Australian Broker magazine Issue 8.05

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ISSUE 8.05 March 2011

Recruitment face-off

Trevor Scott

 Aggregators vie for new member growth

Major mortgage aggregators are gearing up for an aggressive 2011 recruitment drive that will see them compete to snare existing broking businesses and begin to develop new-to-market talent.

Following a transition to the National Consumer Credit Protection regime which impacted broker numbers industry-wide, aggregators are getting set to achieve new growth by marketing their compliance services.

In late February, PLAN Australia appointed Trevor Scott

to replace outgoing CEO Ray Hair, and his primary brief in the role is to grow the aggregator’s member base. PLAN, as expected, lost approximately 20% of its members through the licensing transition.

Advantedge general manager of broker platforms, Steve Weston, said that “it’s always been our intention to commence recruiting in the early part of 2011”.

Following the NCCP impost, Weston said PLAN and Advantedge will attempt to attract brokers through its support model.

“We have always been priced at the premium end of the market and that will certainly continue, but the support services that we

offer also lead the market, and we think that justifies our premium price,” he said. Weston pointed to the group’s newly-built IT infrastructure, as well as its credit representative support and new debt insurance product.

PLAN and the Advantedge businesses will be joined by other aggregators, including the industry’s largest, Australian Finance Group, as well as Connective and Vow Financial.

AFG general manager of sales and operations, Mark Hewitt, said AFG is in a “recruitment hot spot”, due to dissatisfaction with the compliance support models of other aggregators. He said this was primarily among Australian Credit Licence holders, which in some cases felt they were not assisted effectively, due to a focus by other major businesses on credit representatives.

With around 2200 members, Hewitt said AFG would target growth in New South Wales and Victoria, and would continue to market its independence, as well as its compliance support offering, which he said is being offered to ACL holders as well as credit representatives.

Meanwhile, Connective principal Mark Haron said the group’s focus in 2011 would be on its Connective Credit Services business, established to provide a licence and support model for credit reps. With only 64 members currently, Haron said Connective was targeting a headcount of 150 – 200 by June, which is in addition to other Connective members, which numbered 1200 on 1 January.

Page 16 cont.

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Non-bank comeback Mortgage figures show competition resurgence Page 2

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Regulation risk

NCCP to become client litigation weapon

Page 6

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Document decision

NAB combines mortgage documents to lure brokers

Page 8

Inside this issue Analysis 20 High volume brokers on banks Viewpoint 21 Brokers rise to top-of-mind Opinion 22 John Symond embraces change Insight 24 Broker, or business owner?

Market talk 26 Cameron Kusher vs Steve Keen Toolkit 30 The science of compliance Caught on camera 33 Westpac goes on the road

>>

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News Non-banks are back, while LVRs shrink Non-bank market share has risen to levels last seen prior to the GFC, according to Australian Finance Group, while consumers are taking a cautious approach to borrowing.

The aggregator’s February mortgage index shows that non-bank lenders accounted for 21% of all home loans processed through the group’s broking network, an improvement on the 15.4% share of the market the sector claimed in the December quarter of 2010.

However, AFG said despite an ongoing war from the major banks to win new customers, refinancing accounted for 37% of mortgages processed, less than the 38% average of the past 12 months.

Meanwhile, despite rising LVRs, there was a decline in the average LVR to 53.2% in February, the most conservative result in six years. Long-term LVRs have averaged in the mid-60% range.

In other findings, fixed rate loans plummeted to 6.6% of all loans during February, down from

its 12.6% share of the market in December 2010.

Overall mortgage sales for the group were just over $2bn, down 9.7% on February 2010, when $2.275bn worth of loans were processed. NSW was the only state to show an increase on February 2010’s figures (2.7%), with mortgage volumes in other states falling by 8.1% in Victoria, 8.8% in Western Australia, 16.3% in Queensland and 22.9% in South Australia compared to February 2010.

AFG first for First National

Mark Hewitt

Real estate group First National has struck an agreement that will see it refer clients to AFG for finance. AFG has said the aggregator will provide First National with administration, technology systems software, education, training, as well as communications and marketing support. In return, First National will refer all its finance business to local AFG brokers. The national real estate business cited AFG’s size and range of products as advantages of the deal, including its network of 2,300 brokers, and access to 800 home loans through 34 lenders.

First National Real Estate chief executive Ray Ellis said in a statement that the complexity of mortgage products meant only brokers with a broad panel could provide balanced advice.

AFG general manager of sales and operations Mark Hewitt said the deal was an endorsement of AFG’s product offering.

Broker proposition sees popularity surge More consumers say they understand the benefits of using a broker than at any time since November 2008.

According to the MFAA/ Bankwest Home Finance Index, 35.7% of people surveyed said they understood the benefits of the broker proposition. The result is up from a low of 26.9% in November 2008. Awareness of the services brokers provide is at 78.9%, while awareness of brokers in general stands at 95%.

MFAA CEO Phil Naylor said the results indicate a growing consumer focus on the broker proposition. “We are seeing consumers understand that mortgage broker benefits extend beyond the traditional realms of leg work and wider loan range.”

As public awareness of banking competition and the interest rate environment grows, Naylor believes more consumers will start to seek out the advice of brokers.

“Increasingly, the ability to understand a client’s personal circumstances and finding deals are proving key reasons people are turning back to brokers,” he said.

Bankwest head of specialist lending Ian Rakhit has called the results an opportunity for the broking industry, and remarked that brokers should particularly seek out property investors and homeowners looking to refinance.

“The broker channel has a clear opportunity during 2011 as home buyers search for value in terms of property prices and also mortgage products. Upgraders and investors

should be on the radar of brokers this year as they hunt around for a good deal,” Rakhit commented.

The index further indicated that 30% of respondents believe brokers are more experienced than lenders, and 67% of those surveyed believe they would get the best deal through a broker, up from 53% in July 2010. Naylor echoed Rakhit’s comments, saying that brokers should take advantage of the opportunity created by growing public awareness: “With increasing activity in the investor community, brokers have a tremendous opportunity to articulate a compelling value proposition based on convenience and choice.”  For more on the growing profile of brokers, see Viewpoint on page 21

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News

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FOS rates lender dispute performance The Financial Ombudsman Service has released its annual review, showing how lenders performed in terms of disputes brought to the service.

Out of the major banks, Westpac fared the best in the tables, with 11.56 disputes per 100,000. NAB had the highest number, at 31.69.

Among non-banks, Resimac performed well with 26.67 disputes, while RHG Mortgage Corporation – formerly RAMS – was the worst, having seen 106.55 disputes per 100,000. The median for lenders was 26.58.

The figures relate to the 2009–10 financial year, and indicate the chances of a dispute against a provider coming before the FOS, ranking each provider with a

number relative to the size of the provider’s business.

Chief Ombudsman Colin Neave said the tables would provide customers with a valuable tool in assessing financial service providers, as well as giving these providers statistics by which they can measure their performance.

“We believe that by publishing this detailed information we will be encouraging financial services providers to direct more resources to the right areas so as to create the greatest benefit for consumers who have encountered problems with the products they have bought,” Neave said.

The resolution scheme implemented a new dispute resolution process over the past

year. It was also subject to new terms of reference, setting out rules regarding which disputes the FOS can consider.

The FOS also reported that it saw a 6% increase in the number of disputes for the year, and a 27% increase in resolved disputes. The scheme also identified and resolved

58 systemic issues, which resulted in 36,500 customers being paid out more than $17.5m. Lending products saw a sharp rise in complaints, while complaints surrounding deposit products fell.

Banks and insurers were the most common financial service providers to draw complaints.

How the Big Four fared Lender

Chances of dispute (per 100,000)

Westpac

11.56

Commonwealth Bank

17.29

ANZ

19.75

Median

26.58

NAB

31.69

Source: Financial Ombudsman Service

Online mortgages pass NCCP muster

Jon Denovan Gadens Lawyers has stated that online mortgage sales do meet NCCP requirements for conducting reasonable enquiries.

In recent weeks, lenders have increasingly released online proprietary products, with NAB launching UBank and Homeloans releasing iMortgage.

Gadens senior financial services partner Jon Denovan said the law

firm has received enquiries from several clients over the issue.

Denovan commented that face-toface contact to pursue reasonable enquiries with customers is not a legal imperative.

“Often banks will require face-to-face contact. This is not a legal requirement, it’s just a credit requirement of the banks,” he said. “It has nothing to do with the law. It has to do with what the banks say. The funder may make it a requirement.”

Denovan said online sales can fulfil the NCCP requirement, and the amount of interaction necessary could be dependent on the mortgage product being sold.

“Email conversations are more stilted than phone conversations, and filling in a web page is even

more stilted. The amount of talking you have to do depends on the product you’re selling.

It’s a matter of assessing the particular customer and product.

You can form the view that for a reasonably simple mortgage product, you should be able to make reasonable enquiries and reasonable verification online,” Denovan commented.

However, Denovan said more complicated mortgage products may draw the attention of ASIC if no face-to-face contact occurs with customers.

“As soon as you go away from doing a simple product, ASIC might become distressed.”

Denovan also commented that comparison sites like RateCity pass NCCP muster, so long as they are merely advertising for credit

products rather than helping borrowers arrange them.

“The only time you need a licence is if you provide a credit service, and credit service is quite narrowly defined. You have to assist the borrower in obtaining a specific home loan from a specific lender. You have to be an intermediary in that happening,” he said.

According to Denovan, if a site actively passes information on to a credit provider, it would be acting as a referrer or credit advisor under NCCP rules. However, if it merely allows borrowers to click through to lender sites, it would be functioning as an advertisement.

“The website has to do something more to be a referrer or an advisor.

It has to capture information and pass it on,” he remarked.

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NCCP could be wielded as borrower weapon NCCP regulations and licensing could lead to a litigious environment, a leading industry analyst has stated.

In sharp contrast to statements

by Gadens Lawyers that the mortgage industry would find compliance far easier than expected and ASIC more forgiving than anticipated, mortgage industry analyst SAKS consulting believes NCCP regulations could see dire consequences for lenders and brokers. SAKS principal Kym Dalton believes the open-ended nature of NCCP regulations may lead to unforeseen interpretations of Kym Dalton the law.

“The Act is over 1,000 pages long. ASIC’s guidance explicitly states that interpretations will be left to the courts. Who knows what that interpretation will be?” he commented.

The uncertainty of this interpretation could lead to frivolous lawsuits, as cost of living increases mean more consumers find servicing mortgages unsustainable. SAKS principal Steve Paterson believes NCCP

regulations may be wielded as a weapon by borrowers looking for a way out of mortgage stress.

“I am of the view that consumers aided by litigious lawyers and other consumer advocates, and as a consequence of the affordability pain to come from higher rates and the never-ending upward spiral in living costs, will see pressure emerge on lenders and originators around the ill-defined ‘not unsuitable’ aspect,” Paterson said.

“Borrowers, under stress and looking to blame lenders (properly or otherwise), will be more than keen to cry foul, and to seek loan contract mitigation.”

Dalton believes the regulations may change dramatically over time in their application, as cases are brought before courts and the interpretation of NCCP rules begins to take shape. Dalton has also predicted that courts may ultimately favour borrowers when it comes to matters of disclosure.

“It won’t just be what the broker or lender disclosed or said to a customer. Of equal relevance will be what the customer heard and understood,” he said. “A customer who doesn’t fully comprehend in the future could be a potentially dangerous customer.”

Loan volumes jump as CBA continues lending dominance Average loan volumes have seen a jump in February, according to Stargate’s latest Symmetry Market Index.

The Stargate data shows average loan values rose 4.8% in February, from $374,000 to $392,000, representing a 4% year-on-year increase. Stargate has interpreted the data as showing a stable growth in demand for housing finance. The survey has also shown that despite waning customer satisfaction numbers, Commonwealth Bank remains the most popular lender with brokers. CBA products accounted for 27% of all lender products sold, with the bank seeing an 18% increase in last month’s total number of loans.

With its recent high-profile marketing distancing itself from the other big four, NAB and Homeside have overtaken ANZ as second most popular among brokers. According to Stargate CEO Brett Spencer, the company’s marketing campaign may see it positioned to take market share from CBA. However, Spencer said the mortgage pricing wars between the major banks may take some time to play out.

