Celebrating 10 years
www.brokernews.com.au issue 11.7
Charting the rise (and fall) of Australia's top banks annual Brokers on banks survey p24
Âť
2011
contents / issue 11.7
38
48
Home help Guarantor mortgages can provide first homebuyers with a well-needed leg-up, but what happens when complications arise?
Comprehensive credit reporting Australia could be set to make major changes to the way it uses and scores credit information, but how will it affect the mortgage industry?
Weekly investigations Now online:
cover story 24 | Brokers on Banks 2011 Advisors have their say on products, service, rates, turnaround times, commissions and more
2 | brokernews.com.au
The suitability of Skype for client interviews The Senate inquiry’s exit fee stance Mortgage managers » brokernews.com.au
contents / issue 11.7
18
NEWS ANALYSIS 12 | The Big Story A compilation of the top quotes from our weekly multimedia broadcasts
FEATURES 38 | Comprehensive credit reporting Australia could be set to make major changes to the way it uses and scores credit information, but how will it affect the mortgage industry? 44 | Strength in numbers The pros and cons of brokerage consolidation
44
48 | Home help Guarantor mortgages can provide first homebuyers with a well-needed leg-up, but what happens when complications arise? 56 | Whole new world MPA speaks to six leading exponents of wholesale funding
COLUMN 52 | Back to school Recent changes to the MFAA’s minimum qualification
4 | brokernews.com.au
requirements could mean you have to put your head back in the books
PROFILES 18 | New PLAN CEO Trevor Scott shares his lofty ambitions for the aggregator and the third party channel as a whole 42 | MFAA chief Phil Naylor talks licensing, securitisation and DEFs on the eve of the association’s national convention
STATS 66 | This month’s statistics roundup places the first homebuyer sector under the microscope
LIFESTYLE 70 | A day in the life of…Mark Bouris, Yellow Brick Road 72 | My favourite things…Jon Denovan, Gadens Lawyers
News / round-up
brokernews.com.au | 5
contents / editor’s letter
Take it to the bank(s) Welcome to what is possibly the most eagerly awaited issue of MPA of the year, the Brokers on Banks edition. Now on its ninth instalment, the annual survey provides brokers with the opportunity to sound off about their experiences with the top 12 banks over the past year and allows the lenders an insight into what introducers really think. I won’t give the game away here, save to say there is a new winner this year and it triumphed in convincing fashion. Look out for next month’s sequel too, when banks will be reacting to the results. Elsewhere in the issue, we look at complications that can emerge with guarantor mortgages, a product that has soared in popularity as first homebuyers continue to struggle with affordability issues. We examine the latest changes in terms of credit reporting and explain the potential benefits of merging with one of your counterparts. We also look at why you may need to update your qualifications to meet new MFAA criteria, speak to some of the key players in the wholesale funding sector and compile the latest highlights from our online multimedia section in our Big Story roundup. We catch up with Trevor Scott to listen to his ambitious proposals for PLAN, profile MFAA chief Phil Naylor and find out more about Yellow Brick Road’s Mark Bouris and Jon Denovan of Gadens Lawyers. Finally, voting for our Brokers on Non-Banks closes on 4 July, so make sure you visit brokernews.com.au and vote if you haven’t already. Enjoy the new-look magazine and all the best for a busy month. Barney McCarthy, Editor
connect
Contact the editor: barney.mccarthy@keymedia.com.au
6 | brokernews.com.au
COPY & FEATURES Editor Barney McCarthy contributor Andrea Cornish production editors Carolin Wun, Moira Daniels, Hayley Beullens
ART & PRODUCTION design Paul Mansfield
SALES & MARKETING NATIONAL SALES MANager Rajan Khatak business development manager Lisa Tyras account MANager Simon Kerslake marketing executive Kerry Buckley marketing coordinator Anna Keane TRAFFIC MANAGER Jessica Jazic
CORPORATE directors Claire Preen, Mike Shipley chief operating officer George Walmsley publishing director Justin Kennedy associate publisher Rajan Khatak chief information officer Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Barney McCarthy tel: +61 2 8437 4790 barney.mccarthy@keymedia.com.au Advertising enquiries Sales Manager Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Account Manager Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media www.keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Hong Kong, Toronto www.brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as MPA magazine can accept no responsibility for loss
Printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry
News / round-up
brokernews.com.au | 7
News / round-up
Banking
Australian banks make global podium FHBs
Bills are too high A survey of mortgage brokers has found cost of living pressures – rather than RBA rate rises – are the main deterrent to borrowers. The research by Loan Market indicated 42% of brokers believe rising living expenses are behind recent drops in home loan approvals. Only 14% saw affordability as a barrier to potential first homebuyers and 15% indicated flat property prices were behind home loan declines. Just under a third of brokers said borrowers were wary of impending rate hikes. Loan Market COO Dean Rushton said the rising cost of many basic necessities may be pricing potential buyers out of the market. “Many people simply can’t take on home loan credit when they are paying increased petrol and food costs as well as higher charges for utilities,” he said. These results mirrored those of a survey of consumers. A Loan Market consumer poll found only 12% considered rising interest rates a deterrent. However, 65% of consumers tipped affordability as their primary concern.
LMI
Providers not paying in full: Fitch Australian LMI providers often fail to pay claims in full, placing LMI-backed RMBS transactions at credit risk, according to new information from Fitch.
8 | brokernews.com.au
An exposure draft from the credit ratings agency has indicated that while LMI providers in Australia rarely deny valid claims, the claims are infrequently paid out in full. Natasha Vojvodic, head of Australian structured finance for Fitch, said surveillance indicated the adjustment of
claims by LMI providers is relatively common. As a result of the exposure draft, 54 tranches of Australian RMBS have been placed on a negative rating watch. Should the exposure draft be implemented, Fitch said the tranches would be downgraded by multiple categories.
fact: 42%: percentage of brokers who think cost of living expenses are behind home loan approval decreases. Source: Loan Market
In spite of widespread public criticism of the banking sector, Australians have ranked as the third most satisfied bank customers in the world in a global survey. The Capgemini World Retail Banking Report found Australia ranked just behind the US and Switzerland in customer satisfaction. The report indicated 70% of Australians were satisfied with their banks, while the global average of satisfaction came in at 59%. The research also found that banks worldwide are falling short of meeting customers’ needs in the area of banking channels. Globally, customers identified the branch and internet channels as the most popular, but fewer than 50% reported having positive experiences with either channel. The findings predicted that use of the branch channel will shrink in the years ahead, with online banking becoming more popular. European Financial Management Association secretary general Patrick Desmares said banks worldwide will need to rethink their branch channel strategy in order to remain relevant. “Though the branch remains the favoured channel, it cannot persist in its current form due to high costs and changing customer preference,” Desmares added.
News / round-up
brokernews.com.au | 9
News / round-up PROPERTY
10-year low for housing finance The housing industry has called for stimulus, with the number of home loans now hitting a 10-year low according to the ABS. The ABS data for March indicates a 1.5% seasonally adjusted drop in the number of home loans. This is the lowest since February 2001, and follows a 4.7% decline in February. The decline ran contrary to most
economists’ expectations of a 2% increase. HIA chief economist Harley Dale said government stimulus is needed along with interest rate stability in order to revive the ailing market: “The clearest signal is the need for federal and state governments to step up to the plate and deliver on stimulus and reforms to reduce the cost of new housing.”
rATES
Aussie teams with Macquarie; cuts rates
PROPERTY
Housing collapse unlikely: ANZ Despite a flatlining of home values, ANZ has claimed significant falls are unlikely. In its Pan-Regional Housing Outlook, ANZ stated a “wholesale downward shift” in house prices was unlikely to arise. The bank pointed to low
10 | brokernews.com.au
unemployment figures, saying that a strong labour market and wage growth will make forced sales of homes rare. Though the report has dismissed the possibility of sharp declines, it stated that house prices are also unlikely to rise in the near term. “Rising rates and deteriorating affordability will cap price gains and we expect little movement in house prices over the year ahead,” ANZ said.
fact: February 2001 – the last time the number of home loan approvals was as low as March 2011. Source: ABS
Aussie Home Loans has cut rates following the unveiling of a funding partnership with Macquarie. The lender has cut variable rates on its Optimizer home loan to 6.99%, regardless of loan size and LVR. The loan also carries no ongoing account keeping fees. Aussie executive chairman John Symond said the lender has secured new lines of funding “worth billions of dollars”. “We are delighted to be teaming up again with Macquarie, as together we revolutionised the home lending market in the 1990s with securitisation, which forced the banks to drop their high rates by nearly 3%,” Symond said. He claimed Aussie would be aggressively marketing low rates and customer service. He took the opportunity of the announcement to ramp up rhetoric against the major banks, threatening to erode their market share with the rate cuts. “The global financial crisis has seen the big banks regain the ascendancy in the mortgage home market and we intend to take back their market share gains through a combination of lower rates than the major banks, and great service,” Symond concluded.
News / round-up securitisation loans
Intermediary loan volumes shrink in April The number of loans submitted by brokers plummeted in April, according to Stargate. Its Symmetry Market Index for April reported a decrease in loan volumes across a number of lenders.
DOWN 38% Westpac
DOWN 28% NAB/Homeside DOWN 21% Bankwest
DOWN 13% CBA
FBAA denounces Canadian model FBAA president Peter White has argued against the Canadian securitisation model touted by many as the answer to all ills. In the Senate banking inquiry into banking competition report released last week, the Senate Economics Committee has recommended the adoption of a Canadian-style securitisation market, but White said: “The Canadian model is basically Fannie Mae and Freddie Mac. History has shown any fully government-run securitisation model has screwed up.” White suggested, in line with the Senate inquiry’s recommendation, that barriers to foreign entry into the Australian banking market be removed. “APRA and the government need to make the entry of overseas banks not so cumbersome. It’s stopping competition from other countries coming here, which would make the Big Four more competitive.”
“The Canadian model is basically Fannie Mae and Freddie Mac”
brokernews.com.au | 11
News Analysis / Multimedia
the Big story
01
On the topic of…the Senate inquiry rejecting the exit fee ban Phil Naylor, MFAA “We’re really delighted with the inquiry’s recommendations. We spent a lot of time and effort in preparing submissions to go to the Senate Committee and appearing before them, and it is great that they have accepted what we put to them. They’ve accepted the strength of our argument which was that removing DEFs would decrease competition and not increase it, as the government was suggesting.”
Every week, Australian BrokerNews rounds up influential figures to discuss the major issues in the mortgage industry. You can watch these bite-sized videos online in the multimedia section of our website, but here we bring you the highlights from last month’s clips
WATCH IT now!
visit our website: www.brokernews.com.au
12 | brokernews.com.au
brokernews.com.au | 13
News Analysis / Multimedia
This month’s guests... Phil Naylor, MFAA
Steve Sampson, Provident Capital
Jon Denovan, Gadens Lawyers
Andrew Hawking, Mortgage Choice
Barrie Gaubert, IDEN
Steve Sampson, Provident Capital “It’s good that there has finally been recognition of the situation that most of the industry has been talking about – not banning DEFs and ensuring the housing market is kept as competitive as possible.” Jon Denovan, Gadens Lawyers “It’s not going to be a popular thing to go to the public and say we’re stopping the government banning exit fees.”
