Mortgage Professional Australia (MPA) Issue 9.5 by Key Media

www.brokernews.com.au issue 9.5

more than just

middlemen Aggregators talk back

TRAIL PAYMENTS Are we heading down a different path?

PROFILED Pretty smart: Joe Sirianni

REAL VALUE Avoiding the valuation guillotine

editor’s letter

Aggregators prove it

9. 05 issue

Brokers rated, ranted and raved about aggregators in our last issue. This time around the microphone was trained on the aggregators, who took the opportunity to respond to the results and describe the enhancements they have made to their services over the last 12 months. The changing landscape of the industry – decreasing competition and commission cuts for instance – mean aggregators have had to be both reactive and proactive. Providing a full lending panel and offering more in the way of IT and marketing are just some of the areas aggregators have paid particular attention to. Aggregators have a very direct and relevant impact on brokers’ lives, but another industry partner exists in the mortgage chain that goes almost unnoticed – valuers. These key players have the power to make or break deals, and we have highlighted what brokers can do to keep loans from falling prey to the valuers’ guillotine. And for those readers who like their magazines a little more multi-media we’ve launched our premiere eMag available at www. brokernews.com.au. In-depth on-camera interviews with high profile industry players are now available at the touch of a button. All the best,

Andrea Lavigne Deputy Editor

Welcome to MPA 2.0 Our premiere multimedia edition features on-camera interviews with the industry’s biggest players. Visit Brokernews.com.au/MPA to hear their thoughts on the hottest issues facing mortgage brokers.

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contents

50 valuation vetted

cover story

Expecting a valuation to sail through these days is dangerous. Tim Neary investigates.

32 Aggregators on brokers The industry’s middlemen respond to the results of our survey in 9.4 and indicate where they will be heading in 2009 and beyond

features 28 Trailing off: Andrea Lavigne investigates the future of trail payments in Australia 44 Are you in good health? We take a closer look at the business health tool being promoted by the MFAA

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9. 05 issue

46 Crystal ball gazing: Industry experts forecast how the industry might look once the dust settles 48 Strategic ties: MPA speaks to Darren Murphy, perhaps the industry’s first referral specialist, about how to cultivate relationship

contents contributors

Legal 54 Aggregator contracts: What do you need to know before signing on the dotted line?

IT 76 Web reviews: Four websites under the microscope

Education 58 Q&A: Paul Eldridge on the future of broker education 60 Resolving conflict: Strategies for a more harmonious workplace

MPA LENDER

64 News: A review of news in the world of non-bank lending and mortgage management. 68 News analysis: Are we heading for US-style housing crisis?

Sam Benjamin,

MPA’s website reviewer is from Finance Tools, which specialises in website development, copywriting solutions, mortgage calculators and newsletters. Finance Tools provides support for members of the financial services industry.

Matthew Bransgrove is principal of Bransgroves Lawyers and co-author of the 2008 LexisNexis Butterworths textbook, The Essential Guide to Mortgage Law in NSW.

70 Outsourcing: The benefits and opportunities in outsourcing part of the lending process

9. 05 issue

David Pring

PROFILES

is a tax services partner at Deloitte Parramatta. He is a chartered accountant, fellow of the Taxation Institute of Australia and holds a Master of Taxation (UNSW).

20 Leaders: Joe Sirianni 24 Brokers: Jeremy Yuen

LIFESTYLE 78 Restaurant review: Goldfish 80 My favourite things: Paul Gollan

MANAGING EDITOR Larry Schlesinger

SENIOR WEB DEVELOPER Storm Kulhan

DEPUTY EDITOR Andrea Lavigne

SALES DIRECTOR Justin Kennedy

PUBLISHER Mike Shipley

JOURNALIST Tim Neary

SALES MANAGER Rajan Khatak

DIRECTOR Claire Preen

SUB-EDITORS Tim Stewart Carolin Wun James Evans Diana Harris Gabrielle Baxter

Account MANAGER Simon Kerslake

REGIONAL MANAGING EDITOR George Walmsley

HR MANAGER Julia Bookallil

DESIGN MANAGER Jacqui Alexander

MARKETING MANAGER Danielle Tan

DESIGNERS Ben Ng Renée Ryan

MARKETING COORDINATOR Jessica Lee TRAFFIC MANAGER Stacey Rudd

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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 Subscriptions tel (02) 8437 4731 fax (02) 8437 4753 subscriptions@keymedia.com.au Advertising enquiries tel (02) 8437 4772 rajan.khatak@keymedia.com.au tel (02) 8437 4786 simon.kerslake@keymedia.com.au Editorial enquiries tel (02) 8437 4790 fax (02) 9439 4599 larry.schlesinger@keymedia.com.au Key Media Pty Ltd Level 10, 1 Chandos Street St Leonards, NSW 2065 www.mortgagemagazine.com.au

This magazine is printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry

EDuCATion

CONFLICT RESOLUTION

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News

Government and regulation

ASIC: broker pays up after loans blunder

NSW cracks down on fire-sale laws The NSW government is proposing tighter fire-sale legislation to protect homeowners. Minister for Lands, Tony Kelly, told the NSW parliament that in the current climate many homeowners faced the forced sale of their home through foreclosure, but it was “immoral” that they have been exposed to the risk of “unscrupulous lenders seeking to force through a fire sale of their property” the Australian Financial Review reported. He said that the proposed law would prevent properties being sold for “well below market value simply to recover the lender’s debt” by imposing a statutory duty requiring a mortgagee who exercised a power of sale to take reasonable care not to sell below the market price. But chief executive of the Australian Bankers Association, David Bell, said banks did not hold fire sales. “The bank/mortgagee already has a legal duty to the borrower/mortgagor not to sacrifice the interests of the borrower/mortgagor. We’re not sure what additional protection this proposed law is intended to confer. The ABA was not consulted on this proposed NSW legislation.” There is currently no statutory duty imposed on mortgagees by legislation, but the duty is governed by the courts under common law.

The amount finance broker Capitalcorp Finance and Leasing has paid to the Indigenous Consumer Assistance Network (ICAN) following an ASIC investigation into 130 personal loans provided to indigenous borrowers

$ 60, 000

Finance broker Capitalcorp Finance and Leasing has paid $60,000 to the Indigenous Consumer Assistance Network (ICAN) following an ASIC investigation into 130 personal loans provided to indigenous borrowers, many of whom were dependent on Centrelink benefits. ASIC acknowledged the payment by Capitalcorp, which it said was part of a “package of solutions” in response to concerns raised by the regulator. ASIC examined approximately 130 personal loans arranged by Capitalcorp for Indigenous borrowers living primarily in remote locations in Queensland and South Australia. The majority of these loans were arranged between 2005 and 2006 and were used by borrowers to purchase second-hand vehicles. “Many of these borrowers were dependent on Centrelink payments for their income and were unable to meet the repayments on the loans arranged by Capitalcorp,” said Greg Kirk, senior executive leader of ASIC’s Deposit Takers, Credit and Insurance team. “It’s essential that finance brokers, especially those dealing with vulnerable consumers, ensure they place borrowers into loans they are able to repay,” said Kirk. In response to ASIC’s inquiries, Capitalcorp has also acted to: implement more rigorous procedures to accurately disclose the income, expenses, assets and liabilities of low-income consumers to credit providers; improve standards regarding disclosure of information to consumers; upgrade its internal audits; and upgrade its training of staff.

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Page

9/4/09,

11:12

News

industry bodies

Reverse mortgages not for everyone Australia’s cash-poor, asset-rich retirees shouldn’t be forced into a reverse mortgage, argues the National Information Centre on Retirement Investments (NICRI). The group rejected suggestions that retirees whose principal residence is valued at over $1m should not receive the aged pension, but instead fund their own retirement using a reverse mortgage. The suggestion was put forward by Christian charity group, Brotherhood of St Laurence, who said the government should: “include owner-occupied housing as part of the means test for the age pension for homes of high value, say above $1m. This could include arrangements for reverse mortgages so people can remain in their family home while drawing down on its equity to create an income.” But Wendy Schilg, director of NICRI, said was concerned about the idea of “Australians being forced to fund their own retirement using equity in their primary residence”. “We should not expect Mr and Mrs Smith to lose their pension and be forced to sell part of their house to put food on the table. They have contributed to the taxation system all their lives and their house is valuable not because they are rich, but because they have owned it for 30 years and property prices have increased. I understand the intention behind the suggestion, but I believe the recommendation is misguided and will be detrimental to Australia’s cash-poor, asset-rich retirees,” Schilg said. The NICRI launched its reverse mortgage information service for consumers last month. “We have found that you have to be a certain type of person to take on a reverse mortgage,” Schilg said. “Some people dislike the compounding interest that eats into the equity of their home over time; others have wanted to sell their home and have encountered break fees in the tens of thousands of dollars. Retirees are a vulnerable part of our community, and to assume that a reverse mortgage would be suited to everyone is just wrong.” According to the 2008 The Deloitte SEQUAL Reverse Mortgage Study, mortgage brokers and other intermediaries are responsible for distributing nearly half of all new reverse mortgages, in a market worth $2.3bn.

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GE engages MFAA in paper war

The worth of reverse mortgage market in Australia

$2.3 bn

GE Money is engaging the MFAA in a war of words, following the industry body’s complaint to the government over GE’s recent actions. On 6 March, MFAA CEO Phil Naylor sent a letter to Treasurer Wayne Swan (copied to Senator Nick Sherry), saying the conduct of GE had impacted on the “good repute of the Phil Naylor mortgage and finance sector and in particular on non-bank lenders” and urged some form of action. The MFAA has yet to hear back from the government, but Naylor said he had received correspondence from GE. “They have sent us a letter, which wasn’t a particularly pleasant one. We are currently in the position of to-ing and fro-ing with them. They are expressing views about what we said and we are expressing views about what they said,” Naylor revealed. Naylor would not discuss the details of the exchange, but he said: “As soon as that position is sorted out we will publicise it.”

MFAA mystery shoppers prefer Victoria brokers The MFAA’s third annual mystery shopping survey gave top scores to brokers based in Victoria. In a complete reversal of last year, Victorian brokers performed the strongest achieving a rollup score of 74.8 (out of a 100), up from 57.7 in January 2008. This was significantly higher than the aggregator score of 69.2, but still below a desirable level of 75 or more. Importantly, brokers were perceived as being honest by the vast majority of shoppers (84.8%) while 75.5% of shoppers who were made an offer felt the loans met their needs. Brokers continue to make a good first impression on clients via their premises, physical appearances and preparations for meetings. The exterior and interior of offices rated highly. The poorest performing area was compliance, with explanations of who the shopper can complain to, and who supervises brokers rating the lowest.

News banking

RAMS drops no deposits loans from franchise network

RAMS has withdrawn its 100% home loan from its franchise network. “This is consistent with what we are doing in the broker channel, and consistent with recent moves by other lenders to manage risk and to take a long-term balanced approach,” explained a spokesperson. She also defended the manner in which brokers were informed about the changes to the RAMS credit policy earlier in the week: “Everyone was informed consistently, and together we took every proactive measure we could.”

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St.George pulls no deposit loans St.George joined the growing list of banks to cut its 100% LVR product. The lender gave brokers two weeks’ notice before the changes took effect – unlike the RAMS announcement, which gave some brokers less than 30 minutes to adjust to the new credit policy. “Due to current market conditions St.George/ BankSA have reviewed our offering of our No Deposit Home Loan. St.George/BankSA is an advocate for responsible lending and due to current market conditions the St.George/BankSA No Deposit Home Loan – LEF option is being withdrawn from sale,” said Steven Heavey, GM for intermediary distribution. “We know that this is an important change to how you do business and that it may impact many of your current and potential clients. However, we are endeavouring to provide you with every opportunity to meet your client needs, by providing you with ample time to advise potential customers in your sales pipeline that the product will no longer be available.” The bank stopped accepting 100% mortgage applications at midnight Thursday 9 April 2009.

