Australian Broker magazine Issue 8.12

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ISSUE 8.12 June 2011

University degrees are next: MFAA

Joe Sirianni

 Association plants

new higher education ‘flag on the hill’ The MFAA has revealed it is in the midst of developing a certification process that will allow members to pursue higher education in addition to their Diploma of Financial Services qualification, in a first move towards a university degree minimum level of education.

Speaking on the shape of ‘Tomorrow’s Broker’ at the recent MFAA Convention in Brisbane,

MFAA president Joe Sirianni told delegates education standards would continue to rise for mortgage brokers, and that a university degree minimum level “will be the future”.

Following his address, Sirianni said the association was developing a new certification process that will allow members to seek a Graduate Diploma through a university or business school, with a potential articulation pathway to a Bachelor of Business.

“By July 2012, a Diploma course will be regarded as a

Black on Swan

minimum standard required for MFAA membership,” Sirianni told Australian Broker. “The certification process will be viewed as an option that members can pursue if they seek further education and qualifications.”

Sirianni explained that the new qualification in mortgage and finance will be developed in conjunction with universities and business schools, and would be customised to suit the needs of the mortgage industry.

“Our priority is to ensure this qualification consists of relevant business-related subjects, appropriate financial services related subjects, and incorporates an industry-based project as well as a recognition of prior learning process,” Sirianni said.

“We are in a unique position to be able to build a qualification specific to our industry, and lodge this for recognition.”

Sirianni said while the association was currently focused on the member transition to the Diploma of Financial Services – which increases minimum requirements from the previous Cert IV level – a university degree may eventually be seen as a minimum standard.

“I suspect that it may take many years before we reach this level of education, but as more and more brokers strive to achieve certification, one day in perhaps five or 10 years’ time, it may be regarded as the minimum standard,” he said.

Page 20 cont.

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Industry unites in last ditch exit fee stand Page 4

MFAA Convention Members quest for broking ‘holy grail’ Page 8

Referral confusion Clarifications given on NCCP referrer exemptions Page 10

Inside this issue Forum 21 Brokers on university degrees Viewpoint 22 Are low-docs back in vogue?

Insight 24 Asset and equipment finance Market talk 26 Finance’s ‘feng shui’ future People 27 Broker cracks $1bn in loans Caught on Camera 29 Were you snapped at MFAA? Insider 30 Puppets and dancers at MFAA

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News ASIC ban bites serial fraudster ASIC has dealt a permanent ban to a convicted company director and cancelled the ACL of his brokerage, only six months into the nascent NCCP compliance regime. The watchdog cancelled the company’s licence on the grounds that its ACL application was false and misleading.

Moshe Yair Mordechai, formerly of Glenwood, NSW, has been banned for life from engaging in credit activities and financial services due to repeated fraud offences and insolvency.

Mordechai was serving as director of Australian Lending & Finance Corporation (ALFC).

Under NCCP regulations, the ACL application process requires corporations to nominate a responsible person to determine whether or not the corporation is competent to engage in credit activities. However, ASIC has alleged the 55-year-old Mordechai used the alias John Frederick Kennedy when applying for an ACL for his company. According to an ASIC release, Mordechai’s ACL application stated that he

had not, within the last 10 years, been convicted of a criminal offence, had not been declared insolvent and had not been known by any other names.

Mordechai was convicted in 2007 and 2008 of a string of fraud offences, including possessing fake credit and debit cards and fake identification documents, including false NSW and New Zealand driver’s licences. He was also declared bankrupt in 2006 while operating under the alias Jamal Almostafa.

Mordechai made the news in 2007 when he was arrested for biting a man trying to impound his Toyota. The car was covered in advertisements for Mordechai’s lending business, Money on Wheels, which he operated under his Almostafa alias. When arrested, police found several false driver’s licences as well as false credit and debit cards in the car. He was charged with assault occasioning actual bodily harm, as well as with 26 counts of custody of false instrument.

According to ASIC, Mordechai

and ALFC have the right to appeal the ban to the Administrative Appeals Tribunal.

prices could be triggered by a sudden oversupply, a slowdown in resource demand from China or RBA interest rate pressures.

HIA chief economist Harley Dale agreed that housing would see sideways growth for the immediate future. Economist Steve Keen and Money Morning editor Kris Sayce, however, argued for a more dramatic price correction. Sayce disputed claims that Australia has a housing oversupply, comparing them to similar claims made in the US before its housing crash. Keen has predicted that Australian house prices will crash as demand for credit eases.

“What you got caught up in is a Ponzi economy, where speculation

EDITOR Ben Abbott COPY & FEATURES JOURNALIST Adam Smith

Rewind: ASIC vigilant on credit complaints As ASIC increases its role as industry watchdog, it will up its level of surveillance of the industry, an ASIC representative said in April. ASIC senior manager Dominic Bilbie said the regulator had begun to actively conduct surveillance of the industry in order to catch out brokers not complying with NCCP regulations.

“Surveillance will be conducted to provide information either proactively, or reactively where we have reports of non-compliant activity,” Bilbie commented at the time. He said the regulator is beginning to see growing complaints of non-compliant activity. “We’ve had around 1,900 credit-related complaints, and we are actively investigating those.

The majority have to do with unlicensed activity.”

Bubble or not, house prices headed nowhere Even in the absence of a property market bubble, the housing market is in for a long, sustained period of soft prices, it has been claimed.

At a recent property debate in Sydney, AMP chief economist Shane Oliver said, while he does not believe the property Shane Oliver market will crash, he believes Australian house prices will remain stagnant for some time. Oliver estimated house prices are 25% above their long-term trend, and predicted they will remain flat as wages and inflation catch up. However, he said a more significant drop in

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on rising asset prices actually drives overall economic activity.

When the speculation ends, you have a crash. When the level of debt spending falls, the economy goes down with it,” Keen said.

Though Dale argued for the resilience of the Australian housing market, he commented that the market was at a critical juncture where claims of a bubble would either be proven or disproven. “We will, in the next 12 months, determine whether there is going to be a substantial correction to property prices, or whether they’re Steve Keen going to hold up.”

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Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008.

The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

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Last stand: Industry unites in final exit fee fight

Leading mortgage brokers and non-banks threw aside normal competitive pressures in June to join forces in a last stand against the government’s ban on exit fees.

In a move that makes good on the MFAA’s promise not to give up the fight against the ban until the “fat lady sings”, full page

advertisements ran in The Australian and Australian Financial Review newspapers on 9 June, in a message MFAA CEO Phil Naylor said appealed to the “common sense” of federal senators, and also Federal Treasurer Wayne Swan.

The campaign was supported by industry participants Aussie Home Loans, Australian First Mortgage, Smartline, Mortgage EZY, Loan Market, Mortgage Choice, AFG, National Mortgage Company and Better Mortgage Management, as well as the MFAA. The ads were headed “Exit fee ban will flatten

smaller lenders and reduce competition”.

The MFAA said that the ban is still set to be introduced on 1 July, despite protests from industry that the move will “annihilate” nonbank lenders, which the MFAA has repeatedly said were the drivers of competition through lower rates over two decades.

Naylor told Australian Broker that the decision to run the campaign was to pre-empt the commencement of Senate sittings, the first following the release of the Senate Economics Committee’s report on banking competition.

The report recommended that ASIC guidelines on exit fees be evaluated before any ban on exit fees was implemented, and that it

should be either scrapped or scaled back for smaller lenders.

“We are basically striking while the iron’s hot, and bringing this issue to the Senate’s attention that these recommendations were made, and that it is up to them to implement them, or influence the government to implement them,” Naylor said in June.

“There is yet to be a government response to the Senate Committee report, but it should be noted that allowing the ASIC guidelines to operate, or exempting non-bank lenders, would both have the effect of promoting competition in mortgages by allowing non-bank lenders – the real competitive factor in mortgages – to operate in the best interest of consumers.”

Swan’s regulation will stifle competition: Hockey Less regulation, not more, will increase banking competition, Shadow Treasurer Joe Hockey has said.

As the Coalition this month announced plans to fight the government’s ban on exit fees in the Senate, Hockey has told Australian Broker the government’s proposed regulations will disadvantage consumers.

“Greater competition in the banking system will be promoted by less regulation, not by these new regulations being proposed by the government. Consumers looking for a better deal want to see competition and choice in interest rates,” Hockey said.

Hockey criticised the unilateral DEF ban, and expressed concern that smaller lenders could be hurt

by the removal of exit fees. “The Coalition’s concerned that banning exit fees will weaken the competitive position of the smaller lenders by requiring them to recover lost income through higher interest rates and other fees and charges. This lessens competition and choice which would be against the broader interests of consumers,” he commented.

