run another one; to bring an end to the era of ‘bank bashing’ and transform the one-sided, anti-consumer culture of banking that angers so many Australians,” Stace said.

Choice has come under fire from

the mortgage industry for its own involvement in financial services with the Big Bank Switch campaign. The group was criticised for receiving commissions from its referrals of refinancing customers.

Choice’s spokesman Christopher Zinn has hit back at suggestions of double-standards, saying the Big Bank Switch fee was transparent both in “declaring it to the market and the consumer.

“We received a fixed $250 per switch, which was to pay for the running of the campaign, and that was paid from One Big Switch’s fixed commission rate of 0.5%. There were no trail commissions, so both of those fees were revealed openly with each offer,” he said.

“We just wish there were industry standards which were as transparent and as straight forward as that.”

Christopher Zinn

Mortgage Choice has stated the addition of Gateway Credit Union to its line-up of lenders will meet a niche customer demand without “over-burdening” its panel.

The company announced it will add Gateway to its panel, bringing the number of lenders on the panel to 26. Company spokesperson Belinda Williamson said, though the company’s panel is expansive, its lenders are vetted for a “point of difference” to reduce duplication.

“When considering whether a new lender is suitable for the Mortgage Choice panel, key aspects that we thoroughly research are its reputation, quality of products and service plus how well it fits in with our systems and processes,” Williamson said.

“Each lender’s offering must add value to our customer service proposition and strengthen our standing within the mortgage market,” she said.

Williamson added customers are now increasingly seeking credit unions because they are accountable to their members, leading to lower priced products and “superior” service.

Credit union products are now in vogue in much of the mortgage broking industry. Aggregators PLAN, Choice and Connective have all struck deals with Phoenix Mortgage Management to add mutuals to their panels, and

Paul Thomas

Heritage is ramping up its broker distribution.

Williamson said Mortgage Choice was anticipating customer demand for credit union products to increase as media coverage heightened awareness of mutuals.

She said the timing of Gateway’s addition would allow demand to ramp up gradually and give the credit union time to adjust.

“By adding Gateway to our panel at this time of year – typically a slower period as we head into the New Year – we expect a gradual build up of volume to come. Gateway is geared to meet the levels of demand we anticipate,” she said.

Gateway chief executive Paul Thomas hailed the move as the “next step in the evolution” of the company’s strategy to bring its products to “a wider audience”.

Filling gaps ‘logical place’ for non-banks Funding pressures may mean that non-banks won’t be able to compete on price in 2012, but Firstfolio’s Mark Flack Mark Flack has said this is nothing new for the industry.

With funding pressures set to grow in the year ahead, Flack said this would make it even more difficult for non-banks to compete with the majors. Competition will happen around service and credit policies rather than price, but Flack argued this is nothing new for non-banks.

“The non-banks in today’s market are always going to be at a price disadvantage. They need to find a segment where they can offer a service and credit proposition rather than a price proposition. This is the way it’s

always been,” he said.

Flack pointed to Firstfolio’s recent acquisition of non-bank Calibre Financial, and said its funding platform would allow the company to expand into niche product markets.

“We’re looking at targeting niches such as self-managed super funds and some other loans for property investors that are structured a bit differently. We don’t need huge volumes. We just need a small share, and that’s profitable for us. We didn’t buy into the Calibre platform only for its capacity on residential mortgages.

It’s to fill gaps and to allow us to expand into other asset classes on our own terms,” he said.

Firstfolio will initially look to expand into these products through its direct channels, but Flack said it would bring new offerings to its third-party

network once it had refined service and pricing.

Flack said non-banks could not spend 2012 engaging in discounting wars with major lenders, but would best serve brokers by offering a solution for

complex deals or niche product demand.

“That’s the logical place for us to play in the broker space. If you’re just offering mortgages there’s always going to be that price play,” Flack said.

Flashback: Firstfolio completes Calibre takeover In December, Firstfolio completed its takeover of non-bank lender Calibre, with CEO Mark Forsyth calling the move “transformational” for the company.

The acquisition was first mooted in July, when Firstfolio said it would acquire the lender for its securitisation platform, allowing it to enter the nonbank lending sector in earnest.

“The acquisition of Calibre marks a transformational change for Firstfolio, giving us the scale and capability Mark Forsyth to enter the non-bank lending space, which had been largely vacated in Australia following the global financial crisis,” Forsyth said at the time.

The acquisition delivered Firstfolio a $400m warehouse funding line through Westpac. Forsyth said Calibre would form part of the company’s newly-formed Firstfolio Capital division.

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News Turning point reached Service, not rates, key as investors get active to Bank of Melbourne success

Rate cuts late last year have proven a ‘turning point’ in the market, with AFG rounding out the year with solid gains in mortgage volumes positioning it well for 2012.

AFG recorded its highest mortgage volume since March 2009 in November of last year, following a rate cut that AFG’s Mark Hewitt has called a ‘turning point’.

AFG processed $2.9bn in mortgages nationally in November, up 18.4% on October’s figures.

Victoria led the charge with 26.7% month-on-month growth, followed

by Queensland at 20.8%.

Investors took the lion’s share of the market, accounting for almost two in every five mortgages sold or 38.4% of volumes nationwide. This was an all-time record for AFG’s six-year-old Mortgage Index.

While November is a traditionally strong month for brokers in the rush to settle before the end of the year, general manager of operations Mark Hewitt said the RBA cut had stimulated demand.

“We are experiencing the paradox that weaker global economic conditions and lower rates is good news for Australian

property buyers – at least for now,” Hewitt said.

“It’s significant that investors and first homebuyers are leading the action. Many had been fearful that we were locked into a scenario of constant rate hikes. The November rate cut proved to be a real turning point and the outlook is very different now,” he said.

First homebuyers accounted for 15.8% of AFG’s mortgage volumes, which while down on the 16.4% recorded last month is still at a level higher than all the other months this year.

Fixed rate home loans also remain high at 17.2% of all loans processed, which is a decrease from 20.4% last month but is still above long term averages.

The figures showed that competition decreased as the lender mix shifted back in favour of the majors, who held 80.4% market share up from 78.9% in October. Of the rebel borrowers supporting non-banks, first homebuyers are the most supportive and investors the least.  For more on the investment resurgence, turn to Viewpoint on page 20

Month Total Total Average Property number amount size investors

First time % buyers Refinance

Oct

6,349

$2,509m

$395k

35.6%

16.4%

37.9%

Nov

7,492

$2,907m

$396k

38.4%

15.8%

37.8%

Bank of Melbourne’s guarantee to match the price of the big four won’t be all the bank needs to do to woo business from Victoriabased brokers.

The newly-badged Bank of Melbourne is currently running a promotion vowing to match rates from the Big Four, including parent company Westpac.

However, Victorian broker Tony Petrevski of Smartline in Thomastown has said customers may not be won over by the offer.

“So far it appears that Bank of Melbourne’s rates are not as good as the majors, CBA, ANZ or NAB. They promote that they will match any rate. However, most clients who are in the process of arranging finance look at the actual quoted rates,” he said.

The bank’s promotion will run through to the end of February, and will apply across its fixed and variable home loans, term deposits and some savings accounts. A Bank of Melbourne spokesperson said the offer will be specific to Bank of Melbourne, and will not apply across St.George and BankSA. The spokesperson told Australian Broker the bank was trying to set itself apart through the offer as an independent brand.

Petrevski said he has yet to see a rush of consumer interest in the

Tony Petrevski

new brand, but conceded it was “early days yet”. He claimed the key to the brand’s eventual success will be the service it offers to brokers.

“Their service levels are yet to be tested. If they can deliver during peak busy periods, then they will get the business. Service levels influence where most brokers place business,” he said.

In November, the bank announced it would be the first of Westpac’s regional brands to open BDM access to all accredited brokers, a move mooted by St. George head of broker Clive Kirkpatrick. But Petrevski said he has yet to receive contact from a Bank of Melbourne BDM. “At this point, I personally have had no service experience from Bank of Melbourne. No one has made contact with me to introduce themselves,” he said.

ASIC promises review of EDR powers ASIC will undertake a review of the power granted to EDR schemes as an industry lobby seeks to limit them.

In a white paper issued by attorney Matthew Bransgrove, he has argued that EDRs such as COSL and FOS are given too much power under the NCCP, and could cause lenders to exit the market.

“Lenders will not risk their capital if they are denied access to the law courts and tied up in complaints (tacitly for the purpose of providing the borrower with a temporary respite rather than to address a genuine dispute) for indeterminate periods. This leads to tighter credit conditions. The less lenders there are prepared to lend the less willing the remaining lenders are to lend,” Bransgrove said.

Currently, ASIC pushes lenders

and borrowers to resolve disputes through EDR schemes rather than court action. However, Bransgrove said the industry’s EDR schemes are not working, and are causing frustration among lenders.

“The feedback I have received has been entirely negative.

Lenders and brokers alike bitterly resent paying the costs of FOS and COSL when, after many months, they are found innocent of any wrongdoing. Lenders are particularly bitter because complaints are deliberately drawn out in order to give the borrower more time. This being disingenuous, and it makes them feel helpless and uncertain of their rights,” he said.

Bransgrove said he is currently representing lenders with $1bn in capital, and is in discussions to represent lenders accounting for a

further $3bn in capital. He pointed to complaints from the Australian Bankers’ Association and Abacus, and said the industry has strong concerns about ASIC’s guidance on EDRs. Bransgrove expressed optimism that ASIC would change its guidance on EDR schemes, limiting the scope of their power.