To further support brokers, St.George said pre-approvals already issued and applications received by midnight on 9 April 2009 that receive pre-approval would give the customer 90 days to locate their property. “Once the pre-approval expires the application would need to be assessed under new lending criteria.” St.George was the last of the major lenders to offer a 100% loan product, despite recently ramping up its genuine savings and serviceability requirements. ANZ lowered its maximum LVR from 95% to 90% in November 2008, followed by CBA and NAB which lowered their maximum LVRs to 95%. Westpac’s maximum LVR currently stands at 97%. CBA subsequently lowered its LVR to a maximum of 90%. Other lenders, such as ING Direct and RAMS have joined the big banks in changing their credit policies. On 13 March ING Direct dropped its maximum LVR from 95% to 90%, while RAMS pulled its 100% product from the broker channel resetting its maximum to 95% on 23 March.

40% of bank customers listed “fees” as being what they most disliked about their bank

ANZ tops satisfaction poll ANZ has topped a customer satisfaction poll of 5,000 consumers. The survey was conducted by Canstar Cannex. The bank was found to have the largest number of satisfied customers in both New South Wales and South Australia. It also figured prominently in the other states, placing second in Victoria, third in Western Australia and fourth in Queensland. It performed highly in its banking services offered, in particular its branch service, complaint handling and friendliness. Community-focused regional player Bendigo Bank was named top bank by customers in Victoria and Qld, and also picked up banking service awards for its branch service, staff friendliness and call centre.

Surprisingly, Westpac rated higher than BankWest in WA. Cannex attributed this to “uncertainty over the recent acquisition of BankWest by the Commonwealth Bank” which it said has seen customer confidence dip slightly. “This should be temporary, with BankWest returning to full strength next time around,” the report said. In its report, Cannex noted that the CBA, traditionally ‘wooden spooners’ in the area of customer satisfaction, gained ground after finishing third in NSW and fifth in Victoria, SA and WA. Overall, the things that people most disliked about banks were, not surprisingly, fees (40%), and customer service (23%).

News banking

Mortgage brokers expect lower earnings

Macquarie tipped to enter aggregation space Industry sources are hinting Macquarie Bank will be making an appearance in the aggregation sector. The lender, which has been mainly dormant since it exited the mortgage and personal loans space in 2008, is believed to have approached several boutique aggregators with a cooperative proposition. A code of silence binds the involved parties, but several people who spoke with MPA on the condition of anonymity confirmed that a meeting for interested parties had been held in Sydney six months ago. One source told MPA that six aggregators were believed to be involved in the project – one from South Australia, one from Western Australia, one from Queensland and three from New South Wales. The source added that while the aggregators had signed confidentiality agreements, an announcement from the bank regarding the movement was due out shortly. The person heading Macquarie’s move into the aggregation space is believed to be Tim Brown, the former head of Macquarie Mortgages. It is also believed that the project will run under a similar arrangement to that of former co-operative aggregator – Mosaic Financial Services. It is believed Macquarie Bank will take a stake in its proposed aggregation model. MPA has sought comment from Macquarie, but to date (and at time of going to press) the bank has not responded.

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A Datamonitor survey released today revealed that 22% of mortgage brokers expect lower revenues in the coming year. Expectations match reality for a number of brokers. The survey reported that 21% of brokers actually saw their revenues fall by 11% or worse. Market dominance by major banks has been detrimental to brokers, according to the report. “Mortgage brokers and non-bank lenders enjoyed a symbiotic relationship in Australia. The downfall of non-bank lenders hurts mortgage brokers,” said Petter Ingemarsson, financial services analyst at Datamonitor. Three-quarters of survey respondents agreed that the absence of non-bank lenders lowers competition. In the Australian Broker Business Sentiment Poll carried out in June last year, 81% of brokers listed reduced revenue due to lower commissions as their biggest concern, 72% feared economic conditions, while 51% were concerned about few lenders in the market. But the survey also found that one out of every two brokers expect to become multi-product sellers over the next 12 months (from when the report was carried out) with insurance, commercial lending and personal loans filling the revenue gaps left by declining commissions.

CBA urges brokers to stop calling In a mixed message, CBA urged brokers to stop calling ‘just to get an update’, but asked them to still give customers updates every one to two days. According to recent communiqué from the bank, processing staff and relationship managers have been copping an earful as brokers, frustrated by processing times, have used their right to dial. “Reports of abusive phone calls to processing staff and relationship managers are filtering through, as well as a growing number of reports of customers pulling their deals or taking them elsewhere,” the communiqué said. “This is costing us business which hurts. It also is having a negative impact on conversion rates, and we will be making an allowance for this aspect in the ensuing period.” The lender assured brokers that it was increasing the number of processing staff and “working through weekends” to clear the backlog of work and improve turnaround times. But it also said: “Don’t phone the centres ‘just to get an update’, but make sure your give your customers updates every one to two days.”

What do you think? Join the discussion at brokernews.com.au/forum

22%

of mortgage brokers expect lower revenues in the coming year

News

franchising

Lahiff resigns from Mortgage Choice After six years heading Mortgage Choice, Paul Lahiff has resigned from his post as managing director – but he will continue in his leadership role while the company transitions to a new CEO. Mortgage Choice chairman, Peter Ritchie, said that the company will seek external assistance to recruit a new CEO who will “take Mortgage Choice to the next phase of its development.” He added that the Board is confident of attracting a strong field of candidates for the role. “We look ahead to a bright future, one in which we are well positioned to take advantage of numerous opportunities thanks to our robust business model, our strong brand, healthy geographic spread, and industry leading productivity,” Ritchie said. Upon announcement of his resignation, Lahiff said Mortgage Choice was well placed to meet future challenges. But the departure of the well-respected industry figure is not without mystery. While Mortgage Choice senior corporate affairs manager, Kristy Sheppard, said Lahiff’s resignation was in mutual agreement with the Board, she did not know the reasoning behind the decision.

“I don’t have any information from Paul or the Board as to exactly what happened, but it was definitely a mutual agreement,” she said. Sheppard was also unaware of Lahiff’s plans going forward, but she confirmed that he would continue to lead Mortgage Choice. “There’s been no word from Paul yet, but at present his focus is on continuing to lead the company, making sure we do a great job in the current market, and ensuring that the transition process is as smooth as possible,” she said. Adding to the secrecy is the issue of Lahiff’s replacement. Sheppard said that Mortgage Choice was hopeful that a new CEO would be found within a month and had engaged an external recruiter to find a suitable replacement, but she could not reveal any set timeframes or potential candidates. She did say that Mortgage Choice was on the lookout for an experienced person with similar characteristics to Lahiff. “But obviously in business every new leader brings something new to the table, so we look forward to somebody coming onboard and giving us some great input,” she said.

the number of Wizard franchise owners that are listed as participants in a proposed collective bargaining agreement with Aussie and GE

101

Nominations have opened for the Australian Mortgage Awards 2009 The highlight of the mortgage industry calendar, the Australian Mortgage Awards, will return to Sydney this September. Culminating in an exciting black tie event, the awards will celebrate the achievements of individuals and businesses in the mortgage industry. The AMA gather in excess of 1,000 brokers and industry leaders for a night to remember, featuring a gourmet meal, free-flowing drinks, live entertainment and the announcement of the winner of each of the award categories. To select finalists for the 2009 event, industry professionals can cast their vote online for those they consider the best in the industry. The award categories open for nominations are: Broker of the Year (independent), Broker of the Year (franchise), Broker of the Year (equity release), Broker of the Year (specialised commercial), Broker of the Year (non-conforming), Broker of the Year (commercial real estate), Commercial Brokerage of the Year, Young Gun of the Year (franchise), Young Gun of the Year (independent), Best Bank BDM, Best Non-Bank BDM (including mortgage managers), Best Aggregator BDM, Brokerage of the Year (+5 staff), Brokerage of the Year (6–12 staff), Brokerage of the

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Year (>12 staff), Best Customer Service from an Individual Office, Best Advertising Campaign (print/ digital/TV), Best Industry Service, Best New Office on the Block, Most Effective Internet Presence and Franchise Operation of the Year. Finalists for the Golden Awards (Golden Morgie for Lifetime Achievement in the Mortgage Industry, Australian Broker of the Year, Australian BDM of the Year and Australian Rookie of the Year) will be announced on the night.

For more information on AMA09 or to nominate, visit the official event website: www.australian mortgageawards.com.au

News

franchising

Aussie eyeing up next acquisition

Mortgage Choice restricts broker advice

Wizard franchisees win right to collectively negotiate contracts

Despite denying any real intention to buy LJ Hooker, John Symond’s casual mention of a potential bid for the group has set industry tongues wagging. While an Aussie spokesperson said Symond had merely floated the idea over coffee with real estate mogul, John McGrath, and hasn’t had any communication with either LJ Hooker or its parent company, Suncorp, industry players are questioning Symond’s intentions. One representative from a rival group told MPA that Symond was testing the waters, and wanted to flag that Aussie is still on the acquisition trail. But a spokesperson for Aussie said the topic was a “thought brought up over coffee” and Symond was not engaging in any further action. He said the matter was brought up because Symond thought it was a potential area to watch, but Aussie would not be interested if such a deal was made available by Suncorp Group. According to Suncorp, however, this was unlikely. A spokesperson told MPA that LJ Hooker remained an important asset of the Group.

Mortgage Choice may think it’s a good idea for borrowers to use the government’s stimulus cash to pay off their mortgage – but will not be directing its brokers to pass on the advice to their clients. This follows a press release issued by Mortgage Choice head office advising “eligible Australians to consider spending their portion of the Federal Government economic stimulus package on a lump sum repayment on their home loan rather than splurging on luxuries”. But asked if Mortgage Choice brokers would be advising their clients on how to spend the handout, senior corporate affairs manager for Mortgage Choice, Kristy Sheppard said the answer was “no”. “The media release is purely an educative piece sent by Group Office to media in the hope of educating consumers about the difference a lump sum payment can make to their mortgage,” Sheppard said. “Our brokers don’t advise on mortgage strategy, that’s purely up to the customer. Each customer has individual circumstances (financial situation, lifestyle, portfolio goals, etc) that Kristy Sheppard they need to consider when formulating their mortgage repayment strategy,” she added. Mortgage Choice calculates that if a borrower contributed a one-off payment of $900 towards their $350,000 loan at a standard variable interest rate of 5.96% over a 30 year loan term, they would save approximately $4,435 in interest and reduce the loan term by two months. Sheppard said Mortgage Choice brokers could educate clients about the savings they could make by putting the money towards their home loan – as mentioned in the press release – but it was not part of their role as a Mortgage Choice broker to advise them how to spend it.