“The innovative break-up campaign currently being run by NAB will no doubt look to have

Brokers’ choice: top three lender products • Commonwealth Bank Rate Saver Home Loan Three-Year Special Variable • Bankwest Premium Home Loan • Commonwealth Bank MAV Standard Variable Rate $500k – $749k some effect on the dominance of CBA and only time will tell if CBA volumes slide as a result. Although with CBA firing their own salvo at NAB by offering $1,200 incentives to refinance from NAB to CBA, this may have a neutralising effect on the NAB campaign. Only time will tell who will win this battle over the coming months,” Spencer said.

CBA’s subsidiary Bankwest came in at third in the Stargate index.

The overall most popular product was CBA’s Rate Saver Home Loan Three-Year Special Variable, with Bankwest’s Premium Home Loan coming in at second. CBA’s MAV Standard Variable for loans between $500,000 and $794,000 was ranked third. Overall, CBA and NAB dominated the top 10 most popular lender products.

Borrowers better educated as more research online A new study has noted a massive increase in the number of borrowers seeking out home loan calculators and researching mortgages online before visiting a broker.

The Loan Market data, which examined the web traffic of major mortgage brokers, indicates the search term ‘home loan calculator’ accounted for more than 20% of mortgage broker web traffic in February. The proportion of traffic for the search term has more than doubled since the start of the year.

Loan Market chief operating officer Dean Rushton believes that the result could mean borrowers are becoming more active as confidence returns to the market. Despite recent ABS figures showing a decline in dwelling approvals for January, the perception of a period of interest rate stability has grown after the Reserve Bank’s March decision to leave the cash rate untouched at 4.75%. According to Rushton, this feeling of ease with interest rates could lead to an upswing in borrower activity.

“Higher interest rates and other cost of living increases caused a sharp deterioration in home finance activity, but the fact that the RBA has kept rates on hold so far this year will be boosting consumer confidence,” Rushton said.

Rushton stated the data also indicates customers are becoming increasingly savvy. As more borrowers research and compare home loans, Rushton said, they will come to brokers armed with more knowledge of the range of products available to them.

“Customers want to be informed when they sit down with their mortgage broker or lender,” he said.

“They want to ensure that they get the best available option.”

In spite of consumers seeking to be better informed of their options, Rushton has spruiked the broker channel as the best way borrowers can ensure they are put into the most appropriate loan product.

“A mortgage broker can assess your personal circumstances and give you the best advice on what is on offer,” Rushton commented.

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NAB acts to improve broker service

John Flavell

NAB is in the process of simplifying its mortgage documentation and increasing the number of outbound calls it makes at “key milestones” during the loan application and approval process, in an effort to enhance the competitiveness of its service for brokers.

NAB general manager of broker distribution, John Flavell, said the bank is currently looking to improve its mortgage documentation by providing its loan offer document and mortgage document as part of one pack. These have to date been provided separately.

“We’ve received a lot of feedback in terms of brokers saying it needs to be one pack as a start, and that is something that we are focused on doing. We make it difficult for brokers and their customers

with those two document packs,” Flavell said.

Flavell said NAB has also made changes to its internal processes, to increase the number of outbound calls being made to brokers in the event clarifications need to be made on mortgage applications. He said the shift had placed “more rigour” on calling brokers direct, rather than relying on emails and SMS messaging, which had more emphasis in the past.

“If you are a broker and you lodge an application now, then typically we’re going to have that initially assessed within a couple of business days, and if there is anything we need clarified, then we’ll pick the phone up and have a conversation,” Flavell explained. “Our approach is that if we’ve got a question or we have a query, then let’s pick up the telephone and have a discussion with a broker.”

Flavell said broker feedback on the increased outbound call rate is that it is providing noticeable improvements in dialogue, which is delivering increased efficiency benefits.

Flavell said brokers can expect a constant stream of improvements to its broker offering. “We’ve made good ground in terms of the service we deliver to brokers and their customers, but we are very, very focused on improving more, and we’ve got a dedicated stream of initiatives that we’ll deliver to the market,” he said.

NAB snatches market share NAB has increased its mortgage market share, according to official figures released by APRA in early March. The bank succeeded in growing its book by 0.9% in the month of January, which beat its major bank competitors ANZ, Westpac and CBA. ANZ managed the next-fastest growth at 0.6%, followed by Westpac (0.4%) and CBA (0.2%). The market share gains follow market-beating standard variable rates, and aggressive advertising campaigns to lure borrowers.

Bankwest sweetens broker deal Bankwest has increased its offering to brokers and borrowers in a bid to grab more home loan business. The bank has offered discounting on loans, as well as commission initiatives and a waiver of application fees to entice brokers and customers to the lender.

The initiative, which will apply to loans from 2 March to 27 May, includes a nil application fee for all Bankwest products. The bank’s head of specialist banking, Ian Rakhit, said the move represented Bankwest entering the mortgage price wars currently at play between the major banks.

“This is a direct response to moves by the other banks to secure new business flows. It’s a great opportunity to drive more activity in the market by taking the fee away for refis and new purchases,” Rakhit commented.

The initiative will also see a 10bps upfront bonus given to brokers on loans with an LVR of 75% or less. Rakhit said these loans cost the bank less to process as they do not need a full valuation or LMI, and that this will be passed on to brokers. Rakhit pointed out that the commission increase follows an initiative run by the bank from October to January rewarding brokers with a 10bps bonus based on loan quality.

“This increase in commission is the second initiative Bankwest has done around commissions.

[The first] proved very successful in driving business volumes and rewarding brokers who hit quality benchmarks. We’ve widened that to include all broker members,” he said.

The bank will also drop the minimum value for its Premium Select Home Loan from $750,000 to

$400,000. The loan offers a 7bps discount over the entire life of the mortgage. Rakhit said the discount is expected to draw more home loan business to the bank.

“Where at the moment, we may have missed out on some of those loans because of price, we’re now able to capture a larger market,” he commented. “We are expecting an increase in the volume of applications, and we have resourced for that to make sure we maintain our excellent service levels to brokers and broker customers.”

Rakhit has also reiterated the bank’s commitment to the thirdparty channel, saying it is Bankwest’s most important source for mortgage business.

“Bankwest, unlike many of our competitors, doesn’t have a large branch network. Therefore, brokers are our key source of mortgage growth. These initiatives are aimed at driving volume and rewarding quality from our broker partners,” Rakhit said.

Ian Rakhit

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Credit reports could save brokers $18,000 Mortgage brokers could potentially earn $18,000 more per year through higher conversion rates if they use credit reporting services as a part of their business process.

In modelling conducted by Veda Advantage from January to December last year, the credit reporting agency found that a mortgage broker writing 30 loans per annum using credit reports could save enough time in prequalifying individuals to write an additional seven loans a year – equating to an extra $18 000 in their pocket.

This was a result of mortgage brokers being 5.4 times more likely to detect adverse credit information on consumer credit reports – including defaults, court actions and bankruptcies – than other financial lenders. According to Veda, credit reports submitted to financial lenders had a 4.3% chance of containing adverse information, but the likelihood of finding adverse

information increased to 22.8% in credit files submitted to brokers.

Veda Advantage head of consumer risk Angus Luffman said poor credit history is a major cause for application rejection and an applicant’s adverse credit history is a strong predictor of future payment behaviour. “Ordering a credit report early in the process allows brokers to focus on high quality business rather than wasting time on loans that may not progress,” Luffman said.

According to Luffman, credit reporting services also help brokers comply with NCCP regulation.

“Under the NCCP Act’s responsible lending obligations, credit licensees will need to be satisfied that the credit contract is not unsuitable for the consumer. This includes making reasonable enquiries about the consumer’s financial situation.”

Meanwhile, brokers and aggregators are coming under increasing pressure from lenders to

Intouch takes aim at GE Money Intouch Home Loans CEO Paul Ryan has lashed out at GE Money’s mortgage business, calling recent moves by the business “putting the sword to customers”.

GE Money Home Lending recently issued a letter to borrowers through its subsidiary AMS Mortgage Services, informing them they would have their redraw facility frozen if they had missed a payment any time in the past 12

months. Ryan said the policy is going too far. “I think all lenders have these types of things in their contracts, but I’ve never seen it as definitive as this one,” he said. “It’s also retrospective in terms of the last 12 months.”

However, a GE Capital spokesperson commented that the policy has always been in the lender’s contracts, and that the letter was sent to borrowers after a recent

Bad credit can be repaired: Oasis Non-conforming mortgage brokerage Oasis Mortgage Group has urged brokers to consider credit repair options for their clients.

Recently released research from Veda Advantage claims that brokers who use their credit reporting service could save $18,000 a year through higher conversion rates with lenders, when assuming they used credit reports to screen 30 loans written per annum.

However, Oasis Mortgage Group’s Graham Reibelt argues this underestimates the value for brokers in helping – and perhaps repairing – a client’s credit situation. “If a broker settled one extra ‘non-conforming’ style loan of about $400k per month, they’d make over $30,000 per annum.” Reibelt said this came in addition to the relationship “rub-offs” gained through helping that client.

To assist brokers, Oasis has announced that it will make its credit repair service available to the broker market for the first time.

Reibelt said the service provides specialists in credit repair to help with the removal of “unreasonable, unjust and contestable credit listings” for individuals and corporations. He said advantages include no high upfront fees, and that potential clients receive a comprehensive Credit Assessment before any decision is made by the client to proceed.

A 24-hour phone service is also available for urgent needs.

“Our credit repair service is very attuned to providing our clients a high level of service at low prices. We don’t charge upfront fees and we provide all clients with a free independent Accountant’s Credit Audit.”

Oasis has launched www.badcreditfixed.com.au to provide information to brokers and their clients. “Our newly extended credit repair service is available to all direct clients and the clients of brokers whether they are using any other service offered by Oasis or not. Our credit repair service is open to all,” Reibelt said. tighten prequalification procedures, according to Luffman. “Making sure applicants’ credit application details are correct and up-to-date will help brokers lift conversion

rates. We also believe that lenders are showing preference towards brokers who are providing more accurate information during prequalification,” he added.

operational audit showed some customers had been able to access redraws despite being in arrears.

Ryan has rubbished the policy, though, saying it is another instance of a “global giant” mistreating customers. “Things happen throughout the term of a loan.

They’re saying if you have a situation where a husband or wife falls ill and you forget to put the payment through one day you could be going into default, which would freeze your redraws for 12 months.”

Ryan has called for greater competition in the lending sector as a means of protecting borrowers.

“The question is, who’s looking after consumers? This is further evidence the government needs to enhance competition. The only way they can do this is to guarantee non-banks like they have guaranteed banks for the past three years.”

A GE spokesperson said the lender would take extenuating circumstances into account before freezing a borrower’s redraw.

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AFG calls for exit fee rethink Australia’s biggest mortgage aggregator Australian Finance Group (AFG) has urged the government to reconsider its proposed ban on exit fees, which it says will reduce competition even while consumers still bear the cost of a loan.

In a submission to Treasury on the proposed reforms, AFG’s executive director Kevin Matthews writes that the aggregator has “significant reservations” as to the impact the proposed changes will have on the mortgage market.

Matthews writes that the proposed exit fee amendments will push “more power back to the Big Four banks and their subsidiaries” by disadvantaging non-bank lenders, who were responsible for creating a whole new level of competition in the 1990s.

“Removing the ability for lenders to charge an exit fee will in turn limit the non-bank lenders’ ability to compete with the banks,” Matthews writes. “Without the protection of a DEF, a non-bank lender, who has a higher cost of funds in the first place, will have to charge a higher interest rate on the loan so as to remain viable,” he said.

Matthews called this outcome “self-defeating”, in that it may remove the opportunity for non-

bank lenders to re-enter or enter the market as the impact of the global financial crisis lessens.

According to AFG, the proposed amendments will also cause the cost of a loan to be front-ended, or reflected in ongoing costs, meaning the consumer will still pay, despite perceptions to the contrary.

Matthews said this will have multiple effects, such as shutting out buyers – particularly first homeowners – due to the initial costs becoming prohibitive. He said the measures would also decrease affordability, as upfront costs may be capitalised into the initial loan amount, resulting in impacts on LVRs and mortgage insurance calculations, while consumers are forced to pay interest on bank fees.

Matthews said advice from brokers ensures clients are not being unfairly impacted by current DEF structures. “With the average home loan life now sitting at around four years, we see the charging of a DEF within the four-year term as a reasonable and practicable proposition which invariably is accepted by customers when entering into the mortgage,” Matthews wrote. “Any good broker communicates this to their clients, and those who have shorter loan term expectancy are encouraged to

consider a different style of mortgage product,” he said.