Opposition Leader Tony Abbott has also spoken out against the ban, telling AAP reporters that banks would merely look to recover the cost through higher upfront fees and interest rates.

Treasurer Wayne Swan, meanwhile, has defended the ban, and has blasted the Coalition for its pledge to fight the new regulation. Swan told Fairfax

media he was “gobsmacked” that Hockey and the Coalition would try to re-institute “unfair” DEFs. However, Hockey has argued that Swan’s DEF ban goes against the advice of Treasury.

“Treasurer Swan is defying the advice of his own department, which has itself raised concerns that the government’s exit fees ban could lead to higher interest rates and higher fees in other areas,” Hockey remarked.

Hockey urged the government to instead adopt the Coalition’s Nine Point Plan to increase competition.

The plan includes proposals for the RBA to publish regular reports on bank profitability, an investigation into improving the liquidity of the RMBS market and a full, Wallisstyle review of the financial

services system. “The Coalition wants to see more competition in banking, and not to interfere and adjudicate on matters that are properly the decisions of approved lenders,” Hockey said.

Joe Hockey

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NAB plugs brokers in TV campaign

Citi launches new pricing model

NAB has included a referral for the mortgage broking channel in a new TV advertising campaign, a move the bank said demonstrates its commitment to brokers.

The new NAB TV commercial, which first went to air on Sunday 29 May, includes a call to action voice over that encourages viewers to “talk to your NAB banker, or broker today”.

The single advertisement is part of a broader NAB ‘unpopular’ advertising campaign, which focuses on NAB’s standard variable rate, as well as its lack of exit fees.

NAB executive general manager growth portfolio Antony Cahill said the reference to the broker channel showed it remained critical to the NAB group strategy.

“We felt it was appropriate that we mention brokers as part of our advertising. We recognise that customers do have a choice, and some have a preference to go via a broker,” he said.

Cahill said NAB does not view the endorsement of brokers as a potential risk. “Brokers are an integral part of the distribution mix, who we feel comfortable working with, and we view brokers as partners in that context.”

Cahill said the UBank launch direct to consumers did not undermine this position.

“UBank is designed to market Antony Cahill to a particular segment, and I don’t believe that segment would necessarily go to a broker,” he explained. “The type of customer attracted to the broking channel has a strong belief in the advice and service proposition they bring to the market, and UBank is a very different proposition.”

Cahill said that its endorsement of brokers would continue. “I and my team view brokers as a key distribution channel for the bank, and this channel will continue to be going forward – we are committed to working with and supporting brokers in the future,” he said.

Cahill added that its stepped trail commission and ‘price for risk’ structure are providing benefits for brokers.

The ‘unpopular’ campaign is part of the second phase of NAB’s ‘break-up’ campaign, which sought to differentiate it from other major banks in the eyes of consumers.

Citibank has indicated that it will now openly disclose discounts offered on lower LVR loans, as it seeks to boost its mortgage book by 10% this calendar year.

The bank is encouraging growth in its mortgage book by offering rate discounts – or a ‘price for risk’ approach – which the bank said recognises the lower risk posed by these mortgages.

The bank said that as of early June, customers applying for a basic home loan with an LVR of under 70% will receive 85 basis points off Citibank’s 7.8% basic variable rate.

Likewise, loans between 70 and 80% LVR will benefit from a 78 basis point discount, and LVRs between 80 and 90% will warrant a 48 basis point price cut.

Citibank said the discounts will apply for the life of the loan, and higher discounts between 97 and 112 basis points are available to Mortgage Plus account holders.

Citibank head of mortgages Vibha Coburn said that the policy ensured that Citibank was demonstrating “skin in the game”, and rewarding customers for lower risk loans.

Coburn said the early reaction from brokers to the initiative had

been positive. “They love it – it’s easy to explain to customers, and shows we will reward customers for savings,” she said.

Likewise, Coburn said feedback from third party brokers had indicated brokers appreciated Citi was back in the market, after openly pricing itself out during the GFC. She said that during that period, business development managers had maintained regular contact with brokers, to ensure the channel was kept up to date with Citi’s strategy.

Coburn said the bank was now positioning itself as a true alternative to the majors, largely based on its smaller operation, which she said entailed more personal customer service.

The bank has also assured brokers a new direct channel push is part of a strategy to increase its mortgage book through all channels, rather than a move to cut out brokers. Coburn said it would enable the bank to deepen its relationships with customers.

Citi recently announced it will boost branch numbers from 13 to 20 within three years. At present, Citibank sources 10% of its mortgages through direct channels.

Mortgage Ezy models reveal margin

removed DEFs as of 1 June ahead of a government ban on 1 July, and that it would continue to provide competitive “sub-7%” rates to customers and brokers, along with no broker clawbacks.

Driscoll said the mortgage manager had closely calculated the mix of business being written historically, as well as the business it expects to receive post-1 July.

Based on the modelling, it had put mechanisms in place to mitigate the potential early refinance risk, which then allowed it to remove DEFs and not establish a clawback structure for brokers.

“It is not a simple exercise, but we looked at it closely, rather than just taking the simple option,” he said.

However, the structure’s continued viability would depend on the future of the market. “Nobody knows what is going to happen to a book in the future. Once changes are made to DEF, we can only make assumptions and best guesses. But you won’t see a great deal [of changes],” Driscoll said.

The first indications on the performance of its new structure will come in the first three months from July, which will be monitored for any spike in refinance activity.

He added that Mortgage Ezy’s decision not to establish clawbacks was part of its “desire to be different”.

“Ever since we’ve started, we’ve tried to be different. We’ve always done that, and will continue to do that,” he said.

Mortgage Ezy is funded by lenders including ING Direct, Advantedge and FirstMac.

Mortgage manager Mortgage Ezy has committed to maintaining its ‘no clawback’ stand for brokers bar any unforeseen changes in the market, on the back of what CEO Garry Driscoll said was a very careful modelling of its current and expected mortgage book.

At the beginning of June, Mortgage Ezy announced it had

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SPECIAL REPORT: MFAA NATIONAL CONVENTION 2011

MFAA members the key to ‘holy grail’: Naylor MFAA CEO Phil Naylor has called on MFAA members to sell their profession and association membership with pride, in order to raise MFAA-approved brokers higher in the minds of consumers.

At the opening of the MFAA Convention in Brisbane in early June, Naylor said that a consumer asking the question ‘Are you an MFAA-approved broker?’ was the ‘holy grail’, for both the association and the profession. He said that brokers who embraced their professional membership, which indicated a higher than minimum qualification and level of professionalism to consumers, would increase brand recognition of ‘Certified Credit Advisors’ in

the coming years.

Naylor said the MFAA had implemented top down initiatives based on member desire to first, increase the minimum professional education standards of the association, and second, to promote the MFAA to consumers.

This has included $2.1m in advertising spend over the past 18 months as part of its ‘MFAAApproved Broker’ campaign, as well as its new education pathways system, with approved providers, and the implementation of a Diploma minimum standard.

However, Naylor said that the key was really in the hands of members, to be sincere and proud

MFAA laments ‘Jekyll and Hyde’ government The MFAA has praised the government for its close cooperation on the implementation of the NCCP, while at the same time attacking its unilateral approach to banning exit fees.

Speaking at the opening of the MFAA Convention in Brisbane in early June, MFAA CEO Phil Naylor said the current government had been “Jekyll and Hyde”, when comparing its performance on both NCCP and exit fees.

Naylor said the association had never experienced a more consultative and helpful approach as that demonstrated by the government during the NCCP implementation. While Naylor said the industry “didn’t win every point”, he said regular consultation had ensured the final regime would

be user friendly for the industry, while fulfilling its ultimate function of protecting consumers.

However, Naylor said that in regard to the exit fee policy, the government had neither consulted, nor listened to industry, leaving the majority “appalled”.

Naylor said the MFAA has not given up hope of overturning the exit fee ban, following the release of the Senate Economics Committee report on competition, which recommended the ban be scrapped, and noted that DEFs were an important tool for smaller players to remain competitive in the market. Naylor said the report had vindicated the MFAA’s stance on both the exit fee ban, and also the introduction of a Canadian-style RMBS market.

in their communications with consumers about their membership and qualifications.

He also said that brokers “who don’t give a rats” about their association and MFAA-approved status were more likely to be perceived poorly by consumers, even if they still fulfil the practical needs of that client in obtaining a loan.

Naylor said the transition to becoming “trusted credit advisors” would be hard to execute, but members could look forward to 75% consumer brand recognition – alongside the highly recognised CPA designation – if they helped to promote the MFAA brand.

Glenn Stevens

Brokers have tech edge on banks The advent of social media is an opportunity better suited to brokers than large banks, it has been claimed.