Over 100 Wizard franchisees won the right to collectively negotiate aspects of their amended franchise agreements with Aussie Home Loans and GE Money. This followed the lodgement of a collective bargaining Stephen Porges notification on 18 February by Johnson, Winters and Slattery lawyers. The ACCC said it did not offer any objection to the notification. According to documents filed with the ACCC, 101 (out of 167) Wizard franchise owners are listed as participants in the collective bargaining agreement. The terms they wish to negotiate include commission arrangements, the scope of the exclusivity territory to be assigned to each participant, the “nature, type and competitiveness” of products offered by Aussie for sale through the participants, the rights of participants to sell their franchisees and compensation arrangement, the rights of Aussie to terminate agreements, and compensation offered should Aussie terminate without consent. The lodgement of the notification confirms speculation that the majority of Wizard franchisees were unhappy with the agreement reached between Aussie and GE Money over the sale of their businesses. Wizard franchisees had until 27 April to decide if they wish to become Aussie franchisees. If they decide not to join Aussie, they will be referred back to GE. Under the Trade Practices Act, the ACCC will only object to and remove the immunity provided by a collective bargaining notification when it is satisfied that any public benefits from the proposed collective bargaining arrangement would not outweigh the public detriments. ACCC chairman, Graeme Samuel, said in this case the collective negotiations will result in transaction costs savings to the group and enable the franchisees to better consider their options in the limited time available. brokernews.com.au

News

property market

Hometrack: We have enough houses

FHOG boosts new home sales New home sales rose for the second month in a row in reaction to the government’s boost to the First Home Owner Grant (FHOG). According to the Housing Industry of Australia’s (HIA), total new home sales increased by 3.9% in February, while Queensland experienced a whopping 21.7% increase, pointing to the positive effect of lower interest rates and the government stimulus. New South Wales and Western Australia saw increases of 11.1% and 4.2% respectively, while sales fell moderately in Victoria (down by 5.6% following a 24% lift over the previous two months) and by 3.9% in South Australia (after a jump of 25% in January). “The number of detached home sales of large volume builders has been trending higher for five months now. This is evidence that the tripling of the FHOG is working in generating new home building activity and employment,” said HIA chief economist, Dr Harley Dale. But he added that pre-contract sales of apartments and home units fell for the fifth consecutive month in February (down 3.4%) as residential investors remained wary and the credit crunch continued to constrain activity. “It is important to consider incentives to boost the supply of investment as well as owner occupier housing stock to ensure the number of private rental dwellings is increased. Rental market conditions are extremely tight and the shortage of housing stock is placing everincreasing pressure on those households within the private rental market,” he warned.

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Increase in new home sales in February

3.9

Going against popular opinion, housing intelligence business, Hometrack, has dismissed popular claims that the Australian housing market is undersupplied. Industry associations such as the HIA and REIA have commonly warned against the widening gap between housing supply and demand in Australia, but according to CEO of Hometrack Brendan Darcy, the opposite may be true. “Our analysis indicates Australia may already have an excess of housing. We estimate there are at least 10 million dwellings in Australia compared with ABS data showing occupied dwellings of 8.3 million. The extra one to two million dwellings consists of a mixture of housing awaiting sale or development, vacant dwellings, second homes, and abandoned homes," he said. He went on to say that the ABS method for calculating the ratio of people per dwellings is based occupied dwellings. However, he said, Hometrack analysis which is based on postal address data indicates that Australia's current level of housing relative to its population is in line with other Anglo economies. Darcy said that when looked at in the context of population growth, total residential building approvals have been running above demand. "This points to a build-up of excess stock of housing over the past six years, despite the gap between building approvals and demand narrowing over recent months," he said.

repossessions on the rise More people are losing their home as a result of defaulting on their mortgage, according to a new Datamonitor survey, which also found that people are taking advantage of recent interest rate cuts to pay off more of their mortgage than they are required to each month. According to the survey, St.George repossessed 132 homes in March, compared to an average of around 80 during the boom times – other large banks have experienced similar increases. Lenders are reluctant to repossess homes in Australia. Some banks offer temporary relief such as interest-only payments and payment holidays.

News analysis

BIS Shrapnel:

Economic recovery to begin in 2010 Speaking at BIS Shrapnel’s bi-annual business forecasting conference in Sydney recently, chief economist Frank Gelber predicted that the worst of the downturn was expected to hit this year and that there was little prospect of a quick turnaround. But he said Australia could expect a strong recovery in five to six years from now. “The next two to three years will see the start of some insipid growth. And this will be followed by a strong pick up,” he said. Gelber said Australia has been put into a credit and equity squeeze, rather than a financial crisis, with overseas investors selling equity in local markets to repatriate funds. But he expected “aggressive interest rate reductions” and government stimulatory activities to begin to trigger a recovery in 2010. And while Gelber predicted unemployment to top out in the second half of 2010, he believed economic conditions would stabilise in the same period, and that ‘with interest rates at historic lows’ buyers would begin to return to the housing market – underpinning a strong upswing from 2010/11. “With a 50% fall in mining investment expected over the next three years and nondwelling activity not expected to trough until the second quarter of 2010, it will be a long, slow recovery for the economy,” he said. Adam Carr, senior economist at Icap Australia agreed with Gelber that a strong economic recovery was on the cards for Australia, and said the “sheer weight of money” would precipitate it. But he felt that we would see it occur sooner than in five to six years from now – perhaps even as early as by the end of this year. “The overseas investors have parked all their money in bank and cash management accounts, and there is approximately US$9trn just sitting in

those accounts. And the market cap of the S&P500 is only US$6trn, so it takes a fraction of that US$9trn to see a very sharp recovery in stock markets,” he explained. Matthew Nolan, managing director at Provident Cashflow, also felt that Gelber was being a touch too conservative. “Generally we bounce pretty well – we might have a quiet year or two and then go really hard for the next two after that,” he said. But like Gelber he felt that unemployment would top out in 2010 and would creep from “somewhere in the low fives to maybe 7%”. He felt that Gelber was also spot-on with his interest rates prediction, and said that on account of the cash rate being at 3.25% now, and with the rest of the world well below that, he expected rates to plummet to 2.5%, or even 2 %, over the next year. “There is good reason for the government to keep dropping those rates. That, along with government’s stimulus spending, will trigger the recovery,” he said. The drive into homes was being lead by the First Home Owner Grant, according to Nolan, and it “would be extended until government witnessed the market return to normal”. He also said that the US situation seemed to be stabilising, something he described as “helpful”. mpa

Matthew Nolan

Personal file

see the interview live brokernews.com.au/mpa

+ Business: Smartline + Family: Married with four teenage kids – aged 19, 17 and two 15-year-olds + Favourite band: U2 + Favourite sport: AFL; Hawthorn + Favourite movie: Roberto Benigni’s La vita è bella. “I like to be emotionally stirred at the movies.“ + If the house was burning and the family was safe, what would you grab: “A very real issue at the moment. My bike – I’d hate to see my beautiful Italian-made Bianchi get burned.” + Hobbies: “Cooking, bike riding, coaching and getting involved in junior sport. Once upon a time I’d go for a long ride and a quick cup of coffee; now it’s a short ride and a long cup of coffee.” + If you weren’t in the mortgage industry: “I’d do something with young kids – help disadvantaged children, or something similar. Kids are really good fun.” + Personal goals: “To get and keep fit – to do some sort of exercise every day. I’d love to follow the Tour de France as it travels around the country.“

profile leader

One of the most forthright commentators in the industry, Joe Sirianni has been known to ruffle a few feathers. Here he talks to MPA about food, family and the rewards of stepping outside his comfort zone

just joe S

martline director Joe Sirianni thinks of himself as being ‘typically Italian’. Which means his life revolves around his family – and food, of course. If you wanted to know the secret to restaurant quality lasagne, for instance, he would tell you it is best made with homemade pasta. And at Joe’s place, he is the one who makes it. “I just try to be a genuine sort of person, with good family values,” he says. That may be so, but as a well-known industry player, his influence extends well beyond his wife and four teenage children. Smartline focuses on the residential market, but Sirianni’s background is, in fact, in commercial leasing and other big ticket items. He started his climb up the corporate ladder 23 years ago at ANZ Bank. There, he had various roles. And although most of them focused on commercial as well as small business lending, everything changed in his last five years at the bank. It was then that he was appointed head of third party distribution in the broker space. “This is when the opportunity arose to leave the bank and join Smartline,” he remembers. That was in 2004. He says he was fortunate in that most of his earlier positions at the bank were senior, or leadership, roles. “But I also picked up technical knowledge in lending, credit policy and bank risk,

so I have a very good understanding of what banks want from their relationships with intermediaries,” he says. Natural strength Although he was somewhat involved in operations and credit, Sirianni says these days he tries to stay away from credit. Rather, being aggressive and bullish by nature, his natural strength lies in sales and marketing. For Sirianni, the broker industry has grown up quite rapidly. Initially, he remembers, lenders were not too sure about the broker proposition. They suspected it might not go the distance. But over the last 10 years, brokers have elevated themselves from being lenders of last resort, or ‘product floggers’, to being complete customer advocates. “Back then, customers would only go to brokers if they couldn’t get loans from the banks. Today, we have a professional group of brokers who are there to provide advice and guidance to consumers,” he says. “Lenders have come to realise that the broker proposition is a strong one that’s valued by consumers.” The fact that the market is more confusing than ever makes the broker proposition stronger, too. Furthermore, because consumers want to deal with brokers, it has become a fully fledged demand-driven phenomenon – and is likely to give the banks a headache.

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“ Lenders have come to realise that the broker proposition is a strong one that’s valued by consumers. Consumers like the choice and the advice they get ”

see the interview live Joe Sirianni has a reputation for being one of the most ethical and hard-working players in mortgage broking. Visit Brokernews.com.au/ MPA to find out how he got involved in the industry and hear about his rise through the ranks

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“Consumers like the choice and the advice they get,” Sirianni says. But he acknowledges that in current times, consumers prefer to throw their lot in with the big brands since those companies offer an element of comfort. Sirianni welcomes this ‘flight to quality’. “In these sorts of environments, people are beginning to recognise the power of a reliable brand, and things like the quality CRM systems and consistent service propositions that come with it,” he says. Toughest challenge You get the sense that Sirianni loves his work, but it is not always easy to do it. Convincing people who are very successful in their permanent jobs to leave that safe haven and move to a position where the remuneration is 100% commission based is a tough gig. He understands it, and feels that having the confidence to ‘back yourself’ is what makes it so difficult. “A fear of failure is a common theme. It’s very hard to leave the comforts of a paid job,” he acknowledges. But when people do, watching them get really energised as they take ownership of their own position is “quite remarkable”. “No longer victims or held hostage by the bank, they suddenly realise they’re in charge of their own destiny and experience a sudden liberation with that,” Sirianni says. “They work harder and really enjoy what they’re doing.” Sirianni does not want people to fail. Smartline has 140 franchisees and supporting them to succeed comes with a lot of responsibility. So having them join up with reservations and then watching them grow and become successful is the most rewarding aspect of his work. “Cathy Anderson [of Smartline Blackwood, SA] won the MFAA Operator of the Year,” he says. “When she first came on board she was apprehensive about joining Smartline. Watching her win the award is nice, you know what I mean?” Have a go Actually, no one knows better than Sirianni. Before taking his own leap of faith he held an executive position at the bank. He was well paid too, and already well up on its top 100 list – his career path glittered ahead of him. Then he upped and ‘threw it all away’ in order to join Smartline.