He concluded by saying AFG was “surprised” such an amendment could be introduced at a time when the impact on the Australian economy has yet to be fully validated, and when significant positive legislative reforms already

provide a significant level of protection to the consumer.

The deadline for submissions on the exposure draft of Kevin Matthews the amendment to the NCCP Act closed on 1 March.

Exit fee amendment still unclear Gadens Lawyers senior partner Jon Denovan has said the scope of the proposed ban on exit fees (or DEFs) is still unclear, even days after a deadline for industry responses to the exposure draft amendments to the NCCP has passed.

While most industry responses have focused on the impact a proposed DEF ban will have on the non-bank sector, the lack of clarity means that many aggregators, mortgage managers, lenders and brokers may have been missing the mark.

Speaking with Australian BrokerNews, Denovan said it is still unclear if the legislation is meant to apply just to banks, or to all lenders. “If just banks, they can live with it because of big balance sheets,” Denovan said.

Denovan suggested this may present a way out for the government, if it chooses to apply the amendment to banks only.

“There is a win-win here. [Federal Treasurer] Swan can keep his promise by banning exit fees for banks, while not banning it for non-banks. It would be best to exclude small banks as well,” Denovan said.

Following the deadline this week, Treasury will consider the submissions received, and suggest amendments to the proposed law, after which recommendations will be made to Treasurer Swan, who may accept some, none or all of the revisions.

Denovan reiterated his concern with the proposed amendment.

“At the end of the day, banning exit fees is a catchy political idea, but there has been no financial analysis to show that there is an evil that needs correcting, and to demonstrate how industry can hedge against prepayment risk without increasing costs to borrowers,” he said.

Consumer group pushes for exit fee ban Consumer group CHOICE has released a 14 point action plan for banking competition, calling upon the abolition of exit fees to ease switching for borrowers.

The government’s unilateral exit fee ban is set to come into effect from 1 July, and has been roundly criticised by industry heads as detrimental to smaller lenders.

However, CHOICE’s Better Banking campaign director Richard Lloyd has claimed small lenders are more concerned with funding issues than DEFs. Lloyd said the group has had

meetings with smaller lenders, and has been told the exit fee ban will not significantly impact them.

“We’ve had discussions with smaller lenders, and think that issue comes down to who you believe. The smaller lenders have been really clear that exit fees aren’t as significant to them as they are to the big banks,” Lloyd said. “I think the bigger concern for smaller lenders is the ability to access enough finance to meet demand.”

Lloyd has welcomed recent competitive moves by major banks,

saying they could signal an “extremely interesting point in Australian banking” wherein consumer action would force lenders to compete on price and service.

However, he has criticised the stance of the Australian Bankers’ Association on proposed banking reforms. “It’s depressing to see the mouthpiece of the industry so backward looking … Winning back the trust of the Australian public is within their reach if they would just put into place the right conditions,” Lloyd remarked.

The CHOICE proposal has also called for greater accountability for bank executives and boards, clearer disclosure statements for products and the removal of ATM fees for balance enquiries.

The ABA has responded to CHOICE’s proposal, claiming the majority of the changes it calls for are either underway or under review. ABA CEO Steve Munchenberg said reviews of account portability and ATM fees are underway, and the ban on exit fees starts 1 July.

www.brokernews.com.au

13

Exit fees no deterrent as borrowers gear up to switch A report by research company CoreData has found exit fees may not be as big a deterrent to borrowers switching lenders than has been popularly spruiked.

The company’s Australian Mortgage Report has shown only 14% of borrowers say they would be very likely to change mortgage providers if exit fees were abolished.

CoreData principal Andrew Inwood said the results indicate major bank moves to remove DEFs or pay the DEFs of other lenders may not entice borrowers.

“Tactics to entice new customers, like NAB’s decision to abolish exit fees, may have little effect on the customer’s decision,” Inwood said.

The report has shown, however, that of the 71% of borrowers who were aware their lender raised rates above the RBA official cash rate hike, nearly half were seriously considering refinancing with another lender. According to Inwood, this represents a huge share of the mortgage market, and could lead to further competitive moves from the major banks.

“And with around $500bn in new business up for grabs, we can only expect the fight between the big banks to intensify,” he added.

With renewed focus from the major banks on grabbing mortgage market share, borrowers may see more pricing discounts ahead according to Inwood. As customer satisfaction with Commonwealth Bank continues to decrease due to the bank moving first on rates, ANZ, NAB and Westpac, along with second tier and non-bank lenders, could be positioned to take mortgage business away from the bank. However, in spite of declining customer satisfaction, Inwood said the CBA rate move appears to have had little impact on the bank’s mortgage books.

“The Commonwealth Bank remains the institution of choice for Australian borrowers, despite

increasing the interest rate above the RBA movements,” he commented.

The report has also pointed out the growth of second tier lenders, with Suncorp, Bendigo and Adelaide and Bank of Queensland all seeing lending growth. Inwood has pointed out, though, that funding constraints may stop many second tiers from providing legitimate competition to the Big Four.

“With so many customers looking around there is tremendous potential for a new lender that can not only offer rates at a cheaper level than the current players in the market, but can actually back up this demand with funding,” he said.

Borrower breakdown • 71% of borrowers were aware that their bank raised rates above the RBA • Of this group, 43% said they were seriously considering switching • Owner-occupied lending accounts for 70% of the total value of all outstanding mortgages • In the last five years, the value of outstanding mortgages has risen from $617bn to $1.16trn

14 www.brokernews.com.au

News White labels raise client interest questions Brokers with branded loan products will need to grapple with issues of conflict of interest and fiduciary duty in coming years, as the mortgage industry matures under the yet nascent NCCP regime.

Max Franchitto, a leading financial services consultant in financial planning, said his clients currently “get hounded by ASIC and everybody else over whether they are doing the best thing for the client” – and the same will apply to mortgage brokers in the future.

Franchitto said one of the areas in which this is evident is branded brokerage loan products, with brokerages repackaging bank loans and implying through advertising that they have the best possible product available for the consumer.

“If you brand a product, and you give it to your sales force, are you absolutely sure those advisors are

going to choose another product over the branded one?” Franchitto asked.

“Let’s not be naive about this. Go into Coles, and look how much shelf space the Coles branded products get compared to other brands.

Everybody pushes their own barrow,” he said.

Franchitto also said mortgage brokers who support one particular institution heavily over the rest of the market – in effect, acting as a sales arm of that one institution – will also need to consider issues of client interest carefully.

“I know brokers, that if you open up their filing cabinet, up to 80% of deals are done with one bank,” he said. “I know one that supports one bank – out of every 10 clients, seven would end up with CBA. Is that a balanced scorecard?”

Franchitto said the mortgage industry would need to act professionally, if it is to be treated professionally.

Mortgage Choice grows market share, sees ‘good days ahead’ Mortgage Choice has grown its market share amid a 13% increase in cash profits. The company reported an $8.8m cash profit for the first half of the financial year, up from $7.8m for the previous corresponding period.

At its half year results meeting in Sydney yesterday, Mortgage Choice revealed its earnings allowed the company to pay a six cent dividend to shareholders. Mortgage Choice also reported it saw loan approvals fall 5.6% for the first half of 2011 compared to the prior corresponding period, but that the result beat the 10% drop in nationwide loan approvals for the period reported by ABS. CEO Michael Russell said this represented a 4.1% increase in the broker’s market share.

“Everyone is scrapping for a piece of a much smaller pie,” he said.

“We’ve been fortunate to outperform our competitors.”

Russell put some of this performance down to the company’s

marketing strategy, pointing out that it has increased its business-tobusiness and business-to-customer social media presence, as well as strengthening its search engine optimisation efforts. Russell said the efforts are resulting in “healthy lead generation”.

Russell said the company will continue to focus on lead generation through online efforts. “We need to respond and understand that consumers are not gathering where they used to,” he said.

Russell has also predicted a good year ahead for brokers as banks look to increase their mortgage lending. “Brokers are being rewarded with lenders competing for their business, and an uptick in credit growth,” he said.

According to Russell, banks could grow third-party market share further by making moves on commissions, though he said he has seen no such moves in the industry as yet.

January approvals slump following December rally Housing approvals saw a significant decline in January following an uptick in December, new Australian Bureau of Statistics data indicates.

The ABS housing finance numbers show the number of total dwelling approvals fell 15.9% for the month, on the heels of December’s 10% rise. Housing Industry Association senior economist Andrew Harvey has lamented the decline, and predicted a weak market for 2011.

“The January 2011 fall in approvals is the worst monthly decline we’ve seen since September 2002 and as HIA has been noting for some time now we’re in for a considerably weaker year of residential building,” Harvey said.

Harvey blamed the outcome on tightening interest rates

throughout 2010. “Three interest rate hikes early in 2010, followed by the Melbourne Cup day RBA [and] trading bank interest rate double-whammy, have been an uppercut to the belly of Australia’s residential building sector. Approvals for both detached houses and other dwellings are again trending down, which means little prospect of any improvement to Australia’s dwelling shortage,” he commented.

The ABS data suggested part of the decline may have been due to widespread flooding throughout Queensland.

However, Harvey claimed the result could not be entirely blamed upon the natural disasters, pointing out that every state experienced a drop in approvals.

“While the adverse weather experienced in December 2010 would have been one influence on today’s approvals numbers, a large proportion of the January approvals would have been submitted prior to then, and the fall in approvals occurs across all states,” Harvey remarked.

The data has shown the value of total building approved fell 26.5% in January in seasonally adjusted terms. The value of total residential building dropped by 13.3%, and the value of nonresidential building declined by 48.7%. Harvey has claimed the data is indicative of a two-speed economy, and has called for government intervention to address housing shortages.

“Today’s poor approvals numbers emphasise the extent to which the

non-mining sectors can be squeezed as the RBA hikes rates to control price pressures coming out of the mining sector. Moreover, it reinforces the urgent need for a dedicated housing ministry in the Gillard Government and serious reforms to the supply side of Australia’s housing market,” he said.

State of the states: Breakdown of housing approvals New South Wales

↓ 12.1%

Victoria

↓ 9.5%

Queensland

↓ 29.9%

South Australia

↓ 20.9%

Western Australia

↓ 4.6%

Tasmania

↓ 34.9%

16 www.brokernews.com.au

News

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

“We see opportunity for growth in that space,” Haron said. “At the moment a lot of credit reps are still trying to find out what their aggregator is really doing for them in regard to compliance support.

They have just gone through the process [of transition], so they’re not as aggressive or inclined to change in the initial phase of the new regulatory regime. That will open up, particularly in the second half of this year.”

Haron said the market for recruitment is “quite competitive”, with some aggregators offering more aggressive pricing and special deals to retain bigger brokers, if

they threaten to leave.

“It’s a good time if you are a medium to large size broking business, to be looking at your aggregator, and looking at what they are doing for you and what they are charging,” he said.

While aggregators are facing off for existing broker businesses, Vow Financial is looking to develop new-to-market talent, rather than trying to grow through lateral recruitment.

Vow Financial CEO Tim Brown said the group would seek “substantial” growth above 6-7% market growth rates, and planned to achieve this by new programs

targeted at recruiting fresh blood into the industry, as well as potential joint ventures and alliances.

“If you want to grow substantially or exponentially, then you need to do something different. And doing what the industry is doing isn’t going to give us that result,” he said.

Brown said Vow will launch a recruitment program to its top brokers at the end of March, which will help them recruit quality new entrants into the industry and assist with succession planning for their businesses. He said these new brokers could potentially take on books from retiring brokers within

the network, or become acquirers of their books over time. “We feel this is where aggregators do need to get involved for their brokers, helping them identify when they are ready to go, and when they are ready to go, if we’ve got some influence in helping them sell it, we can also influence the people they bring in to buy their business.”

Brown said he expects succession planning to become a growing area in the mortgage industry. “The industry is starting to get a bit of maturity, and there is people who got into this industry in the late 80’s and early 90’s that are now 55-plus and are looking to retire,” he said.

Non-bank fires volley in mortgage war Non-bank lender Homeloans has jumped into the mortgage pricing wars, offering a $600 cash-back incentive on new loans in its Ultra range. Homeloans has also guaranteed to waive loan application fees if it does not provide a full loan assessment and written response within 48 hours.

The cash-back offer will apply to both full-doc and low-doc loans of over $150,000. Homeloans general manager of third party distribution Tony Carn said the offer will boost competition, and highlighted the lender’s assessment guarantee as a sign of commitment to service.