“It is inevitable because the regulatory guide attacks the fundamental basis of mortgage security. ASIC admits in the consultation paper that they intended that the complaints process be used as a de facto mortgage moratorium device. It has nothing to do with complaints and everything to do with abusing the complaints process in order to give the borrowers more time when in financial hardship,” he said.

An ASIC representative told

Matthew Bransgrove

Australian Broker the review was merely fulfilling a commitment to industry consultation the regulator undertook when it issued its initial regulatory guide on EDRs, and that the starting point of the review would be that the current regulations do not require change.

www.brokernews.com.au

13

Money can’t buy happiness for Aussies Nearly half of Australians list property ownership as a longterm goal, but just over 10% rank it as a way to measure their prosperity.

The rediATM Prosperity Survey, commissioned by credit union network Cuscal, found that Australians rate intangibles as better measures of prosperity than actual assets.

The survey’s respondents listed factors such as health, family wellbeing and love or partnership as more important indicators of prosperity than home ownership.

Gen Y respondents were particularly keen on love and relationships, ranking them the number one measure of prosperity.

“Many Australians are now reassessing how they view their broader personal wealth with traditional aspirations such as health, happiness and family wellbeing increasingly being prioritised as more important than material or financial gain,” Cuscal general manager David Heine said.

These shifting priorities were reflected in the sacrifices respondents said they were willing to make. Sixty-three per cent said they would forego travel in order to prioritise their family’s health, their children’s education and home ownership, while 53% said they would put off home renovations to meet other family needs.

The survey also revealed a reasonable degree of optimism, with 46% of respondents saying they felt at least “quite prosperous” in some way. This optimism was tinged with caution, though. Ninety per cent of respondents said they were struggling in some way to meet prosperity goals, and 25% said their primary struggle was simply not having enough money.

The outlook for 2012 was fairly balanced, with 35% predicting they would be more prosperous by the end of the year, and 52% saying they expected to remain at the same level of prosperity.

“The change of aspiration

revealed by the survey, combined with more sensible management of home finances, suggests that while 2011 has been a tough year,

Australians are optimistic about the outlook for 2012,” Cuscal managing director Craig Kennedy said.

How do Australians feel about their level of prosperity?

NT

QLD

WA SA NSW ■ Feeling more prosperous ■ Feeling less prosperous

Source: rediATM

VIC TAS

14 brokernews.com.au

News

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

Non-profit labels payday Consumer awareness main culprit behind lenders ‘loan sharks’ dispute increase

Social welfare charity Anglicare has slammed a government report on payday lenders, terming the lenders “loan sharks”.

A Parliamentary Economics Committee report has advised against the government’s proposed interest rate and fee cap on payday lenders, arguing it could render the industry unviable.

Anglicare director of advocacy Sue King labelled the decision a win for the lenders at the expense of consumers.

“It is morally irresponsible for Government to watch payday lenders exploit struggling families who are trying to build independence and not put a stop to it,” she said. “We do not need to protect payday lenders. Instead, Government should be working with industry to provide low income families access to mainstream financial products.”

King said the committee’s recommendations ran the risk of rendering payday lending reforms “ineffectual in protecting consumers”, and that most borrowers accessing payday loans were using them to pay for basic necessities. She called on the government and NGOs to pick up the slack in providing financial relief to struggling families.

“There is huge opportunity for Government, NGOs and financial institutions to partner in equipping vulnerable families with skills for long-term independence rather than leaving them to the mercy of short-term loan sharks,” King said.

The National Financial Services Federation (NFSF) had a

markedly different outlook on the report. The NFSF, which represents payday lenders, called the recommendations the “right balance between protecting vulnerable Australians and maintaining a viable industry”.

“This is a win-win for the 500,000 Australian battlers that rely on short-term loans to pay for unexpected expenses,” NFSF chairman Mark Redmond said.

Redmond encouraged amendments to regulations in line with the recommendations, and vowed that the payday lending industry would work with government on the reforms.

“The NFSF has always welcomed regulation that protects vulnerable and disadvantaged Australians, cracks down on rogue lenders and maintains a viable, licensed industry,” he said. “We want to ensure that consumers have access to responsibly provided credit services, are fully aware of the alternatives and clearly understand loan costs,” he said.

The Financial Ombudsman Service has said consumer awareness is behind a massive rise in disputes.

FOS reported a 27% rise in disputes for 2010 and 2011, and said the area to see the largest uptick was credit. Disputes over home loans, credit cards and personal loans rose 44% for the year.

However, the increase is not due to the poor behaviour on the part of credit providers, but rather an increasing public awareness of EDR schemes, according to an FOS spokesperson.

“Awareness is one of the factors.

That’s something that is a key objective moving forward.

Accessibility is absolutely paramount, and we’ve seen success in that area and are hoping to build on it in the future,” the spokesperson said.

Dealing with the influx of complaints made it a “challenging” year, according to Ombudsman Shane Tregillis. FOS has added staff members to more disputes, and saw 50% of complaints resolved within two months and 79% resolved within six months.

Though the proportion of disputes resolved in 60 days improved over 2011, FOS said disputes going beyond 180 days increased.

“This is an area that is very much a work in progress, and it’s front and centre for the organisation. It’s an area the organisation has made huge gains in over the past 12 months,” the

Shane Tregillis

FOS spokesperson said. “As we all know intuitively, some cases are clear and conducive to coming to an agreement and some are more complicated. It takes more time for both parties. There’s always going to be a level of complexity in some of the cases we deal with, and it’s a lengthier process.”

Ultimately, the spokesperson said the Ombudsman would like to see fewer complaints, with more disputes being resolved by IDRs before FOS has to become involved.

“Our endeavour is to work as closely as we can with members to support them to deal with disputes as quickly as possible. Our goal is to have as many disputes as possible dealt with between members and the individual rather than for it to come to FOS,” she said.

Financial Ombudsman Shane Tregillis called the year a “challenging” one for consumers, the industry and FOS.

December cut a double-edged sword December’s RBA cut may not be cause for celebration.

That’s the claim of property investment expert Ken Raiss of accounting firm Chan & Naylor, who labelled the cut to 4.25% a “double-edged sword”.

Raiss said it could confirm some consumers’ worst fears about the Australian economy. “For some people this will confirm that the Australian economy is heading the same way as Europe and their knee-jerk reaction could be to tighten their belts further than they already are. While this will increase cash savings, it will of course further detract funds from equity markets and sectors such

as retail, which are already hurting,” Raiss said.

This assessment may do little to dampen jubilation among mortgage holders. Non-bank lender Resi has said the RBA’s two successive rate cuts will effectively knock more than four years off the average Australian mortgage. The company’s CEO, Lisa Montgomery, said borrowers who keep their repayments steady will see even more significant benefits.

“If repayments on a $500,000 loan taken over 30 years were kept at the same level prior to the November rate cut, the borrower can potentially reduce the term of

their loan by five years and nine months – which equates to almost 20% off the term of their loan.

That figure alone is a real game-changer, which can significantly improve the financial plans of many mortgage holders – and that’s why they should be looking at that strategy if they are able to,” she said.

The Housing Industry Association was also quick to praise the rate cut. Chief economist Harley Dale said it was insurance against a Eurozone meltdown rather than a concession that one was inevitable.

“Hopefully the situation in

Europe doesn’t deteriorate markedly from here. If it does the RBA has taken out some further, appropriate Lisa Montgomery insurance which doesn’t dilute its ability to engage in more aggressive action in early 2012 should that unfortunate outcome prove unavoidable,” he said.

And Westpac’s Bill Evans has predicted this aggressive action will come. Evans, the bank’s chief economist, has tipped further moves by the Central Bank in February and May.

brokernews.com.au

15

News Brokers clash over financial ‘GP’ future Wealth Today CEO Michael Stephens has refuted Mortgage Choice’s position on individual brokers holding more than one licence, arguing this only increases their capacity to provide good service.

Mortgage Choice CEO Michael Russell has argued that while as a brokerage it would offer financial planning services to clients, individuals themselves would only hold one licence.

Mortgage Choice chief executive Michael Russell last year spoke out against the so-called “superbroker” model in which brokers hold both an ACL and AFSL, questioning whether dual-licence holders could execute either role with the required proficiency. “Conflict can be overcome with professional behaviour and proper customer disclosure,” he said. “I’m just saying individuals who hold both licences and perform on both sides of the balance sheet will come into conflict more often,” he said.

However, Stephens said this would improve the capacity of these individuals to provide advice.

“I don’t think it does undermine professionalism,” he said. “If a doctor has an additional qualification over and above being a GP, does that make them worse as a doctor? Probably not…”

Stephens said it depended on the complexity of the service being provided, but claimed by holding more than one licence planners and brokers could add value to their business plan.

It was a “natural progression” for mortgage brokers to start offering financial advice, he added.

“Our business is built on the premise that there is a significant synergy between mortgage brokers and planners, and I think you’re going to see more brokers migrating to offer advice,” Stephens said.

Stephens predicts less financial planners will move into mortgage broking. “It’ll be vice versa to a lesser degree … I think the weight of movement will be the other way,” he said.

In a recent restructure of its business model, Wealth Today encouraged brokers to join its dealer group by offering them training in the transition to financial planning.