SS “It sounds great and the rhetoric is excellent – you can change lenders quickly and it won’t cost you, but the fact is it will cost you because it costs lending institutions money to bring a client to bear and it takes time before they make a profit from that.” JD “Imagine if we had a law that banned retail shops from having sales. What’s that got to do with this? Well, when you go to a sale that is 30% or 40% off, there is a term or a condition that says you can’t return the goods because it’s a clearance sale – that’s what non-banks were doing. They were giving you a low interest rate, but you had to keep the goods for a while. I reckon Mr Swan is on a bit of a roll here; he might ban cheap airfares and department store sales, too.” SS “I’m not a mind reader, but Swan did
Kym Rampal, LoanKit
Tony Bice, First Choice Mortgage Brokers
have information and advice before, similar to what the Senate inquiry has recommended, so I’m not all that confident that he will relent. Let’s hope the government does see some sense and the outcome is not banning DEFs.”
PN “I’ve had discussions through our various membership committees – especially in the mortgage management
Simon Dehne, Mortgage Choice
Tanya Sale, Outsource Financial
14 | brokernews.com.au
and non-bank lending areas as they are the ones that are most vitally affected – and a lot of them are starting to make alternative plans, but they are interested to see if the Senate’s recommendations can come off.”
JD “What you do depends on who you are. If you’re a big institution, it’s like turning the Queen Mary around and it takes a lot of time to make a decision and implement it. Smaller businesses can react faster. The big banks have all removed exit fees more or less and the others should start thinking about the other strategies available.” PN “The recommendation to boost the RMBS market is encouraging. What’s even more encouraging is the recommendation regarding getting the Treasury to investigate the Canadian mortgage bond model. We made some detailed submissions about the benefits of the Canadian model which has been very successful in providing securitised funds to the mortgage industry and especially the non-bank lenders.”
SS “The Canadian government has backed their RMBS market to the tune of $300bn or $400bn, while we boosted ours by $20bn. There is a lot more that can be done in that area. That’s the key to real competition in the industry – being able to get the funds in that we can lend out at a reasonable rate.” JD “It’s encouraging that people keep waving the RMBS flag and saying we should adopt the Canadian model, but as fast as we seem to be saying yes, the Treasury is saying no. Until he starts turning his ship around, we’re not going to get very far.”
“Let’s hope the government does see some sense and the outcome is not banning DEFs”
News Analysis / Multimedia
brokernews.com.au | 15  
News Analysis / Multimedia
02
On the topic of… mortgage managers Andrew Hawking, Mortgage Choice “Within the Mortgage Choice offering, we’re still seeing a normal state of play regarding mortgage managers. We haven’t formally been advised as to what they intend to do regarding the DEF ban. Interest rates and application fees are still quite competitive and it’s business as usual.”
Barrie Gaubert, IDEN “[The DEF ban] is a concern of ours. Customers could make a mortgage much more of a product and start skipping every 12 months. If that occurs, it’s not good for the industry.”
Kym Rampal, LoanKit “Mortgage managers’ rates are still a little bit lower than most major lenders as they didn’t raise their rates as high during the cash rate increases.”
AH “What they actually have to do is think about what they are going to offer and how they are going to offer it, to the public and to the brokers themselves. If they hike fees and rates and have an extended clawback period, it’s not going to be as attractive.” BG “I think it’s fair to pay the broker and it’s unfair to be clawing back on them in the first 12 months. I’m trying to find a way to live in the new regime that allows me to avoid the DEF if at all possible.”
KR “You can absorb the DEF into the loan itself and repay it slowly to the borrower over a period of time. So, if the borrower remains for the first year, a part of the loan is credited back so it drops the loan balance and the same thing after the second year, so the longer the borrower stays, the loan balance automatically reduces each year.”
AH “Mortgage managers have had to reinvent themselves over the last two 16 | brokernews.com.au
years. During the GFC, most mortgage managers identified certain niches within the market which they could service well.”
KR “With the major lenders, brokers don’t really get access to the credit officers who are making the decisions and this slows down the process and inhibits a broker’s ability to explain the client’s circumstances and why a deal should go through. With mortgage managers, they can speak to the credit teams so cases are treated more with respect rather than according to policy.”
03
On the topic of… the suitability of Skype for conducting client interviews Tony Bice, First Choice Mortgage Brokers “Aggregators not embracing new technology will only leave their competitors a step in front. History is littered with companies that have failed to embrace technology only to see their competitors go from strength to strength.”
Simon Dehne, Mortgage Choice “It’s like when fax machines first came out and people were unsure why they needed to use them or how to prove the validity of documents. Skype and video-conferencing will become an acceptable norm in the not-too-distant future. I think it comes down to whether the lender is comfortable with the process and trying to minimise fraud, something we all need to be aware of.”
TB “Brokers are not obligated to meet with their clients face-to-face, it’s up to them. Clients will dictate whether they want to meet with you in person or if they’re happy to meet online.”
Tanya Sale, Outsource Financial “If people are saying it has to be in the flesh and there is a blanket rule on that, it’s a silly tactic and we are isolating our rural and country people. Skype is the perfect way to do an interview and if the writer adheres to all the anti-money laundering requirements regarding identification, there should be no problem.”
TB “Online technology has opened up my business to a whole new world. I can now liaise with clients in other states and rural areas. They may only be an hour away, but if they are happy to do an online interview, it saves them time and saves me time. The internet is a key part of my business and I get a lot of leads through the web. These people are obviously tech-savvy to start with and are comfortable with the fact they have gone online, sought out a broker, and spoken over the phone, particularly Gen Xs and Gen Ys. My whole business is built around embracing technology.”
SD “The key question is what the customer wants. Any business model that decides it is going to use videoconferencing needs to tick the boxes around fraud and check whether the customer is happy with it.” TS “I don’t think face-to-face meetings will become a thing of the past because there will still be a percentage of the community that feel comfortable with it and want the touchy-feely approach.”
“Skype and video-conferencing will become an acceptable norm in the not-too-distant future”
News Analysis / Multimedia
brokernews.com.au | 17  
Profile / Trevor Scott
broker to
boss PLAN CEO Trevor Scott is a passionate supporter of the broker industry and a big believer that brighter days are ahead for brokers
LAN CEO Trevor Scott has a bold vision for the broking industry. “We estimate that, at present, 40% of Australian home borrowers use brokers,” he says. “Personally, I would like to see that increase up to 50% over the next two to three years.” Considering the third party distribution channel has hovered around the 40% mark for several years now, it’s a big call – but not entirely out of reach. Recent statistics from the Market Intelligence Strategy Centre reveal that brokers posted a 7% jump in loan volumes to $14.8bn during the December quarter 2010. The hike marked a huge turnaround for broker-sourced lending which previously dropped in five successive quarters.
18 | brokernews.com.au
brokernews.com.au | 19
Profile / Trevor Scott
Scott admits that the industry has a lot to do in order to get there, but says helping achieve it will be one of his challenges. It’s just one of many goals Scott has set for himself in his new role as CEO of PLAN. He took over the role from outgoing head Ray Hair in March and concedes he’s got a lot of ground to cover in his new post. “The learning curve is stellar. You could probably say at this point that it’s vertical. Ray Hair’s shoes are big ones to fill – he’s been an icon in the industry for many, many years,” he says. “Having said that, it’s an opportunity to move in a new direction. Nine-and-ahalf years in one role for Ray is a long, long time and I think there’s an opportunity for me to take a whole new look at PLAN, at where it’s going and where we can add value to its members.”
White label success Despite being new to the role, Scott is hardly a rookie in the industry. His appointment coincides with his five-year anniversary at Challenger/Advantedge. Prior to taking over as CEO, he successfully set up the broker platform distribution business, rolling out the white label program through PLAN, Choice and FAST. Since the launch of those white label products, Scott has grown distribution to over 5% through each aggregator. “We’ve had a lot of success with our PLAN Lending products,” he reports. “And I think one thing that’s changed in the last two years is brokers are much more willing to accept a white label product than they have been in the past. So I think we’ll see a lot more of that type of product development going forward. It will be very interesting to see what unfolds – it’s still early days yet.” Scott predicts even more brokers will warm to white label products as a result of the decline in competition from non-bank lenders. “The abolition of exit fees and deferred establishment fees has put a little bit of pressure on the non-bank lenders which is very unfortunate. Without those guys, the market will be heavily dominated like we saw in the GFC and I don’t think that’s a good thing for the industry. I think the more choice and the more lenders that are available in the market, the better it is for everybody because it keeps you on your toes.”
First-hand experience Scott’s long-time participation in the banking industry has seen him become a witness to the rise
20 | brokernews.com.au
“Without brokers we don’t have a business … we don’t have bricks and mortar, we don’t have mobile lenders” – trevor scott and fall of competition in Australia and its effect on the mortgage market. He got his start in banking and finance at a young age – joining State Savings Bank at 17 years. About 15 years ago, he became involved in the third party channel, an area he says he’s passionate about. In 2000, Scott became one of the founders of Bluestone Mortgages. He is also the founder and managing director of a boutique aggregation business called Majestic Mortgages, which was very successful prior to the GFC. Scott has also spent some time as a broker. “So I’ve walked a mile in the other man’s shoes,” he admits. “That really helps me understand the issues that are facing brokers today and this is where I think I can add value to the PLAN members.” Scott adds that PLAN has been a leader in the aggregation space for a long time, but its focus remains constant. “One thing I’m very mindful of is that without brokers we don’t have a business. We don’t have any other distribution channels, we don’t have bricks and mortar, we don’t have mobile lenders – we are solely reliant on broker distribution.” According to Scott, PLAN has always enjoyed a position of trust, which has put the business in good stead going forward. “We set up the system for managing commissions via a trust account – we were the first ones to do that. So I think we occupy a very good space in the market.” Positioning will be key going forward, as PLAN embarks on a recruitment drive in 2011 to try and recoup some of the member losses it experienced during the licensing transition. Upon Scott’s appointment as CEO, Advantedge general manager of broker platforms Steve Weston noted Scott’s longstanding service in the industry and reputation for being relationship and sales-focused would be particularly helpful in growing PLAN’s business. According to Scott, the series of roles that led to his current position have allowed him to meet with many
brokernews.com.au | 21
Profile / Trevor Scott
brokers across the country. “Apart from the downside of the travelling, it’s actually been very good for me because it means I know as many brokers in Sydney, Perth, Adelaide and Brisbane as I do in Melbourne. So that really helps me in the role as CEO of PLAN because I do know the local issues and understand what their businesses are about.” While he already knows about a third of PLAN members, Scott says one of his first goals is to get out and meet as many other brokers as possible. “That’s one of the things that I really want to do and it’s a personal challenge for me to get involved in their businesses and better understand how they work, what affects them on a day-to-day basis, what keeps them awake at night and come up with some solutions to some of their problems. I really want to roll up my sleeves and get in the trenches with those guys.”
Fee-for-service One topical issue that has divided brokers is fee-forservice. On this, Scott comes down in favour of brokers charging for their services. “I’m a big supporter of fee-for-advice,” he concedes. “There’s been quite a bit of chatter on whether it should be termed fee-for-advice or fee-for-service and my view on that is actually quite simple. If you look at an average PLAN broker who’s been in the industry for 10 years and they do, say, five or six loans per month that settle – that’s about 600 loans over the period of the journey and if you look at a 70% conversion rate, that means they would have looked at almost 1,000 applications in their time. When a borrower goes to use that broker, they’re getting 10 years’ experience on how to package loans properly – and lenders prefer loans packaged in a certain way – and on which borrower or profile will suit a particular lender, and I think that advice has intrinsic value and I don’t think brokers are exploiting that knowledge enough. If you go to an accountant, you’re expected to pay an upfront fee for their advice and I think we’ve been a little bit shy in putting forward the quality and
“Borrowers are warming to the fact that there’s real value in using a broker … from the knowledge point of view” – trevor scott 22 | brokernews.com.au
the knowledge we have as brokers.” He says the ones that do it well make very good incomes from the fee-for-advice and they have very low rates of losing customers as a result of charging for advice. “It’s early days, but I think borrowers are warming to the fact that there’s real value in using a broker from an impartiality view and from the knowledge point of view. So I think in the next two to three years we’ll see a sharp increase in the acceptance and the uptake of people willing to pay for advice.” According to Scott, fee-for-service, along with diversification, will really increase brokers’ incomes, although he confesses the latter isn’t for every broker. “I think the diversification argument is an interesting one – some models are set up for it so you become a holistic one-stop shop able to offer not only a mortgage product, but risk insurance and property insurance. On the other side of the ledger, some models really don’t cater for that. So I think we’ll always have a broker camp fitting into two groups – some will be for it, some will be against.”