Financial services industry consultant and author Brett King said at the recent MFAA National Convention that brokers are well placed to take advantage of the advent of social media. He has claimed the growing ubiquity of social media will be a “significant disruption” to the financial services industry as customers gain control and choice through the availability of information and peer reviews of businesses.

King said Gen Y Australians will make up 42% of the workforce by 2020, and will be more influenced by peer recommendations than by branding or marketing. In the coming years, King has predicted the top internet search results for goods and services will be the ones

customers recommend. As peer influence through social media increasingly dictates customer behaviour, King said brokers are in a unique position.

“Social media is about listening to what the customer is saying.

Brokers are good at this. They have the advantage,” King said.

King commented that Gen Y borrowers are often not as concerned with product features as with the experience of purchasing a product. He said lenders typically try to differentiate their brands based on product features, rather than focusing on the experience customers have when securing a home loan. Banks can no longer focus merely on rates, King said, but must focus on the holistic experience the consumer has in the path to home ownership.

“People don’t want a mortgage, they want a house,” King said.

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SPECIAL REPORT: MFAA NATIONAL CONVENTION 2011

Brokers fight global banking consolidation Mortgage brokers worldwide are facing increased competition from banks and their proprietary channels in the wake of the global financial crisis, according to a panel of global experts.

Speaking at the MFAA’s national convention in Brisbane last week, mortgage broking industry leaders from Canada, the UK, New Zealand and the US all said brokers in local markets were facing heavy bank competition following the GFC. Jim Murphy, CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP), told conference delegates that in Canada, broker market share had plummeted from around 40% to well under 30% following the financial crisis.

He said a key trend in the market was the amount of energy that banks – who control about 60% of the market – were putting into direct and mobile banking, creating intense competition for local brokers.

“The relationship brokers have with banks is more distant than ever, as their branch and mobile arms have become more aggressive,” Murphy said.

Closer to home, Darren Pratley from New Zealand’s NZMBA (New Zealand Mortgage Brokers Association) said brokers across the Tasman were up against the dominance of a group of major lenders – including ANZ National Bank, ASB Bank, Bank of New Zealand and Westpac New Zealand – which control 90% of the market and would like to “keep it there”.

Pratley said that the lack of wholesale funding was resulting in a quiet market, putting pressure on brokers who no longer have as many options to work with in sourcing finance for their clients.

Dennis Black, from Dennis Black & Associates in the US, said that banks there are now being tighter with credit through brokers, as well as generally, and that they are choosing to go direct

by undercutting brokers with cheaper rates.

In the UK, Michelle Colbran from IT provider Solution 4 in Australia said that while there was still a variety of lenders, their numbers had reduced, and that the financial crisis had decimated the first

Michelle Colbran and Dennis Black

homebuyer market – a key source of broker revenue.

Colbran said first homebuyers now required between 20 and 25% deposit to take out a loan, meaning brokers were forced to survive in a much less lucrative ‘re-mortgage market’ that meant less commission income overall.

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Referrer relationships a cause of confusion: Gadens Referral processes under the NCCP regime can be a source of confusion in the industry, a law firm has stated.

Gadens Lawyers senior partner Vicki Grey recently addressed delegates at the MFAA National Convention in Brisbane, and indicated that some referral relationships held by brokers could contravene NCCP requirements.

She said referrers could be acting as an intermediary under the NCCP Act, and therefore require licensing.

However, Grey pointed out Vicki Grey exemptions to this which will allow referral relationships to continue, so long as they meet NCCP criteria.

Grey said one exemption written into the Act allowed for referrals insofar as customer details were not passed onto a broker or lender. She commented that this exemption was “not particularly useful” to brokers, who generally count on referral relationships to pass on customer contact details. The MFAA lobbied for a further exemption. This

exemption allows for referrals under several stipulations.

The exemption stipulates that the referrer cannot be an individual banned from performing credit activities, that the consumer must consent to having their contact details forwarded to a broker or lender, that the referrer has a business relationship with the broker or lender and that the broker or lender keeps a record of their referrers. The exemption further dictates that the referrer must advise customers if they receive a commission for their referral, that they cannot be a business centred around referrals, and that the referrer does business from standard business premises.

Grey said this would preclude referrals from taking place during standard open house inspections.

Following referrals, brokers would have 10 days in which to contact the potential customer.

Grey has commented that the exemptions may still seem restrictive, but will be workable for the broking industry.

“We can make this work if we’re all determined to make it work,” she said.

Referrals can take place if: • the referrer is not a banned broker • the consumer consents to having their contact details passed on • the consumer is made aware of any commission the referrer receives • the referrer has a business relationship with the licensee or credit rep • the referrer is not a business centred on referrals • the referrer operates from a standard business premises • the broker contacts the referred client within 10 days

Gen Ys will lead housing recovery: Salt The Australian housing market has a bright future, and Gen Ys will be the ones to lead it there, a social demographer has claimed.

In spite of growing pessimism surrounding the economy, KPMG partner Bernard Salt has commented that he expects economic conditions to pick up within the next few years. Salt claimed much of the economic pessimism in the housing market is merely reverberations from the GFC. “We are in the shadow of the GFC at the moment. When you’re in the shadow, it’s cold and bleak and you can’t see beyond the darkness. By 2012, 2013 or 2014 we will have left it behind. You can’t be moping around after a recession forever,” Salt commented.

Salt believes Gen Y buyers will be responsible for reinvigorating the housing market in the coming years. He said Gen Ys are not affected by post-GFC malaise that has seen many consumers tighten their belts and retreat from the housing market.

“I don’t think Gen Y were really particularly affected by the GFC. They weren’t married, they don’t have a mortgage, they don’t have kids. There’s sort of a brash optimism. They will be the ones who move us forward,” he said.

Though first homebuyer participation has fallen to 15.8% of all housing finance, Salt believes Gen Ys will soon begin to enter the housing market in earnest. He

commented that Gen Ys will stimulate first homebuyer activity as both their optimism and the necessity to “grow up” pushes them into property ownership.

“They have to move into household form pretty quicksmart,” he said. “They can’t hang around and pretend to be the people from Friends forever.

Ultimately, the practicalities of life force you to do that. You can’t be footloose and fancy-free at 33. You can do that at 23, but you can’t do that at 33.”

What you said: From the Forum Gen Y is moving in the same direction as the European experience. That is, more and more will be and are becoming conditioned to rent. If you want to know what will happen in the years ahead, and what will happen to the Great Aussie Dream of Home Ownership, look to Europe.

People became so adamant that they don’t want the stress they saw their parents and families go through, they just got rid of aspirations of wanting to own a house. They focused on career, fun, and enjoying life! Kids are already thinking the same stuff here. This will translate into strong views around not owning a house; they don’t want the stress – our politicians have seen to that!

Whistleblower on 10 Jun 2011 12:46 PM

Liberty Financial re-jigs commission offering Liberty Financial followed other non-bank lenders in removing DEFs and changing its broker commission structure, moving ahead of the legislated 1 July ban on all exit fees.

Liberty Financial confirmed in mid-June that it had removed its DEFs, changed its upfront and trailing commission structure, and introduced stepped clawbacks for brokers.

“We have recently introduced changes to our commission structure for all of our business partners,” Liberty national sales manager of personal business John Mohnacheff said, following the group’s notification to its broking network. “These include increases to our upfront and trailing commissions as well as increased

payment flexibility,” he said.

Liberty has outlined that it will now pay upfront commissions for new loans up to 1%, and has also reintroduced a previous “turbo” feature on trail payments, which gives brokers the option of claiming trail payments in a lump sum upfront, rather than over a period of time.

A spokesperson for the non-bank said that while the turbo feature would be at a discount to expected trail payments over time, it would allow brokers to shore up cash flow.

Liberty has, however, introduced a clawback structure for brokers, in line with other non-banks. It will now claw back 100% of upfront commission the first six months, 75% between seven and 12 months, 50% in the 13–18 month period, and

25% if a loan is paid out between 19 and 24 months.

“We’ve done this whilst reducing fees and some interest rates, so we’re offering more attractive products to our customers and better outcomes for our brokers,” Mohnacheff said.

For consumers, Liberty also announced an offer of a reduced prime loan interest rate of 6.99%, as well as no application fees until 30 June.

Mohnacheff previously told Australian BrokerNews that the DEF ban would yield all sorts of derivatives of clawback structures to increase loan life while maintaining broker rewards.

“Somewhere, somehow, we have to recoup our costs of establishing a loan,” he said.

John Mohnacheff

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Aussie borrowers vulnerable to defaults Interest rate hikes are increasingly likely to send Australian homeowners into default, Fitch Ratings has claimed.