“Brokers often find themselves being asked to give financial advice, but are constrained by the licencing issue. We see it clearly becoming a space in which they can upskill themselves and also add value to their clients,” said Stephens.

Mortgage Choice has flagged the imminent launch of a financial planning arm that Russell has said will provide better advice than Australia is used to.

Russell said Australia has seen “ordinary financial advice over the last decade”, and that Mortgage Choice would soon bring its professionalism to the industry.

While Russell could not elaborate on the shape of the new advice business, he said that it would help clients with insurance, superannuation as well as their wealth management goals.

Russell said the guiding principal for the launch next year

would be that individuals cannot effectively hold two licences.

Michael Stephens

Michael Russell

16

brokernews.com.au

Analysis

Get ready for the squeeze

W The industry will have to accept further consolidation this year whether it is welcome or not, and brokers and aggregators will have to choose their path

hen Market Intelligence Strategy Centre (MISC) data was released last year showing a 25% decline in the number of broking businesses, the industry was indignant but not all that surprised.

Brokers and aggregators seem resigned to – albeit not all that pleased with – the reality that the industry is being serviced by fewer and fewer brokers, aggregators and lenders.

The trend doesn’t look set to stop any time soon. If credit growth remains in the doldrums of 2011, 2012 will end with even fewer players in the market.

Ballast chief executive Frank Paratore believes further consolidation in 2012 is a foregone conclusion. While smaller, niche-market businesses and behemoth broker networks may navigate their way through, the vast majority of mid-tier brokers and aggregators face being squeezed.

“Whilst there’s been some rationalisation taking place in the industry over the last six or so years, that certainly will continue. Definitely that middle tier will have to look at bulking up or streamlining. It’s in that middle ground that they don’t have the economies of scale of some of the bigger players, but they also have costs that the boutiques don’t incur,” Paratore said.

An unhappy medium

Fewer brokers, better volumes MISC figures last year showed a 25% decrease in active broking businesses. Only 119 broking firms in the MISC research pool sold a single mortgage in the March quarter of 2011, compared to 161 in the March quarter of 2010, a result which saw the fewest active mortgage broking businesses since MISC began gathering mortgage broker and banking data in 2001. In spite of the contracting market, the businesses remaining saw an 18% increase in lending activity.

As a smaller aggregator, Paratore said he’s right where he wants to be. Boutiques can run on thinner margins, and generally work in market niches where the competition for new business is less fierce. Homeloans chairman Tim Holmes said brokers operating in these niches should also come through any market shake-ups relatively unscathed.

“I think the sole operator who’s a hunter gatherer and who has an active client base they’re servicing will do well and prosper,” Holmes said.

Likewise, large franchise operations and aggregators with the benefit of scale – and at times institutional investment – are equipped to deal with market shocks.

For those in the middle, the options are streamlining the business to become a boutique, or looking to bulk up.

“Whilst the models are still sustainable right now, they need to seriously think about what the next step will be, whether it’s stripping out costs and having a look at broker numbers and volumes and the resources required to manage that volume, or looking at joining bigger operations or look at acquiring someone themselves to gain additional scale,” Paratore said.

For mid-tier brokers, venturing into an acquisition may seem alien. After all, mergers and acquisitions seem more suited to big multi-nationals. But Paratore has experience with this himself. In 2010, Ballast acquired Members First Group, taking its broker numbers from 70

to 185. If a boutique aggregator can pull off an acquisition, Holmes said mid-level broker businesses may be surprised at their ability to acquire other operations.

“Finance markets are pretty tight at the present time for getting finance from a bank to make an acquisition, but when things do free up – as they inevitably will – the underlying assets of a broking business present pretty good security for a bank. They don’t have to be writing new business from the first day of every month. They have income because they have their trail commissions.

In terms of preferred lending categories they’re probably seen as a pretty good one,” he said.

Moreover, brokers and aggregators looking to acquire in the New Year may be in for a bargain as businesses for sale adjust their expectations. Holmes said many broking businesses have asked for “far too big a multiple” when looking to sell, and he expects this to change over the year with a “progressive lowering of expectations”.

No help from above

Sitting on their hands and waiting for outside help may not be an option, particularly for mid-range aggregators.

Holmes believes many medium-sized aggregators may be building up a distribution network under the assumption that one of the majors will swoop in with a takeover offer.

“A lot are probably hoping someone will come and snatch them up. In many cases that’s a pretty forlorn hope,” Holmes said.

What does all this consolidation mean for brokers at the coalface? From the perspective of Liberty Network Services chief executive Brendan O’Donnell, often very little.

“Is all this consolidation benefitting the broker on the ground, or is it benefitting the overall business? What is really changing for the brokers who operate day to day and have to do the hard yards talking to clients? From our perspective, it’s all about making sure what’s happening in the business is benefitting the people on the ground day to day,” he said.

Paratore agreed, and said scale does not always mean a better service proposition for brokers or clients. He argued that independent aggregators and broker businesses keep the market “on an even keel”, and could do a better job in the year ahead of attracting quality brokers.

“Being bigger isn’t necessarily being better. There’s only so much efficiency you can get from economies of scale through size. I’d like to think the independents provide a better service proposition and that we’re a little more attuned with what brokers require,” he said.

Whether businesses strive for size or look to fill a boutique niche, 2012 may well prove that the middle of the road is a dangerous place to be.

18 brokernews.com.au

News THE COALFACE Kelly Cameron-Tull, Get Real Finance, Brisbane

• Advertising next, as new brokers added • Get Real vehicle wrap to lure local clients • Young tech-savvy trainee likely

Kelly Cameron-Tull

Kelly Cameron-Tull has put ambitious growth plans on the agenda for Get Real Finance, with an almost empty premises in Brisbane’s Fortitude Valley just waiting to be filled.

Cameron-Tull said the business would aim to number between four and five mortgage brokers over the next two to three years, an increase from the current focus on herself alone.

“We bought a new commercial premises mid-last year, so we don’t have any pressure, and our goal is to keep building the business and grow into upstairs and downstairs,” she said.

Having moved out of the bottom floor of a renovated house in the Windsor/Wilson area, the new Fortitude Valley location is convenient for clients all over Brisbane, and is densely populated.

The business employs a loan processer who handles overflow

broking work, with Cameron-Tull’s husband – a former director of elevator company Otis – filling a role as operations manager.

However, Cameron-Tull aims to grow this business’s headcount from the beginning of 2012.

Cameron-Tull said one of the additions next year may be a ‘young person’, potentially social media savvy, who she will be able to train up to accreditation with major lenders.

“For the longevity of the business, we need to recruit new and young people into the industry and transfer our skills to them – people just aren’t doing that now,” she said.

Cameron-Tull said the expansion would put her husband’s developed skills as a manager to better use, and would also give her time in future to adapt her work day around her new child.

As part of the expansion, Get Real Finance will commence advertising to expand on its current referral reliance, and provide work for the business’s new loan writers.

Cameron-Tull suggested equipping a car with the Get Real Finance brand name and driving around Fortitude Valley would be one way for the business to attract local clients.

Get Real Finance has managed to survive tough times in Brisbane

and Queensland, with consistent sales volumes that will be $10m ahead of last year’s figures.

Cameron-Tull said this was due to a diverse client base, as well as providing service consistently and well.

“We manage to manage the client all the time through regular client reviews – we touch customers six or seven times a year – and so there is very little run-off of trail,” she said.

Steve Gravina, Toowoomba Home Loans Property sales in Toowoomba may still be reeling from last year’s floods, but Steve Gravina has seen a change in attitude towards risk products as a result.

Gravina’s Toowoomba Home Loans suffered the results of devastating flooding in the region early in the year. He told Australian Broker News that transaction volumes remain depressed, but are beginning to recover in the last few months.

“Business is constant, but not at the level we’d like to see it at. The turnover of real estate is certainly down,” Gravina said.

Though the region’s physical recovery from the disaster is coming along, Gravina said • Regional floods increase risk sales • Market activity to pick up this year • Economic uncertainty remains caveat

Steve Gravina Steve Gravina says consumers are singing a new tune on risk products

Toowoomba still bears the psychological scars of the floods.

He commented, however, that the disaster has changed his clients’ attitudes towards risk products.

“We probably have put a lot more emphasis on the risk management side of the business, and because of the psychological effect of the flooding, people are more openminded to listen to what you have to tell them in regard to risk products,” he said.

Gravina said there are signs of recovery in the community, with lenders taking a more “commonsense approach” to valuations, and no longer showing as much hesitation to lend in Toowoomba’s post code. He commented that he expects activity in the area to remain sluggish for the first half of next year, but is hopeful it could pick up in the latter half of the year.

“I think the biggest concern for a lot of people is confidence in the economy and the government, or the lack thereof,” he said.

Get ready for fixed rate ‘paradigm shift’: Citi Brokers should prepare for a shift towards the certainty of fixed rates among their clients as the European debt crisis continues to bite, according to Citibank’s Aaron Milburn.

Following a fixed rate cut in December last year that has seen the bank’s 3-year fixed rate drop down to 5.75% at the time the change was made, head of broker distribution Milburn said “natural human instinct is to look for certainty in uncertain times”.

“Our current market environment is uncertain and it’s quite hard to predict what might happen in the medium or even short-term,” he said. “We are still monitoring very carefully the European sovereignty crisis, its developments, impact on the

outlook for global growth and the flow-on effects to other economies like Asia and ultimately Australia.