Factfile Trevor Scott CEO PLAN
++ Hometown: Orbost, VIC ++ Family: Married, one son (20 years old) ++ Hobbies: Alpaca farming, music, playing in bands
++ Career highlights: • Joins State Savings Bank at age 17 • Helps found Bluestone Mortgages in 2000 • Joins Challenger/ Advantedge in 2006 • Launches Majestic Mortgages in 2007
Profile / Trevor Scott
brokernews.com.au | 23
Feature / Credit reporting
full picture? Australia is on the cusp of making major changes to its credit reporting regime, but whether the new system will be better for brokers’ clients is still up for debate. Andrea Cornish investigates
Australia’s credit reporting system is facing a major overhaul and in some minds, the changes are long overdue. Unlike developed economies such as the US and the UK, the current regime in Australia only reports ‘negative’ data – such as the fact that a loan application was submitted (but not whether it was accepted or rejected), defaults of greater than 90 days and bankruptcy. The source of the debt and the size of the default make no difference on the credit report – missing mortgage payments is as detrimental as failing a store credit card. Negative records stay on a borrower’s credit report for up to seven years – even if the bill has been paid in full. On the other side of the coin, someone who has applied for credit and never used it has just as good credit as someone who has dutifully paid their mortgage for 10 years. Credit reporting agencies store their naughty lists, and then sell the information – credit reports – to anyone keen on lending money.
38 | brokernews.com.au
But since 2004, the credit industry has been lobbying for change. Dun & Bradstreet, one of the reporting agencies spearheading the campaign, describes the current system as being outdated and claims Australia’s credit reporting laws provide an “incomplete picture of a borrower’s true risk profile”. However, the real catalyst for change was the National Consumer Credit Protection Act, according to the law firm Minter Ellison. A fundamental feature of the NCCP Act is a requirement for credit providers to collect and verify information about a loan applicant’s financial position, which is an underlying component of the loan ‘unsuitability assessment’ that all credit providers
One of the reporting agencies claims Australia’s credit reporting laws provide an “incomplete picture of a borrower’s true risk profile”
must investigate before entering into a credit contract. As such, the credit industry has been pushing for a privacy reform which will allow more comprehensive reporting to help them better understand a borrower’s financial position. After much review, the government released an exposure draft of the credit reporting reforms to the Privacy Act in February this year. Under the proposed changes, an individual’s credit file would now contain a greater amount of information to give lenders a more comprehensive picture of the potential borrower. The revised ‘comprehensive reporting’ scheme includes five new areas of information: the type of each active credit account a person holds; the dates in which the account was opened and closed – if it was closed; the amount of credit available; and information about repayments. The new scheme has since been referred to the Senate Finance and Public Administration where it is currently under review.
Advantages According to Dun & Bradstreet, comprehensive credit reporting holds several advantages for both lenders and borrowers, such as: • reduced default rates • improved access for under-served demographics to the mainstream credit system • greater market competition • enhanced responsible lending practices • greater ability for borrowers to ‘shop around’ for credit cards Veda Advantage defended the new reporting scheme against criticisms that the system would deny credit to worthy borrowers. Spokesperson Chris Gration says there is nothing “draconian or big brother” about the law and claims the comprehensive credit reporting would only deny credit to borrowers unable to service a loan, which reflects the intent of NCCP legislation. “Comprehensive credit reporting very significantly improves the capacity of the lender to work out if a consumer can afford the loan,” Gration explains.
brokernews.com.au | 39
Feature / Credit reporting
ACCC investigates new credit data provider The ACCC is reviewing the possibility of a credit reporting service provider that is partly owned by the major banks. Under the proposal, the four major banks will have a 4% stake in Experian Australia Credit Services. Britain’s Experian group will own 76%, while Citigroup and GE join the remaining shareholders. The joint venture would provide consumer and business credit information to lenders. Competitors such as Veda Advantage and Dun & Bradstreet have raised concerns about the proposal. As part of its review, the ACCC will examine to what
extent Experian could prevent rivals’ access to credit data and how this would affect competition. It will also investigate rival agencies’ access to their customers. The terms of the joint venture allow investors to use rival agencies; also, it is expected investor banks will continue to supply data to rival agencies. One other issue will be whether Experian would provide the same terms to other banks and credit unions as they do to investors. Changes of note Noteworthy changes proposed in the new credit reporting scheme include: • For an individual’s late
“National Parliament has passed laws that basically say ‘we don’t want consumers who are overcommitted financially being likely to be able to get loans’.” Gration also says there is an advantage in comprehensive credit reporting for borrowers with good repayment histories, pointing out that those borrowers could be able to demand rate discounts. Home Loan Experts director Otto Dargan also sees potential in the new scheme for rate discounts. “If Veda Advantage gives every credit file a score, similar to the US’s FICO score system, then borrowers can use this as a bargaining chip when shopping around for a rate,” he says. “Several lenders have already shown an appetite for ‘rate for risk’ lending by offering discounts for low-LVR loans. I expect these same lenders will consider a credit score-based interest rate as well. If the current system remains where the banks do not use a score from Veda, and instead generate their own score, then there is still the potential to have a rate for risk system similar to the one already used by nonconforming lenders or Esanda with vehicle finance. However, because every lender would have their own scoring system, this would be less transparent to consumers and so would be more difficult to market.” Dargan also says the new reporting system will make it harder for borrowers to commit “soft fraud”. “In the current market it is too easy for borrowers to hide their existing debts,” he states. “If positive credit reporting
40 | brokernews.com.au
can help lenders identify undisclosed debts or past repayment problems then this will help the entire industry.” payment history, late payments will only be The new system may even recorded by banks and encourage Australians to manage lenders in terms of payment their finances better, Dargan says. cycles ‘missed’ – which are “In the US, most people are well measured monthly. aware of what information is taken • If you miss a utilities bill repayment, this will not into account by the FICO score negatively affect the system, and so they actively manage borrower under the new their finances to try to achieve a legislation as utilities better score,” he observes. “There providers do not have access are even people who brag about to the system. Only NCCP regulated credit providers their credit score or want to see can report or use repayment their fiancée’s score before getting history. (This information will married. At the moment, very few not be available alongside Australians even know what credit payment history.) scoring is. If Australians become • Repayment history will only be available for the last aware of how the scoring system two years. works then they may try to make their payments on time, every time, in order to increase their score.” The Mortgage Planner Group’s principal Darryl Benn is also looking forward to the changes, as he believes it will provide a better outcome for borrowers. “The current system is based purely on negative reporting and I have had concerns with agencies for a number of years as they have, on many occasions, unfairly jeopardised a consumer’s capacity to borrow.” A number of clients have been burned through no fault of their own, Benn says. “I recall loans being refused when one telco listed all accounts as in default when they went into liquidation and the consumer couldn’t actually pay them. When it came to LMI they just wouldn’t listen.”
Weighing it up ADVANTAGES Reduced default rates Improved access for underserved demographics to the mainstream credit system Greater market competition Enhanced responsible lending practices Greater ability for borrowers to ‘shop around’ for credit cards
DISADVANTAGES Protection of privacy and controls over data access and usage Data reciprocity Data quality Complaints handling and dispute resolution standards Governance and oversight framework
Benn says he’s had clients who had excellent credit histories, lost their jobs and went into default. Despite regaining employment and clearing their debts, they continued to be penalised for years. Benn also argues that clients should not be rejected based on the number of enquiries they’ve made. “If a person does not proceed with those enquiries, they should be removed.”
Disadvantages But the new system is not without its detractors. Potential drawbacks flagged by lenders were: • protection of privacy and controls over data access and usage • data reciprocity • data quality • complaints handling and dispute resolution standards • governance and oversight framework Oasis Mortgage Group’s Graham Reibelt recently came out swinging against the new regime, stating that it would empower lenders enormously and impact the majority of clients’ credit worthiness in a negative way. He also suggested brokers would be pushed into the non-conforming space as a result. “If lenders do a bit of an audit, then they can uncover an awful lot of information that hasn’t been disclosed fully,” he warns. “A customer may have understated the credit limit on their credit card, or fallen behind on a store card, but are not always a bad credit risk. We don’t always need or want the whole truth, particularly when the information isn’t of material importance. It’s a bit like your wife asking, ‘does my bum look big in this?’ ” Credit reporting lawyer Joseph Trimarchi of Joseph Trimarchi & Associates says the new reporting system may catch out clients who are on the borderline for lenders and could penalise borrowers who were late making payments, but not yet listed in default.
“The current system is based purely on negative reporting... I‘ve had concerns for a number of years” – Darryl Benn According to Dargan, the new system could limit access to credit – at least in the beginning. “Banks will take time to adjust, and will start off by being conservative,” he predicts. “However, after this initial period, the banks may consider lending to customers who have adverse listings as long as they have a good track record of behaviour with their other accounts. It can help separate someone who has had a one-off problem from someone who can’t handle their finances.”
Change for brokers Resi CEO Lisa Montgomery acknowledges that the new reporting scheme could prompt brokers to adjust their interview process. “If the borrower discloses past credit issues early in the loan discussion, it may prompt the broker to bring forward the request for a credit report. Again though, this will depend on whether all financial institutions embrace positive credit reporting.” But Dargan is confident brokers will change their interview practices. “Many brokers will carry out a credit check as part of the interview or will request customers to order a copy of their credit file prior to the meeting. You can’t accurately recommend a loan if you don’t know anything about the customer’s credit history.”
brokernews.com.au | 41
Head to Head / Phil Naylor
CEO & A Q: Has this been the busiest year of your professional career, what with the introduction of regulation? A: It’s hard to say whether it’s been the busiest,
but it has clearly been the most intense in ensuring the regulators got the content and thrust of NCCP right.
Q: Have as many mortgage brokers left the industry as a result of the new regime as were expected? A: It is hard to quantify and evaluate as to
whether those leaving the industry have done so as a result of NCCP or for some other reason. A helpful measure is MFAA’s membership numbers. Before the GFC, it stood at 13,800; now it is 12,145. Some of this drop occurred before NCCP and is probably attributable to market conditions such as commission cuts. We envisage that maybe as a result of NCCP, the numbers could fall by another 10%, meaning a total fall of about 22%.
Q: Can brokers increase the share of the market they account for? Will licensing help with this? A: I believe the broker market share can increase, but this will be dependent on brokers realising and acting on the value they bring to the client. This is now focused much more on being a trusted credit advisor than the transaction itself. NCCP should assist in this regard as it focuses on brokers providing credit assistance.