Every once in a while, he says, you want to be living on the edge, to influence and drive outcomes the way you want to. Sirianni saw getting out and stretching himself as a way of remaining fresh, alert and vibrant. “And I thought it was now or never,” he says. “I always wanted to be self employed, managing my own business. All I had to lose was my house, my superannuation, my savings. They couldn’t take much more from me; they couldn’t take my arms or legs – it was only money I had to lose. I was only risking money that took 43 years to build. But you’ve got to have a go, don’t you?” Let the markets decide Asked what he thinks of the steps the government has taken to foster greater competition in the industry, Sirianni says it is a “tricky one” to call. “I’m a pure capitalist who believes in free markets,” he says. “I think any government intervention that artificially stimulates markets is flawed.” He points to the government guarantees with certain banks as an example. They are propping up the majors, but they are also having a significant impact on non-bank lenders by creating unfair competition. “And consider the First Home Owner Grant,” he adds. “All that the government is doing there is bringing forward the supply.” Sirianni is a firm believer that markets have a natural process of moving to equilibrium. So when government starts influencing certain things, it makes him nervous. He does, however, acknowledge that the Australian government has done a top job in setting a good environment for compliance in the finance industry. “There’s no doubt about that, and our four majors are very highly regarded as a result of it,” he says. “They’re in the top 11 banks in the world and the government should take credit for that. But in creating, or fostering, greater competition – well, I’ll stick to my view on pure markets.” Because the mortgage industry is in a transition period now, the biggest issue facing it is sustainability and its future viability. Sirianni expects July’s legislation coupled with banks’ slimmer offerings will mean the end of the road for many part-time brokers. “Not that it’s all bad news, since a full-time professional mortgage broker will emerge from this,” he says. MPA

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Accounting, real estate, mortgage managing – is there anything Jeremy Yuen can’t do? Andrea Lavigne reports on what he does best

Fact file + Business: Ace Home Loans + City/state: Parramatta, NSW + Amount settled 2008: $102,397,779 + No. of support staff: 3 + Years as broker: 11 + Aggregator: Connective – “The way they’ve set up their system is pretty good. You pay a flat rate of fees and that covers you, and they also have a flexible contract. If you want to go in the future, you can go and you can take your clients, move your trails. So I think it’s a topnotch agreement.” + Short-term goal: “I’m hoping the market comes back a little bit. Things are looking a little grim. We just need some stabilisation and banks to not cut commissions further. But everything goes in a cycle.” + Long-term goal: “I’d like to apply for my banking licence. You have to have a lot of resources. I’d like to be a bank myself, but it would be very hard to achieve.”

eremy Yuen is somewhat of a triple-threat. The accountant turned broker/part-time real estate agent is one of the country’s most successful loan writers, ranking seventh place in MPA’s Top 100 brokers list in both 2007 and 2008. Yuen, who immigrated to Australia from Hong Kong when he was 19, graduated from Sydney University with a BA in economics and started his professional career working for a chartered accounting firm. Ambitious and hardworking, Yuen started his own firm in 1990. But his involvement with the mortgage industry began gradually. By 1995, he started referring a lot of loans to banks, and three years later he was recruited as a mobile manager. Yuen was burning the candle at both ends – running his own accounting practice and meeting customers in the evenings to sell loans. In 1999, Yuen decided it was time to invest himself wholly in the industry as a mortgage manager and he started Ace Home Loans. “At the time, we were quite busy and successful,” he says. The early days were good: Yuen employed 20 administration staff and had 10 loan writers. “Until late 2004, the costs of being a mortgage manager just kept going up and the interest rates of the banks just kept going down. So we found we weren’t as competitive in the market, and we weren’t making as much of a profit margin being a mortgage manager.” Perhaps it was a prescient move, because it was at that point he decided to scale back and operate his business as a brokerage. Change The upshot was that Yuen was now able to offer his clients a wider range of products and it made life a lot easier. “As a mortgage manager, it’s very hard to submit the deal. You have to get approval from the mortgage insurer regardless of the LVR, and you still have to take out mortgage insurance. After that, you go back to the lender to get approval, so you have more hurdles to jump over being a mortgage manager.” The downside was that many clients continued to see him as a mortgage manager rather than a broker. “They’d approach another broker first for bank products, or walk into the branch. So I lose some opportunities like that.” Keeping clients Yuen stays in constant contact with his clients and tries to throw a massive party once a year, inviting up to 1,000 people.

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“Once you have a strong relationship, you can get all your referrals in. In the past I relied on advertising, but I don’t think that works anymore. For the dollar amount I put, I didn’t get the same back. It’s like giving money away.” At the end of the day, he recognises who is buttering his bread. “You’ve got to have a good relationship with all your clients, your aggregators, lenders or whoever you associate with. And out of all of them, I think the most important is really the client. Because they give you the business, they’re actually your boss. Ultimately, they make the decision whether they come to you or another person.” Despite switching gears from mortgage manager to mortgage broker, Yuen did not take his foot off the accelerator. He still puts long hours in the office and works seven days a week. He likes to make the home loan experience as convenient as possible for his clients, so he allows them to nominate the time. A typical day starts at about 9am and finishes around 11pm. “Lately we’ve become busier. Most of the applicants are first homebuyers and most of the deals are pretty small in size. If I want to keep the same volume it means I have to do a lot more.” Like a lot of brokers, Yuen is crossing his fingers that the government extends the grant. If they do not, he predicts the market will quieten down significantly and house prices will start to drop. The second busiest market for Yuen consists of people looking to refinance. “We see people that are really keen on interest rates and they’re more aware and educated than before. When they come in, they ask all kinds of questions: What are the establishment fees? What

are the ongoing fees? And what’s the early repayment penalty?” Five years ago, Yuen says that less than half of his clients would ask about early repayment penalties; now it is closer to 90%. “People are very aware at the moment, and use the internet to research before they come in to see us. So you’ve got to be really prepared and do your homework. Every Monday, we do a product search and we summarise everything. Otherwise, when you go to the client, they might know even more than you and you’ll get caught short.” Location Yuen has been in Parramatta for 20 years. “Your suburb does play a very important role in your business as well,” he says. For a while, he had another office in Sydney. Many people came in for enquiries, but very few followed through. In Parramatta, the conversion rate is much higher. Although he says his ability to speak Mandarin and Cantonese has made it easier to communicate with people from the same background, he does not specifically target that segment. “I try not to concentrate on one nationality because if that market goes down, then I’ll be in big trouble.” Of course, Yuen always has the option to become a full-time real estate agent, which fulfils another passion of his. “I like interior design and I’d like to get into interior decoration. So when I go to other people’s houses, I always pick up ideas.” But Yuen has no plans of retiring soon. At best he thinks he will hold on in the industry until he is 75, but maybe cut back to five days a week and just eight hours a day. MPA

“ People are very aware at the moment and use the internet to research before they come to see us. So you’ve got to be really prepared anddo your homework ”

see the interview live Mortgage broker Jeremy Yuen is one of the industry’s elite. Visit Brokernews.com.au/ MPA to see MPA’s on-camera interview with one of the country’s top brokers

success tips Jeremy Yuen says his success is based on some basic principles

#1 Be available “I think my key point of difference is that I’m always available. The most important thing is dedication. You’ve got to sacrifice your time and make it convenient for your clients and try to go to as many people as you can.”

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#2 Know the industry The second most important factor is knowledge of the industry. “People are really aware and educated about all the mortgage products now. If you’re not up to date, clients will know.”

#3 Be honest Crucially, Yuen says you have to be honest. “When I sell the products, I don’t even think about trail or upfront, I just try to sell the most suitable product. I think that makes me different. You have to put the client first and then you’ll see some success.”

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Feature Trail

Trailing off

Trail commission has always set the Australian mortgage industry apart from its overseas counterparts, but some question its future role in the market. Andrea Lavigne investigates…

t a recent roundtable discussion with mortgage managers from across Australia, the consensus on the future of trail commissions was unanimous. “Trails will be gone for sure,” said Ken Sayer, managing director of Mortgage House. And his words were met with murmurs of agreement. Mortgage managers have been warning brokers for months that continued support of the major banks will have disastrous consequences for the third party channel. They are predicting that major banks – bolstered by market dominance and the continued scarcity of securitised funding for non-banks – will increase their margins by further cutting upfront and trail commissions. But is this a real threat, or scaremongering by a mortgage sector hoping to claw back market share? Australian Mortgage Brokers (AMB) CEO Paul Gollan says rumours that trail will disappear are “absolute rubbish”.

Feature Trail

“The organisations that are saying this are the ones that stand to benefit from brokers buying into this argument,” he says. Gollan says it is dangerous for 90% of business to be going to the banks, but he cannot imagine any lender cutting trails at this point. “I don’t think it makes commercial sense for the banks to try it. They’d have to know that the other major banks would follow suit and the only way they’d know that would be if they were colluding. So assuming that they’re not breaking the law, I just don’t believe trails will disappear in the next five years,” he says. Stepping back You cannot determine where trail is heading without taking a look at how it came into being. Trail commissions first materialised in Australia in 1996. At the time, margins were good and broker groups started to ask lenders for a share in the ongoing profits. In an effort to woo brokers’ business, some lenders broke ranks and started paying trail – and it was not long before all the major players followed. In 1998, brokers were making trail commissions of 25bps – but upfronts were lower. Brokers selling HomeSide products, for example, were making a flat upfront fee of $400. By 2000, the Australian mortgage industry went through a period of dramatic growth and the emphasis switched to upfront commissions. “Companies were looking for volume and product sales, and this led the market to about 70bps upfront as an average,” says Matt Lawler, regional general manager of NAB Broker. Then by about 2005, lenders started to tweak trails. CBA, for instance, changed trail commissions to 20bps in year one from the date of funding and 25bps from year two. NAB took a slightly different approach and introduced a trail commission that progressively increased from 25bps in the fourth, fifth and sixth years. Lawler says the decision was made to try and get more of a balance between product selling and ongoing client management. “If you’ve got a large bias towards product sale, what you create is a product selling

kiwis and canucks “There are almost no countries in the world where trails are paid,” says Martin North, managing director of Fujitsu Consulting. New Zealand and Canada are the only two other countries in the world where trail has ever had any sort of traction. Almost all lenders in Australia had already started paying trail by 1998, but only one lender in New Zealand had introduced the ongoing commission at that time. Of its four key lenders, only two others followed suit. AMB CEO Paul Gollan, who was sent to New Zealand in 1998 to set up Ray White Financial Services for his former employer, says trail commissions never really gained traction in New Zealand because the majority of loans sold there are fixed rate mortgages. “Because so many Kiwis love low margin, fixed rate mortgages, it became unsustainable for the banks in New Zealand to continue to pay trail,” he says. “Also, New Zealand never had anywhere near the level of competition that we’ve got in Australia.” In Canada, trail is a much more recent invention and offered as an ‘option’ for brokers, rather than a guaranteed part of their income. According to a recent article in Canadian Mortgage Professional, while few lenders in Canada currently offer the trailer fee compensation model, it is gaining popularity with brokers who are looking for some income stability. Merix Financial’s president Boris Bozic says an estimated 75% of all approved originators – a 15% increase from 2007 – chose the model over the traditional upfront model in 2008. Eighty-three per cent of the lender’s new approved originators signed up for trailer fees. “More and more originators are seeing the value of this model, especially in these tough economic times,” Bozic says. Macquarie Financial has reported increased interest in the trailer fee model. Grant Mackenzie, the company’s CEO, says he has seen a slight increase from last year in brokers who opt for the original trailer fee model (75bps with trail every year) as opposed to those who choose an upfront payment with a trail on renewals. “We’re paying in excess of $100,000 a month in trailer fees,” says Mackenzie. “When business isn’t coming in for brokers, it’s a good insurance policy for them to have.” The idea of trail may be popular with Canadian brokers, but it remains to be seen if more lenders will adopt the model.

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Feature Trail

superbrokers on trail Do you predict trails will disappear in Australia? MPA asked aggregators for their response… Michael Osborne, head of sales and marketing of The Brokerage: “Any moves to remove trail would be a poor outcome for the necessary competitive elements in a market and for consumers as far as advice and ongoing relationship management.” Joe Sirianni, executive director of Smartline: “Trail will continue. It’s designed to reduce or eliminate churn, which it does – if done correctly. Lenders will make sure broker groups do what they should to earn that trail. They’ll want brokers to implement a customer care program, since trail is paid to make sure the client sticks with the lender. Lenders are sick of ‘set and forget’ broker transactions, and are looking for broker groups to stay in contact with their customers.” Steve Lambert, CEO of National Brokers Group: “What I’m trying to do with all our guys is to get them to cross sell different products and services, so that the client relationship stays with the broker rather than the lender. Once you’ve got that relationship the lender is going to be far less inclined

culture… but clients don’t get serviced on an ongoing basis,” he says. “We wanted to encourage brokers who were looking at servicing clients and making sure the clients’ needs were met not only at the time the product sale was made, but on an ongoing basis.” This brings us to 2008, at which time brokers saw the most dramatic changes to date. Across the industry, lenders lowered upfronts and reduced trails in year one. For example, CBA changed trail commission to zero bps in year one and 20bps from year two, while NAB continued with its stepped trail philosophy – offering no trail commission in year one, but progressively increasing trail from 15bps in year two up to 35bps in years six and up.