“In recent times consumers have been offered a range of competitive options, but we have noticed that no

one appears to be talking about service,” he said. “We undertake to fully assess a loan and communicate back with our broker partners in a timeframe we believe consumers should be entitled to. We continuously strive to provide superior service, and we want to highlight to brokers and consumers alike that we place a big value on service, in addition to providing seriously competitive home loan products.” The pricing initiative comes after the lender reported a 59% increase in lending volumes over the first half of 2011, accompanied by a 42% increase in commission income.

Homeloans executive chairman Tim Holmes put the result down to

an aggressive marketing campaign by the company.

“For the last six months, we’ve really been concentrating on brand profile in the marketplace. That’s led to a subsequent increase in brand awareness,” Holmes said.

“We’ve also had some pretty aggressive pricing, and concentrated on service delivery. We’ve revamped the website to make it more user friendly for customers.”

Holmes said the lender is also looking to grow its storefront presence, increasing volumes through proprietary channels.

“With ramping up the brand, part of it is increasing our presence on the high street,” he said. “However, third party is still the most

important part of our distribution network. I think an increasing number of people are relying on the independence of brokers in sourcing housing finance.”

Tony Carn

Majors continue satisfaction slide Major banks continue to draw consumer ire, according to January’s Roy Morgan Bank Customer Satisfaction Survey.

The survey shows that customer satisfaction continued to fall amongst the Big Four, with ANZ dropping 1.2% and Commonwealth Bank suffering a 0.8% decline.

Westpac saw a small decline of 0.2%, while NAB saw its satisfaction rating creep up 0.1%.

Roy Morgan communications director Norman Morris said in

spite of NAB only showing marginal improvement, the bank may soon see its customer satisfaction rise above the bottom of the pile.

“NAB remains the poorest performer amongst the major banks, but with the declining position of CBA and the recent marketing moves by NAB, it is likely that they may outperform the CBA in the near future,” Morris said.

According to Morris, Commonwealth continues to suffer

from its decision to move first in increasing rates above the RBA. The bank’s home loan customer satisfaction has fallen 7.5% since October.

Morris also pointed out that smaller players such as second tiers and mutuals continue to outperform the majors.

“With so much competition and strategic manoeuvring amongst the four majors in relation to the home loan market, it is worth noting that all four

are currently well behind the satisfaction levels of the smaller players in the market,” he commented.

Morris said the best performing among the majors was ANZ with 75.2% satisfaction, but this fell well below Bendigo Bank with 92.6%, credit unions with 89.8% and building societies with 88.1%. St.George, at 76.9%, has continued to beat parent company Westpac, currently sitting at 69.5% satisfaction.

Can’t get no satisfaction Jan 2011

Dec 2010 – Jan 2011

Oct 2010 – Jan 2011

July 2010 – Jan 2011

Jan 2010 – Jan 2011

ANZ

75.4%

↓ 1.2

↓ 1.4

↓ 0.8

↓ 0.3

Commonwealth

72.7%

↓ 0.8

↓ 2.6

↓ 1.7

↓ 0.3

NAB

71.8%

↑ 0.1

↓ 0.8

↑ 0.1

↓ 2.3

Westpac

74.1%

↓ 0.2

↓ 0.2

↑ 2.2

↓ 1.9

Total Big Four

73.4%

↓ 0.6

↓ 1.6

↓ 0.5

↓ 0.9

Total building societies

89.2%

↑ 0.8

↑ 0.4

↑ 0.8

↑ 0.7

Total credit unions

86.2%

↓ 0.5

↓ 0.5

↓ 0.8

↓ 0.7

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17

INDUSTRY NEWS IN BRIEF Vow courts white label partners Vow Financial is seeking potential partners for a white label product. CEO Tim Brown said the group does not want to launch “just another badged lender’s product”, and so has not made a decision on a particular funder. Instead, the group is seeking a joint venture partner, which Brown said will give Vow some ownership over the product, and serve as a differentiator with others in the market. “We don’t want to offer what everyone is offering. If we are going to offer something tied to our brand, we want to offer something unique, and something strong.” If badged, Brown said Vow would not have the same control over systems, processes and marketing. The group expects to launch in the second half of 2011.

Industry content with RBA hold The mortgage industry praised the RBA’s decision to hold the cash rate unchanged at 4.75% in March. HIA senior economist Andrew Harvey said Australia’s new home building market needs an extended period of interest rate stability to create an environment where confidence and activity have the opportunity to improve.

Loan Market chief operating officer Dean Rushton said borrowers were still adjusting to the central banks’ November rate rise, and that another rate rise would have severely damaged consumer confidence.

Meanwhile, Mortgage Choice spokesperson Kristy Sheppard said the RBA’s holding pattern on rates presents an opportunity for new entrants to the market and refinancers.

Westpac launches broker website Westpac has taken the wraps off a new broker website, designed to provide a range of information and connections to its broker network. Entitled ‘Broker Base’, the website provides product, policy and credit information, property and economic reports, as well as educational articles on marketing and business. Via its broker Introducer Net portal on the site, brokers can track the status of loan submissions. The website also features access to ‘The Ruby Connection’, where female brokers can share their experiences and network with other women in business. Westpac general manager of broker distribution Huw Bough said the portal would give brokers a better chance of getting clients “the best deal possible”.

Debt complacency sets in According to financial comparison site RateCity, the nation should be concerned about its current levels of household debt, and should not get complacent. “Australia has never seen households take on this amount of debt, where RBA figures show we have collectively $49bn of credit card debt. That’s almost $2.4bn more than December 2009,” said RateCity’s consumer advocate Michelle Hutchison. Hutchison said the outlook for homeowners this year is “worrying” due to slowly rising property prices, expected rises in interest rates and more debt held by households. “For instance, the average home loan in 2010 was $285,533, which is almost $20,000 more per household than in 2009,” she said.

FHSAs ridiculed Treasury has released submissions to its exposure draft on First Home Saver Accounts, with several industry bodies calling for increased flexibility. In its submission to the draft, the Australian Bankers’ Association criticised the scheme’s four year minimum qualifying period. The ABA has claimed the minimum qualifying period is the area of most complaint and confusion among bank customers. Likewise, the REIA has also called for an end to the qualifying period, blaming the stipulation for the scheme’s poor uptake. ANZ also weighed in, saying uptake could be increased if individuals were allowed to close the account while forgoing any government contribution and tax concession received.

MFAA names star brokers, businesses The MFAA recognised some of the industry’s top brokers and lenders, at its annual industry awards night last. Awarding four individuals and 11 companies, MFAA CEO Phil Naylor said the night recognised some of the industry’s star achievers that had demonstrated creativity in their approach and excellence in their performance. Topping the winner’s list was Mildura Finance Limited, who took out the MFAA’s Operator of the Year award.

Meanwhile, the MFAA’s Mortgage Broker Of The Year was Mike Buchecker from Aussie in East Brisbane.

NAB revises rate outlook NAB has delayed its predictions of an interest rate move by the RBA from May to August, with a final rise in November. In its latest business survey, the bank has cited ongoing softness in underlying inflation as the reason it has readjusted its outlook.

NAB has predicted a 25 basis point rise in August, followed by another 25 basis point rise in November, leaving the cash rate at 5.25% by the end of 2011. The bank has stated that while global growth is beginning to see an upturn, the Australian economy slowed throughout late 2010. It has forecast the March quarter to stall due to the impact of widespread floods.

Carbon price to heat rates Mortgage manager Australian Mortgage Options has warned a proposed tax on carbon will drive up interest rates. AMO managing director Robert Projeski said the impact on inflation will be significant following the government’s introduction of a carbon price from 1 July 2012, and that will push up interest rates. “Australians are already doing it tough with rising electricity prices, petrol prices and mortgage repayments being significantly higher today than they were this time last year,” Projeski said in a statement to media. “The carbon tax will increase energy prices further and that will add to the cost of manufacture and delivery of goods. Everything from the cost of a loaf of bread to the cost of building a home will go up.”

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Analysis

The power of partnership While the GFC may have seen deep cuts to third party commissions, Ben Abbott finds banks are innovating as they seek to build closer partnerships with premium brokers

W

hen mortgage broker Bryan Coleman of Priority Home Loans says he does not feel like “the barnacle on the bottom of the ship” in his relationship with his preferred Australian Big Four banking institution – instead often feeling like “a very valuable partner that the bank respects” – many third party brokers might be moved to ask, ‘which bank?’

Following deep, GFC-induced commission cuts, as well as the introduction of minimum volume requirements by some banks, many brokers have directed their ire at the dominant banks, which they feel let down a channel responsible for a large slice of their loans.

Not so Coleman, who is in fact referring to the Commonwealth Bank. One of CBA’s ‘Diamond Partner’ brokers, Coleman is just one of the mortgage market’s premium, high volume brokers, who form the top rung of bank market segmentation initiatives. In a strategy pioneered by St.George with its top tier ‘Flame’

u Brokers on banks “You have the ability to discuss deals with credit managers to ensure you are within the parameters of policy. When you lodge a deal, a general policy may be explained on the bank website, but you also need to have the intricate details Moshe Moses, of the policy, which is not Niche Lending really explained on any (CBA ‘Diamond’ broker) bank’s website.”

“It’s just better all-around service. We are given the tools to help our customers – and help them quickly. [‘Flame’] is a lot smaller club, so hence we get a lot greater focus.”

David Brell, Smartmove (St.George ‘Flame’ broker)

“We automatically have our work processed fairly quickly. Some may say that is not fair, but it’s not just our high volume, but the fact that we are professional in what we do, we make sure we have decent conversion ratios, and also Bryan Coleman, submission quality. We Priority Home Loans guard that, because we do (CBA ‘Diamond’ broker) enjoy the benefits.”

Major bank broker breakdown Bank

Segments

CBA

Diamond, A, B, C, D, New starter

Westpac

Advantage Plus, Accredited

NAB

Star ratings, to a 4-star maximum

ANZ

No segmentation

segment, other banks have since rolled out top tier service propositions – CBA, Westpac and NAB all segment the market, albeit by differing measures, with ANZ the only Big Four bank treating the market as one unit.

So what type of premium service is turning Coleman, and others, into bank advocates?

The new shape of service

In Australian Broker last issue (Cover, Issue 8.04), it was revealed the major banks were developing and rolling out a suite of service initiatives for their premium broker segments.

A key initiative is the almost market-wide effort to enable in-office loan contract printing capabilities. CBA has already rolled this out to ‘Diamond’ and ‘A’ segment brokers, and St. George to its ‘Flame’ brokers, while ANZ is in pilot mode with a number of interested groups, and NAB has indicated document printing is being considered for the future.

For Coleman, who utilises the CBA printing service, it means an improved proposition – particularly in regard to turnarounds. “It allows us to move things through fairly quickly when we need to,” he said. It also aligns his service with the bank’s retail branches.

This comes in tandem with privileged access to internal credit teams and credit information, enabling top brokers intimate knowledge of which deals the banks will take – or not.

Moshe Moses of Niche Lending – another of CBA’s ‘Diamond’ brokers – said it is this access to credit that is a key draw card for him.

“That’s the main thing I look for – especially when banks are imposing conversion hurdles for commission,” Moses said.

Banks also offer upfront valuations – the cost of which they are absorbing for top tier brokers.

Other services include unprecedented access to mortgage documents, with St.George about to launch a ‘Partner portal’ where ‘Flame’ brokers can directly access and correct documentation, as well as escalate deals and conduct serviceability calculations; NAB is also giving access – given customer permission– to static bank details online.

Segmenting the market

For the market’s premium brokers, getting this top service is helping to ensure high conversion levels – and higher commissions – therefore improving the bottom line.

For banks, the initiatives also mean capitalising on the bottom line case brought by top performing brokers, who are able to improve a bank’s return on equity by improving customer retention and loan life, as well as building brand advocacy in the market.

CBA head of third party distribution Kathy Cummings said the segmentation model is all about “identifying areas of profitability, quality and growth potential”. She said the ‘Diamond’ segment encourages and recognises advocacy of the bank. “We encourage the advocacy through professional development and access to technology to help them build their businesses,” she explained. “We recognise it by engaging with them in forums – such as the Diamond

Partner Summit – which allows them to express their ideas on what support they would like to have from us to help them grow their businesses.

Likewise, St.George’s head of intermediary distribution Steven Heavey said it is about improving return on equity by providing premium service, particularly around the “two key moments of truth” – getting approvals, and having documents ready for settlement.