Q: We’ve heard plenty about the benefits that licensing will bring, such as increased professionalism and perception of the mortgage 42 | brokernews.com.au
As CEO of the MFAA, Phil Naylor could lay claim to being one of the most hard-working figures in the Australian mortgage industry over the past 12 months. Barney McCarthy caught up with him before the association’s annual convention in Brisbane
industry, but are there any potential disadvantages? A: One potential disadvantage was that regulators
Out of office In winter I’m very involved in my sons’ rugby as an assistant referee. Not only is it good exercise, but it’s the best seat in the house. I also occasionally play in a rock band called The Quiet Ones. We’ve raised about $20,000 for charity over the past few years.
would go overboard and follow the complexities in compliance that came from the Financial Services Reform Act (FSRA). However, from the beginning we worked closely with the regulators to avoid that result and although there are more compliance requirements than existed prior to NCCP, I think they have got the balance pretty right and certainly nowhere near the issues that resulted from the FSRA.
Q: Is further securitisation vital for the future health of the market and the non-bank sector? A: Yes, it is. We have lobbied the government to consider the Canadian mortgage bond model. This has worked well and has provided Canadian lenders (both banks and non-banks) with a competitively priced flow of funds before, during and since the GFC. Unfortunately, criticism of the Canadian model is based on a lack of understanding of its features. It is quite different to the flawed US models, and the fact that it weathered the GFC storm is testament to this. We went to Canada last year to study its effectiveness and it is hailed by lenders, brokers and the regulators in Canada. The expense in generating funds is significantly less than available funds in the global markets and the non-bank lenders are holding their own in Canada. We are somewhat encouraged that the recent Senate Committee report recommended that Treasury develop a plan to introduce a support program similar to that operating in Canada, but this was only suggested if future market deterioration occurs. Our concern is that if such a plan is only put in place on an ad-hoc basis, it misses the point.
Q: What is your take on the DEF ban and the subsequent clawback situation? A: The ban is based on a populist view that banning fees in general is good. However, the reality is that the strength of the DEF model is not in the collection of fees, but in ensuring the ability of smaller lenders to be aggressively competitive by having borrowers committing to
“The broker market share can increase… dependent on brokers acting on the value they bring” stay with the lender for the agreed period. Being able to easily switch lenders is only a benefit to consumers if there is a range of choices to switch to. If non-banks are squeezed, there will be a much more restricted choice to switch to and that cannot be good for competition or the consumer. While clawbacks have been a feature of the lender-broker relationship for some time and have been the subject, from time to time, of aggravation from brokers as to the circumstances of their implementation, they assume a higher level of interest and concern when considered in conjunction with exit fees. Clawbacks have clearly been used as a disincentive to brokers to encourage borrowers to switch lenders. In fact, they’ve done more than that. Brokers have been sanctioned when the customer’s decision to switch has had nothing to do with them and, in many cases, takes place unbeknown to them. That means on the one hand, we have a government-enforced incentive for consumers to switch lenders, and on the other, a lenderenforced disincentive for brokers to encourage, or even allow consumers to innocently switch lenders. What message is being sent here for brokers? ‘It’s OK to encourage another lender’s borrower to come to us, but you will be punished if one of our borrowers switches to another lender, whether or not you were involved?’ The industry will have to deal with the repercussions for brokers sensitively and sensibly. The bottom line for the MFAA is that we hope that the Senate Committee recommendation that the government should reconsider the exit ban will find support in Canberra.
brokernews.com.au | 43
Stre numbe
Feature / Consolidation
in
44 | brokernews.com.au  
ngth rs Compliance costs and lenders’ volume targets are pushing many broker groups into each other’s arms. MPA investigates the do’s and don’ts of consolidation
Like the Wild West, the early days of the mortgage industry were dominated by individualists and entrepreneurs. But sweeping consolidation driven by regulation and the growing need to achieve economies of scale has altered the landscape. Research from the Market Intelligence Strategy Centre (MISC) revealed that last year alone the number of broker groups (which includes aggregators) dropped from 190 to 138 – representing a 27% decrease. Significant mergers in 2010 included Firstfolio’s acquisition of Club Financial Services, Key Invest’s acquisition of First Rock, and the emergence of Vow Financial. According to MISC, the top six mergers of 2010 involved more than $30bn of loans under management. Meanwhile, the previous year only saw three significant mergers – not the least of which was the creation of Advantedge which brought together PLAN, Choice and FAST in 2009. Despite the widespread change, consolidation does not appear to be slowing. National Finance Club chief operating officer Lawrie Moore says many brokers will be forced to join together to meet compliance requirements and lenders’ volume targets. He also predicted larger broking franchises will see growing membership as small outfits and solo operators find it increasingly prohibitive to stay in the industry. According to Moore, new entrants would find it increasingly difficult to be solo operators, as a larger
organisation “provides access to a broad range of lenders and established training and compliance programs”. So whether you’re an aggregator group or a solo operator – at some point you may have to look down the barrel of consolidation. Case study 1:
Tiffen & Co/The Mortgage Detective Tiffen & Co/The Mortgage Detective is one of Canberra’s largest broker groups, with nine mortgage brokers (all with five or more years of experience) and an administration team of six. It boasts a portfolio of funds under management of $1.2bn and has collectively helped more than 19,000 borrowers in the Canberra region achieve their dream of home ownership. Director of operations Alison Whittle joined her business, The Mortgage Detective, with Gerard Tiffen’s Tiffen & Co in 2008, but their association actually began three years prior. In September 2005, Whittle and Tiffen were involved in Mosaic Financial Services – a venture that brought together five independent broking companies from around Australia, with a view to establishing a cooperative aggregation company. Mosaic merged with National Mortgage Brokers (nMB) in 2008. “From these beginnings, Gerard and I had developed a respect for each other and our respective businesses,” Whittle says. She adds that some key components triggered discussions of a potential merger, which included: their businesses aggregated through the same
brokernews.com.au | 45
Feature / Consolidation
“Melding the two businesses together was a matter of finding what works best” – Alison whittle, The mortgage detective company, the same CRM platform and similar customer service philosophies. Discussions started in May 2008 and the transaction was completed in October. “A lot of time and effort went into finetuning the details of the merger so that all parties involved were satisfied,” she says, adding that while it’s important to take as much time as is required, you need to “continue moving through the process without losing the momentum”. Merging the businesses together was not without its challenges, she adds. “Regardless of the similarities prior to merging, it was effectively two business owners who had been relatively independent for many years. Melding the two businesses together was a matter of finding what works best. This means relinquishing some control and sharing that process with your business partners. It’s been a great achievement to accomplish this and actually see it work. We now have a great team and environment that we are all proud to be part of.” To assist the two companies in the negotiation and implementation of the merger, they hired an independent advisor. Whittle says this was invaluable for all parties as it took away the emotion of the transaction and allowed everyone to concentrate on the end game. “It ensured that we had all the ‘right’ discussions upfront – not only the positives of the transactions but also the potential drawbacks.”
The merger has been quite positive for both businesses. Whittle points out that, as a result of the merger, they were able to achieve a range of benefits including the reduction in certain operating costs, rationalisation of administration staff, fixed salary allowances for key principals and the simplification of remuneration for commission-based brokers. “Also, by combining our sales teams we strengthened our competitive advantage in the Canberra market.” Growth for the business is always on the table for discussion, she says. “Our strategy moving forward is for further mergers or acquisitions. But whatever move we make we will ensure the integrity of our corporate synergy. Our culture is very important to us, and we don’t wish to compromise this for short financial gain.” Case study 2:
Mortgage Choice/LoanKit Mortgage Choice’s acquisition of LoanKit in 2009 marked a significant turning point for both companies. For Mortgage Choice, it was their first step into aggregation via its fully-owned subsidiary, Beagle Finance, while for LoanKit, it was a chance to grow and strengthen its position in the market. LoanKit CEO Kym Rampal says the merger provided the boutique aggregator with an opportunity for its brokers. “LoanKit was missing some key features,” Rampal says. “Compliance was a very hot topic at the time and with the introduction of NCCP regulations I saw that we would fall short.” LoanKit was approached by Mortgage Choice in July 2009. While it had received other offers to merge, Rampal says none of the other deals represented an opportunity for growth. “While they were bigger companies, they lacked the infrastructure to help us grow. But when the offer came through from Mortgage Choice I thought this is the perfect fit.” The merger moved surprisingly quickly, he says. By the end of August they had an agreement in principle
Merging: the pros and cons ADVANTAGES
Increased market power
DISADVANTAGES
The ability to meet growing costs of regulatory compliance
Achieves instant growth
Increased chance of culture clash
Greater spread of risk Achieve economies of scale (back-end support, marketing, strategy) Greater ability to meet lenders’ volume targets
46 | brokernews.com.au
Reduces competition if merging with a rival Easier to raise money in a larger business Other businesses can bring new skills or specialist departments to the business (such as financial planning)
Loss of control over the business Can be disruptive initially to day-to-day activities Could result in redundancies in staff, which leads to decreased motivation
Differences in leadership style Staff/members may question if organisation still represents their needs If business becomes too large, you can fail to achieve economies of scale
and contracts were drafted by October. By 1 December, the deal was finalised. Rampal says LoanKit brokers responded well to the changes, and only one broker left as a result of the merger. LoanKit moved its head office and seven employees into Mortgage Choice headquarters. There are also cost savings for the company in that it taps into Mortgage Choice’s marketing department and services from its lending support team. Rampal says that despite the advantages it’s gained from joining Mortgage Choice, there was a lot the company learned about aggregation from LoanKit as well. He advises other broker groups looking to merge to make sure there is an exchange of complementary skills. “Understand where you’re lacking and ask if these areas will be filled by the merger.” Case study 3:
Advantedge NAB’s acquisition of PLAN, Choice and FAST in October 2009 was one of the most significant mergers to take place in the aggregation space since the GFC. It brought three very different aggregator groups together under one roof and while each retains their own brand, they share a number of back-end services. Advantedge’s general manager Steve Weston says a crucial part of the merger was ensuring there was no culture clash between the three groups. “Each of the businesses will have their own particular culture,” he explains. “Brokers join an aggregator because of its culture. In our case, we knew if we tried to merge the three brands it would be unsuccessful, but we achieved economies of scale by merging the back end.” Weston predicts that the pace of consolidation in the mortgage industry will not slow over the next few years and says the economics for aggregators have become much more difficult in the last three years. Part of that has been brought on by commission cuts that were brought in during the GFC. Unfortunately for aggregators, the cuts coincided with a drop in broker numbers and a price war in the aggregation space. “Suddenly, brokers are looking to pay less for aggregation and we’ve seen a lot of low-cost aggregators do quite well because of it,” he says. Not only are aggregators facing the double-whammy of declining commissions and lower fees, but Weston points out this is occurring at a time when they need to be spending more on compliance and licensing. “So scale has become even more important,” he says. Weston advises other brokers to be realistic about mergers. “When several firms merge together, everyone will have their own systems and technology and everyone will believe their way is the right way. Changes need to be made – there will be some pain points.”