We expect to see a paradigm shift in consumers’ minds and reactions to these developments.”

Milburn said that fixing a portion – or even the whole – of a home loan are a reasonable option for borrowers to ensure stability in their monthly repayments and overall budget. He also indicated that now might be the most opportune time for clients to lock in a fixed rate.

“We conduct ongoing reviews of our rates (fixed and variable) based on the most recent cost of funds. We may be getting close to the end of this ‘dropping’ cycle for fixed rates, and they can climb fairly quickly if the yield curve

reverses,” he said.

Milburn said even if the RBA continues to cut rates in the New Year, no one is expecting a cut of the magnitude that has been seen recently in fixed rates.

“If clients are trying to budget and want more certainty in their finances, then it would make sense to consider fixing rates for 12, 24 or even 36 months,” he said.

Milburn said brokers would benefit from knowing their customers would be with them, earning them consistent trail commission, during the period the portion of their loan is fixed.

The differential between Citibank’s variable rate is over 50 basis points when compared with its three-year rate (at the time of publication). Milburn said its

60-day rate lock feature was becoming more important in the market as fixed rates plumb new lows.

Aaron Milburn

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19

INDUSTRY NEWS IN BRIEF RBA weighs boom against bust The Reserve Bank decision to cut the cash rate in December has been revealed as a close call, with the board having to weigh Australia’s boom against a European bust.

The minutes of the RBA’s meeting in early December show the board was satisfied with recent domestic economic data, with overall growth “consistent with trend”.

“There had been further evidence that a major investment boom was in progress and the overall economy was expanding at a pace broadly in line with trend,” the RBA minutes read.

However, the RBA’s assessment that credit and banking problems in Europe presented a risk of subdued economic activity and the “non-trivial” possibility of a sharp contraction spurred action.

“Developments in Europe continued to pose downside risks to the global economy and, consequently, also to Australia,” the RBA minutes stated.

“These risks had, if anything, increased though the timing and magnitude of any effects that might flow from them remained very difficult to predict.”

FirstMac rides volatility for RMBS Non-bank lender FirstMac finished off last year with the pricing of a tranche of residential mortgage backed securities worth $300m – though it came at a cost.

The placement included $99.4m sourced from the government’s Australian Office of Financial Management (AOFM), and $199.85m from external investors.

FirstMac chief financial officer James Austin said at the time that the non-bank had overcome “volatile economic times arising from issues in Europe” to place the deal. “Funding costs across the industry globally have risen significantly over the past 12 months with this transaction pricing 0.30% wider than a similar transaction placed last year,” Austin said.

“Europe continues to provide an uncertain environment. Given these risks, it is prudent to maintain the long-term funding profile of our balance sheet even if this comes at a higher cost.”

Rate reprieve sees arrears rollback Stable interest rates saw mortgage arrear levels decline through the middle of last year, according to Fitch Ratings. Figures released to the market in December show that arrears were down to 1.42% of all mortgages in September 2011, after being recorded in May last year at 1.77%. The ratings house put the improvement down to a stable interest rate environment during the period. While overall mortgage delinquency levels improved in all states, localities still doing it tough included Sydney’s south-western suburbs, the NSW Central Coast and the Gold Coast in Queensland. The south-west of Western Australia was likewise still among the regions with higher delinquencies, and tourism destinations in coastal locations were increasingly in arrears.

Aussie market can weather Europe woes Vow Financial CEO Tim Brown has said Australia is well positioned to weather European volatility. While cost of funds “would increase dramatically” in the event of another 12 months of volatility this year, Brown said that the Australian banking system is in a “sound” position.

In a message to Vow brokers, Brown said that the US seemed to be through the worst of its downturn, with consumer confidence and retail spending improving.

“This bodes well for Australia and China as the US consume around 25% of the world’s GDP,” he said.

Brown flagged continued downward pressure on interest rates.

Brown added he was “reasonably confident” property would start to perform this year.

ASIC docs in need of revamp A top broker has argued NCCP documents are in need of a revamp to make them more practical.

Justin Doobov of Intelligent Finance said he is working hard to “streamline” compliance requirements into his business in 2012, but has urged ASIC to follow suit and simplify its required documentation.

“We are hoping that ASIC revamps the documentation requirements of the NCCP and consolidates the amount of separate papers we have to give a client,” Doobov said.

With the NCCP regime becoming more familiar, Doobov said the time is ripe for ASIC to rethink its documentation.

“While I can see that the government and ASIC had good intentions when they introduced the NCCP, I think now is the time for ASIC to revamp the requirements to make the delivery of it more practical,” he said.

Cabinet reshuffle a housing win Prime Minister Julia Gillard’s cabinet reshuffle late last year was labelled a win for affordable housing. The new cabinet lineup saw Robert McLelland take on the role of Minister for Housing and Homelessness. Lobby group Australians for Affordable Housing said at the time that the move showed a commitment to address housing issues.

“The inclusion of a single housing minister in the Federal cabinet, responsible for all Commonwealth housing policies and programs, is something we have been advocating for and we’re hopeful that this demonstrates that the Gillard Government is making housing affordability in Australia one of its top priorities,” AHA campaign manager Sarah Toohey said.

The HIA praised McLelland’s appointment: “Creating a ministry which includes ‘under one roof’ all facets of housing supply across the spectrum of public and social housing, together with private owner-occupier and rental stock is a crucial step.”

20

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Comment VIEWPOINT

Kim Cannon, FirstMac

Steve Kane, FAST

2012: The end of the world?

“It all depends on the world, what’s going on at the moment, and whether the world is going to be there next year.” Sound promising? Welcome to the year 2012.

That was the final thought of 2011 from FirstMac’s Kim Cannon, who went on to elaborate on the challenges that would face lending institutions this calendar year.

“We see a lot of issues going on in Europe at the moment. In securitisation we are always the first to get hit – our funding costs blow out. The banks are not far behind us.”

For brokers looking for a positive start to the year, industry heavyweights said brokers could thrive – but only if they were on top of their existing customers.

“Stay close to your customers,” said FAST managing director

Europe is providing its fair share of doom and gloom this year, but there’s more than enough opportunity from your existing customers – particularly investors

Peter Bromley, James Symond, LJ Hooker Aussie Finance Steve Kane. “Not only are they are a source of existing revenue, but they are also a fantastic source of referrals. So, in a tight market, I think it is your existing customers that are the most important.”

Kane is not alone in this sentiment. LJ Hooker Finance’s Peter Bromley said 2012 holds great opportunity – but brokers needed to look after their customers.

“Existing customers will still be the best opportunity going forward, and I think customers today are really looking for some good, sound independent advice, and I think that is something we can all do in our industry now,” he said.

Meanwhile, James Symond, Aussie Home Loans, said 2012 “should be your busiest year ever”.

“As the rates come down, and the banks and lenders become more competitive, they should be able to go back to their existing customers and offer them an even better service.”

Justin Doobov, Intelligent Finance

David Brell, Smartmove Home Loans

Getting yield from investor clients “Go out and buy an investment property yourself.”

You’ve been told. Intelligent Finance’s Justin Doobov argues that knowing the mind of investor clients isn’t as easy as reading a “text book” – it’s about practical knowledge.

“Then you’ll be better able to advise other people how to do it,” he said.

Recent figures – most notably AFG’s – have detailed a surge in investor client business, and brokers say the momentum has been building over a period of six months.

“It’s been gradual, rather than sudden,” according to Smartmove’s David Brell. “I think the increase has been over a six month period and it has fallen into the November month.”

So how can you adapt your approach to leverage this appetite in the New Year? If buying a property of your own isn’t on the near-term

Daniel O’Brien, PFS Financial Services

horizon, it’s time to think like an investor. And that – according to Doobov – is all about numbers, not the “nice backyard”.

“Investors want to know what the costs are, what the return is, what their net out of pocket expenses are per month – you need to take a different approach and look at the numbers.”

Daniel O’Brien of PFS Financial Services said it is also worth raising the SMSF option with investors.

“Raise the awareness of the option of SMSF loans, that it is here and it is available – I think that is the big opportunity going forward,” he said.

Brell said brokers also need to talk strategy. “The main thing to do is sit down with that particular investor and talk about their overall strategy over the next 10 to 15 years,” He said this could be as simple as not cross-collateralising securities, interest only versus profit and interest, as well as pro packs, and consolidating lending with one institution.

FORUM

Who shot the sheriff on Australian BrokerNews?

“It is time that the MFAA took off its hat as self-appointed sheriff.”

So said online reader Scopher on the Australian BrokerNews Forum, following an Australian Broker exclusive that revealed the ACCC was looking carefully at arrangements by leading broking groups and lenders that make MFAA membership mandatory.

Here’s what else Scopher had to say on the issue: “This is a welcome and long overdue initiative from the ACCC. I am not against any professional association. However, the compulsory membership of the MFAA goes against the notion of freedom of choice. With ASIC as the official regulator, it is time that the MFAA took off its hat of self-appointed sheriff.”

Scopher was certainly not alone in his opinion mandatory membership arrangements went too far.

Glen said: “Having been a member of the MFAA for probably 15 years, I welcome this review. If you look at the benefits that the MFAA is supposed to bring to its members it is hard not to conclude it has failed. I see no reason why MFAA memberships should be compulsory.”