Cummings said more broadly, segmentation ensures a “dynamic” sales model to support each market segment – as well as premium brokers – allowing the bank to manage each according to its needs. “For example, the needs of a top volume producer who is usually managing a business with staff and has a large book of home loans are quite different from a rookie in the market who is just starting out on his own and coming to grips with all the products.”

However, not all banks are sold on segmentation. ANZ’s head of distribution, Andrew Everington, said the bank does not differentiate between high volume and other brokers.

“What we try and do is make sure we raise the bar right across the board,” Everington said. “We work very closely to make sure the SLAs and turnaround times are within that two-day mark that we strive for, so that all customers get that equal experience regardless of which channel they come through.” He said this involves working with key broking groups for the ANZ third party business, but not providing different service propositions.

Future partners

Being at the vanguard of an emerging ‘partner’-style relationship with major banks, premium brokers say they are encouraged by the endorsement banks are giving them and the channel.

CBA, for one, has recently published its ‘Diamond’ broker details – along with the photos – as part of its consumer NetBank system. It also includes broker details on letterheads, and as part of their ATM systems, among other branch-based initiatives to endorse brokers.

“All this means to me is that the customer can feel comfortable that they haven’t dealt with the barnacle on the bottom of the ship with the bank – they have dealt with a very valuable partner that the bank respects,” Coleman said.

Smartmove’s David Brell thinks likewise, saying that banks are seeking closer partnerships with top performing brokers and the third party channel. “I think it is cementing the relationship at more of a partnership level as opposed to a referrer type relationship,” he said. “I think the banks are more interested in long-term professional partners, as opposed to saying ‘Who’s got a deal, flick it to us’.” And indications are that some of the premium services – particularly loan document printing – may become available to a wider portion of the channel as time goes on, for broking businesses that want to improve their service.

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21

Comment VIEWPOINT

The broking proposition is gaining ever more traction. We asked our industry pundits their take on how the industry is perceived, and if enough is being done to champion the channel

Phil Naylor MFAA

On public awareness: The research we’ve done with Bankwest shows that 95% of consumers are aware of brokers, and 80% are aware of the services they provide, and those percentages have gradually increased over the years.

On MFAA promotion efforts: Our approved broker campaign is getting some traction – we are seeing a lot of brokers now using the logo, and that’s one of the strengths in terms of getting consumers to understand it. We are seeing consumers recognise it does mean something – so that’s positive.

On big broker brand advertising by Aussie and Mortgage Choice: Even though that’s for their own ends, it does bring awareness as to what brokers do for the general community.

Justin Doobov Intelligent Finance

On public awareness: Nine years ago when we started in the industry, we found that 90% of our interview with the client was spent explaining the services of what a broker is and how we can help them; now at least 50% of our clients understand the proposition, and are coming to us fully understanding our service proposition, and are just asking us for the solution.

On the new types of client: They [clients] have become aware of what a broker can do – instead

of us trying to sell a product we are actually providing a solution. We are finding that is not just in the residential space, that’s in the commercial space as well; we are taking on a lot of clients where previously we would only do the residential solution for them. We are looking after their commercial property loans, their car finance, their equipment finance – the whole broad spectrum of lending.

On big broker brand advertising: I think the greatest awareness has come from your Aussies and your Mortgage Choices who have done a whole lot of TV advertising campaigns and website campaigns, and that has created an awareness of what the broking industry can do, and the industry has spun off that.

Matthew Wood Citibank

On client interest in brokers: Coming off the back of the GFC, there’s been some movement in the SME market as well, and I see that as an opportunity for brokers. Whereas those particular small businesses historically had very strong ties with their lenders via a direct relationship, during the GFC there was some restraints around lending and the criteria of lending. I think the SME market did get an opportunity to start engaging with brokers around other opportunities for them, that their existing financiers weren’t able to help them with.

On industry self-promotion: I think there could be more. I think regulation coming into play as of 1 January is only going to assist that.

Once that gets bedded down, I believe the professionalism of the industry will be more apparent, and then they’ll be able to have a wider voice that the mainstream market will be keen to hear.

Steve Sampson Provident Capital

On public awareness: I think there is no doubt the public is more aware of the broking proposition – however, it is interesting that statistics show that the number of home loans written by brokers has stayed static for a few years at about 40% of the market. Why has this barrier not been broken?

On industry promotion: There is a lot expected of industry bodies to promote mortgage broking but it is a very costly matter and it’s difficult getting a wide spread of the message.

The brand names do a good job of promoting the industry, but I am not sure that individual brokers do. Individuals generally operate in a ‘confined’ area where it is quite easy to get to the audience There is definitely room for improvement.  To view our video coverage of this issue, visit www.brokernews.com.au/tv/

22

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Opinion

Ride the wave of adversity, innovation and change A leading innovator of the Australian mortgage industry, Aussie’s John Symond argues it is innovation and change that will characterise the mortgage industry in coming years

We all know that change drives innovation. I love Plato’s saying: ‘Necessity is the mother of invention.’ I’m very fortunate, because as a youngster I experienced change but I didn’t really understand it. I went to 11 schools and two universities, but I often say my best education was from my parents. As a youngster, myself and my older brother and sister would come home from school, and mum and dad would own a fruit and vegie store. We’d go to the back of the fruit shop, and help them out. And they would build up the business and keep it for a year, or 18 months, then move on to another suburb and sell it for a profit. A new area, with a new school and new friends. So I had to adapt to change as a young teenager and little did I know that understanding change and embracing change is something that would help me in later life in my business career. And I can certainly say for me personally, that being an adopter of change has at times saved my bacon.

The coming changes We’ve seen a lot of changes evolve in the Australian mortgage industry and we are going to see a lot of innovation over the next three to five years. When it comes to change, a lot of organisations and individuals are uncomfortable with it. But we have a simple choice – we can adopt change, ride the wave and prosper from it. Or the other option is simply be a victim of it, get dumped by the wave and play catch-up, for the rest of your life.

John Symond

� Banking and technology I see massive changes about to happen. Yes, today our Big Four banks are in a privileged position – they’ve got the home loan market pretty well to themselves. Foreign banks have retreated back to their homelands, and the Big Four have very little competition, because they can access funding far better and cheaper than anyone else. However, look at the challenges the big banks are facing today.

Big banks may have bigger market share. But customer satisfaction – they just can’t crack it. That’s because their client base is massive. If you talk to each of the banks they’ll tell you how many million accounts they have. And it is getting the customer satisfied and wanting to stay that is a huge challenge for them.

Look at the new regulatory change when it comes to capital. Look at the GFC, how that’s changed the landscape. We are also going to see unbelievable change in technology. The banks are anchored down with archaic systems, because over the past 10–15 years they have taken over other banks and building societies and they’ve got all these archaic systems. I often say to my people that mortgage broking over the next three, five or 10 years will be a young person’s industry. Because it is going to revolve around technology – and stellar personal service. The big

banks are currently spending billions on technology.

Look at the non-bank industry – mortgage broking, mortgage managing. The mortgage managers out there are starved of capital and are hanging on for dear life, hoping and praying for securitisation. We all know it will never get back to where it was, but hopefully it will improve. People quite often forget that come July it will be four years into the GFC. � Regulation The broking industry started in a very fragmented way, with very few rules to entry, next to no regulation, and big commissions. All of a sudden today, we are looking at the NCCP regulation – and just the impact of regulation is impacting big time on the big banks as well. A lot of brokers think that the contraction and consolidation in the banking and finance industry is over, but we are just halfway through it. We haven’t seen the end of it. And a lot of brokers today are of a size – they might be a one-man band, or two, three or four – they don’t have the resources, knowledge, or skill set to comply with NCCP. So some of those will drop off the radar. Commissions are also being cut at the same time.

So we are going to see regulation as huge. I know, our organisation is going to spend – and we are tiny compared to a bank – a couple of million to comply with NCCP and make sure we are up and running. Again, it’s about technology. We are investing tens of millions and we don’t have a big market share. I really do believe that because of technology, the mortgage industry, and particularly the non-bank space, is going to be a young person’s industry because it is going to revolve around technology. � Mortgage broking I think the big change for brokers is going to be the ability to cross-sell other products. And brokers aren’t good at it – even banks aren’t good at it – but at least banks have got the advantage of having a customer’s cheque account, and transaction account, so often for customers it’s all too hard to change. But brokers have to survive. Necessity is the mother of invention. How do you survive if commissions are going down? You’ve got to cross-sell. The brokers hate cross-selling – even in my crowd we do a lousy job – but it has to happen otherwise where is the income going to come from? � Distribution We are going to see a wider distribution channel. I think we will see global players re-emerge here, because they can see certain products here where there are bigger margins.

And it’s like bees to honey – they’ll come back to where the honey is. We are going to see a more blurred form of distribution. Take financial planners – their commissions have been cut in certain areas, and they are now getting into mortgage distribution, because they are dealing with the same customers. Some brokers – including Aussie – are embarking down the wealth management path. We’ll be shortly into financial planning. So I think the mortgage industry is going to have a far wider choice of distribution channels. And I’m predicting that the direct channel – that Aussie doesn’t have at the moment but we will have – the direct channel to consumers is going to have to happen to get costs down. Again, this is about technology.

Crisis and opportunity I believe in change; I believe in innovation – it’s helped me double the size of my business. And the two huge events were during times of adversity. And that’s why I’m a big believer that when there’s uncertainty – that’s the time to make sure you keep your eyes wide open and you seize opportunities. And sometimes they are once-in-alifetime opportunities.

The above text is an edited extract of a speech given by Aussie Home Loans executive director John Symond at the Mortgage Processing Summit in Sydney in February

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OPINION

CMS just a corporate donation, without professional service

Mortgage Choice CEO Michael Russell tells Australian Broker that it is stellar service – not just a good CMS– that will see broking businesses survive and thrive A successful broker underpins their CMS by providing outstanding customer service from the very first contact through to their personalised post-settlement care. This process is essential for building rapport and to this end, CMS should play little part with the exception of providing brokers timely diary reminders of the key contact milestones during the lodgement to settlement process.

Successful brokers strive to exceed customer expectations by delivering an almost Disney-like service experience which they know to be the magic needed to ensure ongoing repeat and referral business.

CMS is, of course, an essential investment for all broker businesses to ensure they keep front-of-mind with their customers and continue to educate them on all things relevant to their home loan.

A good CMS allows brokers to customise reporting for their business in order to improve the return on their investment and marketing spend.

Having a granular understanding across our different customer types is absolutely essential given the pace at which the economic backdrop is changing. Each customer type – first homeowner, upgrader,

investor, retiree – behaves differently from a participation perspective to changes in the economic environment and a broker needs to be able to read this in advance to be proactive in their communications.

This is where a good CMS, if customised correctly, earns its keep.

However, a broker’s true USP is what they do in front of their customers – whether in business mode or within their community – and not how they communicate with them electronically postsale. While the latter is essential, it can never substitute or make amends for a point of sale service proposition that does not fill the customer with the need to become an advocate for the broker at every appropriate opportunity.

Point of fact: without fail every successful broker I have met in the past 10 years has one common denominator and that is their passion for delivering an unequalled service proposition to their customers.

Ask them what’s more important: their passion and people skills or their CMS, and all will answer with the former.

Without passionate people skills and a professional service proposition any investment in a CMS should be viewed as a corporate donation.

CRM is essential: Spencer Effective use of your CRM is essential to any successful business.

If you don’t believe me, ask the CIO of any ASX200 company and see what response you get. Investing in an industry-specific CRM system will enable you to close more opportunities than if you relied solely on your own inbuilt CRM system (your brain).

Unless a Mensa member, it is impossible for any broker to remember the myriad of loan products, credit policies or determine a customer’s suitability under the new NCCP requirement. Having access to this information is the essential ingredient to providing great customer service, for without it you should never even turn up to the appointment.

In a tech-savvy world where your customer wants more information than ever before, try to imagine whether you can provide the appropriate service to win the customer’s trust without the information provided through your CRM… you can’t.

This is where your CRM system pays for itself 10 times over.

Brett Spencer is the CEO of Stargate Group

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Insight

Mortgage broker, or business owner?

Are you a professional business owner? Trigon Financial’s Robert Weeks takes you through your paces, so you can find out how you can become more business-focused

A

re you mad?” I hear you crying. “Of course, I’m a professional mortgage broker!”