5 tips for businesses about to merge
01|
Choose wisely – Don’t merge for the sake of making a bigger business. Better to wait for the right offer than accept a sub-par relationship
02|
Look for a good fit – Be realistic about your firm’s strengths and weaknesses and look for a company that both complements and completes your offering in the market
03|
Hire an independent negotiator – Not only will this take the emotion out of the process, it will help you focus on the positives and negatives of the arrangement
04|
No pain, no gain – Recognise that merging involves change and sometimes your way of doing something will not work for the entire group
05|
Consider brand – It’s sometimes easier to keep your brand separate rather than forging a new identity
brokernews.com.au | 47
Decreasing housing affordability is forcing many first homebuyers to look at guarantor loans. Andrea Cornish looks at what kind of responsibility brokers have when writing these loans and what you can do to keep these deals from turning sour
First homebuyers are thinning out across Australia. Participation of this market segment dropped to 14.9% between October 2009 and February 2011 — the lowest monthly ratio observed since August 2004. The statistics reflect growing concerns over housing affordability. And while some are choosing to wait and save a deposit, others are looking to take advantage of products such as guarantor loans to fast-track their housing dreams. According to Club Financial Services, brokers are experiencing a significant increase in enquiries from parents looking to use the equity in their home to help their kids buy a property. Andrew Clouston, executive general manager of Club Financial Services, says: “With all states reporting a drop in first homebuyer activity and property prices continuing to rise, it appears that cracking into the property market is becoming increasingly difficult for first homebuyers. We’re finding many of our clients are thinking about how they can help their children break into the property market, without having to dip into their own savings or liquidating their assets. In our recent client survey, of the respondents with equity in their property and with
A Helping hand 48 | brokernews.com.au
feature / Guarantor loans
older children, 45% said that they would give serious consideration to being a guarantor for their children to purchase a property.” The ability to borrow up to 100% is the big attraction of guarantor loans, says Otto Dargan, director of Home Loan Experts. “Guarantor loans are now the only product that allows a first homebuyer with no deposit to buy a home and as a result, their popularity has increased. The increase in enquiries is also a result of the major banks reducing their maximum LVRs to 90% or 95% and tightening their credit criteria.” But choosing to be a guarantor is a big responsibility for parents as they will have to cover repayments should the mortgagee fail to meet their financial commitments. And while the loan products have been invaluable for some, they’ve been disastrous arrangements for others – as proven by an increasing number of cases involving guarantor loans going in front of the courts.
When things go wrong Matthew Bransgrove, partner with Bransgroves Lawyers, specialises in mortgage and financial litigation.
He says new migrants, and those less financially savvy, are particularly vulnerable when it comes to entering into a guarantor loan arrangement. “What we’re seeing in case after case is that many of these parents have little education and they can’t speak English.” And when the situation turns sour, the parents end up in court fighting against a default order and the end result is not usually favourable. “In the majority of cases, the defaulting borrower gets thrown out of their house,” Bransgrove warns. “In almost every case, if the borrower doesn’t cross-claim against the broker, then the lender does – everybody blames the broker. It’s much safer for brokers to avoid these loans if they want to avoid trouble.”
Happy medium But is there a way to help customers realise their housing dreams without risking the financial stability of their parents? The Mortgage Gallery’s Paul Hughes thinks there is, as long as all parties involved enter into the arrangement with both eyes open.
brokernews.com.au | 49
“It is the broker and lender’s job to explain all the ins and outs of guarantor loans, plus most lenders make guarantors sign a statement declaring that they have sought independent legal advice,” he explains. “If all parties are doing their job properly, there will be no crossed-wires. In terms of guarantors being older and less savvy – I would agree, but it’s on the shoulders of the broker and the lender to educate and confirm with the guarantor before proceeding.” Dargan says his company takes into account the suitability of the loan to their client’s situation. “We don’t really look at the conversion of the enquiries, we tend to focus on the suitability of the customers and guarantors for this product. As with any no-deposit loan, there is the potential to lend to customers who are not ready to handle the commitment of a mortgage. We don’t try to approve loans for every customer that calls us. We want to maintain our reputation and build our business through referrals from satisfied customers and guarantors.” In many cases, the guarantors do not initially understand how this style of loan works, but Dargan says Home Loan Experts takes a great deal of time to explain the process to the guarantors and also the steps that they and the borrower can take to reduce their risk. “We have found that in most cases the guarantors are better at assessing the credit worthiness of the borrowers than the banks are. Usually the guarantors are the parents of the borrower, and naturally they know if their children are ready for the commitment of a mortgage.” After sitting down with customers who are looking to purchase property through a guarantor loan, Troy Davy from The Mortgage Facts, meets with the guarantors separately. “Once the customers have spoken to the guarantor, I meet with the guarantors, generally without the customers there,” he says. “This is so the guarantors don’t feel any pressure – usually from their children, who want the parents to guarantee the home loan. This is when I explain the obligations of a security guarantee, and what it means to them. “I am pretty blunt when I meet with potential guarantors, and speak of the worst-case scenarios. Things like, if the home loan isn’t paid, or goes into default, you are liable for X amount of debt, and the bank could sell your home, too, if there is a shortfall from the sale of the property and you can’t afford to pay the amount, or the portion of the loan that you have guaranteed. I also speak candidly about how offering a guarantee may limit future borrowing potential. If you want to sell your home, you have to consider the guarantee that you have in place. I think it is important
50 | brokernews.com.au
“Clients want to help their children break into the property market, without having to dip into their own savings” – andrew clouston that a potential guarantor understands their obligations thoroughly.” Most lenders require guarantors to seek legal advice prior to settlement of the loan. One potential complication with this arrangement is that at this point in the process, the guarantor is already committed to buying a property. Should the guarantor decide not to proceed with the arrangement after they’ve met with a lawyer, then the borrower is left unable to complete the purchase. For this reason, Home Loan Experts recommends clients sit down with a lawyer at the time of application and again, when the loan offer has been issued.
Guarantor products There are a number of products aimed at mums and dads looking to help their kids get into the property market. Dargan notes that the credit criteria is so varied that in most cases, borrowers only qualify with one or two lenders. “Some lenders offer pricing discounts on guarantor loans, so we will usually seek a pricing request as part of our preliminary assessment,” he adds. St.George’s Family Pledge Loan is one such product. St.George’s Advantage Package and Basic Home Loan
Changing times: House prices now and then
NOW
(March 2011)
Affordability index
55.7
10 YEARS AGO
(March 2001)
76
Repayment to income % 53.9
39.5
Median dwelling price
$467,800
$204,724
Monthly repayment
$3,008
$1,378
Affordability multiple
1.80
1.32
Source: Housing Industry Association
feature / Guarantor loans
are both available with the Family Pledge feature, however if the guarantor already has a loan against the property they are pledging as security, then the Advantage Package may not be an option. Another popular guarantor loan available through a major bank is CBA’s Family Support loan. One unique aspect of this product is that it allows any member of the borrower’s immediate family to act as a guarantor. CBA offers its basic home loan and professional package discounts for Family Support Loans. While the products of the major banks are quite popular, Dargan says several of them require the borrower to have savings, and are complicated and inflexible. Some of the medium-sized lenders such as Suncorp and ING have competitive products he adds, but their credit criteria is relatively strict. According to Dargan, the majority of non-bank lenders do not have a guarantor loan product.
Exit strategy There is confusion in the marketplace about how long you need to be guarantor for, according to Clouston. Parents may only have to act as guarantor for the first
few years. As the value of the property increases and the children pay down their loan, parents should be able to withdraw their support. This frees up the parents to consider other options for the use of their property equity – such as their own investment purchase. Dargan says they like to discuss an exit strategy with the borrower to try to remove the guarantee within three to four years. “They can remove the guarantee once they owe less than 90% of the property value if they meet the LMI and bank lending criteria at that time,” he explains. “However, it is better to remove the guarantee when the loan has been paid down to 80% of the property value, as this will avoid the need for the borrower to pay LMI.” And if a guarantor loan just isn’t right, then brokers can always suggest alternatives. Quite a few parents decide to give their children a gift as a deposit instead of being a guarantor. In most cases a gift of 10% of the purchase price is enough to allow the borrower to qualify for a loan on their own. This option is suitable for parents who are in a strong financial position or who are not comfortable providing a guarantee secured by a property that they own.
brokernews.com.au | 51
Column / Education
back to
school
Recent changes to the minimum education requirements to become or remain a member of the MFAA means that brokers are now required to upgrade their qualification to the Diploma of Financial Services. Byron Gray explains he MFAA has recently published its new education requirements, which require that all members have completed their Diploma of Financial Services (Finance/ Mortgage Broking Management) – upgrading from the Certificate IV – before 30 June 2012. In conjunction with this change was the introduction of the MFAA Professional Credit Adviser Framework, which provides brokers with a professional designation based on experience and level of education. The three key categories are: • Associate Credit Adviser (ACA) • Credit Adviser (CA) • Certified Credit Adviser (CCA) Obtaining these credentials is determined by three key factors: 1. New or existing member of the MFAA 2. Years of industry experience 3. Level of education
52 | brokernews.com.au
All new members must at least have completed their Certificate IV and be studying the diploma – this is a current requirement and the broker will become recognised as an Associate Credit Adviser. Upon completion of the diploma, a broker with two or more years of experience will be recognised as a Credit Adviser. New members who have more than five years of industry experience and have completed the diploma plus the MFAA certification process will be recognised as a Certified Credit Adviser.
beyond commercial lending A common misconception is that the diploma is based entirely on commercial lending, which is not the case. Commercial lending is certainly a part of the diploma, however its key concept revolves around complex lending and the skills required to identify, evaluate and present a complex loan to a client
and lender. It includes residential lending, such as securing home loan finance for a self-employed client. It also extends to taking into consideration the structure of a loan for taxation purposes, the future needs of a client as well as the potential impacts of macro-economic conditions such as inflation and interest rates. Commercial finance is also often contained within a complex lending scenario, especially where an individual has leasing or hire purchase needs for vehicles or equipment. The diploma teaches a broker how to structure loans to best meet the needs of their client, to identify profitable market segments, undertake financial analysis, read and interpret balance sheets and assess various forms of risk.
Diploma benefits The diploma explains a range of fundamental sales, marketing and business management techniques. In the process of understanding how complex loans operate and the types of loans available, brokers go through a process of analysing various aspects of business and, as a result, gain a greater understanding of a client’s short, medium and long-term goals. This knowledge can also be applied to a broker’s own business, helping them to identify new market segments,
brokernews.com.au | 53
Column / Education
FAQs
As one of the MFAA’s preferred training providers, Intellitrain has been receiving a number of questions from brokers regarding the diploma including: What are the new MFAA membership requirements? Isn’t the diploma all about commercial lending? What are the benefits to my business of obtaining the diploma? Where does the Certificate IV fit into the diploma? What training options are available and how long do they take?
extend their current range of service offerings, increase their client base and to look beyond the deal in front of them. For example, rather than simply offering a self-employed client a low-doc loan, the broker will be able to structure a finance package acceptable to the lender. It’s likely that additional financing requirements will be identified such as vehicle leasing, commercial loans and equipment and asset finance. This creates additional streams of revenue but, more importantly, enables the broker to differentiate themselves in the market, capture a greater share of the client’s finance spend and build a stronger long-term relationship, which increases the likelihood of maintaining the client for many years into the future.
Cert IV compatibility Gaining the diploma is simply a matter of upgrading as opposed to undertaking a completely new qualification. The Diploma of Financial Services (Finance/Mortgage Broking Management) FNS50504 is a nationally recognised qualification consisting of 16 units of competency, while the Certificate IV Financial Services (Finance/Mortgage Broking) FNS40804 consists of 13 units of competency. In most cases, the Certificate IV will provide a broker with 11 units of competency towards their diploma, leaving them with only five units to complete to obtain their diploma. New entrants to the industry are required to complete the full diploma. From a compliance perspective under NCCP, when choosing a diploma
54 | brokernews.com.au
program, a new broker should ensure that the course includes all 13 units of competency required to obtain the Certificate IV as well as the diploma. This may in fact require that a new broker undertake up to 19 units of competency to obtain both qualifications.
Training options Whether you’re a new or existing broker, there’s a range of training options available The main methods of delivery include: • Face-to-face workshops • Online/e-Learning • Distance/self-paced • Recognition of prior learning (RPL) Some providers offer what’s known as ‘blended’, which is a combination of face-to-face training supplemented by self-paced study.