In an exposure draft review of the Australian RMBS sector, the ratings agency has claimed homeowners are now more vulnerable to interest rate hikes than during the recession of the 1990s, when interest rates were around 17%. Director of Fitch’s Australian structured finance team David Carroll said this could be attributed to rising levels of indebtedness and higher house prices. He commented that this could change the criteria by with Fitch rates Australian RMBS. “The current criteria are based on mortgage loan performance data from previous Australian recessions. The past decade has seen a significant change in the mortgage market, household leverage and a considerable increase in property prices. Those factors combined with the increased borrower sensitivity to

interest rate rises may result in mortgage performance in any future downturn being significantly worse than the last recession,” Carroll said.

Household debt as a percentage of income has risen from 49.4% in December 1991 during the previous recession to 156.4% in December 2010. In the same time period, interest payments as a percentage of disposable income have risen from 9% to 11.9%, though current interest rates are less than half of what they were in 1991. According to the Fitch exposure draft, this puts borrowers in a vulnerable position.

“These figures show a substantial shift in the indebtedness of Australian borrowers, who are now significantly more sensitive to moves in interest rates than they were 20 years ago. For this reason, Fitch believes any downturn could be significantly worse than the recession of 1991, on which the current mortgage default criteria is based,” the report said.

Australian debt exposure over time 156.4% 1991 2010

49.4% 9% 11.9%

17% 7.5% Interest rates

Household debt as % of income

Disposable income spent on interest

Source: Fitch Ratings

Industry sceptical of housing recovery Belying claims of a slowing of demand in the mortgage market, new home loans have seen their biggest gain in volume in more than two years.

ABS figures show a 4.8% increase for new home loans in April, arresting three months of declines and outperforming economists’ expectations of a 2.8% increase. While the total value of investment loans fell 1.6%, the value of owner-occupier home loans saw a 6.3% increase. The total value of loans was also up, climbing 3.8% in April.

In spite of the result, the HIA has claimed new home lending remains weak. Chief economist Harley Dale said home lending remains on a downward trend since late 2009, and leading indicators forecast further weakness in new home building.

Dale said the positive figures for April will not reverse the downward trend suffered over the previous months.

“While a better result, it falls well short of preventing a weak three-month period, with loans down by 10% over the ‘quarter’ to April 2011,” he commented.

Master Builders chief economist Peter Jones was more upbeat in his assessment of the figures, saying the result could be a precursor to recovery in the housing market.

However, any recovery would come slowly, Jones said.

“The housing finance numbers show that the decline suffered in 2009–10 has been arrested, but given the headwinds the pace of recovery will be slow,” Jones said.

Meanwhile, affordability has shown signs of improvement. The REIA Deposit Power Housing

Lying for credit on the increase: Veda The number of borrowers who misrepresent their personal financial information when applying for credit is on the increase, according to Veda Advantage.

Recent research conducted by Galaxy Research for Veda Advantage estimates that 1.8 million – or 10% of Australians – have misrepresented their financial information when applying for credit, an increase of 200,000 on the estimates that were compiled only six months ago.

The most common form of misrepresentation was an understatement of total expenses,

which Veda suggests one million credit applicants are guilty of.

The research suggests a further 328,000 had overstated their income, while 427,000 had understated money owed on their credit cards.

Veda Advantage head of consumer risk Angus Luffman said it is concerning that one-inten had misrepresented their situation in light of continued financial vulnerability.

The latest Galaxy Research survey also found that one-in-five (21%) of Australians admit to finding it difficult to repay debt. Of these people, 28% are likely to

apply for more credit in the next six months, and 14% of the respondents surveyed had missed a minimum bill repayment.

Luffman said the findings provide new evidence in support of the incoming positive credit reporting regime. “Combined with the rise in applicants falsifying their financial status, these figures reveal a concerning trend, and provide a call to action for government to expedite the adoption of a comprehensive or positive reporting system,” he said.

Luffman added that on an international scale, Australia’s credit reporting system is lagging

Affordability report has shown a 1.1% improvement over the March quarter, but the REIA has claimed affordability still constitutes a significant hurdle for homebuyers.

“This is good news, but not good enough to get excited about,” REIA president David Airey said.

However, it appears an abundance of stock and flat housing prices may be coaxing buyers back into the market.

According to a recent study by RateCity, lenders are also trying to tempt buyers with higher LVRs. RateCity data indicated the number of lenders offering LVRs of 97% or above has doubled since January of this year. CEO Damian Smith said lenders are attempting to inject life into the market by drawing first homebuyers in.

“We haven’t seen this level of money offered to mortgage borrowers since the start of 2009.

Lenders are trying to kick-start growth in the mortgage market, and more generous LVRs and lending criteria are the key tool they use,” Smith said.

Breathing space for FHBs Rising LVRs and easing demand in the property market should give first homebuyers some breathing room, Canstar Cannex has claimed. With properties staying on the market for longer, Canstar financial analyst Mitchell Watson said buyers have more room to negotiate on price. He commented that this will give first-time buyers an advantage in a market where affordability can be a major barrier.

behind other economically developed countries, and that if lenders are expected to uphold NCCP requirements, they should be supported by new government legislation. “Australia needs to step-up in its response or we risk seeing more Australians succumb to debt pressure”, he said.

1,057,000

Australians have understated their total expenses on credit applications

427,000

have understated the amount of money owed on credit cards

328,000

Australians have overstated their income

14 www.brokernews.com.au

News Investors lead ‘surprise’ Out-of-cycle rises mortgage revival keeping lid on RBA Opportunistic investors are responsible for an 18.8% “surprise” spike in mortgage sales in May, according to Australia’s largest aggregator Australian Finance Group (AFG).

While acknowledging May as a traditionally strong month for mortgage sales before a quieter winter period, AFG said the 18.8% national increase in sales when compared with a “subdued” April represented surprising strength for the market.

General manager of sales and operations Mark Hewitt Mark Hewitt explained the rise on buoyant property investment, which he said had remained at consistent levels throughout the ups and downs of the property cycle, but strengthened significantly in May. “It is certainly a buyer’s market right now, and investors looking at rising yields are probably better insulated from the impact of rising interest rates than other types of buyers,” he said.

AFG’s figures show investors accounted for 36.5% of the market in May. However, investors in New South Wales

and Victoria were more active than the national average, accounting for 38.8% and 37.9% of loans in those individual states respectively.

The investor-led boost saw overall mortgage sales for AFG rise from $2,119m in April (5,489 loans) to $2,517m in May (6,483 loans). This compares with April ($2,329m) and May ($2,561m) in 2010.

Average loan sizes also increased to $388k in May, up from $386k in April, which represented an increase on last year’s average loan sizes, which were measured at $386k in May and $378k in April 2010.

AFG also found that non-major lenders garnered greater market share in May, at 19.6% of all mortgages. First homebuyers were their biggest supporters, sending 22.9% of new business to non-majors. Meanwhile, refinancing was steady at 36.8%, despite higher levels of competition between lenders, and the abandoning of exit fees. AFG suggests many borrowers may have adopted a long-term view of their lender relationship, as encouraged by AFG. Fixed rate loans rose slightly to 8.4% from 6.4% in April, AFG found.

The Australian Bankers’ Association has claimed households are not paying significantly more due to out-ofcycle rate rises than they would be had banks moved rates in step with the RBA. Industry has praised this month’s RBA decision to leave the official cash rate untouched yet again, and the Australian Bankers’ Association has claimed out-of-cycle rate hikes have helped to mitigate any Reserve Bank increases. At a recent forum in Sydney, ABA CEO Steve Munchenberg claimed consumers would see little benefit from rate cuts. Munchenberg claimed that had the banks not lifted interest rates, the RBA would have moved on the official cash rate. Were banks to cut rates significantly, Munchenberg said, the Reserve Bank would be “horrified” and would raise the cash rate to drive mortgage rates back up.

“No amount of increased competition will make a huge difference to what people pay on their mortgages, or business loans for that matter, because if intense competition forces banks to cut mortgage rates sharply, the Reserve will just act to drive rates back up to where they need to be

to contain inflation,” he said.

Munchenberg claimed consumers were paying the rates the Reserve Bank wanted Steve Munchenberg them to pay in order to keep a lid on inflation.

“I know this because the Reserve Bank has stated publicly on numerous occasions that, when it comes to containing inflation, interest rates in the market, for home loans, business lending, etc, are just where the Reserve Bank wants them,” he said.

The only result of banks cutting interest rates, according to Munchenberg, would be a significant cut in margins and profitability, which he said had the potential to impact the stability of the Australian banking system and the economy on a whole.

“Banks that make losses tend not to lend as much, affecting the viability of other businesses and ultimately employment.