Well, let’s cut to the chase and look at things a little deeper. First and foremost, let us have a iron-clad definition of what it means to be a business owner and then let’s see if we fit that description. There is some self-assessment involved later on in this article, so give yourselves a bit of time.

A business owner

A definition of a business owner is someone who works 18 hours a day in an attempt to avoid working eight hours a day for some other employer. Building a quality and valuable business can be tough and the current market for brokers makes it even more so.

Turning a profit doesn’t necessarily get any easier as we build our businesses. It takes a lot of hard work, development and determination and as we all know there are no guarantees of ongoing success.

MY WAY Jeana Scott from Kandu Finance recently won the MFAA’s coveted ‘Finance Broker of the Year’ award.

Australian Broker asked what it takes to be among the best What is your greatest business achievement?

I had great satisfaction helping one of my clients during the GFC. I helped them obtain a very favourable finance package to assist them with a management Jeana Scott buyout and to finance their export trade operations for their commodity trading business. This involved a trade finance package with a discount facility, foreign currency dealing and cash flow facility.

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

I work closely with financial planners and accountants, my main source of referrals. My strategic partners know me for my attention to detail and an ability to understand the more complex finance and business structures. They know I will look after their clients.

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

To be an independent finance solution provider, giving my clients the highest level of service and advice they deserve. This, in turn, allows me to be totally in control of my own business direction.

Who has helped you the most, and how?

I could not pick just one [person]. I have been helped and supported by the team at Choice Aggregation Services, QLD, from day one on the training and education side and by my sub-aggregators Newco Financial Services, who have provided excellent proactive practice development

and mentoring support. Then there’s the commercial lenders: ANZ and Westpac have been extremely supportive in this area providing the specialist teams and BDM’s that I need in the more complex export/ domestic debtor finance field that I specialise in. I have also taken on the services of a business coach – Dan Buzer – who has helped me to take a strategic focus on my business. This industry is all about relationships, you can’t do it all on your own.

What character trait do you most value about yourself?

Commitment and determination to find the right finance solution for my clients to match their financial objectives.

How do you stand out from the crowd/competition?

My passion is working with clients that have the more complex business and asset structures and finance objectives and helping them achieve the right financial solution.

What do you tell yourself when the going gets tough?

Review the business, review my plans and re-focus. I also keep likeminded brokers around me.

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

Streamline my processes, particularly around compliance for NCCP requirements.

What piece of advice would you give an ambitious broker?

Draw up a business plan at the very start – who/what is your target market/s, how/what methods to use for marketing. Also, network hard.

What’s your next greatest ambition?

To build my network of strategic referrers and become the recognised finance broker of choice in Brisbane, to resolve clients finance objectives in the SME market.

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Countless businesses start each year. The small business statistics indicate almost 50% fail in the first year and our industry tops the list of failures. Worst of all, many more brokers limp along, never quite failing but always struggling to stay ahead. They generate income, but not necessarily the financial security they seek.

Successful brokers (business owners) have a number of things in common in terms of how they think, invest and manage their companies and, yes, this covers all small and large corporations.

As a guide, answer the following questions to find out what you’re doing right and where you need to focus your attention. Respond to the following statements, using a scale of zero to 10 – zero for ‘never’ and 10 for ‘always’.

1. I have written goals and have made a plan to achieve them

Ongoing success is the result of a plan, not luck. If you don’t know where you want to go and how you intend to get there, you won’t.

This means broad vision on one hand and attention to minute detail on the other.

Recommendation: Prepare a realistic business plan by mapping out your goals for the next 12 months. Then list no fewer than three specific activities that will help you achieve those goals.

2. I work hard and pay my dues without moaning about it

Some people say the secret to business success is nothing more than showing up early every morning and staying late every evening. Success doesn’t necessarily go to the best and the brightest, but to the most determined.

Recommendation: Put in just one extra hour each day. Over a 50-week year, this will add up to six additional 40-hour weeks.

3. I am a business person

Most small business owners are product or service specialists, not professional business managers. But the more they learn about business concepts and

techniques, the more profitable and productive their companies will become.

Are you stuck in transactional mode?

Recommendation: Devote 30 minutes a day to reading a book or magazine on business; attend at least one seminar a year on innovations in the industry or business management in general; consider further professional studies.

You will be delighted to know that clients want to deal with highly skilled, educated and informed professionals.

4. I work hard to control costs and keep overheads down

The bottom line is just that – the bottom line! Don’t confuse size with financial soundness. It’s the size of your profit margin, not the size of your staff that counts. A broker that generates $600k of revenue, but loses $50,000 in the process, won’t be in business long. But one that produces $250,000 and nets $50,000 in profits is a winner.

Recommendation: Keep good business and client records and review them regularly.

I know successful brokers who go over the numbers on a daily basis. This helps them spot potential trouble areas early. At a minimum, have a full-scale financial shake down meeting at least once a quarter.

5. I have adequate cash flow

The primary complaint of small business owners is cash flow. Do I need the staffing numbers? What can be outsourced?

Recommendation: Build an operating fund that equals at least three months’ expenses or have an appropriate line of credit.

6. I believe in SOP

Successful companies have ‘standard operating procedures’ for virtually every aspect of the business. They learn the best way to do a process, then standardise it into a working system. That way, time is not spent reinventing the wheel.

Recommendation: Look for ways to simplify, standardise and systematise as many routine operations of your business as possible.

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Outsource all non-core business activities such as submission writing and loan processing and invest the saving on business development.

Remove non-core fixed expenses and invest in business development.

7. I delegate as much responsibility as possible

Robert Weeks

While your company may never be able to do without you, its long-term stability will be enhanced by broadening the base of people who have the ability and authority to work without your direct supervision.

As a result the value in dollar terms of your business will increase.

Recommendation: Delegate and outsource what you can, not just what you must.

8. I practice ‘controlled paranoia’

Successful business owners constantly look for trouble and problems, so they can jump on them early, before they become serious.

Recommendation: Review your financials regularly. Seek out criticism, not praise, and ask your clients what they think of you and your service. Wow, you may even pick up a referral in the process!

Conclusion: So how did your business rate?

Review your answers and tally your score.

Your total reflects your company’s probability of achieving long-term financial stability as it is currently operating.

If your score is a little on the low side, boost it by improving one item at a time, until you’ve upped your score to a percentage of 70% or more.

Robert Weeks is the managing director of Trigon Financial, a new mortgage broking group focusing on providing extra support to growing broker businesses

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Market talk

The great bubble debate The debate over the existence of an Australian housing bubble is a fierce one. We let Steve Keen and Cameron Kusher, analysts on opposite sides of the sensitive issue, duke it out

F

ew subjects elicit such fierce and passionate debate in Australia as the existence – or lack thereof – of a housing bubble. Normally reasonable and staid academics have been brought near the point of fisticuffs on the issue, each spruiking their own convincing sets of facts, figures and charts. Yet, for all the arguing, we seem no closer to the answer. The true state of Australian housing seems to vary based on whose statistics onlookers choose to trust. Steve Keen and Cameron Kusher, two analysts on opposite sides of the debate, go toe-to-toe to present their case.

of sub-prime mortgages, tighter lending criteria by the banks here, recourse lending and a highly centralised population. Around 65% of Australians live within the capital cities, these regions account for just 0.5% of Australia’s overall land mass, these conditions generally result in strong competition for stock, particularly in well located areas.

Q: Is there a housing bubble, and can we expect significant declines in median property values?

SK: I think it’s likely to go in the other direction. Falling median prices will catch up with slowly growing average incomes. Incomes aren’t guaranteed to continue rising quickly either. They have definitely been boosted by the China trade, though that income is not uniformly distributed. But the impact on incomes of a slowdown in credit growth could counterbalance the China effect, especially in NSW and Victoria.

SK: Yes there is, and yes we can. One thing that those with vested interests in maintaining the bubble do is confuse people over how expensive housing is here compared to the past, and to disparage any statistics that argue otherwise. I prefer to use a simple comparison of house prices to disposable income per household.

In 1960, the median home in both Sydney and Melbourne cost less than two years’ disposable income per average household. That figure is now 6.3 for Sydney and 5.7 for Melbourne, and the Sydney level peaked at eight in 2004. So houses are almost three times as expensive now as they were in the 1960s, and interest rates are higher now than they were then too.

This comparison understates the problem by about 20%, since average incomes are about 20% higher than median incomes. So there’s no question that there’s a bubble. As to whether it will burst, bubbles always do because they’re driven by the desire to get something for nothing. Since up to 30% of the market is now investors and only a moron would invest for rental returns in Australia, that much of the market could switch from the buy side to the sell side if prices went horizontal for any sustained period.

CK: We do not believe that a housing bubble exists in Australia. However, it is indisputable that the cost of housing in Australia is quite expensive. Property values in Australia have seen a strong run up in prices over the past decade, with values within the combined capital cities recording average annual capital growth of 8.8%.

The increase in house values is commensurate with a lower interest rate environment and growth in dual income households. There is now evidence to suggest that housing affordability issues have been stretched in some capital cities. In saying this, I expect a period of relatively flat to slightly negative value growth rather than falls.

As an example, between 2004 and 2009 Sydney property values were flat and fell by as much as -9.3% from their peak, certainly no collapse in values. In Brisbane, home values have tracked roughly sideways since Feb 2008 following above average capital gains between 2001 and 2004 and again during 2007. Perth values have tracked sideways also since recording annual growth of almost 46% during 2006. In areas outside of the capitals the story is quite different; these markets in many cases are almost entirely reliant on tourism and/or ‘sea changers’ and retirees. Many of these markets have recorded substantial value falls since the onset of the GFC. The main protection [from a housing bubble] is due to a lack

Q: Do you think we’re beginning to see a period of stagnation in housing values wherein average income is going to begin to catch up with median prices?

CK: I expect that rather than significant falls in values we will see limited growth. We are already seeing wages grow at a level above inflation and at the same time, property values have been growing at a level below inflation in regions like Brisbane and Perth for some time, resulting in properties becoming more affordable in real terms. If house prices don’t stagnate affordability will deteriorate further as you suggest and people will basically have two options: Move further away from the city – I suspect that many are not prepared to do so – [or] become lifetime renters. This is much like what happens in Europe and parts of the US, and I think this is the more likely scenario as people typically want to live close to the city and outer areas do not hold appeal for many, particularly those that work in the city centre.

Q: The Economist recently claimed Australian housing is over-valued by 56%.

Would you agree with this assessment, or are there factors this claim does not take into account?

SK: At least. They used only one of numerous measures: rental earnings to price. On so many other metrics – price to disposable income and so on – the same or higher levels of overvaluation result.

CK: The Economist’s analysis was based on a ratio of the cost of renting vs the cost of purchasing. That is quite a simplistic analysis and doesn’t consider many other factors. In saying this, although we suggest that the market is expensive (particularly in capital cities) it is our belief that there is no bubble therefore it isn’t overvalued. Of course there are areas of the country in which we believe property values are inflated but overall we do not believe they are over-valued.

Steve Keen is Associate Professor at the University of Western Sydney’s School of Economics and Finance, and the author of ‘Debunking Economics’ Cameron Kusher is the Senior Research Analyst for RP Data

Steve Keen

Cameron Kusher

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Point/counterpoint: AU vs US Aaron Maskrey – PRDnationwide

Steve Keen – University of Western Sydney

Why it can’t happen here: Australia’s unique circumstances

Why it can happen here: Australia’s frightening similarities

Population growth as a raw source of demand: The US official rate of growth is at 0.9% from 2008 to 2009 The global average rate of growth is at 1.2%. Australia has a population growth rate of 2.1%, which is very high. The bulk of these new residents will reside in capital cities or built up coastal areas.

The proportion of the population that actually buys a house is very volatile: population doesn’t drive up house prices, people with mortgages do.

There is no long-term relationship between change in population and change in house prices – and in fact, the relationship was negative during the most recent immigration surge.

Australia has much stricter lending regulations in place which has assisted in keeping inflated prices down. The US had very few regulations in place, believing in the ‘free market’. As a result, many buyers were able to get access to large sums of capital easily.

In the US, buyers are also able to walk away from their debt and not be personally liable for it, as would buyers in Australia be.

Our prices rose more than did US prices, and so did our debt levels.

US household debt was twice ours in relation to GDP in 1990; now our household debt is larger than theirs. So our stricter lending regulations allowed lending to households here to grow three times as fast as it did in the US.

There is access to greater supply in the US, as they have easier development regulations and processes. Stricter council legislation on development has led to a longer development process to get approval and higher costs for developing in Australia.