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to drop the trail because you actually are actively servicing the client, you’re looking after them. You can’t just provide a one-off transaction and think you deserve some trail. Once that takes more traction, it’ll be okay.” Steve Kane, managing director of FAST: “There are some banks that clearly want brokers to be more involved with the management of customers which is what trailing commission is all about. And there are a number of major banks that are keen to ensure that brokers have available data so they can help manage their customer relationship, and this will reinforce and strengthen the position around trailing income.” Mark Haron, principal of Connective: “Some lenders have increasing trail components. Brokers can take a lot of comfort out of that. It’s a signal to brokers that banks see us as an important part of the ongoing relationship with the client. As brokers, we’ve got to embrace this and make sure the banks offering increasing trails are getting our business. By doing so we can discourage some of the other lenders from excluding trails from their offering.”

Rounding the bend Fujitsu Consulting’s managing director Martin North ventures that the future of trail in Australia is dependent on which role lenders believe brokers should have with respect to their clients. “There are two arguments,” he says. “The first put by NAB and a few others is that they want brokers to switch from just doing the transaction to essentially being a quasi relationship manager of that customer over the medium term, so they’ve actually increased trail commissions, particularly in later years. “So if you believe that the future of mortgage broking is more aligned to financial planning and advice, and relationship managing, then there’s

Feature Trail

probably an argument for saying that trail commissions will have a place.” North argues that lenders adopting this philosophy may not squeeze trail commissions, but brokers could expect them to make further reductions in the upfront. The other school of thought, North says, is that mortgage broking is fundamentally transactional in nature and the trail commission is not really something that is relevant to that transaction. Lenders that want to take over that relationship are less likely to pay trail, but might keep upfront commissions high. “My view is: commission pools are smaller and there are fewer active brokers, and the four banks have major market power so they’ll continue to drive commissions down – but whether they do it by reducing upfronts or trails will be determined by their business strategy. For CBA this may be achieved through a transaction, and for NAB it may be part of a broader financial services relationship,” North says. “I personally think we’ll see quite a lot of pressure on trail.”

“ We think that we’ve got a good balance between encouraging the sale, the work that’s required to do the sale, and the ongoing service to the client ” Comments from NAB indicate that there are no plans afoot at the moment to make immediate changes. “We’re very comfortable with the balance that we’ve got in terms of the numbers. We think that we’ve got a good balance between encouraging the sale, the work that’s required to do the sale, and the ongoing service to the client,” Lawler says. He adds: “I don’t think that everybody is in the same boat there. I think that some people have too much economics at the front end.” As for the CBA, Kathy Cummings, executive general manager of third party banking, says that there are no immediate plans to change their current level of broker remuneration. mpa

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Aggregator responses

MPA’s second annual brokers on aggregators survey revealed some improvements in the sector. This month, in response to the findings of that survey, we talk to aggregators and ask what their focus is for the coming year

ggregators are defying expectations. Last month, MPA polled 300 brokers in its second annual “brokers on aggregators” survey and it appears that, despite the negative impact the credit crunch is having on the sector, brokers are even more satisfied with their aggregator than in the previous year. In fact, brokers scored their aggregators higher in seven of nine categories, with significant improvement in two specific areas: back-office support and marketing support. Overall, the sector achieved a score of 4.0 – up from 3.7 in 2008. Survey breakdown In last month’s survey, MPA asked brokers to rate aggregators in nine categories: the quality of their lending panels, IT and broker systems, back-office support, commission payment regularity, training and education, marketing support, the quality of BDMs, overall quality of service to brokers and an overall rating. Aggregators were rated in each category on a scale of one to five (five being the highest). Brokers were also asked to respond to specific questions such as: if there is one area your current aggregator could improve, what would that be; how transparent is your aggregator about its profitability and financial stability; and what initiatives has your aggregator undertaken to help you weather the current economic conditions?

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Aggregator responses

Brokers from 33 different aggregators shared their comments and thoughts, but MPA broke down the results for aggregators that received more than 15 responses to get a clearer view of how certain players were performing. For the larger players, the sample size is much smaller than surveys they collect within their own group. For this reason, MPA invited each player to talk about three points: its own performance this year; which areas it has paid particular attention to; and what it is hoping to accomplish in the next 12 months. AFG AFG’s overall rating this year jumped from 3.4 to 4.0 – the sharpest rise in the entire survey. One broker commented: “Overall, one of the safest aggregators in the market.” Size and long-standing performance history appear to be important factors for many of AFG brokers. Cheryl Williams, director of Smarter Mortgage Solutions, summed it up: “Been there for years. They approached us and we liked their proposal. It’s great to be with the biggest and best aggregator in the country. Back-up and BDM support is fantastic.” AFG, the country’s largest aggregator, has 2,285 full-time mortgage brokers and a loan book over $51bn (both commercial and residential). Mark Hewitt, general manager of sales and operations, says its size helps the aggregator in talks with lenders. “Our size enables us to attain the ear of our lending partners a little more than some others, and I feel that our views are taken on board seriously,” he says.

“ We have always published our monthly results in terms of loan applications, and we also post our financials on our website so it’s there for everyone to see. It’s something that others don’t do on both fronts – Mark Hewitt, AFG ”

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Mark Hewitt

“We’re in daily contact with each of our lender partners, not only on commissions but on policy changes. The big thing at the moment is we have a lot of lenders looking at their LVRs and criteria. The main thing we’re concerned about is equal footing for all channels. So a broker-introduced customer should get the same treatment as branch customers.” Still, Hewitt says he understands why banks are having a hard time dealing with the backlog of loan applications. “They’ve found themselves in a circumstance where their lending volumes have doubled or even tripled so it would have been hard for them to plan for that six months ago,” he says. “Yes, we would like to see the same service proposition provided to both branch and broker customers, but we can understand why that hasn’t happened. It is hard to have a go at banks that are still able to lend in the current climate.” This year, AFG’s major emphasis has been on its Smart program, which was rolled out almost 10 months ago. Judging from comments received in our survey, the CRM scheme has proven popular with brokers. Hewitt says it has already been adopted by 400 of its brokers and is growing in popularity. AFG’s score in terms of the quality of its lending panel fell, but Hewitt says the aggregator is working to replace some of the second-tier

AFG

Top rated areas: + Training and education + Quality of lending panel + Overall quality of service

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Aggregator responses

Steve Lambert

lenders that have left the market with building societies and credit unions. Another area the aggregator is paying attention to is disclosure. This is one aspect of AFG that really sets it apart from its competitors. “We have always published our monthly results in terms of loan applications, and we also post our financials on our website so it’s there for everyone to see. It’s something that others don’t do on both fronts,” he says. “Hopefully this gives brokers a little more confidence because they know what they’re dealing with – there’s no smoke and mirrors involved and it’s all up there for everyone to see.”

National Brokers Group Top rated areas: + Quality of lending panel + Commission payment regularity + Overall quality of service

National Brokers Group Known as the co-op of the aggregation sector, National Brokers Group appears to be a consistent performer in our survey The broker group underwent a massive IT and broker systems overhaul in the last year and appears to have gone through some growing pains. But for CEO Steve Lambert, it’s worth celebrating. “We’ve been working on getting the software fully integrated through the systems. We use the

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Aggregator responses

Pisces software system, but we’re probably the only group in Australia that’s got it from end to end,” he says. “Right now it’s all done, and we’re doing training with all the brokers to realise its functionality. Now we’ve got a major software solution that we provide free to all our members, so it makes it a lot easier to pay commissions and do reporting – both for them and for us,” Lambert adds. A key complaint heard in the survey is monthly commissions. Brokers from several different aggregators echoed calls for fortnightly payments. The group isn’t quite ready for that, but it is an area Lambert says it will “absolutely” address this year. National Brokers Group received a score for the quality of its lending panel, despite the number of lenders that have dropped from the mortgage scene in the last 18 months. Lambert says management and a select team of brokers from the group regularly review the panel and currently they are trying to add another five lenders. “We look at new additions, where they fit and why they fit. The choice really needs to be there,” he says. The choice needs to be there for both customers and brokers, Lambert adds. “If our guys are lodging deals, you [lenders] shouldn’t be telling us, ‘well, we haven’t got the staff ’. They should be telling us before we’ve lodged the deal so it’s not pipeline blocked, so the brokers can offer an efficient service back to their clients.” Brokers are looking to their aggregator to stand up to lenders and fight further commission cuts, but Lambert says there is only so much the sector can do. “We meet with the head of broker sales with each of the lenders and talk to them and say, ‘ok, ‘what is your commitment to this network?’ You’ve got to go in hard, but not too hard because they’re still your business partners, he said. “It’s like going to a petrol station and demanding that the price drop down. We’ve stated our position and said we do not want any more commission cuts; we want efficient service and want you to provide these service standards for us,” Lambert adds.

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He says he has heard rumours of further cuts – but don’t expect changes anytime soon. “They’ve said things are still pretty tight, but with the amount of volume going through they might change their lending policies, rather than doing anything with commissions.” Choice Aggregation Services Industry heavyweight Choice Aggregation Services appears to be another consistent player in the space. In commenting on why they chose Choice as their aggregator, several brokers used the adjectives “friendly” and “professional”. Choice appears to be a large player that has managed to walk a fine line, being able to be big but not impersonal. Established in 1997, Choice has close to 1,400 members and a loan book of $25.6bn. “Despite the fact that Choice is one of the biggest aggregators in town, we’ve managed to retain that ‘high-touch’ approach. We don’t treat our members like numbers, which is a key difference,” says Choice CEO Brendan O’Donnell. Choice has been with Challenger for 18 months and the change has been positive,

Choice Aggregation Services

Top rated areas: + Quality of lending panel + Commission payment regularity + Overall quality of service

Brendan O’Donnell

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Aggregator responses

O’Donnell says. “It’s enabled us to enjoy the economies of scale that come with that. Not only centralising our back office, but also getting sharper skills around some of the skills from back office, from marketing through to financial modelling.” Having Challenger backing the business does give Choice more weight when dealing with lenders. “Their effective size in the industry does work well for us. Challenger touch one in five loans written in the country. So that’s a fairly prominent position to have and clearly Challenger need to be taken seriously and they are.” In the coming year, O’Donnell says, Choice will focus on business education for its brokers. “We recognise that the landscape has changed fundamentally, but what really is important for us is to guide and educate brokers about the impact that commissions and decreasing volumes have had,” he says. “So we’ve developed some unique tools which will enable brokers to better understand their cash flow, manage their cash flow and improve their knowledge of what the net present value of what their future earnings is.” Choice’s IT platform, Podium, was used to launch the new set of tools for brokers – a program called Perform@.

PLAN Australia

Top rated areas:

Ray Hair

PLAN Australia PLAN Australia’s CEO Ray Hair says three things make PLAN different: trust, technology and BDMs. The first of PLAN’s three points of distinction is a major reason why several brokers in our survey said they chose to align with the aggregator. “I chose PLAN because of its strength and trust structure for commission payments,” said one broker. The fact that PLAN does not mix brokers’ money with its own in terms of the operating side of the business is a major pillar of the group, says Hair.