However, not all were against MFAA membership, calling the ACCC’s efforts “futile”: Prisco Minichiello said: Regulators should make up their mind about how serious they are with consumer protection. The NCCP Act is not perfect but it goes a long way towards legitimising the industry. The MFAA provides invaluable advice to members and is an integral part of professionalism and compliance guidance to brokers. If the ACCC was to revoke it, I’m sure 99% of brokers would retain membership.

When ASIC decided to scrap the credit licence of Melbourne mortgage broker Star Alliance Financial Services and principal Prasanna Wijesekara, brokers called for compliance fairness.

Hip Hip Hooray! Well done ASIC. Keep up the effort to clean up our industry so more Australian families can benefit from the services of finance professionals.

PeterT on 20 Dec 2011 11:13 AM It is comforting to know ASIC are out there and following through and as with most things people will always think they could do it better (perhaps “differently” is a better word). In relation to some of the questionable bank practices, I hear of these sorts of things being done by brokers as well. We, as a group, are not as squeaky clean as some would like to believe. However, I prefer to focus

on what I do as opposed to wasting time and effort on others.

Fair Compliance for All on 20 Dec 2011 03:43 PM

Poll: Is the glass half full or half empty – will you write more business in 2012 than 2011?

Predictions for the New Year have ranged from bullish, to outright bearish – but how do our online readers expect 2012 business to compare with 2011? Here’s what they said.

Yes No

28%

56%

Depends on Europe 16%

Source: Australian BrokerNews Poll date: 14/12 - 23/12 2011

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

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Review What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and trends that made headlines in the magazine 12 months ago Australian Broker Issue 8.1 Headline: Fixed rate fixation as rates rise (page 8) What we reported:

Last year began the stratospheric popularity rise of fixed rate loans.

The products had accounted for only a tiny portion of the market in 2010, starting the year at just 0.88% of all approvals. Then came the RBA’s Melbourne Cup Day hike. Suddenly, fixed rates became all the rage. The products rocketed to 15.2% of approvals by December 2010. Standard variable rates still remained the undisputed king of mortgage products after the hike, representing around a third of home loans. But RBA commentary that rates could stay on hold for some time, combined with some nasty out-of-cycle moves by the banks, meant fixed rates were in for a renaissance.

What’s happened since:

Fixed rates continued to take off in 2011, settling at around 20% of settlements by November. A couple of RBA rate cuts didn’t appear to diminish the lustre of the products, and some bizarre yield curves meant fixed rates fell well below the standard variable rate. Banks tripped over one another in the race to cut their fixed facilities to new lows, finally dropping below 6%. Standard variable rates turned out to be the pariah of mortgage products in 2011, falling well out of favour with borrowers to account for only 17% of approvals. Changing consumer preferences over the year led Mortgage Choice spokesperson Kristy Sheppard to declare mortgage demand had “flipped”.

Headline: Utility worries outweigh interest rate concerns (page 13) What we reported:

Consumers last year were more worried about the rising cost of living than any interest rate moves. The Mortgage Choice Consumer Sentiment Survey found that homeowners were more concerned about the cost of necessities. Mortgage Choice spokesperson Kristy Sheppard pointed out the survey was completed prior to the November rate hike.

What’s happened since:

Consumers this year showed even less concern about rates and more concern about living costs. The company’s Consumer Sentiment Survey heading into 2012 showed more than half of homeowners polled had been forced to dip into their savings to meet household bills. Yet consumers were sunny about the future of the economy. Fifty-six per cent of those surveyed said they were fairly or very confident for 2012.

Headline: MFAA brands reforms a failure (page 14) What we reported:

The MFAA was one of the first to brand the government’s banking reforms a failure. MFAA chief executive Phil Naylor had been pushing for a Canadian-style securitisation market to be launched in Australia, a measure that wasn’t delivered by Treasurer Wayne Swan. What was delivered was a unilateral ban on exit fees. Naylor said the ban would push up costs for nonbanks.

What’s happened since:

It’s difficult to tell if the government’s banking reforms have been an unmitigated failure or a stunning success. Non-bank market share has not seen any significant improvement. Any negative impact of the reforms has been muted by intense competition among lenders as they have deeply discounted rates and cut fees over the year. Much of the catalyst may have been a low credit growth environment and a sluggish housing market.

Headline: DEF ban could squeeze upfronts (page 14) What we reported:

The DEF ban was uniformly unpopular throughout the mortgage broking industry and among smaller lenders. Carrington National chief executive Gino Marra claimed the ban would see non-banks recouping their costs either through higher interest rates or lower upfronts to brokers. FirstMac chief financial officer James Austin went so far as to say the ban would sound a death knell for brokers’ upfront commissions. Everyone in the industry seemed to agree that the biggest losers out of the ban would be brokers and non-banks, and that its benefits for consumers would be negligible.

What’s happened since:

The doomsday scenarios described by Austin and Marra have yet to become a reality. After the DEF ban came into place, the same nonbank lenders who had been claiming the move would drive them out of business scrambled to put a positive spin on the ban, saying they would be more competitive. While upfront commissions haven’t been scrapped, many non-banks and small lenders have instituted clawbacks. In spite of this, the flood of indiscriminate switching by borrowers prophesied by much of the industry has yet to occur, rendering the threat of clawbacks a bit less severe.

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News

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

2012’S BEST IN THE BUSINESS

‘Aim for the stars, and stay true to your DNA’ Genius loan solutions’ Louis Kovanis is planning a ‘massive year’ in 2012 – one that others could emulate if they ‘dig deep into their DNA’ Brokers will need to focus on factors they can control in their businesses if they are to ride out the coming “tough economic year”.

As the European sovereign and banking debt crisis continues to confound leaders looking for a solution, MPA Top 100 Broker Louis Kovanis from Genius Loan Solutions in Sydney said he will continue to focus on the “endogenous” factors that he can control in his own businesses.

“Exogenous factors like a bank credit crunch you can’t control, but you can build other businesses that can basically shield you and buffet you against the big tsunamis,” he said.

Genius Loan Solutions focuses on mortgage and finance advice to the niche medical market segment.

Since 2008, new income streams have also been added, through alliances with business partners providing financial planning, accounting, and legal services.

“I think this year is going to be a very tough economic year, predominantly around the European sovereign debt crisis. We are a global economy, and the effects will filter through,” Kovanis said. However, he said being a “glass is half full” individual, he is targeting a 50% increase in business revenue (on the back of a similar feat in 2010), which will likely see him rise to the top five MPA Top 100 Brokers in 2012 (Kovanis is currently ranked 26).

“I’m very optimistic about 2012 – I’m very bullish,” Kovanis said.

“It’s all about branding – the brand is the most powerful symbol for everything,” he said.

Indeed, branding has been both an inspiration and a direction for Genius Home Loans since 2004, when it was “reengineered” to ensure brand and strategy stood out “from the pack”.

Kovanis said the story of the Apple brand’s success acts as a “benchmark”.

“In 1997 Apple was one of the most irrelevant companies in the world, and today they are one of

the most powerful companies in the world. Why? Because they dug deep into their DNA and reignited the flame, and that is just what I have been doing,” he said.

Kovanis said he recognised that Western society is on the cusp of an ageing population explosion, and medical specialists would see their incomes grow “dramatically”.

“We all need to look at our teeth, we all need to look at our eyes – these guys are sitting back and making a fortune and I wanted to be part of that,” he said.

Kovanis said his commitment since then not to take on nonmedical clients has ensured the volume and quality of his finance business has improved, as well as the “stickiness” of his clients, who he said “don’t tend to jump around too often”. This also assists with his trail book, which he said is “bullet proof” when it comes to potential economic shocks.

“The important thing in these difficult economic times is you want longstanding clients, that will stay there for the long-term and not churn, so your trail book will become valuable.”

The next challenge will be for Kovanis to step back into a more strategic and directional role,

Louis Kovanis

potentially with the appointment of business managers to manage clients.

Kovanis said specialisation may be a good way for brokers to “forge their identity” in the mortgage market. “It depends on your personality – you have to have your own DNA – if you are among a bunch of sheep, lost in the haze, what is your point of difference? ” In the end, Kovanis said 2012 – like other years – will be one in which he “aims for the stars”.

“The world is constantly changing, and if you can’t embrace change, you will be left behind,” he said. “You can’t focus on the negativity and the gloom and doom; you create your own opportunities.”

Asian clients to spur Abacus onward “Count on us,” reads the slogan of Kellie Lam’s busy mortgage brokerage – very appropriate, considering the business’ full name is in fact Abacus Home Loans.

And if continued business growth is anything to go by, Lam will indeed be counting more profit this year, thanks to the diversity of her primarily Asian client base across Sydney.

In business for the last eight years, Abacus has until recently thrived out of an office in Kellie Lam the Sydney suburb of Hurstville, building a referral network though Asian communities.

However, the business has embarked on a new expansion plan in recent months, and will be working on driving this in what Lam said will be a “challenging and interesting year”.

The business will first be bedding down the addition of a new city office – added to provide a more central location for clients to visit its three brokers and five loan writers.

In addition, the business has started to advertise through foreign language publications in Sydney, to play to its strength: Mandarin, Cantonese and Korean are spoken in the office.

Lam said this year will see growth in refinance and the investor markets.

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2012’S BEST IN THE BUSINESS Growth plan as Switch Now ‘encircles’ clients

Richard Pusey

A year-on-year growth target of 20% is not out of the question for Switch Now Home Loans’ Richard Pusey – after all, he did manage the same thing last year.

“I have a very good database of loyal clients, and I keep them all loyal by being able to offer more services to them,” Pusey said.