This is true, but the implication that the property lobby draws is that population is growing faster than the stock of houses in Australia because of excessive regulations. In fact, only for 2006–10 did population growth outpace dwelling construction.

According to this argument, that should have meant that house prices were falling until 2006, which of course they weren’t.

Building costs of new developments have increased in Australia. Prices for commodities have increased considerably, skilled labour is difficult to find mainly due to the resource boom occurring. Costs of construction for new developments are increasing and help to create a price floor. The cost for land and labour in the US is much lower than in Australia.

The price of land has been the main factor driving up costs, not the cost of construction. And if this were true, it would be new houses that were getting more expensive, with this then driving up established home prices via a shortage. In fact, rising established house prices have driven new land prices higher.

Interest rates in the US are lower than in Australia. When times were hard in the recent financial crisis, the US dropped down to close to zero, while Australia kept its above 3%. Australia has since increased the standard home loan average interest rate to 7.8% while the US has remained at 0.25%. This gives Australia a larger buffer if tougher financial times were to occur.

We do have a large buffer to reduce the pain when a downturn hits, but this tends to encourage people back into house price speculation again.

There is also far more pain being inflicted on Australian households now than for US households when their bubble burst, which is a reason to expect a downturn here.

Unemployment levels are much lower in Australia, which has been reported to be operating at near capacity according to the RBA. As at December 2010, the Australian unemployment rate was 4.8%. The US as of February 2011 was at 8.9%.

The US’s unemployment is higher than ours because their housing bubble has already burst, and the credit crunch that caused it drove unemployment higher. We haven’t had ours yet, so a fairer comparison is to the US before its bubble burst. Back then, everything looked fine. Unemployment was 4.4%, lower than we have now.

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Market talk ‘Green shoots’ to yield solid autumn growth

A

s 2011 gets well and truly underway we find ourselves in the midst of one of the most important selling periods for some time.

Everyone is asking whether the market will gain traction and build upon some early positive signs. I believe the ‘green shoots’ that we saw appearing in 2010 will continue to build momentum and I continue to predict that we will see solid growth in almost all major residential markets across Australia. With a continuing shortage of property around the country, rising rents and a rebounding economy, the drivers are in place for a strong year in property.

For this review, we have analysed the new drivers impacting the property market, and see many more positives than negatives. Key factors are an improving economic climate, population growth and a severe housing shortage as summarised in the table below.

Australia is undersupplied by around 200,000 dwellings, with projections this could rise to more than 600,000 by 2029 based on current trends.

Increasing rents: Population growth and the undersupply have led to low vacancy rates and high rents with average yields of 4.5–5% in prime metro locations.

A new rental boom is on the John McGrath horizon for Sydney as rents could soar by up to 9%. Fuelling this is Gen Y’s desire for CBD and lifestyle living. They are renting longer to save a better deposit. Of all the capital cities, Melbourne tenants are in the best position with December vacancy rates at 3.6%. All other cities were under 2%. In Brisbane, there has been a surge in rental demand due to the floods but this is a temporary spike.

The positive drivers

McGrath’s predictions • Modest city price growth in 2011 with best results in beachside suburbs and within 10km of the CBD • Higher than average price growth in regional areas with the GFC recovery in full swing in many towns • Market stability with more positive than negative drivers in play in 2011 • A new rental boom is on the horizon for Sydney with rents to soar by 9% in our view • More investors in the marketplace, particularly those buying with DIY super funds • The apartment market to benefit from higher activity among first homebuyers and investors

Market confidence: While clearance rates have had a slow start this year, one indicator that has bucked the trend is mortgage applications – one of the best forward indicators of the market.

AFG Mortgage Index* data for Dec 2010 shows national home loan lodgements were 9.1% above those of Dec 2009.

All states were up, led by VIC (18.1%), NSW (14%), WA (6.1%), SA (4.9%) and QLD (1.4%).

More investors: AFG reports investors taking up 35% of all new loans nationally and 41% in NSW. Self-managed super funds: We are now seeing the strong emergence of DIY super investing in property.

I believe this will have a huge impact on the investor property market and the supply and demand issue. Last year the law was modified to allow negative gearing for self-managed super funds (SMSF) and this created new demand. Buying property using a SMSF loan can increase investors’ net return on a newly built property by more than 50% compared to buying the same property personally. This is due to super tax rates (15%) being much lower than personal tax rates.

Economic confidence: We are among the world’s strongest economies due to huge offshore demand for our commodities. The power behind our economic growth has shifted from west to east as big economies like the US, UK and Europe faltered during the GFC*. With our new international reputation for economic resilience, we are seeing many more offshore buyers migrating here from China, HK, Singapore and Malaysia. * Source: Macquarie Bank Market Focus 2010

The negative drivers

Population growth: At 1.8% per annum, our population growth is among the highest of any OECD nation.

Such high population growth coupled with low building approvals will continue to apply pressure on housing.

Rising interest rates: Standard variable home loan rates are up from 5% to 7% over the past 12 months. A new Mortgage Choice survey reveals one in 10 recent first homebuyers have sold or are considering selling due to financial stress.

Ongoing property shortage: New housing construction is at 30-year lows and many more people are living alone.

The National Housing Supply Council (NHSC) estimates

Mortgagee overhang: Continued mortgage stress and mortgagee sales in some markets will delay price growth.

NUMBER CRUNCHING Capital gains, 12 months ending January 2011 4.7%

5 3

2.0%

2.2%

6.9%

37.4%

3.6%

4 2.5%

55.7%

2 1

Distribution of Sydney dwelling approvals 2006–10

12.5%

23.2%

64.3%

1.2% -3.8%

-3.7%

-0.6%

0 -1

Inner

Middle

Outer

Source: BIS Shrapnel

-2 -3

At a glance…

Source: RP Data-Rismark

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36%

The proportion of Gen Y who do not believe they will ever be able to buy property Source: Bankwest/MFAA Home Finance Index

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Toolkit

The science of compliance NCCP compliance can seem daunting, but Gadens Lawyers senior partner Jon Denovan believes it’s not as scary as it seems

W

ith NCCP regulations coming into force in the industry, many brokers are nervous about the task of compliance.

Whether brokers have opted for an ACL or to become an aggregator’s credit representative, complying with the legislation may seem an onerous task. But Gadens Lawyers senior partner Jon Denovan says compliance won’t be an uphill battle.

“It will be much easier [than expected],” he says.

“Everyone likes to cry wolf about new laws. I have seen the credit code come in, and everyone said it would be the end of the world. It’s a bit like Y2K. People try to drum up business and scare people, but in two years’ time, this will all be second nature to us.”

Denovan believes brokers won’t run the risk of running foul of the legislation if they keep a few key points in mind.

ASIC isn’t out to get you

Industry watchdog ASIC will be the institution interpreting and enforcing NCCP regulations, but Denovan said staying on ASIC’s good side won’t be as difficult as anticipated.

“ASIC is a friendly giant. They’re there to help, and they’ve said that publicly,” he says.

According to Denovan, ASIC will seek to guide brokers and aggregators with compliance during the first two years of the NCCP regime. After this, he says, the regulator will be more stringent in its enforcement.

“For the first two years, they’re here to assist. After that they might be less friendly. They’re the nice uncle at the moment, but they could turn into Uncle Scrooge,” Denovan says.

Not unsuitable isn’t enough

Jon Denovan

NCCP dictates that any credit product has to be ‘not unsuitable’ for the client. Denovan says this may be a change to the way brokers have approached securing finance for borrowers.

“Prior to 1 July, a broker saw their job as finding a lender who would lend the borrower some money. It didn’t matter what the lender was all about. Now the task is to make sure the loan is not unsuitable,” he says.

However, in Denovan’s opinion simply deeming a product ‘not unsuitable’ doesn’t go far enough.

“If you’re an MFAA member, you have to put customers into finance that’s appropriate. I would think that despite the fact the legislation says finance has to be not unsuitable, if you get before COSL or ASIC and the finance isn’t suitable, they will do you over,” he remarks.

Brokers should instead make sure they’ve put clients into the finance most suitable or appropriate for their given situation, not just the deal most likely to reach settlement.

“Not unsuitable isn’t useful. When I talk about the issue, I talk about suitable finance,” he says.

“Anything less is breaching the obligation of general good conduct. All ASIC is saying is that it’s an offence to put someone into an unsuitable loan.

That doesn’t mean you’re discharging your duty by putting them into the loan that’s not most suitable.”

The stakes for brokers on the issue are high, Denovan points out, and the best way to avoid running into trouble is by holding the suitability of finance to an even higher standard than ASIC. “The fine is $1.1m for companies and $220,000 for individuals if you put someone into a loan which is unsuitable.

Most brokers will want to stay away from that. The best way is by putting someone into a loan that is appropriate,” he says.

A credit policy is a must

Brokers will be required to have a policy by which they assess borrower credit.

Those holding full credit licences will have to put together a credit policy just like lenders, while credit reps should review the policies of their licensees.

While putting together a credit policy may be easy for large brokers and aggregators, it could present challenges for smaller brokers and one-person operations. In the case of smaller outfits, Denovan said they would have to review the policies of the lenders on their panel.

“A lot of brokers haven’t prepared their own credit policy,” he notes. “Brokers have to have their own credit policy.

The MFAA have put up on their website a draft policy for brokers.”

A credit assessment policy is an issue brokers cannot ignore, according to Denovan. He has predicted that in any disputes brought before COSL or ASIC, the complainant will immediately want to see a copy of the broker’s credit policy.

Brokers looking for a template to prepare their own credit policy can find one at www.mfaa.com.au.

Off-panel is off limits

While brokers holding an ACL aren’t bound to a particular panel of lenders, those authorised as credit representatives of an aggregator will be constrained to the licensee’s lending panel.

“In the past, many brokers have always shopped the odd difficult or unusual deal to off-panel or specialist lenders. Credit reps are not authorised to introduce deals to off-panel lenders,” Denovan says.

The reason for this is that as the licensee, a credit rep’s aggregator is liable for the broker’s actions. In order to go off-panel, a broker would have to be appointed a credit representative for the off-panel lender. This will not be feasible.

“The first licensee would have to consent, and the first licensee never will,” he says.

Credit reps aren’t lone wolves

Brokers who have chosen the path of becoming credit reps will have a responsibility to represent their licensee well, and licensees will have to provide supervision for their credit reps.

“The most common misconception is that people forget they’re an agent of the licensee,” he says.

“Everything they do, they’re doing in the licensee’s name. It will be interesting to see where ASIC goes with that because a lot of credit reps have reasonably minimal supervision.”

According to Denovan, one of the few areas of NCCP that is not yet clear is the way in which licensees will supervise their credit representatives.

“We don’t know what degree of supervision ASIC expects licensees to have over brokers. The licensee has made the broker the licensee’s agent.

“Therefore, the licensee is at risk. We know that they will have to supervise, but are not clear on what degree of supervision will satisfy ASIC,” says Denovan.

However, brokers appointed as credit reps of major aggregators can expect supervision to be in place. Credit reps will have to keep in mind the relationship they have with their aggregator, and operate in such a way as to satisfy that aggregator’s standards. If they don’t, Denovan says, they can expect aggregators to notice.

“Big aggregators have good systems in place to randomly – and not so randomly – check their licensees,” he says.

ASIC gives guidance on disputes ASIC is issuing new regulatory guidance for financial institutions to settle simple disputes internally with customers. The guidance on Internal Dispute Resolution and (IDR) and External Dispute Resolution (EDR) procedures applies to financial services licensees (AFSLs), credit licensees (ACLs), and some other services providers.

Greater flexibility in settling straightforward complaints

Credit and financial industry participants (for example, banks, credit unions, insurers, financial planners, stockbrokers, insurance brokers and mortgage brokers) will have reduced paperwork obligations where they quickly resolve complaints at the IDR process.

A ‘final response’ will not be required where a complaint is resolved to the customer’s complete satisfaction by the end of the fifth business day after the complaint is received, and where the customer hasn’t requested a response in writing, with some small exceptions.

The crucial link between IDR and EDR will be preserved – customers will continue to receive a written response (including EDR details) where the complaint is not resolved to the customer’s complete satisfaction within five days.

This gives participants greater flexibility to respond to complaints verbally, particularly where the complaints are relatively straightforward, involve small sums, or involve a customer service issue that can be resolved quickly.

At the same time, it ensures that for more complex disputes, the customer will receive a written response to their complaint and information about how to take it further at EDR if they wish.