+ Quality of lending panel + Commission payment regularity + IT and broker systems

“ PLAN has always had leading-edge broker sales software and commissions systems and they continue to evolve – Ray Hair, PLAN ”

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Aggregator responses

Loankit Top rated areas: + Commission payment regularity + IT and broker systems + Back office support

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“It’s ethical and trustworthy. Not to say that others aren’t, but we’ve taken steps to protect our members’ revenue.” On the technology front, PLAN received good reviews from its brokers. A number of brokers specifically mentioned the group’s “easy-to-use software” as being one reason they joined the aggregator. The aggregator made a major investment in its IT system just before last year’s survey. “PLAN has always had leading-edge broker sales software and commissions systems and they continue to evolve,” Hair says. PLAN’S third area of strength – BDM support – received a number of Kym Rampal positive comments. “We are fortunate to have Sam Zammitt who is a bit of a legend. Nothing is too much trouble for him and he is always very quick to respond,” said one broker. Another commented: “Current chap is on the money.” Hair acknowledges BDMs have increasingly been put to the test this year as some brokers struggle to maintain the kind of volumes they enjoyed in the past. “I think the BDM’s job has got more complicated. There’s more noise out there around lender service, lack of lenders, that sort of thing. “We provide a whole set of tools and infrastructure which they can use as a foundation to their business. That’s our BDMs’ role and that hasn’t changed.” But he adds that BDMs cannot change the number of lenders out there or speed loan processing times – they can only help brokers build their business. “Our BDMs are all focused on growing the business of our brokers. If they don’t grow we don’t grow – it’s as simple as that,” he says.

And the aggregator is working on brokers’ growing concerns about loan processing times. He argues there is little value in coming out and “bashing the banks over their service levels”, and he says PLAN is trying to work through the trouble spots with the lenders. “We’re obviously trying to work with the lenders to improve quality of submissions and conversion rates, etc, because we understand the cost aspect of that. At the same time, we’re holding the lenders accountable and asking the question of them about their own back office,” he says. “Lenders have also got to acknowledge that the huge volumes that are flowing to the majors are part of the problem. They’re holding brokers accountable, but their own systems are under huge pressure.” Loankit Loankit took top honours in this year’s survey. The boutique aggregator sources some of its lending panel through Connective and, although it is a small player in the aggregation field, managing director Kym Rampal argues it deserves to be recognised alongside the larger players. “An aggregator is not just one that provides access to a panel of lenders. An aggregator is one that provides a whole plethora of other services as well which will help their members to grow their business. So an aggregator who only provides a panel of lenders does not qualify to be called an aggregator. Loankit is ideally suited to be called an aggregator because it provides everything.” Loankit brokers rated the group highly in the categories of IT and brokers systems, commission payment regularity and back-office support. Rampal says Loankit was ahead of most aggregators in developing its IT and broker systems and has had time to work out the kinks. “It was so early in its development of these products that they are very mature in their presentation in what they have to offer to the brokers. Other aggregators have just started to implement it but they’re still suffering teething problems.” Not only is the system easy to use, Rampal says. The aggregator will also customise the software to suit individual brokers’ needs.

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Aggregator responses

“We come out to the broker, the broker tells us what he wants and we customise it for them on the spot. That way you can concentrate on your business and we’ll do your IT software.” Loankit Marketing is another flagship for the aggregator. “Leads are a big concern. Loankit Marketing helps brokers identify who they can market to. Even to the extent of developing a client database that they can market to. You can only generate so many leads by marketing to your own client base. Loankit is giving them the ability to step out of that client base and market to a totally different set of clients, and providing them with the tools to market to these clients.” Despite increasing pressure to consolidate, Rampal says, there are several benefits to being boutique. “There are great benefits in remaining a small player rather than being consolidated into a bigger group. I feel that as a smaller group we can give a better service to our brokers. And something that happens to you in bigger groups is you become a number.” Like other aggregators, Loankit is asking banks to provide better statistics on how they monitor the brokers. “Many lenders are paying commission based on performance and, while all that is well and good, we need to get feedback from the banks about what those performance metrics are and how they apply to each individual broker. We have asked each of the banks to provide us the stats on each broker and then we give those stats to the broker so they can refine the way they function with banks so they can earn those top commissions.” The Brokerage Last year, The Brokerage took first place in the survey and was only narrowly beaten to the top spot this year. The boutique aggregator, which was established in 2001, counts 130 loan writers

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Aggregator responses

Michael Osborne

The Brokerage Top rated areas: + Back office support + IT and broker systems + Training and education

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Aggregator responses

nationally. It says its philosophy and culture separate it from some of the other players in this space. “We have a flat structure empowering our team to be responsive and make quick decisions, a focus on getting the small things in business right and, importantly, an attitude to do whatever it takes,” says Michael Osborne, head of sales and distribution. Despite impressive scores last year, the aggregator says it did not sit back and rest on its laurels. “In a year where many stood still, The Brokerage continued to roll out new initiatives,” Osborne says. “We looked carefully at our efficiencies to ensure that we weren’t carrying any fat – providing the platform with the strength to push through these changing and challenging times.” Brokers ranked The Brokerage’s IT and broker systems as one of the best in the sector. One broker commented: “Industry-best software with excellent online lodgement and CRM functionality.” Osborne says the group has put more focus on its web presence; in July, it launched a Facebook

page and a fully revamped website. It added additional tools to its broker site including the broker ‘BLOG’, CPD points online, commission management access and a resource centre. Last year, The Brokerage said it was looking to beef up its marketing. This year it really delivered by adding additional support to its brokers, including website and search engine support, and advice on marketing campaigns and materials. The Brokerage chose to use Symmetry for its IT, which is a web-based platform which Osborne says provides flexibility for its brokers and has strong CRM capabilities. “Symmetry is a part of the Stargate Group and the strength behind the business in the Spencer family gave us the comfort of long-term sustainability,” Osborne explains. The area of back-office support is another area where The Brokerage really excelled, ranking 4.7, the highest score received in this category. One broker commented: “Extremely strong back office support – easily the best in the industry.” Survey respondents mentioned the availability of its team members and their attention to following up on all matters.

FAST Top rated areas: + Quality of lending panel + Commission payment regularity + Training and education

Steven Kane

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Aggregator responses

FAST Established in 2000, Finance & Systems Technology (FAST) is a proven player in the aggregation space. FAST conducts its own survey of its brokers through Challenger. The sample size is a significantly larger pool – some 300 brokers participate in its poll, compared to the 18 FAST brokers who responded to the survey conducted by MPA. Managing director Steve Kane says that, while there is some consistency with the results in our survey, he would prefer not to comment on MPA’s results. Kane did talk about the areas FAST will be concentrating on in the coming months. “The key focus for FAST is ensuring that we remain competitive in the marketplace and that we remain relative to the needs of the brokers – particularly around diversification of income, across things such as equipment finance and commercial [lending],” he says.

“FAST launched an in-house product – the FAST Asset Finance Services – which is really to position those brokers that can’t or don’t have the time to put together equipment finance transactions and we have formed a joint venture to put that through. So we do an in-house packaging service for those clients.” The service was informally launched during FAST’s professional development days in November 2008 and formally launched at the beginning of 2009. So far, 200 brokers have signed up for the program. Kane says that FAST is also piloting new CRM software and taking feedback from its brokers. This is to “ensure that in the long run it’s a system that provides what a broker actually needs”. “We’re also reinvigorating our sales effort and supporting brokers by helping them with business planning and their business processes. Our main concern is that brokers are requiring additional assistance. To help them with this we’re getting

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Aggregator responses

our partnership managers to assist brokers in acquiring new revenue streams and ensuring that they are aware of the opportunities that are available to them. “So it really helps brokers if they change their business models where appropriate so they can broaden their revenue streams.” Kane says FAST is now leveraging quite heavily off Challenger, which purchased 19% of the company in September 2007 to ensure it gets support in areas of infrastructure, systems, HR and legal support. “Challenger, as a publicly listed entity, also has a very strong regime around risk management and risk management practices, and we’re adopting those in our business and we’ll roll out those strategies to our brokers to enable them to better understand the risks in their business.”

Paul Gollan

Australian Mortgage Brokers Top rated areas: + Commission payment regularity + IT and broker systems + Back office support

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Australian Mortgage Brokers This year was the first time MPA was able to include individual results for Australian Mortgage Brokers – a growing boutique franchise network with 70 accredited loan writers. The franchise aggregator tied third in our survey (with Connective) and pulled impressive numbers in a number of categories. AMB CEO Paul Gollan says the team environment sets it apart from its competitors. Its small size is also an advantage, he says, in that the company can be extremely responsive to broker feedback. “Every aggregator cares about their brokers’ success,” he says. “But we try to find out what our brokers need and fill that need.” Another point of difference is AMB’s mentoring system, which follows the guidelines set out by the MFAA. “I honestly believe that there is a bit of a ‘nudge, nudge, wink, wink’ thing going on in the industry. Fresh brokers are saying ‘will you be my mentor and just sign this paper saying I’ve done this’, Gollan says. “But we make sure the mentors are doing what they say they’re doing and we have a compliance manager who monitors that.” AMB brokers gave the company a score of 4.4 for its training and education – on par with Connective’s

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Aggregator responses

score in this area and only slightly behind The Brokerage’s score of 4.5. Gollan says the company has strived to make training and education sessions valuable for all its members – not an easy task given the high level of experience the majority of its brokers have. “Our quarterly PD days are equally split between running skills training sessions and just a general forum where brokers can share their ideas,” says Gollan. “The skills training can be a little boring, but our focus at the moment is trying to bring in new training that enhances sales skills,” he adds. As far as going to bat on behalf of its brokers against the majors, Gollan says there is little individual aggregators can do. “I’ve always taken a very non-antagonistic and non-aggressive approach in lender relations. At the end of the day, I truly don’t believe that any individual aggregator can exert a meaningful levelof influence over what banks ultimately decide to do.” He called the recent commission changes “an opportunistic move” by the banks, but says there was some validation for the changes. However, he does not believe the banks will reduce commissions further. “If the banks were to cut again, I believe all hell would break loose.” MPA

“ If the banks were to cut [commissons] again, I believe all hell would break loose – Paul Gollan, AMB ”

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MFAA health check

Diagnosing success As the need grows for brokers to offer a more professional service in an ever-contracting market, MPA takes a closer look at the MFAA’s recently launched Business Health Check to see if it delivers what it promises

riginally developed by Business Health for financial planners, the MFAA’s recently launched Business Health Check tool has been carefully tailored to suit the needs of the mortgage broking industry. “Although it’s new in our space, this is one that we fully embraced and said ‘how quickly can we get this started?’ ” said Phil Naylor, CEO of the MFAA. The look of success Naylor says he’d like to see all brokers who want to run a successful business signing up for the Business Health Check tool because it shows, from every perspective, what success looks like. Many brokers feel if they are getting a good income they must be running a good business. But how do you really know if you have a good back office (for example), or whether you could be streamlining some of your activities. “If you were a broker and you wanted to do one good thing in this environment, it would be to assess your business end to end,” says Naylor, who added that this is exactly what the tool is designed to do. The MFAA will also make use of the data entered by brokers to produce a set of determining statistics that identify and differentiate activities,