Indeed, further developing and marketing his diversified service offering will be the thrust of 2012 for Pusey, who said this strategy is about ‘encircling’ the client.

No risk? PFS to beat insurance complexity

Daniel O’Brien

PFS Financial Services’ Daniel O’Brien is determined not to give up on selling risk products in addition to his core mortgage business – despite these being a tough sell to date.

In fact, O’Brien is planning to continue a drive for diversification in 2012 – clients willing.

“I am open to focusing more on risk. I just need to establish a relationship with someone that can convert first,” he said.

O’Brien has found success in diversification in construction, equipment and vehicle finance, but converting leads for risk products has until now been a difficult proposition.

“We have attempted unsuccessfully to establish a risk insurance referral partner in the past,” O’Brien said. “We have had no issue in getting the leads generated, but getting those leads converted has proven a lot harder.”

He argues risk products are often sold in a way that is too complex and difficult for consumers to understand. “The risk specialists are not keeping it simple. It’s a very easy sell if someone has just taken a mortgage. These clients are the same clients that pay money every year for car insurance and house insurance, so they do believe in insurance. I just think that a bad job was done in selling and offering it,” he said.

Based in Victoria’s suburb of Mitchum, Switch Now recently added asset and equipment finance through Macquarie Leasing, and will ramp up sales of ALI Group’s loan protection insurance.

Pusey is also in the process of assisting investor clients – via relationships with accounting firms – into the negative gearingfriendly National Rental Affordability Scheme.

Pusey said getting the word out about these added services to his database of 1000 clients – 400 of whom are active – will ensure there are new leads and mortgages to be written.

Intelligent will step back and let volume double A drive for efficiency should mean that Intelligent Finance’s Justin Doobov will be able to take more of a breather this year.

Doobov said he is endeavouring to streamline processes in his business, which he hopes will allow him to step back and spend more time with family and friends.

“We’ll write double the volume of business we wrote last year, and we are going to have more fun, more work-life balance, and not just working crazy hours seven days a week,” he said.

Justin Doobov Based in Sydney’s Eastern Suburbs, Doobov said some of the pressure of the regime may be taken off by his business’ new software platform.

“We have already moved onto a new software platform and we are hoping that over the next six months this software evolves to allow us to run our whole business on it.”

However, one hurdle may be the increased documentation his business now requires.

“We are streamlining [NCCP compliance] into our processes. While it takes a lot longer now to complete paperwork as there are more regulatory forms to fill in, we have just added it as a few extra steps in the process,” Doobov said.

Selector Group to ensure ‘shop is in order’ The Selector Group will undergo a voluntary audit of its business in the New Year, which principal Ian Jordan has said will ensure that “the shop is in order”.

Despite holding its own Australian Credit Licence, Jordan said a voluntary aggregator audit would help businesses under NCCP from being “innocently” non-compliant.

“The voluntary audit was offered by our aggregator Vow even though we have our own licence, which I thought was a very proactive move of them,” Jordan said.

Ian Jordan The business will also bring on a junior staff member external to the mortgage process who will conduct audits and advise management on any necessary corrections.

A financial coaching process is also planned for roll out this year, Jordan said.

“Every client we meet can improve in some area – maybe it’s paying off credit card debt, maybe it’s implementing a budget, or saving for a deposit on a property,” he said. “We are creating a library where we will create a tailored coaching program for a client over a 12-month period, providing general education about things relevant to them,” he said.

NCCP ‘cross-sell’ on Rate Detective radar NCCP compliance and disclosure may be time consuming, but Rate Detective Home Loans Warren Dworcan is expecting greater cross-sell opportunities in 2012.

“Under the new legislation over the last year we have developed our ability to offer insurances and, to a degree, financial planning. In 2012, it is my aim to focus a little more on the products and services which we are able to cross sell,” Dworcan explained, saying the more ties one has with their clients, the closer and longer the relationship will be.

Although NCCP compliance may be “tedious and time consuming” Dworcan said it would usher in more opportunity for those brokers at the top of their field.

“It is these changes that will remove from the industry people who are not able to keep up with change and those who are unable to offer the professional and expert service which the industry is striving for. Thankfully compliance, processes and transparency have always been a focus of my business and those people who work with me,” he said.

Warren Dworcan

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Insight

Defining EDR ‘mission creep’ ASIC is championing a de facto foreclosure moratorium under dispute resolution scheme arrangements, argues Bransgrove Lawyers’ Matthew Bransgrove

O

n 2 December 2011 ASIC released a consultation paper seeking feedback on Regulatory Guide 139.77, which reads: Where legal proceedings that relate to debt recovery proceedings have already commenced and a complainant or disputant takes their complaint or dispute to an EDR scheme, the Terms of Reference must require the member not to pursue the legal proceedings.

Many in the lending industry, including the Australian Banking Association, have raised grave concerns about this. It appears to constitute an open invitation to borrowers facing default to make a complaint, in order to indefinitely freeze all enforcement against them.

Throughout Australia lenders have experienced enforcement of mortgages grinding to a halt, due to what Abacus (which represents credit unions and mutual building societies), calls “strategic complaints”. An unnamed high ranking source at COSL has confirmed that: The number of complaints is sky-rocketing. A key issue is how to throw out the frivolous ones promptly. Believe me we’re trying – but it’s very hard to distinguish the abusers from the abused.

That may be harder than COSL thinks because it now seems that ASIC intended the complaints system to be abused. Despite the great concern of lenders, and the freezing of all mortgage enforcement, ASIC is unrepentant, writing in the consultation paper: We are of the view that the current requirement in RG 139.77… is appropriate and does not require change at this time. This is because we have no reason to believe that this scheme jurisdiction is not working as intended – that is, to assist Australian consumers who may need hardship assistance, often urgently.

Matthew Bransgrove

Thus it seems that the purpose of the enforcement freeze is to assist borrowers in financial difficulty – not to address complaints about lenders. This represents a quite alarming mission creep for the EDR scheme. Using a system for a purpose for which it was not intended is known in the legal system as an “abuse of process”– however, in this instance it seems to have been given the stamp of approval by ASIC. It therefore seems likely that neither FOS or COSL will be able to “distinguish the abusers from the abused”.

As the experience of the Great Depression proved, the problem with foreclosure moratoriums is that they do not address the underlying problem – homeowners stuck in

loans which they cannot afford. In the current market a borrower who is in serious default on their home loan will not be able to refinance even if given a reprieve. For one thing the NCC would not allow it, for another, lenders are currently only interested in strong applicants.

Like all other such schemes, ASIC’s national foreclosure moratorium will cause further slides in the property market as investors sit on the side lines and wait it out.

The other effect that will soon become apparent is the exit, from the market, of smaller lenders. One group of elderly investors whose superannuation funds have been frozen for over 12 months in an unresolved “hardship” complaint were told earlier this year by FOS: Our aim is for financial difficulty disputes to be resolved by agreement being reached between the parties, through negotiation or conciliation wherever possible, with the power to vary being used as a last resort.

When the investors complained that they anticipated a shortfall and sought a quick determination of the dispute they were told: Arrears on a facility or eroding security will not in itself warrant prioritizing the dispute over other disputes. In the interests of fairness to all users (and not just your investors), my office processes each dispute in the order in which they are received.

Those investors will not lend again, smaller lenders cannot afford to take a statistical approach. Once financial planners and mortgage fund managers realise what is happening, they will be forced to disclose the risks of the moratorium. This will effectively dry up non-bank and non-securitised mortgage lending in Australia.

There is also the issue of the ratings agencies. As the number of loans in default for more than 90 days skyrockets the ratings agencies will likely downgrade Australian mortgage-backed bond issues. This will make funding more expensive, increasing interest rates.

SCENARIO CENTRE Did Christmas turnarounds make you Santa or the Grinch?

The Christmas rush may be over, but the turnaround time of your lender would have been critical in determining if your clients thought of you as Santa – or the Grinch.

With your reputation at stake, did you choose your lender wisely?

“It’s not unusual for us to have 14-day settlement requests,” says Michael O’Sullivan, managing director of Provident Capital. He said speed to settlement was a focus in relation to clients of Provident Platinum, the group’s low-doc range of product.

“Our borrowers required funding to complete the purchase of a commercial strata unit in under two weeks,” he said. “Rejected by traditional lenders due to the nature of the security and their ‘low doc’ status, the borrowers were under considerable pressure to settle.”

The eventual loan application was for $240,000 to complete the purchase of the commercial strata unit, which was located in South Yarra, Victoria, and worth $500,000.

O’Sullivan said by the time their broker approached Provident a notice to complete had been issued with the vendor firm that no further extensions would be granted.

“Stranded, and about to lose their deposit (and possibly sued) our borrowers could see no positive outcome.”

However, O’Sullivan said the group had a firm commitment to settlement, and was prepared to find the necessary solution to get the deal done. The borrower paid

? valuation and legal fees upfront in anticipation of a positive valuation, and provided all information required to assess the transaction. In addition, the borrowers’ solicitor was engaged to undertake all necessary searches and expedite execution when loan documentation was received.

“With the cooperation of all parties settlement was achieved before the expiry of the notice to complete. Both the borrower and the broker were, to say the least, ‘relieved’,” O’Sullivan said.  Australian Broker would like to invite lenders to submit loan scenarios they think are unique, educational – or just plain confusing – to help brokers meet their diverse client needs. Email the editor at ben.abbott@keymedia.com.au

9% 3% 7% 8% 3% 9%

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Market talk cheaper properties in outlying regional centres becomes more attractive for young buyers looking to get a foot on the property ladder.