“The diploma teaches a broker how to structure loans to best meet the needs of their client…”
Another innovative delivery method is webinar-based delivery. This is a combination of self-paced study combined with a series of live webinars providing the participant with the interactive benefits of face-to-face training, but without the time and costs associated with travel and the advantage of being able to fit training in around meetings. Most diploma upgrade courses will take between one and six months to complete, while a full diploma will take closer to 12 months. If you have significant experience, particularly with complex or commercial lending, it may be feasible to obtain the Diploma via RPL. RPL is a process through which the skills, knowledge and experience that someone already have are assessed against the required competencies within the diploma. The RPL process varies between training providers, but may be similar to the example below: • Minimum of two years’ experience in the finance industry • Certificate IV from a nationally recognised training organisation • Copy of their resume • Two lender accreditations (at least one from CBA, Westpac, ANZ or NAB) • Three business customer testimonials • Six answers to specific questions on complex lending • Case study/loan file RPL involves a formal assessment process, facilitated by a qualified RPL assessor and will focus on the participant’s level of skills, knowledge and experience. Although many within the industry argue that the diploma is a waste of time, there are significant benefits for the broker and their clients. A diploma-qualified broker is typically more experienced, knowledgeable and has a far greater understanding of business and the capacity to earn significantly more income. Byron Gray is the general manager of Intellitrain, a registered training organisation specialising in the finance industry and is a preferred training provider for the MFAA and FBAA
Column / Education
brokernews.com.au | 55
e l o Wh new d l r wo
their own to in g in m o c y ll busy. roducts rea p n l e e e b b la e v e a it h h s r w e h d Wit olesale fun h w , s h t n o m 8 rs in the 1 e y la p y e k in the last ix s ks and thy talks to r r o a w C it c w M o y h e t n u o r Ba out more ab d n fi to e c a p s wholesale holds what the future
56 | brokernews.com.au  
Round Up / Wholesale Funding
David Coleman, national sales manager, Resimac How do wholesale lenders differ from other lenders? How would you explain the concept to the layman? A wholesale lender provides a white-labelled finance solution to third party intermediaries who then package a home loan product to the end consumer. Unlike traditional lenders that operate a consumer model where their brand and loan offering is targeted to the end borrower, wholesale lenders provide product, pricing, systems and support to mortgage managers who in turn will market their branded home loan solution. The wholesale lender’s brand is invisible for the most part, with the borrower’s first point of contact being the mortgage manager. This obviously requires a very close relationship between the wholesale lender and their customer, the mortgage manager, who will manage the borrower’s loan.
What products do you offer? Resimac offers a full suite of prime and specialist lending products which provide our mortgage managers with a greater opportunity to find the right solution for their borrower. This includes products for mainstream borrowers, those with minimum deposits and non-genuine savings, a great range for the selfemployed, and loans suitable for borrowers who don’t meet traditional lending guidelines.
What distinguishes you from your competitors?
Our 25-year history has enabled us to develop core competencies that distinguish us from competitors such as a strong funding platform gained from being the pioneer of RMBS in Australia, delivering surety of funding. In addition, our independence makes Resimac unique, being able to offer our mortgage managers a solution from a lender now owned or operated by a major bank. This is complemented by fast turnaround times, continuous innovation, competitive commissions, and unique products such as our specialist lending portfolio.
How vital will diversification be for mortgage brokers in future? Diversification has always been an effective way for mortgage brokers to generate new revenue streams and this will continue to be the case in the future. Following the advent of NCCP legislation and the need for brokers to better understand their client’s needs, the opportunity has never been better to offer related products such as commercial loans or insurance for example.
How do you expect the white label product market to develop going forward? The white label market will grow as mortgage brokers and aggregator groups
increasingly recognise the need to stand autonomously from their traditional bank lending partners. White label provides brokers with greater diversity in product offering and gives them the opportunity to promote their own brand rather than that of a bank. It allows mortgage managers to forge stronger relationships between their brand and their clients, largely led by the online access to client information enabled via a white label partner.
What impact will the DEF ban have on the wholesale funding market? The ban on deferred establishment fees means that all lenders will now operate on a level playing field as in recent times DEFs have been a perceived barrier for consumers considering engaging with non-bank lenders. Wholesale lenders will need to review their offering and determine what changes are required to mitigate the inability to defer the establishment costs on new loans, which in many cases are waived altogether due to borrower loyalty. Being nimble and fast to move, Resimac will look to the opportunities that this regulatory change will provide in order to continue to provide competitively priced loans and great service that will offer borrowers a viable alternative to the banks.
What does the future hold for mortgage managers in an increasingly competitive marketplace? Mortgage managers will continue to have a bright future due to their ability to offer consumers better service and a broader product offering than can be obtained from banks. Closer relationships with their wholesale funders will be important, as will be a focus on retention and adding value to their clients.
brokernews.com.au | 57
Round Up / Wholesale Funding
Brett Halliwell, general manager – lending distribution, Advantedge Financial Services How do wholesale lenders differ from other lenders? How would you explain the concept to the layman? Wholesale lenders such as Advantedge fund mortgage managers and loan originators who then distribute and market their own products. This gives them the capability to package, price and offer mortgage products under their own brand. The mortgage manager is the key service provider in the relationship with their customers. An emerging and growing trend in the market is towards ‘homebrand’ mortgages.
What products do you offer? Advantedge offers a full suite of wholesale residential mortgage products which are broadly comparable with the banks’ offerings. Advantedge’s products are broken into three key segments, which reflect our distribution capabilities as well as the number of different third party distribution stakeholders leveraging Advantedge’s funding to drive competition in the mortgage industry: • via mortgage managers – they have the capacity to price, select product parameters, brand and offer to clients • home brands PLAN/FAST/ChoiceLend via aggregators • via aggregators that have created their own home brand products, eg, groups such as Mortgage Choice and Smartline
looking to innovate our offering to ensure that our business partners can offer competitive products in line with evolving market conditions. Our funding is provided via NAB’s AA-rated balance sheet and our parent company is strongly committed to the third party channel.
How vital will diversification be for mortgage brokers in future? It’s absolutely essential. Service is closely linked with diversification and should be front and centre of a broker’s focus. Diversification means having the ability to meet the changing needs of customers to improve servicing and strengthen the client relationship. A major part of that involves having products to meet clients’ financing needs, which means utilising a diversified panel of mortgage lenders, including mortgage managers and ‘home brand’ mortgages.
How do you expect the white label product market to develop going forward? This is one of the biggest areas of opportunity for brokers right now and the potential for growth is massive. In a maturing market, brokers are increasingly becoming less reliant on selling big bank products and are now seeing the benefits of providing comparable products that offer the client a better overall proposition. This includes mortgage managers’ products and increasingly aggregators’ own white label products, which we term ‘home brand’ mortgages. Wholesale products are built primarily around the third party distribution channel. Their value proposition is based on the broker and their clients’ needs, whereas the banks
generally focus first on retail and secondly on third party distribution.
What are your expectations for the securitisation market going forward and could the government do more to support it? We took a view during the GFC as part of Challenger that securitised funding would not be viable for the foreseeable future; hence the sale to NAB was a vital strategy to ensure consistency of funding to insulate our business model from the increased cost of funding and massive decrease in securitised funds that were available. While the cost of funding in wholesale capital markets has decreased since GFC levels, there is still a substantial rate premium within these markets compared to the funding cost through a bank balance sheet – which is our funding model. This gives us greater scope to package competitive products for the mortgage managers and originators in which we fund. While the government’s support for the AOFM has been welcomed by securitised funders, the cost of funds gap between balance sheet funding and securitised funding has remained significant.
What impact will the DEF ban have on the wholesale funding market? The DEF ban will change the way wholesale funders and mortgage managers think about products, and the end result will be better and more innovative offerings for clients. We’ve been working hard to re-evaluate our offering with a view to ensuring the ongoing competitiveness of the mortgage managers and home brand products that we fund.
What distinguishes you from your competitors? Advantedge has a strong market pedigree having successfully funded mortgage distributors for decades. This experience, plus our ongoing investment in state-ofthe-art systems and the depth of Advantedge’s management team, positions us well. We have also invested continuously in our systems and people and support multi-brand lending – we’re continually
58 | brokernews.com.au
“Brokers … are now seeing the benefits of providing comparable products that offer the client a better overall proposition” – brett halliwell
brokernews.com.au | 59
Round Up / Wholesale Funding
Innovation has long been the competitive edge of the non-bank sector; it was new thinking around product, pricing and the borrower that originally drove the growth of mortgage managers and originators. One result of the DEF ban is that all lenders, including major banks and mortgage managers may need to look at charging or increasing establishment fees. We support the case for factoring in or increasing upfront application fees as a way to more effectively align the costs incurred by the lender against upfront benefits provided to the consumer.
What does the future hold for mortgage managers in an increasingly competitive marketplace? We recognise increasing competition in the marketplace, and support it. The majors are competing heavily with rates, switching costs and removal of application fees, which gives weight to mortgage managers’ proposition – and is behind the current resurgence of this sector. However, in order to effectively compete, mortgage managers need to continue to offer clear consumer benefits that set them aside from the majors, and these include: • better and more personalised service capabilities for brokers and their clients • no channel conflict; it will always be a big plus for brokers that they are working with someone who can be
closely involved with their business • while non-banks can no longer undercut the banks as much as previously, products are still competitively priced/ are solid alternatives to the majors • as specialised businesses, they can typically turn a deal around quickly • as smaller/focused businesses compared to the banks, brokers typically have access to decision makers around credit
Laurie Shaw, head of mortgage management, ING Direct How do wholesale lenders differ from other lenders? How would you explain the concept to the layman? Wholesale lenders provide funds to accredited mortgage managers who market loans under their own brands. The wholesale lender generally uses a trustee as the lender shown in the loan documents; however, as the market is mature (it commenced in 1991) more
wholesale funders are writing loans in their own name. A wholesale lender outsources many functions performed by a direct lender. These could include the sales, credit assessment, post-settlement operations, arrears management and discharge process. The borrower would deal with the introducer of their loan rather than a large organisation.
What products do you offer? Variable rate term loan, fixed rate term loan (one to five years), construction loan (converts to any available product after construction is completed), line of credit loans (one with a cheque book and one with a nil interest Visa card and a cheque book) as well as a Lo Doc variable rate term loan and a Lo Doc line of credit with a cheque book and a nil interest Visa card.
What distinguishes you from your competitors? We choose our mortgage managers very carefully to ensure they have quality staff providing excellent service to customers. We form a partnership with this small group of mortgage managers and work with them on marketing, product development and management of the loans. We offer good pricing, good products and good service to assist with the management of these loans.
How vital will diversification be for mortgage brokers in future? Brokers need to look at the long term and see that putting all their loan applications
60 | brokernews.com.au
Round Up / Wholesale Funding
to one lender will not help borrowers receive the most suitable pricing and products. Brokers using mortgage managers for products will retain a close relationship with their customers rather than a major bank taking those relationships away from them.
How do you expect the white label product market to develop going forward? This market will grow. This will be by growth through the mortgage managers gaining more market share and growth through aggregators providing white labelled products of their own.
What impact will the DEF ban have on the wholesale funding market? It will change the fees charged to borrowers. Wholesale funders and mortgage managers have been working on alternatives to the DEF and they will be competitive for borrowers. The initial reaction was that this ban would drive
borrowers to the majors but in fact as the majors do not charge DEFs now, the ban will make mortgage managers even more competitive as they do not usually have monthly fees. These monthly fees of $8–10 are expensive for smaller loans and hurt first homebuyers. Investors offset these fees as tax deductible, but first homebuyers must pay from already taxed income.