Higher business loan defaults and rising unemployment then feed back into further losses for the banks, not to mention the catastrophic effect this can have on those who lose their jobs or businesses,” he commented.

Banks could move on margins while protecting returns: Flavell Opportunities exist for lenders to move on rates without sacrificing returns on equity, NAB Broker general manager of distribution John Flavell has said.

As demand wanes in the mortgage market, Flavell said competition surrounding standard variable rates will begin to heat up.

“I think it’s going to be a very competitive environment, and an environment where expectation John Flavell around credit growth is not strong, so there are going to be some very competitive plays,” Flavell said.

NAB recently took aim at the other majors yet again, this time claiming their higher interest rates have cost borrowers as much as $320m.

The bank currently offers the lowest SVR of the majors. NAB’s standard variable rate currently sits at 7.67%, while Westpac, the highest of the majors, is at 7.86%.

NAB Group executive for personal banking Lisa Gray has targeted the other major banks, saying their higher rates equate to hundreds of millions of dollars more in interest payments for their customers.

“Over the past two years, NAB home loan customers have paid $320m less in home loan interest than if NAB had matched Westpac’s higher standard variable rate,” she said. “Over that time, NAB home loan customers have paid $160m less in home loan interest than if NAB had matched Commonwealth’s higher standard variable rate. And in that time NAB home loan customers have paid $210m less in home loan interest than if NAB

had matched ANZ’s higher standard variable rate.”

However, Flavell has predicted other banks will begin to move downward on interest rates as the mortgage market becomes tighter.

“SVRs are now coming down to where we’re operating. Eighteen months to two years ago there were bigger points of difference on SVRs. Rates are now contracting back together again. The question for brokers is what is the organisation’s intent and ability to keep at the sharp end of things?” he commented.

With rates set to become more uniform, Flavell said brokers are positioned to differentiate their business based upon their service proposition rather than price alone.

“Where brokers compete is on service. With broker share of the market north of the 40% mark, I would suggest that the service

element is a compelling and strong proposition,” he said.

Flavell on covered bonds As competition heats up, John Flavell has predicted the introduction of covered bonds could level the funding playing field.

“With covered bonds, the fact that they’re a dual recourse security means they have been a very cost-effective form of funding, even at the height of the GFC,” he said.

Flavell said the bonds have the potential to draw offshore banks into the Australian market.

“It’s another mechanism of funding, and more opportunities to raise funding make the environment more appealing,” Flavell said.

18 www.brokernews.com.au

News

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

Non-bank sector now ‘on its knees’

Brokers should choose lenders on tech policy: Flack Brokers looking to utilise new technology should re-examine their choice of lenders, Firstfolio has stated.

With many lenders requiring face-to-face meetings to take place in person rather than over Skype, Firstfolio executive director Mark Flack has said brokers could find themselves disadvantaged as consumer behaviour and expectations change.

“I think it probably places brokers in a difficult position if the banks they’re using don’t have policies that are sympathetic to that,” Flack commented.

A growing number of consumers are more comfortable doing business online, Flack said, and Firstfolio’s online arm, eChoice, has seen more than a third of its customers choose to purchase their home loans directly online. With this growing shift in consumer sentiment, Flack said brokers should consider lenders’ policies surrounding technology when choosing to deal with a lender.

“They may need to look at the various lender options and say if they’re getting a large number of customers who don’t want a visit in their home, maybe they need to point to lenders that would allow them to do that,” he said.

Flack believes lender and aggregator policy precluding the use of technologies such as Skype to conduct client interviews could

represent an overreaction and a lag in adapting to new trends.

“I think that’s trying to deal with the small percentage of fraud that has occurred. I’d bet most of the frauds have occurred face-toface. It doesn’t matter what you do if they’re out to defraud.

“I think it’s a bit of a knee-jerk reaction from banks to protect their position. The overwhelming majority of brokers have always done the right thing,” Flack said.

However, the way brokers utilise new methods of communication will ultimately be determined by the lenders with whom they do business. For this reason, Flack said, brokers should examine the lenders they use.

“At the end of the day for the broker, the lender and their policy will dictate that. They may have to look at which lenders reflect their clients’ choice. It’s not all about price. It’s about convenience, and it’s about the process,” he remarked.

Mark Flack

Non-banks have found little to celebrate in new ABS housing finance figures.

Though the figures released this month show a 4.8% rise in new home loans, the largest since March 2009, none of this increase seems to have flowed toward the non-ADI sector. Wholesale lenders saw loan volumes fall over April, the sixth consecutive month of decline. Non-ADI share of the mortgage market now sits at 1.9%, down from nearly 5% in November and the lowest since they entered the market in the early 1990s.

MFAA CEO Phil Naylor said bank market share is now its highest in at least two decades. He has again called for a change to Australia’s securitisation sector to address the mounting challenges faced by non-banks.

“The non-banks have been significantly impacted by the GFC, with their market share just prior to GFC at 13.6%. This is because of their reliance on securitised funds. We have been lobbying for the Australian government to adopt the Canadian Mortgage Bond model which provides competitively priced funds to banks and non-banks. There was no impact of the GFC to non-banks in Canada,” Naylor said.

Naylor also lamented the government ban on exit fees, which he said came “at the very time the non-bank sector is on its knees”. He referred to an MFAA survey, showing the impact the exit fee ban will have on mortgage managers and aggregators.

“Without being able to recover [administrative] costs with exit fees, small lenders will either need to bear the costs themselves or lift their rates, making them less competitive. This will not be a good result for borrowers, who are going to be penalised as competition slows in the mortgage market,” Naylor said.

The MFAA survey has found 55% of mortgage managers indicated they would have to re-introduce upfront fees and lift their interest rates in order to cope with the ban. Executives for the companies also said they would have to cut staff and operating costs as a result of the ban, and 85% said they felt the industry was not adequately consulted by the government prior to the ban.

“Clearly there is no meaningful competition across the industry and smaller lenders are being squeezed further each month. We urge the government to either drop the exit fee ban altogether, or take note of the Senate Economics Committee inquiry into banking and exempt non-banks from the new regulations,” Naylor said.

www.brokernews.com.au

19

INDUSTRY NEWS IN BRIEF Disclosure deadline revised Disclosure requirements under NCCP will be released in June, but implementation of the regime is expected to be delayed, the MFAA has said. Phil Naylor said he believes brokers will be able to adapt to the changes. “We still haven’t seen the final documents, though we have had a lot of input and are pretty happy with what appears to be in there,” he said. Naylor said while the latest advice received from the government was that the disclosure regime would be implemented as of 1 August, with the release date of the finalised regulations being mid-June, he believes the government will further delay the regime’s implementation.

ING Direct prices RMBS ING Direct priced a $750m RMBS issue, which it says will spur lending growth for the bank. The RMBS transaction was arranged by Macquarie Group, with Macquarie, NAB and JPMorgan acting as joint lead managers. The Australian Office of Financial Management purchased $206m of the RMBS notes.

ING Direct CFO Glenn Baker said the transaction will help further diversify the bank’s funding base. “The bank is using securitisation as part of a process of setting up a foundation for long-term sustainable growth in lending,” he said.

Property vals hit Facebook RP Data has upped its social media stake, offering free residential property valuations via Facebook. The company said it will allow users access to regularly updated property valuations via an app on its Facebook page. Users will be able to register properties of interest, receive up to three free property valuations and see monthly updates on each property registered. The app will also allow users to click through to free suburb profiles and statistics on the RP Data website. The company’s CEO Graham Mirabito said the application will help properly educate consumers in a slow market.

Affordability up, but buyers wary Housing affordability has seen improvement, but the REIA claims affordability still constitutes a significant hurdle for homebuyers. The REIA Deposit Power Housing Affordability report has shown a 1.1% improvement over the March quarter, but REIA president David Airey said first homebuyers still show hesitance to enter the market. “This is good news but not good enough to get excited about,” he said. The number of loans to first-time buyers has declined over the quarter, falling to its lowest quarterly level since September 1994. “The slight improvement in affordability over the quarter is positive, but a lot more needs to be done to make owning a home in Australia achievable.”

NAB fires shot at majors NAB has taken aim at the other majors, claiming their higher interest rates have

cost borrowers as much as $320m. The bank currently offers the lowest SVR of the majors. NAB’s standard variable rate currently (at time of going to press) sits at 7.67%, while Westpac, the highest of the majors, is at 7.86%. NAB Group executive for personal banking Lisa Gray said higher rates equate to hundreds of millions of dollars more in interest payments for other major bank customers.