“A proportion of young Sydney couples are continuing their sea/treechange to more affordable major regional markets that offer jobs – or easy commuter access to Sydney – and lifestyle,” McGrath said. Markets popular with these buyers include Port Macquarie, Wollongong, Newcastle, Warners Bay and the Blue Mountains.

The growth of commerce in regional areas is also driving demand. Laurie Parkes of the FrontRunner Mortgage Group in Bathurst said he has seen a major influx of business as industry in the area becomes increasingly diversified. Parkes said the local market has benefited from several nearby universities, correctional facilities and new industries drawing jobs to the region.

But not all regional buyers are looking to relocate.

McGrath said most regional demand is filtering in from the capitals.

“Out of area buyers are driving demand in lifestyle markets such as Byron Bay, Ballina, Bowral, Wollongong and the Blue Mountains. Our Blue Mountains and Bowral offices estimate 75%–85% of buyers respectively are from Sydney looking for investment, holiday homes and retirement properties,” he said.

Escape to the country As capital city properties become unaffordable, buyers may look to retreat to the regions

Not all regional buyers are looking to relocate.

Most regional demand is filtering in from the capitals

Holiday market ripe for the picking

T

he most recent RP Data housing stats delivered a somewhat dubious distinction to regional houses. They fell in value – but not by as much as their city cousins.

In fact, the raw figures for regional median prices actually showed them increasing 0.1% in October, and that was before the market was given the jolt of two consecutive rate cuts.

While a variety of studies have shown an increasing attraction towards urban density, another class of buyers seems to be tiring of the crush and bustle of city life. Real estate guru John McGrath believes regional areas could be a major growth market of 2012.

“We’re seeing increased buyer activity and general positivity in a number of regional markets as people begin picking the bottom and taking advantage of great buying,” McGrath said. “Renewed buyer confidence and vendors becoming more realistic after many months on the market is resulting in more sales. We’re also seeing more Sydney investors and young sea/treechangers looking to buy in areas offering jobs and lifestyle,” McGrath said.

Treechange and cheaper trees

The prospect of lifestyle or career changes may be a major driver, but regional areas are also reaping the rewards of stratospheric prices in capital city markets. As homes become less affordable in major metropolitan areas, the

City-dwellers also look to the regions for a retreat. The market for holiday homes is hardly going gangbusters, but interest is stirring as soft property prices have begun to coax in buyers.

“We’re starting to see new interest from Sydney buyers in Byron Bay and Bowral,” McGrath said. “The Central Coast is another holiday home market ripe for the picking.

In Terrigal, Avoca and Killcare – traditionally popular holiday home areas among Sydneysiders – the buying opportunities above $1m are the best we’ve seen in 15 years, with twice the normal supply of houses and apartments now on offer,” he said.

Investors also find the regions attractive, with rental yields often performing much better than in capital cities.

McGrath said investors in capital cities are increasingly eyeing regional growth areas, where demand is being driven by an influx of industry.

“Sydney investors are increasingly looking at major regional markets offering lifestyle, improving infrastructure and jobs growth such as Newcastle/Hunter, Wollongong, Byron Bay and Port Macquarie. Rental demand, yields and capital growth prospects in these areas are excellent,” he said.

Cities may hold a certain allure and romance for young homebuyers, but as properties become increasingly expensive, vacancies tighten and job opportunities move to new areas, regional Australia may be the boomtown of the future.

NUMBER CRUNCHING Mortgage demand shifts 20.77% 14.19% Basic 24.43% 20.77% Variable 16.73% Standard 33.49% 24.43% Variable 4.68% Ongoing 33.49% Discount 2.40%Line of 3.68% 4.68% 14.23%Credit 0.83% Introductory Rate

What will happen to broking groups in 2012?

44.77%

30%

Greater market share

20%

Larger groups will be able to negotiate better commissions

5% 20%

19.79%

At a glance…

27%

25%

14.23%

0 Source: Mortgage Choice

10

20 Nov 11

30

Further acquisitions by institutions Further commission reductions

2.40%

Fixed Rate

Small operators will either disappear or have to merge

40

*The proportion of jobless Australians who say they want a job

50

12 month average

*

Source: ABS

Source: Deloitte

14.19% 16.73% 44.77% 3.68%

20.77% 24.43% 33.49% 4.68%

14.19% 20.77% 16.73% 24.43% 44.77%

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Prices to grow after ‘pessimistic’ year APM has claimed 2012 will see the housing market return to growth after a “pessimistic year”.

Last year saw a disappointing Spring selling season which failed to ignite a lagging market, and falling median house prices, down 4.2%. Nevertheless, Australian Property Monitors has claimed 2012 will see some capital city markets “revive strongly”. The property analysts predicted a mixed bag across capital city markets for 2012, with some markets tipped to remain in the doldrums, but forecast a general return to price growth. Darwin, Perth and Brisbane were tipped as the most promising growth markets, with Sydney and Canberra set to achieve “reasonable” growth.

“Demand for housing will intensify in 2012, particularly in Sydney, Canberra and Perth, which will see housing markets reenergised, albeit at different levels,” APM chief economist Andrew Wilson said.

APM is expecting the most robust growth in capital city markets exposed to the resources sector. Investors are also likely to

jump back into housing as new rules governing self-managed super funds come into play.

Wilson predicted median national prices would rise 3–5% through 2012. Melbourne, Hobart and Adelaide were forecast to be the weakest markets, with growth ranging from 0-3%.

One market segment that is not expected to see strong growth is prestige property. The premium market took a hammering in 2011, and APM said this is unlikely to change in 2012.

Many analysts have claimed that the fate of housing in 2012 will be largely reliant on events playing out in the Eurozone. If Europe sees sovereign debt defaults or failures of large banks, overseas funding could dry up for Australian banks. The end result would be severe credit rationing, followed by significant declines in house prices. APM, however, was decidedly more bullish on Australia’s prospects in the event of a global economic shock.

“Australia’s economic

fundamentals are strong, and are well positioned to weather any downturn in international markets. This, coupled with renewed buyer confidence, will be the key to driving prices growth in the New Year,” Wilson said.

Investors are also likely to jump back into housing as new rules for SMSFs kick in

House prices on the mend? Forecasted median growth for 2012 Capital City Sydney

Projected Growth 3-5%

Melbourne

0-3%

Brisbane

5-10%

Adelaide

0-3%

Perth

5-10%

Hobart

0-3%

Darwin

5-10%

Canberra

3-5%

National

3-5%

Source: APM

House prices to remain on European knife-edge Europe is the key to Australian house prices in 2012, with outcomes to vary from house price rises to the last resort of banks “calling loans”.

SQM Research managing director Louis Christopher has predicted house prices will return to growth in 2012. While he conceded this was a “relatively bullish scenario”, Christopher said it was a scenario that depended largely on what happens in Europe.

“Yes, Europe is the key. The risk is clear and present,” Christopher said.

Large scale banking defaults in the Eurozone would likely cause a major credit squeeze in Australia, in turn causing the banks to “ration housing credit” and reduce LVRs, Christopher claimed.

“Of course, if the squeeze is large enough, banks could come up with additional ways to reduce their balance sheets. At its worst this literally could include calling loans simply because the loan-tovalue ratios have risen too high due to drops in property prices,” he said.

This scenario would be a “last resort” for Australian banks as it

would trigger even steeper declines in house prices, Christopher said. Such a move, he said, would further destabilise bank balance sheet.

Christopher still contended that Australian home values were set to increase in 2012 in a lower interest rate environment, saying that prices had proven to be linked to rate changes.

“From our regression modelling it appears that the market is very sensitive to interest rate changes.

We have had this conviction concerning the markets from some time now. Yes, even a

quarter point change can move the markets and this is because buyers and owners are highly leveraged. Now Louis that we have had Christoper a half point change which has been passed on in full, there is a greater chance – in our opinion – that dwelling prices will rise,” Christopher said.

But Christopher offered the caveat that this was contingent upon Europe “muddling through” without a default.

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People

Outback odyssey Mortgage broker Eddie McCoy set out on an outback odyssey last year in the name of improving indigenous literacy in remote communities. Accompanied by his wife, his highlights included 17 communities, the Kintore Walungurru Festival and Peter Garrett.

Mortgage broker Eddie McCoy learned as much as his students when teaching financial literacy to indigenous communities in the remote Northern Territory. Ben Abbott reports The remote Northern Territory is a long way from the NSW suburb of Blackheath, where mortgage broker Eddie McCoy operates his business Smart Choice Mortgage & Finance.

But in August last year, McCoy and his wife Carol put business on hold for a three-month epic journey through 17 remote indigenous communities around Alice Springs.

Why? To help improve the current parlous state of indigenous financial literacy.

“Community leaders in the Territory say without better understanding of personal financial management too many families struggle to have a decent standing of living,” McCoy said.

When he and his wife found out the Federally-funded Matrix-on-Board was looking for candidates to assist with its Money Mobb Talkabout program, they were thrilled.

“They were looking for someone with a finance background, and someone with a teaching background – preferably a couple,” McCoy says.

“We knew some other people involved previously, and we just thought it was a great idea to go out there, and because Carol is a teacher, our skills just came together.”