For those licensees for whom the new guidance is a heightening of standards, ASIC expects them to comply with the new standards as soon as practicable.

For more information, see ASIC Regulatory Guides 165 and 139

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www.brokernews.com.au

People

Broker fights for cancer awareness

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Sandy Joseph (left), with Perth’s Lord Mayor Lisa Scaffidi

Ovarian cancer: the key facts • In 2011, more than 1,200 Australian women will be diagnosed with ovarian cancer • More than 800 women will die from the disease – that’s one Australian woman every 11 hours • One in every 77 Australian women will be diagnosed with ovarian cancer in their lifetime • If diagnosed in the early stages, 75% of women will live beyond five years • Currently, there is no early detection test • The only means of early detection is for women to learn the symptoms and seek early medical attention

n February, Mortgage Solutions Australia’s Sandy Joseph was chosen as the national ‘11th Hour Ambassador’ for Ovarian Cancer Australia, as part of Ovarian Cancer Awareness Month. Selected from among 77 women, Joseph spent the month raising awareness in her community – and among her client base– of the risks posed by this lesser known cancer.

As part of the appointment, she teamed up with Perth’s Lord Mayor, Lisa Scaffidi, to deliver the message to Australian women, saying that she was proud to be involved in promoting an important women’s health issue. “We all know about breast cancer, but not enough women know about ovarian cancer and symptoms that can provide early detection of the disease and give women a better chance of survival,” Joseph said at the time. “If by working with Ovarian Cancer Australia we can raise awareness of the symptoms of ovarian cancer and draw attention to the importance of continuity of care to help save the life of just one woman while raising vital funds, then we will have helped to make a difference.”

Following her involvement in February – which involved wearing and promoting TEAL ribbons, raffles and newsletters – Australian Broker asked her some questions about the cancer-fighting cause, and if brokers can do more to assist with other causes.

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: How did you become involved in the cause?

It was actually one of the real estate agents who refers a fair bit of business to me. He was asked if he knew someone he thought would be fitting for the appointment. I guess he thought, ‘If you want something done, ask a busy person!’ He knows that I am community minded, and a passionate person, so he thought that I would do a good job. From that first recommendation, I was asked to do a biography. From there I was chosen from the nominations, after they thought I was the most fitting.

Q

: What have been your experiences with ovarian cancer?

The only personal involvement I have had was watching my sister cope with her best friend having been diagnosed with – and ultimately dying late last year from – ovarian cancer.

I saw how much it not only affected the family of the lady going through it, but also the friends and family around her – it radiated way past just the immediate family. With ovarian cancer, normally

when women find out they have it, it is far too late.

And that experience really brought it home to me. In some ways your life draws parallels, and I think with that happening, seeing how that affected my sister – it severely affected her – and when the invitation came through I thought there was a sign I needed to be doing something.

Q

: How did being a mortgage broker help with the cause?

I figured it would, after 10 years of being in the broking industry and having a huge database. I prepared an e-newsletter to go out to my entire database to raise the awareness of what it is – there is nothing in there about mortgages at all! It’s not even do you want a health check! It is purely doing it to utilise my database of a couple of thousand people, to get the awareness out there, even if it means they will just click on the website and have a read. If it touches just one life it will be worthwhile.

Q

: What else did you do in February to raise awareness?

On a daily basis it was making sure all of our 40-odd staff were wearing their TEAL ribbons. I guarantee that every day I walked out of my office, I would have at least five or 10 people ask me, ‘I know what the pink ribbon is, but what’s that ribbon?’ And from there, just saying for them to pop on to the website and have a look. It’s amazing the amount of people I’ve spoken to, who are under the wrong impression that a pap smear will detect ovarian cancer. I’ve also been going around to all the local retail outlets and asking for donations of things that we could raffle. And making their staff aware, and carrying the ribbons with me and encouraging them to buy and wear them to raise that awareness. We held the raffle in February.

Q

: Are brokers in a good position to get involved in similar causes?

I think being a broker absolutely puts us in a position to be able to do that, through our databases, and through our everyday contact with clients. And I think that, like a lot of us, it is very easy to say ‘I am very busy, and I don’t have time for this’. It’s really easy to make excuses. And let me tell you, I am really, really busy! But once you’ve made a commitment to something, then you give it your 100%, and the fact is we do have that huge database. Not only that, every appointment I go to I have my ribbon on.

CBA raises $130,000 to fight breast cancer Kathy Cummings, executive general manager Third Party and Mobile Banking (right), presented a $130,000 cheque to Julie Callaghan, general manager, Breast Cancer Institute of Australia in December last year.

The money was raised during Commonwealth Bank’s ‘Busting Out for a Cure’ events held in each capital city during October in 2010.

www.brokernews.com.au

Caught on camera Westpac’s mortgage broker distribution business ‘hit the road’ during March with the launch of its inaugural ‘Broker@ the Centre’ series of national broker road shows, that kicked-off at Doltone House in Sydney on 3 March 2011 1

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Image 1

Huw Bough, GM, Westpac Mortgage Broker Distribution

Image 2

Doltone House, Jones Bay Wharf, Sydney

Image 3

Westpac NSW BDM Thi Bhatnagar with Apple Home Loans Team

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Westpac NSW BDM, Michael Piper and Brenda Wei, Golden Brick

Image 5

Bridget Sakr – Chief Commercial Officer, Genworth Financial

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Anthony Ishac, GM, Research, Australian Property Monitors

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Doltone House, Jones Bay Wharf, Sydney

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Centre and right: Westpac NSW Broker of the Year – Raymond Xue (ACA Mortgages) and NSW Westpac BDM Craig Dunning

Image 9

From left to right: Westpac Panel Discussion Michael Hamilton – Regional General Manager, Retail & Business Banking; Tanya Iremonger – Manager, Broker Support Team; Susie Peacock – Head Of Secured Risk; Melos Sulicich – General Manager, Third Party Distribution; Huw Bough – General Manager, Mortgage Broker Distribution

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www.brokernews.com.au

Insider

Step right up…

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ven as a member of the hallowed Fourth Estate, there are few things Insider loves more than to sit back and laugh at a good media frenzy.

That’s why earlier this month, when Commonwealth Bank had some minor technical glitches, Insider got a chuckle as vast portions of the media jumped on the story like a fat guy on a free gravy buffet. CBA was hit with some mobile banking issues which saw customers unable to make balance transfers, wire money or access some account info. The glitch was fixed by day’s end, but not before the daily news cycle flew into frothing throes of ecstasy over some ATM issues the bank was having. It seems some ATMs were letting CBA customers overdraw their accounts. Not content to leave the story at that, it quickly became more and more sensational as the afternoon went on. By the end of the day, news outlets were painting a picture of CommBank ATMs capriciously vomiting forth money like indiscriminate genies as rioting masses groped and crawled over one another to grab $100 bills floating down from the sky. What started as a few minor inconveniences for

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

Drop us a line at insider@ausbroker.com

the bank and its customers was reported as a veritable orgy of free money, police desperately trying to keep the proletarian masses at bay while they lined up 50-deep to rort the easiest pokie machine in town. Now, after some of NAB’s ongoing technical problems, Insider can see why his media colleagues were so eager to jump on this story and milk it for everything it was worth. He would just like to admonish them that sensationalism isn’t necessary, considering how many bizarre and tantalising true stories are out there in the banking and finance industry. In the world of finance, truth is usually much stranger than fiction.

field whether it is hairdressing, cooking, financial planning or finance broking, expertise is only gained by diligent application of the individuals concerned to achieve the required goals. There are no easy roads. Please always remember it is not the training or education that causes clients to lose money; it is more aligned to the ethical behaviour of the particular advisor about doing the right thing even when no one is looking.”

Fair, or hair advice?

W

hat’s the difference between a financial planner and a hairdresser? Well, not much, according to a recent article in the Weekend Australian Financial Review, which compared the relative ease with which financial advisors can start recommending financial products, and the hard work and time required by hairdressers to gain their official qualifications. “Many people who seek help navigating the complex world of financial products are still at the mercy of poorly qualified, commission-driven financial planners – but at least their hairdresser is professional,” the article claimed. However, Jeff Mazzini from AAMC Training Institute was quick to defend advice professionals, issuing a point by point explanation of financial planning qualifications.

He concluded by remonstrating with the AFR for their article.

“I took five years to complete my studies via an Australian university and can assure you it’s not the time of the delivery of the training, it’s the education that is given once you are in the field working in your new-found profession At the same time in any employment or workplace

ASIC atwitter

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nsider may often be a bit slow in taking up new and emerging technologies, but he was recently put to shame

by ASIC, which has moved to the emerging frontier of today’s information-saturated, social media-driven society by joining…

Twitter. That’s right. Your favourite bureaucratic watchdog (which conceivably should be a tad more ponderous in its movements than the average mortgage broker or mortgage broking commentator) has announced that it will pilot the use of Twitter as a means to deliver essential updates – including those overbearing warnings that you had better watch out for the NCCP! ASIC has assured those who follow the regulator on Twitter will only receive alerts about new registry services or content on its website, rather than the random insights or gossip being spread among the licence processing team, or the current whereabouts of members of its undercover enforcement officers (although that could in some cases be handy information).

Insider hopes to follow ASIC – if

he can ever bring himself to join the micro-blogging site.

Until then, readers will have to put up with his slightly longer printed ramblings.

Who are you?

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word to the wise, brokers: when taking on new clients, make sure they’re not TV writers. An American couple (who are real estate agents, not actual brokers) found themselves unwillingly thrust into the spotlight when a former client turned out to be a writer for CSI. The client decided to use the real-life couple, Scott and Melinda Tamkin, as inspiration for characters in an upcoming episode of the crime drama. The only problem is she decided to make Scott a booze-swilling, pornaddicted failing mortgage broker who was the primary suspect in the death of his wife. The fictional Scott, wiped out by the GFC, was under investigation for the fictional Melinda’s murder. Spoiler alert, but it turns out Melinda did herself in by taking an overdose of fluoride-rich toothpaste. That’s the kind of slice-of-life realism we’ve come to expect from CSI. By the time the show in question aired, the last name of the Tamkins had been changed, but not before casting details listing the characters as Scott and Melinda Tamkin had been released on the internet. The Tamkins sued for defamation, but lost, with the judge declaring there were enough differences between the real and fictional Tamkins that no reasonable person would confuse them. Insider at least hopes the Tamkins got their own cheesy CSI opening joke when the episode aired. He can see it now: Police officer: Lieutenant, it appears she was murdered with an overdose of Crest Extra Fluoride.

Lieutenant: Looks like our victim … [lowers sunglasses] had a brush with death.

YEEEAAAAHHHHH!!!!!

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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 BANKS Commonwealth Bank 13 20 15 www.commbank.com.au Page 9 AGGREGATOR/WHOLESALE BROKER Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au Page 17 LoanKit 1800 466 085 www.loankit.com.au Page 10 PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 11 COMMERCIAL Acuity Funding 02 9484 0609 www.acuityfunding.com Page 12 Banksia Financial Group 1800 333 114 www.banksiagroup.com.au Page 7 LENDER Austfin Group 1300 661 212 www.afal.com.au invest@austfingroup.com.au Page 14 Citibank Mortgages 1300 652 059 www.mortgagebroker.citibank.com.au Page 18, 19

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Homeloans Ltd 1300 787 866 www.homeloans.com.au Page 23

Rapid Capital 07 5562 2485 www.rapidcapital.com.au Page 6

Liberty Financial 13 11 80 www.liberty.com.au Page 3

MORTGAGE MANAGER / NON-BANK National Finance Club 1300 327 600 www.nationalfinanceclub.com.au Page 25

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

Premium Capital Finance 1800 25 11 11 www.pcapfinance.com.au Page 21

Pepper Homeloans Phone: 1800 737 737 Website: www.pepperonline.com.au Page 13 Provident Capital 1800 668 008 www.providentcapital.com.au Page 4 Westpac www.westpacbrokerbase.com.au Page 5 SHORT TERM LENDER Interim Finance 02 9971 6650 www.interimfinance.com.au Page 34 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

OTHER SERVICES Trailerhomes 0417 392 132 Page 30

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

Residex 1300 139 775 www.residex.com.au Page 35 RP Data 1300 734 318 www.rpdata.com Page 27 Veda Advantage 1300 921 621 www.vedaadvantage.com sales@vedaadvantage.com Page 15 WHOLESALE Resimac 1300 764 447 www.resimac.com.au Page 36

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