What does the future hold for mortgage managers in an increasingly competitive marketplace? Mortgage managers who offer competitive pricing and great service will prosper as the banning of DEFs takes effect and makes mortgage managers even more competitive. Brokers need to explain to borrowers the total costs of a loan and not just the interest rate. Our wholesale funding program is an outsourced model so we do not have high fixed costs, and most of our costs are variable, allowing us to provide competitive low rates.
Ken Sayer, CEO, Mortgage House How do wholesale lenders differ from other lenders? The main difference is that banks take deposits and fund themselves that way, whereas institutions using wholesale funding rely on investors, whether that be from local or international capital markets.
What products do you offer? A full range of home loans including all conventional loan types in addition to line of credit, low doc, interest-only, construction, bridging and equity release products. All our mortgages have full transactional capabilities including redraw, BPAY and cheques.
brokernews.com.au | 61  
Round Up / Wholesale Funding
What distinguishes you from your competitors?
What impact will the DEF ban have on the wholesale funding market?
We are a vertically-integrated organisation and we have our own wholesale funding arm, Paladin. Most mortgage managers deal with institutions like Advantedge, FirstMac or Resimac, but in essence, we have our own ‘Resimac’. We are a provider of funds and a retail lender.
A lot of the non-bank and off-balance sheet lenders will be reluctant to bring it on board, but it will create a level playing field and the good guys will come through.
How vital will diversification be for mortgage brokers in future?
I expect mortgage managers to be giving the big banks a real run for their money.
The banks appear to be returning to the old-fashioned method of lending and are staffing up their branches to deal with the client directly. They are not capitalising on the broker channel. Commissions are diminishing and will soon be a thing of the past, with fee-for-advice becoming essential. General and risk insurance along with wider financial planning will become more common and while they may not yield much money for the broker, they enable the broker to ‘touch’ the client more often through multiple transactions.
How do you expect the white label product market to develop going forward? It only really works for people who want to build their own brand. Most brokers are one-man bands and I don’t know if it will do anything for them.
What are your expectations for the securitisation market going forward? I think most of the doom and gloom is behind us and 2011 ought to be a new platform for the next launch. March 2012 will be when the good days return and the cost of funds will drop, allowing non-banks to return to their former glory days.
What does the future hold for mortgage managers in an increasingly competitive marketplace?
Kim Cannon, managing director, FirstMac How do wholesale lenders differ from other lenders? Wholesale mortgage lenders – such as FirstMac – provide mortgage funding to third party mortgage managers and brokers – enabling them to provide home loans to the end consumer. We’re one of the few alternative home loan providers that is self-funded through our own securitisation program, a point of difference. Most home loan products offered by wholesale lenders such as FirstMac have minimal ongoing fees and enable mortgage managers to brand and price their own products.
What products do you offer? FirstMac offers a range home loans for people looking to purchase or construct a home or investment property; existing homeowners wanting to refinance or
“Commissions are diminishing and will soon be a thing of the past, with fee-for-advice becoming essential” – Ken Sayer 62 | brokernews.com.au
access equity for renovations, or to grow their investment property portfolio. Our home loans are much like bank products and come with 100% redraw offset, Visa debit card, no ongoing monthly fees, unlimited free redraws and unlimited free online transactions, including BPAY and pay anyone. With competitive interest rates, our products provide competition and choice to the major lenders.
What distinguishes you from your competitors? FirstMac proudly self-funds its mortgages and we are one of the few lenders in our market space who survived the GFC. It goes to show we have the stability, experience and ability to continue to attract investment and to listen to – and provide – what consumers need. We also manufacture our home loans, which enables us to move quickly to changing market conditions and consumer wants and adapt our products in a matter of weeks, not months.
How vital will diversification be for mortgage brokers in future? Mortgage brokers are in the business of service, and matching solutions to consumers’ needs will continue to be their main game. The more options they have in their tool kit, the better they will be able to look after their customers and the more business they will earn.
How do you expect the white label product market to develop going forward? During the GFC, the white label market stagnated, but we’ve experienced a recent reinvigoration of white-labelling. There is a definite future for it going forward, especially where building your own brand is an important part of your product and service proposition. FirstMac has offered white-labelling to our mortgage manager customers for over 10 years – so it’s not something new. However, more recently we’ve seen aggregators realise they need to be selling their own brand rather than just keep building banks’ brands. It will also provide them with an important source of extra revenue.
brokernews.com.au | 63
Round Up / Wholesale Funding
What are your expectations for the securitisation market and could the government do more to support it? The market is recovering, albeit slowly. The government’s actions during the GFC through investments by the Australian Office of Financial Management in the securitisation market ensured some level of alternative competition to the major lenders was preserved. It was a much needed initiative and one we applauded. Any extensions made to this program will only continue to help strengthen the level of competition offered by alternative and second-tier lenders. Unfortunately, more recent government reforms, despite their intent, seem to benefit the four major lenders the most.
What impact will the DEF ban have on the wholesale funding market? The government now has the recommendations of the Senate banking sector enquiry to consider and the voice of industry pleading them to take up the Senate enquiry’s recommendation to scrap the ban. Either way, we are just going to have to remain clever and innovative in the way we do business. Competitive tension is vital. Outlawing exit fees would actually weaken this tension and be a double-edged sword for new borrowers – it will cost more to get into a loan in the first place. The move would also likely create a class of borrowers who frequently ‘rate-shop’ for their home loan which will cost all lenders – big and small. These costs will need to be covered and it seems homeowners will be left grappling with the effect on their budgets.
What does the future hold for mortgage managers in an increasingly competitive marketplace? Size will be important. The barrier to entry for new mortgage managers will be the DEF ban. Administration costs will go up with this ban and the cost of managing clawbacks. Unfortunately, I think smaller mortgage managers will struggle to survive. Mortgage managers will need to attack the retail market directly to maintain a viable position in the market.
64 | brokernews.com.au
Damian Percy, general manager – third party lending, Adelaide Bank How do wholesale lenders differ from other lenders? How would you explain the concept to the layman? Lenders with wholesale channels, Adelaide Bank for example, provide funding, products, credit frameworks and technology to other lending businesses and allow them to operate as lenders in their own right without the need to build their own products. This means they can focus on origination, servicing and providing a distinct or boutique proposition to borrowers.
What products do you offer? Under our white label platform, we provide a full suite of residential lending products including full doc, low doc, construction, 100% offset, first homebuyer options and our Equity Finance Mortgage. We are supporting a range of lending partners across different segments, so it’s important that we are able to provide them with a comprehensive set of tools.
What distinguishes you from your competitors? We’ve been in the wholesale space for almost 20 years and as a result we’re very close to our partners and the sector. We think we have developed a good idea of what our partners need for their businesses to succeed: flexible products, the ability to manage their own proposition, and rapid and reliable turnaround times, so we focus on delivery of the fundamentals.
How vital will diversification be for mortgage brokers in future? Diversification means more than adding a couple of insurance products to the deal. It’s a question of a broker’s business model being capable of adapting to changing circumstances and not being excessively dependent on a narrow customer base, funding proposition, geography or anything
else susceptible to disruptive change. Happiness and survival is all about options.
How do you expect the white label product market to develop going forward? Of recent times we’ve seen substantial growth in the ‘home-brand’ version of white-labelling, which I see as different to what might be considered true mortgage management. I suspect what we are seeing are broker groups taking the first steps towards genuine ownership and control of a product on their panel, which I think is a good thing.
What are your expectations for the securitisation market going forward and could do the government do more to support it? The market is improving, which is welcome, but is well short of functioning as effectively as it was pre-GFC. Given the role smaller funders have played and need to continue to play in maintaining competition, we support the continued direct involvement of the AOFM in the RMBS market for that group.
What impact will the DEF ban have on the wholesale funding market? Regrettably, the ban on exit fees takes avoidable costs paid by the few and converts them to compulsory costs paid by the many. It will inevitably – but not necessarily immediately – lead to an increase in front-end costs for borrowers, but I am confident wholesale funders and their partners will adapt.
What does the future hold for mortgage managers in an increasingly competitive marketplace? The entire third party sector is going through a transformative stage. What we have seen in the past and what I believe will continue to be the case is that mortgage managers delivering exceptional, personalised service will remain key players in the industry. Though from time to time the major banks appear on the brink of absolute domination, the cycle invariably turns as the value of working with a genuine partner comes to the fore.
Round Up / Wholesale Funding
brokernews.com.au | 65
Casey is ACT’s top suburb for first homebuyers in terms of both units and houses, with the median price of the former sitting at $398,500 and the latter at $485,000. Both have experienced impressive growth over the past 12 months, with average house prices soaring by 25% and units by 21%. The area itself is described as Canberra’s newest suburb and construction of the town’s infrastructure only began in 2008. It sits 13km north of Australia’s capital city.
ACT
STATE
66 | brokernews.com.au
UNITS
SUBURB
MEDIAN PRICE
12-MONTH GROWTH
1
ACT
CASEY
$485,500
25%
2
ACT
GIRALANG
$495,000
18%
3
ACT
MACGREGOR
$433,750
17%
4
ACT
SCULLIN
$463,000
15%
5
ACT
MELBA
$485,500
14%
1
ACT
CASEY
$398,500
21%
2
ACT
WATSON
$475,000
20%
3
ACT
COOK
$475,000
18%
4
ACT
BRUCE
$425,000
18%
5
ACT
CONDER
$415,000
17%
NSW
HOUSES
Narwee was the suburb with the biggest price growth for units in NSW in the last 12 months, with an impressive 45% increase. Situated in the local government area (LGA) of Hurstville, 17km south of Sydney’s CBD, it is one of the fastest growing areas in metropolitan Sydney, with a population that rose by 11% between 1996 and 2001.
UNITS
thedata
HOUSES
This month’s round-up looks at the best suburbs for first homebuyers
State
Suburb
Median Price
12-month Growth
1
NSW
BARRABA
$142,000
49%
2
NSW
COONAMBLE
$110,000
38%
3
NSW
BINGARA
$178,250
37%
4
NSW
FERN BAY
$477,500
36%
5
NSW
BOLTON POINT
$313,500
36%
1
NSW
NARWEE
$413,000
45%
2
NSW
SOLDIERS POINT
$476,000
41%
3
NSW
FAIRY MEADOW
$357,000
40%
4
NSW
CASUARINA
$480,000
38%
5
NSW
CASINO
$255,000
37%
Insider knowledge: casey
“First homebuyers are drawn to the area by the price, as with Bonner and Moncrieff. It’s only about a 15-minute drive to the centre of the city, too” - Jane Robinson, Choice Home Loans
Insider knowledge: Narwee
“It is also close to Lugarno, Beverly Hills and Peakhurst which are prestigious neighbourhoods, but it still remains affordable to first homebuyers.” - George Boustani, Mortgage Choice
Statistics / First Homebuyers
Humpty Doo in the LGA of Litchfield was the Northern Territory’s prime location for first homebuyers looking for property price growth. The median house price is $480,000 and the suburb has posted an impressive value increase of 45% in the year to February 2011. Litchfield Municipality is situated on the outskirts of Darwin and is nestled in tropical rural bushland. With a growing population of over 18,000, Litchfield residents enjoy a unique mix of rural residential, horticultural, agricultural and industrial interests within its boundaries. Litchfield was the highest-ranking municipality in the NT in a recent quality of life index.