A lift to literacy

From as far west as Kintore, 530km from

Alice Springs, to as far east as the Queensland border, the McCoys journeyed out of Alice Springs in their four wheel drive – an essential of their employment as community educators.

The vehicle also took them as far as 750km north to Elliott, and as far south as the freehold APY lands of north-west South Australia.

The McCoy’s taught mostly in classroom situations, with students numbering from five to 35 and representing the full gamut of financial literacy levels.

“We had to assess their level of literacy, and work it from there. Some had extremely poor understanding – particularly in some of the senior students – for example, they couldn’t do simple addition, very basic stuff like that,” he said.

However, using various techniques – including the use of props such as magnetic money on the blackboard – McCoy was able to get the messages across. The focus was on prioritising, budgeting and saving to give them more individual control of their finances.

“With some of the more senior kids we tried to get a needs and wants game going so they could recognise what was important and what wasn’t, and then took that through to budgeting – they really had no idea about that,” he said.

McCoy said he was heartened by local enthusiasm for learning, despite being shocked at the low levels of numerical literacy.

A unique celebration

“The most memorable thing was our involvement in the Kintore Walungurru Festival,” McCoy said, explaining it marked 30 years since the Pintupi people returned to their traditional lands after being removed to

Papunya by governments from 1950 to the 70s.

Over a three-day weekend, the celebration included a symbolic walk, ceremonial dance, music, film and talks. “It was a rare privilege to be there,” McCoy said. “We learned so much, met great people and were included in the cultural festivities.”

A landmark celebration for the region, the McCoys also managed to meet Peter Garrett, Federal Minister for School Education, Early Childhood and Youth, as well as Warren Snowdon, Minister for Indigenous, Rural and Regional Health.

Learning both ways

McCoy said both he and his wife would consider being involved in the program again in the future, as he said “everyone we visited out there would like us to go back”.

“All the teachers and principals wanted us to go back, and we wouldn’t like to see the program end, but being federally funded it’s probably not going to happen that way.

“They would certainly welcome us back out there,” he said.

Though it was not the primary target, adults were also interested, particularly young mothers. “The demand is out there. Once they knew who we were and what we were doing, even the teachers’ aides and others wanted to take part,” he said.

Being nomadic people, McCoy said the same children often came to different communities.

“It was quite rewarding to be there – and especially the younger kids get to know you.”

McCoy says while he was initially motivated to use his financial acumen to make a contribution he feels the scales of salutary learning were tipped in his favour.

MOVERS & SHAKERS Bankwest business injects Steele

Bankwest has named a new regional manager of East Coast broker sales in a reshuffle of its commercial broker sales structure.

Brian Steele previously headed up Commonwealth Bank’s broker origination team, overseeing commercial lending and asset finance through the third-party channel.

In his new role, Steele will be responsible for the acquisition of new commercial deals introduced by brokers in the Eastern states. His appointment follows the departure of Bankwest head of business broker sales Aaron Milburn, who has moved to Citibank.

Bankwest head of commercial, business and private banking Mark Reid said in light of Milburn’s departure, the opportunity was taken to restructure the sales channel.

The moves will see Glenn Beswick continue in his role as regional manager of West Coast broker sales.

1300 recruits consulting heavyweight

1300 Home Loans has enlisted the expertise of a new head of digital strategy, who will be responsible for online marketing when the group’s ad campaign hits the airwaves.

The new consultant, Adir Shiffman, was responsible for founding home loan lead provider HelpMeChoose.com.au and is the executive chairman of marketing business Alia Group.

1300 Home Loans managing director John Kolenda said Shiffman’s background in developing a national brand was a good fit for the group’s multi-layered marketing model.

The role will involve primarily online marketing, but will add print, radio and TV into the mix. Shiffman will be leveraging the resources of Alia Group to spearhead the online push.

The online component will form a key part of a multi-million dollar national marketing campaign to be launched in January 2012, which Kolenda said would rival the ad-spend of the largest brokers.

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Caught on camera Australian Financial recently held a golf day at Woodlands Golf Course in Victoria in aid of cancer.

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Paul Carter Danny Johnson, Russell Henshaw, Scott Knite Out on the course The golfers prepare Gary Dowd Michael Yorke, Pillar D’Avery, Adrian Williams and Kim DeBonde Russell Henshaw Craig Walden & Sam Athans Peter Baumgartner, Paul Heisler, Sean Reid, Russell Henshaw Putting for par Out of the rough Mike Rich, Gary Dowd, Andrew Sanger, Chris Vouk Fierce competition Paul Heisler

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Insider

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Drop us a line at insider@ausbroker.com

very own lunar plot by scenic tour, showing them – much like your local real estate agent – all the finer points of the lunar surface options available. For example, your local crater might provide privacy, while you could find a plot on one of the moon’s mountains – and have that view pretty much all to yourself. Is there a catch?

Well, the site cannot be returned once a claim is made, and there is ‘no refund’ policy. Likewise, the claim is no guarantee of ownership – only your ‘intention’ to own. Insider thinks he may look elsewhere to plant his flag, and find a claim with a bit more gravitas.

Last chance to Ride the Lightning

And now for the hot coal heated swimming pool…

Ohai, Oh hell!

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nsider is always one to look for any sign of greener grass growing somewhere, anywhere around the world – anything for an excuse to pack his bags in search of a potentially (yet often illusory) better life. And so it was with interest that he first began reading an article advertising property in New Zealand’s township of Ohai. What opened as a seemingly idyllic piece listing the virtues of the town in New Zealand’s remote South began to smell a little fishy to Insider as he read on. The first and seemingly only drawcard was affordability – the article focused around a property for only $25,000 in the “quaint” town. Who wouldn’t want a house for $25,000? However, it then went on to list sewerage and water as being advantages of a purchase. Sewerage and water? Is it just Insider, or does advertising essential services such as sewerage raise some question marks? The article then went on to paint an even more bleak picture. Population: 357.

Median income: $14,100. Internet coverage: 25%. The mayor added that there was also a golf course, a bowling green – and even a swimming pool heated by coal donated from the local mine.

Want to stop in on a town that’s a little bigger? Well, Ohai is only an hour’s drive to Invercargill. While Insider does fancy living like a king somewhere, Ohai was looking less and less likely as the place he would do so.

Maybe the moon?

Further to Insider’s ‘grass is greener’ tendencies (see Ohai, above), a recent browse of the internet found plots of land for sale in the most unlikely of places – the moon. Moontastic – a website that specialises in moon land sales – urges visitors to “make a bold claim for your slice of the future”.

“In 1969 man dared to take one giant leap and go where no one has ever been. This is your chance to take a small step and stake a claim of your very own,” the site reads. Visitors can order their

There’s no doubt the Eurozone crisis has been dragging down economies around the world. Even Australia is feeling the shudders, with higher funding prices, lower consumer confidence and growing unemployment. But some people are determined to milk what they can out of the failing European economy before it goes completely pear-shaped, and one group who’s hedging their bets is Metallica.

The ageing, increasingly dowdylooking rockers have brought forward a series of gigs in Europe to try to beat out an impending global economic collapse. The band’s manager, Peter Mensch, said they realised they would be “losing money on the table” if they waited until later in the year to play their European tour. This development could be viewed two different ways: either Metallica wants to treat their European fans to one last hurrah before ballooning government debt and austerity measures make frivolities like rock shows a thing of the past, or they want to milk

that last bit of money out of them before their fans resort to burning the liner notes from Master of Puppets just to stay warm at night. Metallica should come through the crisis OK, though.

If history has taught this band anything, it’s that when the going gets tough, sue the hell out of your fans for a quick injection of cash.

Rate cuts don’t rate excitement

This Christmas was a merry one indeed, what with the Reserve Bank making two consecutive rate cuts. The mortgage and housing industries responded in a veritable orgy of praise for the RBA’s decisions, albeit begging Glenn Stevens and company for just a couple more cuts in the New Year. One group that didn’t seem too keen to come to the party, however, was lenders.

Insider found it particularly humorous to watch the banks remain steadfastly silent for days following the December cut, possibly hoping that if they ignored the mounting criticism and Treasurer Wayne Swan’s indignant cries, it would all go away. Finally, the banks followed the RBA move, but made sure to add the caveat that next time we might not all be so lucky, and we should be bloody grateful they were so nice to us this time.

Amusingly enough, a speech by RBA Governor Stevens seemed to give the banks a pass on this. Stevens said the RBA fully expected the banks to stay put, and that rate cutting wasn’t necessarily targeted at getting lenders to move on rates. So, should the Reserve choose to take the knife to rates again when it meets in February, just remember it doesn’t mean much of anything.

Thanks, Mr. Stevens.

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Services

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AGGREGATOR / WHOLESALE BROKER LoanKit 1800 466 085 www.loankit.com.au Page 4 Finconnect (Australia) Pty Ltd 1300 650 431 www.finconnect.com.au Page 15 Finsure Finance & Insurance 1800 Finsure (1800 346 787) Page 11 PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 7

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

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SHORT TERM LENDER

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

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

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

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

MKM Capital 1300 762 151 www.mkmcapital.com.au Page 2 NCF Financial Services Pty Ltd. 1300 550 707 www.ncf1.com.au Page 8

OTHER SERVICES RP Data 1300 734 318 Page 19

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

Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 13

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

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

MARKETING SERVICES 1300 HomeLoan 1300 Home Loan (1300 466 356) 02 8078 3872 Page 11

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