“Over two years, NAB home loan customers have paid $320m less in home loan interest than if NAB had matched Westpac’s higher SVR.” Lenders up LVRs Lenders are trying to coax consumers into the market with higher LVRs. According to a study by comparison site RateCity, the number of lenders offering LVRs of 97% or above has doubled since January of this year. Home loans of a maximum 97% LVR now represent 5% of all products in the site’s database. The study has also indicated that major banks are increasingly comfortable with high LVRs. In January, ANZ increased LVRs on most of its product suite from 90% to 95%. CBA offers up to 97% LVR on most of its home loans, while NAB offers between 90% and 95%. Westpac products carry a maximum 92% LVR. Pessimism on property Potential homebuyers are feeling pessimistic about housing affordability as they struggle with rising living costs, a survey has found. The Housing Affordability Sentiment Index commissioned by realestate.com.au found Gen X and Baby Boomer buyers are the most pessimistic about housing affordability. The survey also found 91% of respondents are now prepared to spend less on discretionary purchases as household costs rise. However, while potential homebuyers are prepared to sacrifice spending, the survey indicated many amenities formerly seen as luxuries are now considered necessities by consumers.

Business customers less loyal Satisfaction among business customers has crept up slightly for the Big Four, but loyalty remains low. The latest Roy Morgan Business Bank Satisfaction survey has shown marginal improvement for the major banks, with satisfaction levels rising from 61.5% in April to 61.8% in May. ANZ leads in business satisfaction with 63.2%, while NAB has continued to languish at the bottom of business satisfaction ratings with 58.8%.

Westpac remained in second with 61.4% satisfaction, and CBA followed with 60.7%. Though business satisfaction has historically been a good leading indicator of retail satisfaction, satisfaction levels among business customers remain well below those of personal banking customers. Roy Morgan industry communications director Norman Morris said this results in a lack of customer loyalty.

20 www.brokernews.com.au

News As yet, the MFAA has not defined a future transition period for its membership to a university degree level, Sirianni said, and is currently only focused on course development and putting in place a pathway for members to this further education.

“We have taken a long-term view, and fully understand that this higher level of education will take time to develop and may eventually become the norm,” he said.

Responding to criticism that a practising mortgage broker did not require a university degree, Sirianni said that the association was looking long term.

“One can fully understand this perspective today, but we are planning an education pathway that will serve the industry for the next 10 to 20 years, and setting an

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

agenda so that our members clearly understand what the flag on the hill looks like.”

Sirianni explained that some of the logic for the new qualification was that the industry needed to provide a pathway to attract and retain young, new talent looking for a career.

“A recognised Graduate Diploma, with an articulation pathway to a Bachelor of Business, will provide young people the opportunity to pursue a career in our industry and allow for fresh new entrants in our field,” he said.

While opening the MFAA Convention, Sirianni said the development of professional education standards could help the broking channel boost market share to 50% from just over 40% within five years if the industry continues along the path of

becoming a “trusted advisor” for credit and finance, in a similar way to an accountant.

Sirianni has also endorsed brokers taking control of their own financial destiny by creating a value proposition customers would be willing to pay for, via a fee for service, which

would be charged over and above lender-sourced commission remuneration.

He added that for ‘Tomorrow’s Broker’, diversification was “paramount”, and that to refrain from providing protection such as risk insurance risked being considered a “breach of trust”.

Poll: Do brokers need university degrees?

Following the MFAA indicating a degree would be the future minimum qualification for brokers, we asked our online readers what they thought.

Here’s what you answered:

Yes

32%

No

34% 32%

Undecided Total votes: 360 Poll date: 06/06/11 – 17/06/11 Source: Australian BrokerNews, www.brokernews.com.au

Australians comfortable with debt, but FHBs overloaded Australians carry high levels of debt compared to other countries, but manage it well, Genworth has claimed.

In the insurer’s new Genworth International Mortgage Trends Report, it has found that Australians spend 45% of their after-tax income on servicing debt.

This compares to a 38% average in the other countries Genworth surveyed. The study, which looked at mortgage trends in Australia, Canada, India, Ireland, Italy, Mexico, the UK and the United States, found Australians are also more comfortable borrowing larger amounts to buy a home. Thirty-five per cent of Australians surveyed said they were comfortable taking

out a mortgage above 80% LVR, as compared to 20% in the other countries surveyed.

Debt servicing, however, does not seem to be a problem for Australian households. The report indicated Australia outpaces most other countries when it comes to making extra payments on home loans.

Forty-five per cent of Australians said they typically overpaid on their mortgage, while the eightcountry average was only 26%.

Australia was second only to India in the category, where 56.2% of borrowers make extra mortgage payments.

Though the study found Australians are performing well in servicing their debts, debt could

stand as a potential barrier of entry to the housing market. One in five potential first homebuyers indicated they spend more than 50% of their incomes servicing debt. Genworth CEO Ellie Comerford said this, plus concerns regarding housing affordability, could explain why many first-time buyers are entering the market later. The study found the average age (28.6 years) of first-time buyers in Australia, while below the eight country average of 30.1, is increasing rapidly.

“Australian FHBs are facing a worsening situation, with the average age of potential homebuyers accessing the local market increasing at a faster rate

than average,” she commented.

The survey found potential first homebuyers hesitant to enter the market, Ellie Comerford blaming rises in property prices and worsening affordability.

“The Australian market, like the Indian and Canadian markets, is characterised by rapid property price rises in recent years, deterring potential FHBs, and explaining why potential Australian FHBs surveyed don’t think now is a good time to buy, even though they desire to,” Comerford said.

Intouch targets growth in regional NSW Intouch Home Loans has set its sights on expansion in regional NSW, committing to opening 12 new branches over the next 12 months.

The non-bank lender has flagged imminent branch openings in Dubbo, Armidale, Albury, Nowra, Orange, Bathurst, Port Macquarie, Coffs Harbour, Lismore, Grafton, Parkes and Singleton.

Intouch CEO Paul Ryan said for larger players in the industry it is all about profitability over personal touch – and that in many areas they had moved out of rural regions. “We aim to move back in and continue to provide the personal touch,” Ryan said. “Our principals are self-employed – they are not an employee in a business and transferred into a regional location the next,” he said.

Ryan said the business aimed to provide a one-stop shop for the rural community, through creating the “more personalised service rural and regional Australia deserves”, and will be operating as Intouch Finance, reflecting a wider range of services.

“We have extended our product range and received tremendous backing by our partners to develop this regional and rural growth strategy,” Ryan said. “It now means that our Intouch principals have access to products they may not have otherwise had access to – therefore creating the one-stop shop,” he said.

Ryan added that the expansion plans do not end with regional NSW. “We have identified a number of rural and regional areas as highlighted to target in

the first instance but there are many more – we have targeted rural and regional areas in all the other states as well,” he said.

“We are just about to open Salamander Bay in NSW, and Cobram in Victoria, and have a number of other applications we are working through at the moment.”

At present, Intouch has branches in 19 locations across Australia, including 10 in NSW. Ryan said part of his motivation for the initiative is his own experience growing up in regional Australia, where he witnessed the financial difficulties often faced.

“My family experienced tough times and as do many rural families,” Ryan said. “Some lose farms, some lose their business and many seek local assistance

for support and guidance to do the behind-the-scenes work to assist them.” Ryan said he was committed to providing better financial outcomes for rural and regional Australia.

Intouch’s regional targets • Dubbo • Armidale • Albury • Nowra • Orange • Bathurst • Port Macquarie • Coffs Harbour • Lismore • Grafton • Parkes • Singleton

www.brokernews.com.au

21

Comment FORUM When the non-bank and mortgage management industry united in a last ditch stand against the banning of exit fees via a national advertising campaign, stakeholders were thrilled About time all united in this saga. It may be too late though. [Treasurer] Swan has already indicated he will not be changing his mind.

Chris on 08 Jun 2011 03:42 PM I hope that this action will be effective, but it is built on the premise that Wayne Swan has common sense. Given he hasn’t demonstrated very much of it in recent years, this is a big ask. Still, a worthwhile exercise, just don’t expect him to actually understand the logic.

Ian Jervis - Paradime Home Finance on 08 Jun 2011 04:45 PM How can anyone reason with someone like [Treasurer] Swan? You would have to be ignorant to come up with the idea in the first place. sidbroker on 08 Jun 2011 05:54 PM I find the one-sided political bashing so very boring. Where were the fights by the MFAA against broker commissions being slashed? Where was their fight ‘until the fat lady sings’ over that issue? My business has been

substantially affected by commission drops – not exit fees. The toothless tiger simply jumps on a political bandwagon instead of the real issue, commission reductions.

Shane in QLD on 09 Jun 2011 02:03 PM

The overseas market is so different – that’s why they are in a mess. That’s where it all stemmed from. We are so fortunate here in Australia. Think outside the square and you will prosper. Things can only improve now – we have already seen the worst.