UNITS
HOUSES
NT
Suburb
Median Price
12-month Growth
1
NT
HUMPTY DOO
$480,000
45%
2
NT
TENNANT CREEK
$180,000
27%
3
NT
BRAITLING
$463,000
19%
4
NT
THE GAP
$390,000
17%
5
NT
GILLEN
$426,250
17%
1
NT
GRAY
$360,000
37%
2
NT
DRIVER
$380,000
27%
3
NT
ARALUEN
$365,000
25%
4
NT
DESERT SPRINGS
$375,000
24%
5
NT
PARAP
$460,000
22%
qld
HOUSES
“We handle a fair bit of first homebuyer business. Humpty Doo is a rural area and most transactions involve people buying four-acre blocks of land and developing their own properties. It is classified as outer Darwin and is around 40km from the city, so many residents commute there or to nearby Palmerston.” - Michelle Stephen, Easy Loans
New Auckland in Gladstone LGA was Queensland’s top performing suburb in terms of units, with the average value increasing by 43% in the past 12 months. The median price of units in the area is $365,000, still within reach for first homebuyers. The Gladstone region has a population of 50,000 and is known for its employment opportunities with two of the world’s largest alumina refineries, Queensland’s largest multi-commodity port and a number of other major industrial giants sited locally. It also has a strong retail and service sector within the modern urbanised city of Gladstone.
UNITS
Insider knowledge: humpty doo
State
Suburb
Median Price
12-month Growth
1
QLD
MITCHELL
$162,500
37%
2
QLD
MACHANS BEACH
$410,000
32%
3
QLD
TARA
$150,000
30%
4
QLD
ALPHA
$232,000
29%
5
QLD
YUNGABURRA
$405,000
27%
1
QLD
NEW AUCKLAND
$365,000
43%
2
QLD
BELGIAN GARDENS
$360,000
37%
3
QLD
EARLVILLE
$262,750
36%
4
QLD
YEPPOON
$398,000
35%
5
QLD
TRUNDING
$201,411
31%
Insider knowledge: new auckland
“There have been a number of new unit blocks being built locally, but the supply depends on development approval being granted. New Auckland isn’t a bad area for first homebuyers to look in and – as with anywhere in Gladstone – you’re never more than 10 minutes from where you need to be” - Ruan Burger, Home Loans Etc gladstone
brokernews.com.au | 67
Meadows in the district council of Mount Barker was South Australia’s top suburb for first homebuyers in terms of houses, with a growth figure of 47% in the past 12 months and a median price of $433,500. The area is characterised by picturesque countryside, bustling townships and sleepy hamlets and is situated in the Mount Lofty Ranges, only 30 minutes away from Adelaide.
UNITS
HOUSES
sa
State
Suburb
Insider knowledge: meadows
Median Price
12-month Growth
1
SA
MEADOWS
$433,500
47%
2
SA
JAMESTOWN
$252,500
40%
3
SA
TANUNDA
$390,000
34%
4
SA
OWEN
$223,500
33%
5
SA
MENINGIE
$200,000
33%
1
SA
PLYMPTON PARK
$433,000
42%
2
SA
EVERARD PARK
$331,500
38%
3
SA
RENMARK
$197,500
38%
4
SA
SEMAPHORE
$382,250
37%
5
SA
WEST BEACH
$402,500
32%
The boating township of Franklin in the Huon Valley LGA is Tasmania’s prime spot for first homebuyers looking for property appreciation, with the average property costing $339,000 and a 12-month growth figure of 47%. Huon Valley covers 5,497km2. Despite its proximity to Hobart – a 40-minute drive away – the area retains the beauty, charm and heritage of a bygone era. Increasingly, the Huon Valley is drawing new residents into its towns, due to its enviable lifestyle, rural outlook, affordable housing prices, clean air, fresh produce and community spirit.
tas
UNITS
HOUSES
State
Suburb
Median Price
12-month Growth
1
TAS
FRANKLIN
$339,000
47%
2
TAS
EXETER
$299,000
41%
3
TAS
ORFORD
$360,000
33%
4
TAS
SISTERS BEACH
$262,500
29%
5
TAS
SULPHUR CREEK
$321,500
26%
1
TAS
LONGFORD
$232,000
47%
2
TAS
LINDISFARNE
$380,000
23%
3
TAS
LUTANA
$260,000
20%
4
TAS
WEST LAUNCESTON
$232,500
19%
5
TAS
SOUTH HOBART
$312,800
16%
68 | brokernews.com.au
“The country town of Meadows is affordable for first homebuyers and you can buy a property from about $270,000. It’s a 50-minute drive from Adelaide, but only 20 minutes from Mount Barker. Other areas popular among first homebuyers include Littlehampton, Hahndorf and Strathalbyn” - Robert Shearwood, Mortgage Choice, Adelaide Hills
Insider knowledge: franklin
“First homebuyers are probably drawn to semirural areas outside of the city like Franklin as they are cheaper than living in Hobart itself. Having said that, even Hobart itself is a lot more affordable than other state capitals, but the average income is slightly less, so it’s all relative” - Peter Reynolds, a mobile broker in Tasmania for Mortgage Choice
vic
Jolimont in the town of Cambridge was WA’s unit hot spot for first homebuyers. The median price of apartments here came in at $500,000 – right on the upper limit of what we deemed as affordable for people looking to get their foot on the property ladder. The area of Cambridge itself covers 22km2, has a population of just over 25,000 and sits just 8km west of Perth’s CBD. Mark Wilkins, a mortgage broker for Mortgage Choice in nearby Wembley, says: “Jolimont isn’t a suburb usually associated with first homebuyers as houses cost upwards of $800,000, but units are more affordable and it’s less than 10 minutes from the city. First homebuyers usually enquire about properties in areas such as Balcatta and Tuart Hill.”
UNITS
Portland in the LGA of Glenelg Shire is Victoria’s unit gem for first homebuyers, with apartments in the city having risen in value by 46% in the past year. With a median price of just $218,500, the town is definitely affordable. The city lies 360km west of Melbourne and has a population of around 10,000. Rob Allwood of Choice Home Loans in Portland says: “Property prices in the area aren’t that high and with the First Home Owner Grant and regional construction grants, it makes buying your first home that much more achievable. It is a regional country town near the Victoria/South Australia border with a stable community and strong farming, industry and retail sectors.”
HOUSES
Statistics / First Homebuyers
UNITS
HOUSES
wa
State
Suburb
Median Price
12-month Growth
1
VIC
HEATHCOTE JUNCTION
$406,750
44%
2
VIC
NEWINGTON
$350,000
41%
3
VIC
CHARLTON
$125,000
40%
4
VIC
NEW GISBORNE
$496,750
38%
5
VIC
TOORADIN
$440,000
38%
1
VIC
PORTLAND
$218,500
46%
2
VIC
SEDDON
$480000
45%
3
VIC
GEELONG
$455,000
43%
4
VIC
WOODEND
$327,500
42%
5
VIC
TARNEIT
$252,000
40%
State
Suburb
Median Price
12-month Growth
1
WA
WAGIN
$242,500
43%
2
WA
KOJONUP
$230,000
28%
3
WA
RANGEWAY
$271,000
26%
4
WA
MIRA MAR
$448,000
21%
5
WA
BRIDGETOWN
$377,500
21%
1
WA
JOLIMONT
$500,000
28%
2
WA
MANDURAH
$485,000
28%
3
WA
CLARKSON
$397,000
17%
4
WA
VICTORIA PARK
$392,500
16%
5
WA
HALLS HEAD
$449,500
15%
Using RP Data’s comprehensive mine of information, we removed properties worth more than $500,000, as most first homebuyers won’t be looking at such homes. With the properties that were left, we looked at those with the greatest price growth over the past 12 months. After all, first homebuyers also look to make a profit when it comes to upgrading. Finally, we spoke to a mortgage broker in each of the featured suburbs to see what made their postcodes so desirable to fledgling borrowers.
brokernews.com.au | 69
lifestyle / A Day In The Life Of
A day in the life of… Mark Bouris, executive chairman of Yellow Brick Road drive. We’ve been signing a new licensee nearly every week and have recently ramped up expansion into Perth and South Australia. We’re actively hiring wealth managers and looking for principals to open branches around the country, so the team is briefing me on our progress and the plans for our new markets.
10am Yellow Brick Road
4am I am an early riser, so I get up and check my emails before my scheduled conference call to our Chicago office for my global technology business TZ Limited.
commissions consumer research and the marketing team comes in to talk to me about our latest results. Our business is built on offering quality financial advice for all Australians, so what consumers have to say about the industry and about their financial fears, confusions and successes is very important to us. We use the research to build our campaigns and product portfolio.
5am I hit the gym or go out to the
11:30am I do a bi-weekly spot with
beach for some exercise before I head to the office. This morning I’m sparring with a couple of mates.
7am I have breakfast in Darlinghurst and read the papers. I start by catching up on footy news, then go to the business section, followed by the headline news of the day.
8am I’m over at the Triple M
studios, where I have an on-air chat with the guys from the Grill Team. This gives me a great opportunity to speak directly with Australians who have questions about their finances. We speak to small business owners and homeowners about budgeting and home loan repayments. We also sneak in a few minutes to talk about the footy results from the weekend.
8:45am I get into the office and
prepare for my meetings. The first one this morning is with my retail team to talk about our recruitment
70 | brokernews.com.au
Tim Webster on Radio 2UE and this week we are talking about the lead up to the end of the financial year and the difficulties consumers face around tax claims and filing.
11:45am I catch up on my emails and return a few phone calls.
12:30pm At least once a month I have a lunch meeting with a few people I consider to be the real thought leaders in the industry. We talk about regulatory changes and how the industry will adapt, what’s in store for the Australian consumer and how the next six months will play out.
2pm Our financial planning business has been growing steadily and I meet with our head of financial planning to talk about some of the candidates we’re looking at bringing on. We’re getting a lot of business in the areas of general and life insurance, SMSF, family trust and estate planning, as well as SME advice, so we have to bring on more planners to fill the demand. 3pm Back in February we launched our term deposits program and I meet with our head of sales to see how it’s tracking. We were one of the first non-banks in Australia to offer term deposits and it’s interesting to see how well it’s been received. The government guarantee was key in assuring customers that making deposits with a non-bank is just as safe as with the Big Four. 4pm I often do speaking engagements for companies around Australia and today I am speaking to a group of about 100 people in Sydney about overcoming challenges in the pursuit of success. 5pm I’m a board member of the Sydney Roosters so I’m off to a meeting at the Easts League Club. 6:30pm On the way home, I catch up on phone calls, say hello to the family and make a few more calls until dinner. I have some time to relax and see how everyone’s day was. Before bed time, I check my emails.
“We’re … hiring wealth managers and looking for principals to open branches around the country”
News / round-up
brokernews.com.au | 71
lifestyle / favourites
❤
Favourite things... Jon Denovan Senior partner, Gadens Lawyers
Place to be: In Cremorne Orpheum theatre on a Sunday night, watching a movie with good friends
Book: The Phantom comics or anything by Bill Bryson. And who doesn’t fondly remember Winnie the Pooh?
Sport: Swimming. You get fit
Celebrity: The Phantom AKA The
and get your brain sorted at the same time
Ghost Who Walks. You’ve got to say that as super heroes go, this guy who lives in a cave has it all
Hobby: Model trains (currently tunnelling through a wall at home), boating (any volunteers for varnishing?), and of course the lovely NCCP
Movie: Gold Diggers of 1933. Music and stories to make the depression years or the GFC fun
Music: Roy Orbison. I’m still wearing a black arm band under my supersolicitor suit to mark his passing. Running Scared is my favourite song.
Drink: Red
Food: Japanese, the more traditional the better. Fermented soya beans with raw egg and seaweed, anybody?
72 | brokernews.com.au
wine has been proved to be good for your health, so I drink solely for medicinal purposes