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by broker businesses and income brackets. “For example, we want to be able to say that businesses that earn $150 000 a year did this, those that are on $250 000 did that. And so if you want to be up there with the $250 000 people, this is what you have to do,” he said. Benchmarking Furthermore, according to Naylor, it is worthwhile for as many brokers as possible to take the test since the MFAA intends to use the results to set industry benchmarks. “So the more people use it from our industry the better benchmark it will provide. We as an industry association will be able to see how good or not so great the industry is, and it helps us direct our services in particular areas,” he says. Very industry specific and targeted, the MFAA promises that brokers will see “quick-smart” whether or not they are running a profitable business and how what they are doing stacks up against industry best practices. And with the MFAA pushing the idea of a ‘professional broker’ using this tool is one way to give the term meaning. “We believe it is necessary because I don’t think the industry has anything like it. We use our Excellence Awards to benchmark in a way,

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MFAA health check

but there is nothing like this that gets down to the nitty-gritty,” adds Naylor. Proof in the pudding Andrew Larcombe, managing director at mortgage broking firm Morbanx, has taken the test, and recommends it as one any broker serious about their business should take. “You’ll get your money back, if only because it makes you think about your business,” he says. He says the tool took about ninety minutes to work through. Most of the answers were at his finger tips, although he did need to refer to some financial data and client files. “Overall it wasn’t too bad actually. It made me think about my business in ways that I hadn’t before,” he says. Larcombe describes the results report generated by the Business Health Check tool as being “pretty good” – and the accompanying action booklet as “even better”. “It gives you the points for you to gauge where your business is at, and it benchmarks you as well. This is one of those things in our industry that is so hard; no one really knows what everyone else is doing and what they should be doing,” he says. He has already benefited by taking the test. It wasn’t something he had thought about doing before, but the action booklet determined that he should have a differentiated service level for his segmented customers – a change he has now made. “Everyone knows you should segment your clients, but then what do you do? The action booklet gives you ideas on how to do it,” he says. And just because you use a business coach does not mean you will not benefit from taking the test. Larcombe himself has worked with a business coach for a few years, so has always actively gone about working on his business. He

acknowledges it is difficult to compare the tool directly to a business coach since he says different people need different things. “But this tool, with its report, suited me pretty well.” Trent Perman at TP Financial Services has taken the test as well, and says he is glad he did. “It asks a lot of targeted questions,” says Perman, “and I found the report that it comes with provided me with valuable insight into where my business strengths and weakness are, and threw in a few suggestions on how to improve.” Perman feels the time he put into it was well worth the effort, and, like Larcombe, found the detailed report, which provided and proposed a comprehensive situational analysis and remedial actions, to be “quite impressive”. He adds that he found the prescriptive solutions very useful since they opened his eyes to areas he had probably neglected, and thereby provided immediate opportunities to improve. “I have implemented the suggestions in those areas I considered most important, and I’m seeing quite a bit of difference as a result,” Perman says. Both Perman and Larcombe agree that self-testing like this should be undertaken on an annual, or bi-annual basis. There is a lot of information that comes out of it, they say, which needs to be implemented and monitored first before going back and doing it again. mpa

the Business Health Check tool: on the fly… 1. Question-based – there are about hundred of them, and it covers all angles of your broking business: from who you and your customers are, to what your sources of revenue are, and even to how you segment your customers. “But the questions are not onerous – mostly they’ll be in a business owner’s head,” says the MFAA’s Phil Naylor. 2. It’s internet-based too, so once you have registered and paid you will receive a password and all the necessary details within 24 hours. 3. The tool will generate an online report immediately. In addition, and at no added cost, you can

request a full-colour hardcopy of the report. 4. For a fee, a Business Health consultant is available to guide you through the results. “We, along with Business Health, felt that brokers who don’t have access to a business coach sometimes need someone else to bounce ideas off and have a business discussion with,” says Naylor. 5. The report – which operates like a traffic light with green, amber and red – first provides a business diagnosis before following it up with a prescriptive solution, to give direction in the areas that require attention. brokernews.com.au

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into the future

on the wall… MPA asked four experts to give their opinions about post-crisis prospects and what they think the future holds for Australia’s mortgage broking industry

ending in the market is already showing signs of returning to normal, but don’t expect it to be as radical as it was. So says Firstfolio CEO Mark Forsyth. Lending activity has to be more cautious going forward, he says, because there almost certainly will be some form of international banking legislation introduced as a result of the global financial crisis. Regulation will be less heavy handed here than in the UK and US because, in general, “Australian banks were well behaved”. “I don’t think we’ll have those ‘NINJA’ (no income, no job & assets) loans that no one can afford, but LVRs will go back to 95%,” Forsyth predicts. Right now, he sees banks, currently inundated with volume, using the LVR as a means to ration credit – but warns them not to leave an open door to somebody looking for an attractive return at reasonable LVR levels. Forsyth explains why there is still capital around. “Bond yields and treasury returns are down at 3% and 4%, but wealthy, large funds want 8–10% returns, so sooner or later that capital is going to have to go somewhere,” he says. Add low interest rates, tight stock and growing migration to that intent, and those fund managers might consider the Australian market for “getting back into property”. “We’re not talking anywhere near five years here, rather 18 months,” Forsyth says. Aggregators and mortgage managers Forsyth is of the opinion that the outlook for the industry’s aggregators is good, but insists that

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they will need to up their games to stay relevant in the future. Lenders will want quality on the ground and that will require a ‘higher touch’ – meaning people providing services like advising – and higher levels of training and compliance, rather than simply taking a payment from the bank, reworking it through an accounting system and paying the broker. “It might be a cost solution for aggregators, but I don’t see it as the right valueadd solution,” he says. Mortgage managers, Forsyth says, will always be in demand because it is a lot easier for a bank to allocate a tranche of funds to somebody else to manage and distribute. “[Banks will say] ‘We don’t want to deal with 10,000 customers individually, so you take a billion dollars of our funding and get rid of it for us.’ That said, I think there’ll be a lot less of them because the recent consolidation will continue,” Forsyth predicts. He pegs the number at around 20 large mortgage managers. However, he makes the point that if the banks continue with the tight LVRs and do create opportunities for others with capital, they would be the ideal candidates to use mortgage managers to get the money out of the door. Important role Brokers will continue to play an important role, Forsyth says, because consumers will always want independent advice. “People are time-poor, so they’ll want someone not wholly and solely tied

Joe Sirianni

Mark Forsyth

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into the future

to the big banks to see them on their time – at night or on the weekend.” Forsyth anticipates that through legislation or organic movement, brokers will become “some kind of advisor” and require an advisory certification or higher quality of qualification. The payment of commissions and trails will continue be a contentious issue, but Forsyth expects lenders will keep paying them in order to motivate people. “Brokers will have to do something to earn that income,” he says, “and that is to manage the client better, provide better quality paperwork and make the banks’ job easier.” Joe Sirianni, director at Smartline, agrees that brokers will remain a force. “Five years from now, the broker proposition will be even more entrenched than it is today,” he says. And, like Forsyth, he believes brokers will need to meet higher professional standards as the industry pushes for better education and more transparency when dealing with customers. Sirianni expects national regulation will mean brokers might be required to produce a ‘fact file’ on the client, including a needs analysis with reasons why they have selected particular products. “It will be a more advice-driven industry, with brokers offering credit advice around mortgages and finance,” he predicts. This said, Sirianni expects brokers to “charge a couple of hundred dollars” as a consultation fee for their advice, depending on the strength of their service proposition. Interest rates Frank Gelber, chief economist at BIS Shrapnel, predicts interest rates will continue to come down while the economy stays weak. He expects all the “bad news on the economy” to come through in this calendar year. “We’ll just have to wait and see how bad it’s going to be,” he says. “And we know that the RBA won’t tighten interest rates until we start to see a strengthening in the economy.” Still, Gelber is adamant that five years from now, all the current problems in the economy will be gone, and that the downturn here will be shallow, relative to what they are experiencing – and will continue to experience – overseas. “Here we have a credit squeeze, not a financial crisis. But in three, four and five years from now, we’ll be coming out of this, solidly at first and then strongly,” he adds.

10 steps into the future According to Darren Edginton, general manager at Blue Pig Financial: 1. The banks will get more arrogant, because they can. 2. The same names in the non-bank sector will re-sprout, perhaps with a new back end, but the fundamentals will be the same. 3. Consumers are going to get hit the most, because rates will not be as sharp as they have been in the last three or four years. 4. Brokers will need to be a lot more skilled up on what they do. 5. Brokers will need to diversify, or charge a fee for service, because banks will reduce their commissions. 6. Aggregators are just clearing houses – and they should see themselves as clearing houses. 7. Brokers are a lot wiser about what a mortgage manager is and does and will go straight to the source of funds in the future. 8. Government regulation is necessary, and will continue to have a huge influence on the industry. 9. The industry needs a minimum standard for people to qualify as a mortgage broker. 10. Get ready for a lot more consolidation.

Gelber points out that because current interest rates are highly stimulatory, they will be raised as soon as the economy shows signs of recovery. Boom times ahead A major undersupply of housing, along with pent-up demand, indicates that the next property market swing will be skywards, says Gelber. He notes that it has already begun at the bottom of the market. “If we lose the FHOG, we may see a bit of stalling in the market, but the upswing will resume. It’s already begun.” Gelber also predicts that rents will keep rising strongly, at about 10% pa, and that they will keep doing so for a couple of years at least. “This will make investments cash positive and drive the upswing in the next three to four years,” he says. “Starting slowly, it will build momentum and become a boom in four years’ time.” Caveat According to Gelber, governments are looking to regulate everything that moves, and that’s not such a good thing. “There’s no point in overregulating the market now – the horse has bolted,” he says. Instead, any regulation should be forward looking and preventative, or “we’ll end up with a huge, costly infrastructure that’s difficult to run”. He maintains that markets do what markets do, not what you want them to do. “You have to see what markets do and determine whether that in itself will lead to a problem,” he says. mpa

Darren Edginton

Frank Gelber

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Feature referrals

strategic

ties Managing referral partners is a fulltime job, at least for one brokerage. Andrea Lavigne reports…

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arren Murphy has pretty good intuition when it comes to sussing out potential referral partners. The former detective says 12 years of policing has helped him hone his instinct. “I can tell quickly whether I like someone, whether they like me, whether someone is being honest and whether they’re promoting themselves above their ability – so the first meeting is an important factor for me.” Murphy had no broking experience, but the partners at Loan Management Centre saw an opportunity to use his unique skills. Most brokerages rely on brokers to source leads and write new home loans, but Loan Management Centre split these roles and made Murphy manager of strategic business relations. “I must admit when I started I didn’t know anything about finance. But they could see I had strong sales skills and I wasn’t afraid to speak to people. I was really good at staying in contact with them and building friendships as well as working relationships – they saw that and encouraged me,” Murphy says. He joined the brokerage 18 months ago. His sole responsibility at Loan Management Centre is to manage referral partners so the brokers can focus on writing the business. The role involves identifying, cultivating and maintaining new and existing referral partners. But it has evolved over the last year and a half to cover the strategic review of Loan Management Centre’s business process and sales processes. “They already had a good operation up and running, but wanted me to refine our proposition with referral partners – why they should pick up the phone and call us, as opposed to the other 12,000 brokers they could possibly work with.” Benefits One reason why referrers might want to call Loan Management Centre over other brokerages is that it offers them a point of contact. They send the referral directly to Murphy, and he then distributes it based on who can handle the inquiry. “The big one is the up-to-date communication,” he says. “The biggest complaint I hear from referral partners is that once the referral partner starts giving clients out to a broker they don’t get regular feedback. I keep them updated throughout the loan process about what the client is up to. I also spend a lot more time developing those relationships with the referral partner rather than just going out and dropping off business cards hoping to get business. It’s just regular coffee