MLM west aust on 07 Jun 2011 02:15 PM

Consolidation in the banking industry was top of mind for a panel of global mortgage industry experts at the MFAA conference – leading to this reaction from our readers.

The tide will eventually turn. Banks are controlling the markets now because of course the larger business survives a GFC, and they will try and maintain their market share and dominance for as long as they possibly can, and at the same time, try and reduce the number of brokers in their market. Why wouldn’t they? However, as the banks get greedier, and the economy starts to strengthen in time, non-banks and private investors will return to play again to create the competition. Banks will continue along old paths of providing ‘products’ that they class also as ‘services’. Banks have always wrapped these together as ‘service’ and let’s face it, it is not so much because of their ‘products’ but of their lack of ‘service’ and during/after sales ‘service’ that automatically promotes the broker industry because brokers provide a much better service to customers. It’s all cyclical – it will revert.

Chris on 07 Jun 2011 03:07 PM

I recently did a full ‘competitive analysis’ of our industry; involving various resources (BIS-ABS) and tools (PEST-STEEP analysis) and quite literally framed the macro and micro issues pertaining to one single question – “should I leave this industry?”

The analysis identified, framed and clearly spelt out what has occurred, who’s doing what, and their reasons.

In the conclusion I wrote “It’s time to exit this industry. I don’t have the resources, funds, distribution or economies-of-scale required to even compete... the only ones who do have the resources and wallet are the four major banking groups”.

Game Over.

Mortgage Manager on 07 Jun 2011 12:16 PM

To vote in our latest online poll, visit our online home page at www.brokernews.com.au

24

www.brokernews.com.au

Insight

Getting equipped for diversification Are you looking to diversify into asset, equipment or general commercial?

Experts say the opportunities to expand abound, and residential brokers may find it easy to upskill

A

t the recent MFAA Convention in Brisbane, discussion about the future remuneration of the broker channel turned to opportunities available through diversification – particularly into areas such as risk insurance. But are there other viable avenues? Armed with a large database of residential clients, asset and equipment or commercial finance may be an easy add-on to your business.

Where are the opportunities?

Experts argue resi finance brokers have good opportunities to diversify into new areas.

“Based on commission cuts and the move to fee-forservice, considering other sources of income is topical at the moment,” Macquarie Leasing’s Stephen Light says.

“We certainly see motor vehicle and plant and equipment finance as a good fit for mortgage brokers,” he says.

Most specialists agree that asset finance leverages a similar credit skill set. However, commercial finance can be a step up in complexity. “There is a fair distinction between those areas in terms of complexity,” Light says.

Mildura Finance’s Peter Shroeder said motor vehicle finance is an especially good add-on. “It’s a simple application, and is no more difficult than residential,” Shroeder says. “Once a broker has done a couple of deals, they will find it very simple.” Shroeder argues brokers can earn $800 for two hours’ extra work on average.

Financial Integration Australia director Ken Groves says while some brokers are interested in commercial work, the vast majority are a “little bit reluctant”. He says this is due to the frustration many feel at the difficulty when identifying the credit criteria needed to get a deal over the line. Lender accreditations can also be a hurdle.

How can you get into the market?

Three easy steps will put you on the path to diversification, says commercial specialist Ken Groves: • Education and training Brokers should first look to gain the right educational qualifications, with the current Diploma of Financial Services (Finance/Mortgage Broking Management) covering off the basics.

• Talk to your aggregator Aggregators provide their brokers with information, assistance and training as they upskill outside of residential mortgages. Aggregators can provide referrals to mentors within their network, as well as advocating for brokers when it comes to accreditation by lenders.

• Start writing business Become involved in writing new types of business.

With the assistance of a good mentor, and the support of aggregators – as well as some lenders, in the case of asset and equipment – brokers are soon able to bridge the knowledge gap from pure residential business.

In starting out, brokers should leverage their existing residential client databases for leads. “Most brokers would have a significant database of people they have done home loans for, and within that, equipment finance opportunities will exist,” Groves explains.

What are the pitfalls to avoid?

Adding new areas to your business can be daunting, so what are the common mistakes?

Groves says that commercial finance generally might leave resi specialists “dazzled” by loan size, as he said large loans can be a lot harder to get set from a credit point of view. “I have seen brokers attempt to package a complete commercial transaction, spend a lot of time on it – perhaps a couple of months – and then it doesn’t get across the line,” Groves says. In terms of NCCP, Groves says the crossover between regulated (home and investment) and unregulated (commercial) loans can cause confusion.

Light argues brokers should stick to their existing residential databases for leads, as opening themselves up to new clients could prove a fraud risk. “Certainly there are people out there looking for opportunities to conduct fraudulent transaction through a broker,” Light says. “If brokers are not really up to speed on the things to look out for, they can find themselves in the middle of a fraudulent deal unknowingly.”

Meanwhile, Shroeder argues brokers need to have a different attitude for commercial deals, focusing on service and knowledge rather than product and rate.

MY WAY What is your greatest business achievement?

Writing over $100m.

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

To be honest and upfront with your clients, give them the same level of service you would expect to receive yourself, and to treat each deal as if it was your own.

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

Creating a great network of brokers, referrers and lenders.

Who has helped you the most, and how?

I would have to say Marcus Williams without a doubt; he gave me focus and determination.

What character trait do you most value in yourself?

I would have to say my loyalty.

Alex Shumsky, Loan Market

How do you stand out from the crowd?

A lot of my business comes through word of mouth, and I believe I stand out because of my knowledge base and my ability to structure and present deals.

What do you tell yourself when the going gets tough?

Suck it up.

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

Reduce the amount of hours I work.

What piece of advice would you give an ambitious broker?

Put it the hard hours at the start and don’t concentrate on your figures too much, just make sure you get in front of every possible client and the rest will come.

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www.brokernews.com.au

Market Talk Feng Shui finance: Housing demand has a changing face The cultural make-up of Australia is changing, and savvy brokers have the opportunity to be at the forefront

T

he impact of changing demographics on the housing market is a topic of seemingly limitless discussion. Most of the discourse seems to centre around generational differences, the advent of new technologies and how Gen Y will change the outlook for housing in Australia as they enter the property market. However, a more pronounced change is occurring in Australia, and it’s one demographer Bernard Salt believes the housing industry should take notice of and adapt to. Rather than the slowly changing cultural values resulting from one generation being replaced by the next, it’s the rapidly changing consumer behaviour that will be brought about by Australia’s changing ethnic make-up. This shift in culture, Salt has said, could present a significant opportunity for those with enough foresight to react.

Department of Immigration and Citizenship figures show that the two major contributors to net overseas migration in Australia are India and China. Indians account for 20% of migrants, and Chinese for 11.1%. This shift away from Anglo-European migration signals a shift towards a consumer market that could look markedly different in the future.

“Chinese and Indians are having the biggest impact in capital cities, and capital cities set the cultural agenda in Australia,” Salt said. “They are coming through the universities, and as a consequence will be young professionals over the next decade and will be looking to find their way into middle class prosperity.”

As the young professionals of tomorrow, Salt said they will begin to seek “trophy property, trophy education and trophy lifestyle” as a mark of their success. As this happens, Salt believes the property market itself will begin to change.

“By osmosis, the immigrant culture starts to imprint on the values of the host population, and the host population starts to imprint on the values of the immigrant culture,” he commented.

An example of this imprinting, Salt said, can be seen in the way Mediterranean culture has influenced everyday life in Australia. Far from merely contributing to Australians’ food choices, the influence of Mediterranean immigrants is responsible for everything from al fresco dining to Australia’s cafe culture, and even the way homes are designed.

“We didn’t know until the 1990s the impact of the Mediterranean culture, and by the 2000s we were

celebrating it,” he said. As Indian and Chinese culture begin to impact on Australian society, Salt said astute entrepreneurs in the property industry could lead the way in tailoring home construction to these cultural differences. He used the example of Feng Shui, saying developers could begin to incorporate the principles in the way they construct houses.

“This is the idea that you configure a property to retain good energy. The average Anglo-Australian would say ‘Thank you very much, but that’s not for me,’ but when the reality hits that the well-to-do, professional middle class includes Chinese, then why not? It’s simply broadening the appeal of the property,” he commented.

To most Australians, Salt remarked, such inclusions would be imperceptible. However, to migrants driving demand in the property market, the changes would be “very apparent”.

“There’s a whole range of cultural proclivities that we are unaware of that we could absorb without any net impact at all,” Salt said.

For brokers, adapting to and finding the opportunity in these cultural changes will come down to relationships.

Salt recommended brokers begin to seek out Mandarin or Hindi speaking staff, and begin to build businesses that migrant populations would be comfortable dealing with. However, the biggest factor in tapping into this cultural change, Salt said, is simple understanding and relationship building.

“The important thing is to build relationships with those communities. It’s about getting an understanding of the cultural preferences of a particular group and aligning with them,” he said.

NUMBER CRUNCHING How Australia compares: Australia vs the global mortgage market Australia

Eight country average

28.6

30.1

4.75%

2.4%

Mean % of income spent on servicing debts

45%

38%

% comfortable borrowing above 80% LVR

35%

20%

% who have trouble repaying their mortgage

21%

22%

% who believe now is a good time to buy a home

42%

42%

% who make extra payments on their mortgage

45%

26%

Average age of FHBs Cash rate

Source: Genworth

At a glance…

1 * in 5

The number of potential first homebuyers who use more than 50% of their income to service debt *

www.brokernews.com.au

27

People Top broker cracks $1bn milestone Last year’s AMA Mortgage Broker of the Year Wendy Higgins has celebrated reaching a $1bn home loan book.

Higgins, a Mortgage Choice franchisee, built her $1bn book through gradually increasing her number of customer home loans rather than acquiring other loan books. Higgins and her staff celebrated the milestone with a formal evening event in Adelaide, and she commented that her $1bn loan book was reached over many years of providing service to thousands of clients.

“This long-awaited highlight is the culmination of 13-and-a-half

years of hard work and commitment to over 8,000 clients, many of whom we are still working alongside today as they build increasingly successful property portfolios,” she said. “Holding a book of $1bn in home loans is something most mortgage broking businesses only dream about. I am very pleased and proud of this achievement, which has been made possible with the help of my franchisor Mortgage Choice, our lender partners, my staff and our commitment to looking after all clients in an exceptional manner.”

Mortgage Choice CEO Michael Russell, who attended Higgins’

formal event, praised Higgins’ commitment to the industry.

“Wendy has absolute commitment to her customers and partners, and is always willing to teach others and share experiences so the people around her benefit. The loan book milestone is an incredible achievement and only one of many Wendy and her team have accomplished over time,” he said.

Higgins had previously stated to Australian Broker her goal of reaching a $1bn loan book.

Having now achieved the goal, she said she is taking more time to train staff.

Wendy Higgins

“The book will still go up but it feels a lot of pressure is now off,” she said. “Personally, I am doing less loans and trying to upskill my staff with what I have learnt over the past 13 years. With compliance, a lot more of our time is spent on each application, which is a good thing.”

Rampal resigns as LoanKit CEO LoanKit CEO and founder Kym Rampal resigned in a decision effective at the end of June.

The move comes 18 months after the aggregator was acquired by Mortgage Choice, in what Mortgage Choice has called a “re-alignment of responsibilities” for the company. Rampal will stay with the company until the end of 2011 as Simon Dehne, current Mortgage Choice head of diversified products, transitions into the role of CEO. Mortgage Choice CEO Michael Russell said Rampal will take a “supporting role” at LoanKit to aid with several IT projects.

“We’re delighted he will stay on with us this year for as long as Simon and his team require support. In 2012, Kym is heading off on the trip of a lifetime, travelling overseas for several months with his family,” Russell said.

Dehne has previously held roles helping Westpac establish its third party channel in Victoria, South Australia and Tasmania. He has also worked in sales, marketing and operations roles at GE Money and Choice Aggregation Services.

Russell said Dehne’s position at Mortgage Choice had prepared him well to lead LoanKit. “Simon has made solid progress with our

diversification strategy as Head of Diversified Products and is now ready to take LoanKit into its next phase of growth,” Russell commented.

Dehne said he was “humbled” to follow Rampal as CEO, and hoped to use his position at LoanKit to boost the profile of the mortgage broking industry through “providing innovative tools and services”.

“LoanKit offers a remarkable opportunity for established brokers who need an aggregator that doesn’t provide a one-size-fitsall solution. Our team has a strong competitive advantage in

Kym Rampal

delivering above and beyond the needs of our broker customers as competition heats up,” Dehne said.

“I plan to drive the business through its ongoing evolution, keeping a good couple of steps in front of industry changes. We are looking forward to winning new business.”

MOVERS & SHAKERS

Cameron Basely

 CBA appoints QLD state manager

 Bibby appoints new BDM

Commonwealth Bank has appointed former Aussie Home Loans executive Cameron Basely as its new Queensland state manager.

Basely has been recruited to lead the relationship management team in Queensland, as well as manage key state partnerships with the bank’s distribution partners. In his former senior manager of lender relationships role, Basely oversaw the composition and management of the brokerage’s lender panel.

Debtor finance group Bibby Financial Services has appointed Allan Howe as its new state business development manager for Queensland.

Howe previously spent eight years leading the Queensland operations of Cash Resources Australia, a specialist debtor financier, and prior to this, Howe spent time as CEO of a credit union in WA, as well as working for Westpac’s WA lending division.

Howe was Queensland Chairman for the Turnaround Management Association for two years from 2009, and was on the state committee since the inception of the TMA in Queensland in 2006.

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www.brokernews.com.au

Caught on camera The MFAA held its annual national convention in Brisbane in early June, bringing together over 700 brokers and industry representatives for three full days of education and networking. While Queensland’s housing market may have suffered as a result of flooding this year, MFAA delegates were all optimism during their stay in the River City.

Photography by: Richard Dobbie www.photoeventz.com.au

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29

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Insider

Got any juicy gossip, or a funny story that you’d like to share with Insider?

Drop us a line at insider@ausbroker.com

himself from the predicament, more dancers entered the floor, blocking his exit. They were followed by still more dancers. This all culminated in a choreographed flash mob dance stunt put on by Liberty Financial. Apparently, the folks at Liberty hired a dance troupe and had them masquerade as delegates. What they didn’t count on was an oblivious journalist standing in the midst of their routine, frozen in terror. The dancing was impressive, and the whole stunt was one of the more memorable experiences of the Convention, but Insider will merely look back on it with shame as the clueless nitwit who accidentally walked smack into the middle of Liberty’s moment of glory.

Booth-y call

S

“I’m not supposed to be part of the act…”

So you think you can dance?

T he ExpoMart was the place to be at the MFAA National Convention, with opportunities to check out lenders, aggregators, software providers and a gaggle of other industry-specific services as they fought for delegates’ attention with flashy displays and

promises of freebies. Needless to say, this is where Insider spent the lion’s share of his time during the convention, hobnobbing with lenders and brokers, shamelessly entering every sweepstakes available and availing himself of free food. Imagine his surprise, then, when one day while

innocently strolling through the myriad of booths he found himself in the middle of a dance session between two delegates.

Embarrassed and looking for an easy escape, he tried to flee the scene only to find his way blocked by a camera man. As Insider tried awkwardly to extricate

peaking of the ExpoMart, there are a couple trends Insider noticed this year.

First, iPads have apparently become the most ubiquitous tech item in the world. Lenders, aggregators and service providers must have bought them by the gross, because every third booth seemed to be giving one away. One booth even enticed delegates with the promise of an iPad giveaway every day of the convention. The second trend Insider spotted was the shameless return of booth girls. Appealing to the broking industry’s more prurient tastes, a couple exhibitors manned (no pun intended) their booths with scantily clad young ladies with perhaps a less-than-exhaustive knowledge of the mortgage and finance world. Regardless, Insider can’t argue with results.

Visibly salivating brokers lined up at these booths, and a few of them might have even noticed the products the booths were hawking. All in all, it gave everything the feel of a comic book convention. Insider, for one, is not complaining.

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Services

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au AGGREGATOR / WHOLESALE BROKER Mortgage House 133 144 www.mortgagehouse.com.au save@mortgagehouse.com.au Pages 16 & 17 PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 19 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au Page 5 FRANCHISE Wealth Today 08 9207 1433 www.wealthtoday.com.au Page 7 LENDER Liberty Financial 13 23 88 www.liberty.com.au Page 3 National Australia Bank www.nabbroker.com.au Pages 11, 13, 15

31

Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 9

Quantum Credit 08 9325 6255 www.quantumcredit.com.au Page 23

Provident Capital 1800 668 008 www.providentcapital.com.au Page 4

WHOLESALE Resimac 1300 764 447 www.resimac.com.au Page 32

MORTGAGE MANAGER / NONBANK Premium Capital Finance 1800 25 11 11 www.pcapfinance.com.au Page 21 SHORT TERM LENDER Interim Finance 02 9982 2222 www.interimfinance.com.au Page 30

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

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

Mango Media 02 9555 7073 www.mangomedia.com.au Page 1 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au Page 8

MKM Capital 1300 762 151 www.mkmcapital.com.au Page 2 To advertise in Australian Broker call Simon Kerslake on +61 2 8437 4786