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catch-ups and intensive relationship-building that I imagine a regular broker wouldn’t have time to do. And some of these people have become good friends of mine as well as referring business.” Right referrers Murphy manages 30 active referrers across Sydney, but he has a database of 130 prospects and casual referral affiliates throughout the area. He has had success working with real estate agents, solicitors, financial planners and conveyors, but has not been able to align with many accountants. “I’ve found in the last couple years, they’re difficult to get in to see – and a lot of them have had bad experiences with brokers, so they have key relationships with banks.” But Murphy says he’s developed a good instinct for identifying referral partners. “It’s a gut feeling. Life’s too short and I don’t want to deal with people I don’t like personally. I get a very good feeling personally and professionally about whether the person is a good fit for me and our business.” The second biggest factor is identifying the right kind of professionals, their sales process and whether they’re able to be coached with scripts. “There’s a mentality that you should just cull people straightaway if they’re not referring, but if you have the right feeling about someone and you’re prepared to ask them honest questions and really delve into their sales process, they might start referring.” Murphy insists some referrers just need a bit more work, and others – who have been burnt by brokers in the past – want to see

that you are not just another “fly-by-nighter, who comes in here promising the world”. The biggest challenge is going out and speaking to referrers who have not sent any business their way, he says. In those instances, he might sit down for a coffee with them and just try to get to know them better. “I work on the philosophy that if I give them something and try to help them with their business, maybe it will eventually return to me. If it doesn’t… well, you’ve met people along the way.” The important thing to express to potential referrers is that your business has a unique proposition, he says. You’ve got to show them why you’re different and outline the strategies and tools that demonstrate that difference. Positive Murphy says that despite the bad news, he still sees plenty of opportunity in the market. “I take the view that there are a lot of customers out there who have mortgages and still require proper mortgage advice and assistance. And if you stick to the basics, you’re professional and you follow up, you’re going to rise to the top – and you’re going to beat all the other brokers out there who are too scared and worried to actually do what they’ve got to do because they think all these other factors are holding them back. And that’s really the key to 2009. There’s still a lot of business out there. You just have to work it out so you’re at the front of the line.” mpa

“ The biggest complaint I hear from referral partners is once the referral partner starts giving clients out to a broker and the broker is busy, they don’t get regular feedback ”

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Value

for money Brokers who put home loan deals forward and then cross their fingers that the property’s value is still equal to its selling price face worrying times ahead. Tim Neary gets tips from the top on how to keep your deals away from the valuer’s guillotine

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Feature valuations

s any good residential broker knows there are many factors that can make or break a deal. But under these contracted market conditions, none has received more scrutiny than the value of the property. “During the boom the valuation wasn’t an issue, but now there are so many elements brokers need to know about a property’s value – least of all how it fits into each lender’s credit and risk process,” says Mark Turnbull, managing director at Horizon Finance. First, he says, brokers have to have the entire process down pat. Next, they must anticipate how the deal could fall over at every step, and what they can do to minimise, or prevent it from happening. “If loan writers can do that they will probably get through and survive this economic downturn.” If the valuation is for mortgage purposes, it generally means it is conservative, explains Turnbull. So much so that he doesn’t expect valuers will ever value a property for more than what they think the bank will need. Rather, they expect the bank will take either the contract price (the agreed sale price) or the valuation, which is frequently lower. Turnbull says it happens too often that you get a deal conditionally approved and then wait two weeks to get it processed by the banks. Then the valuation comes in ‘under’, and the whole thing falls over. “You end up having wasted all your time and effort, as nothing goes ahead after that. So if you can assist someone to get exactly the same product – fees, rates and everything else – and put them to lender who uses a valuer you know that 80% of the time you won’t have an issue with, then that is a great way to secure business and still be looking after the client.” When the client is best served by putting the deal to a known conservative bank, the best

course of action is to explain that the valuer is conservative and pre-plan alternative solutions. Another solution, especially with the first homebuyer market, says Turnbull, is to make a pledge that parents will assist with equity by increasing their guarantee. One up When it comes to valuations, mortgage managers might just have a great competitive advantage over the banks, according to Turnbull. Most will have a couple of wholesale funders that they fund their loans through. “Then when a broker submits the loan to them,” he says, “depending on the makeup of the loan it will fit with one or another of the wholesale funders, and it is the funder itself who will want to creditassess the deal.” But while the deal might be approved by the wholesale funder, it is the mortgage manager who organises the valuation. “And as long as the valuer is on the wholesale funder’s panel, they don’t have an issue with who is used,” Turnbull says. Given this kind of opportunity, it is important that brokers know about the various valuers and their reputations. “Test yourself,” Turnbull says. “Go through a whole host of different lenders and identify who the panel valuers are. If you don’t know, then you need to find out.” As far as being ahead of the valuations curve is concerned, there is no particular rule of thumb. “It’s more like having relationships with as many

Mark Turnbull

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Feature valuations

people as you can to keep your finger on the pulse,” says Turnbull. 360˚ assessments To get a better understanding of the valuation process at work, consider it from the other side of the desk. Greville Pabst, CEO, WBP Property Group, believes brokers place too much importance on statistics. And while he acknowledges that market results are important, he quickly makes the point that each valuation relates to a specific property and is based on data relevant to that property alone. “In this way general statistics can be limiting, and this explains why valuations may differ between valuers,” says Pabst. Property valuation is an inexact science, he says, and the experience and judgment of the individual valuer is often a key element in determining the final number. Indeed, these qualities are deemed important factors by banks when they appoint a new valuer to their panel. Given the uncertainty and continued movement in the property markets, Pabst feels valuations are particularly important in the credit and risk process. He calls valuers the “eyes and ears” of the bank, and says they are a crucial link in the chain in banks making prudent lending decisions. “In the current market it isn’t merely the value of a property that is important but also risk ratings, marketability, market activity and direction that are critical elements in the decision-making process,” says Pabst. Qualified by experience Not only are the banks aware that much of the valuers assessment is drawn from each one’s qualified opinion, but in many cases it is precisely what they rely on. “This is why banks will invariably choose valuers that have a lot of experience in specific regions,” says Peter Hayward, head of mortgages distribution and marketing for Citibank. Citi

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pays an enormous amount of credence to the valuation. This means it will get what Hayward refers to as ‘a full valuation’ on all the properties it finances. “We have to – our appetite for risk is slim. So we ask for a full valuation and we read the reports extensively. If there are any notes in the valuation that we have any concerns over we will always go back to the valuer for clarification,” he says. Meanwhile, along with the full valuation, a shorter ‘auto-valuation’ product (also called an automated valuation model or AVM) is gaining traction in the market. Auto valuations apply algorithms to recent sales data and try to anticipate future property values.

by the letter of the law… In the current economic landscape, lenders are beginning to suffer significant shortfalls from the sale of their securities, according to Gadens Lawyers. Until 2004, lenders could look to valuers to make good 100% of their loss, Gadens says on its website, gadens.com.au, even when other parties such as brokers or the borrowers themselves may have misled the lender. But legislation introduced in 2004 at both state and federal level means that a valuer will only be found liable to a lender to the extent that the valuer’s negligence caused the lender’s loss. This legislation is often referred to as ‘the apportionment legislation’ because it requires the court to apportion responsibility for the lender’s loss between all parties whose conduct contributed to the lender’s loss in the transaction. Gadens finds there are three ways that apportionment legislation disadvantages lenders: 1. Cases in which lenders can look to a valuer for 100% of their loss have become the exception rather than the rule. 2. Other parties will often be found to have contributed to a percentage of the lender’s loss. 3. If a portion of the lender’s loss is apportioned to an insolvent or deceased third party – like a broker or borrower – the lender cannot recover this portion of its loss.

Feature valuations

Staying vigilant Hayward says banks are using these models to review portfolios in certain segments of the market to better profile their risk exposure. “Some provide very accurate pictures, which allows the bank to assess the risk weighting of its portfolio and this guides lending policy,” he says. But according to Hayward, banks won’t allow loans to set and forget. Instead, they will want to keep an eye on each one’s performance and try to develop an understanding of where the portfolio is going in the future. In fact, the valuation process is so critical to Citi’s home loan business that it puts its sales staff through regular property valuation training. The idea is to have them understand the process so disputes or queries can either be pushed back immediately or redirected to the correct credit department for review. And if the valuer gets it wrong and Citi takes a bath on the deal, would that be grounds for termination of the contract? “Correct. And that is not even the most severe option. Legal action can transpire,” confirms Hayward. (See the box on page 52 for detail on apportionment legislation.) mpa

“ It isn’t merely the value of a property that is important but also risk ratings, marketability, market activity and direction that are critical elements in the decision-making process ”

Greville Pabst

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legal

contracts

Deal or no deal Aggregator agreements are hardly Faustian bargains – but brokers do need to be aware that the devil is indeed in the details

ggregator agreements are evolving. Jon Denovan, partner with Gadens Lawyers, says they have always been in a state of flux but the next stage of their evolution will involve more than fixing up little loopholes. “The next big round of changes will arise from the Commonwealth takeover of the regulation of credit and that will probably require most people to sign up to new broker agreements.” Come 1 July, finance broking licensing in Australia will be run by ASIC, and ASIC is going to be a much more active regulator than the state fair trading departments have been, he adds. “So if there’s going to be a searchlight on intermediaries – and it sounds like there’s going to be – you want to make sure that the bloke standing next to you doesn’t have leprosy,” he says. “You’re damned by association. So make sure you’re dealing with people with the highest ethics. If you choose badly, you’re in big trouble.” How to choose At the end of the day, brokers join an aggregator to gain access to the funders. Therefore, it is only logical that the most important aspect of choosing an aggregator is its agreement with the funders. “You need to ask: are the agreements between the funders and the aggregators good agreements or bad agreements?” Denovan says.

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Jon Denovan

Stephen Moulton

legal

contracts

A bad funding agreement might say: if any one broker commits fraud, the trail stops for all brokers. “There are some aggregators who have gone to a lot of trouble to protect their members by negotiating long and hard with the funders so that can’t happen,” says Denovan. Unfortunately, brokers do not have access to those agreements, so all they can do is ask or try to secure a warranty from the aggregator. “Can you assume that all the aggregators have done it? I act for a number of the big aggregators and I know that they’ve done it – but I don’t act for all of them. We were surprised recently to find that one big aggregator had not. They had just signed whatever the banks had put in front of them.” The industry has gone through a period of dramatic growth, but the tables have been turned. “Funders don’t need the aggregators quite so much. The distribution network doesn’t hold the

reading the fine print There are a few questions brokers should ask before they sign the dotted line: + Will I receive trail after my agreement terminates? + Will trails continue if the aggregator becomes insolvent? + Will I be liable for borrower identity fraud, other fraud or forgery? + Will default by another loan writer affect all trails? + Is the aggregator licensed and a member of the MFAA? + Does the agreement contain clauses allowing the aggregator to withhold trail to cover clawbacks by lenders? + Does the aggregator segment brokers, and what services will I receive based on my standing in the organisation?

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contracts

“ You’re damned by association. So make sure you’re dealing with people with the highest ethics. If you choose wrongly you’re in big trouble ”

negotiating power any more,” Denovan says. “So if there are problems in the works, they’re about to bounce out.” Getting out Not many people enter into marriage thinking about divorce. But when signing up with an aggregator, brokers would be well advised to find out how easily they can exit the agreement before they sign the dotted line. Stephen Moulton, who is a partner with PricewaterhouseCoopers, says there is more to aggregator agreements than commission rates and services. “I think understanding what you’re after is very important. I think people tend to go into these agreements looking to see how much money they can get out of it. They don’t really consider how they can extract themselves from the agreement – or if that’s even possible,” he says. Aggregator agreements have evolved over the years and 10-year handcuff agreements are few and far between. But sticking points in agreements do exist and it is important to know what to look for. “The issues about whether commissions are handcuffed or can you take your trail with you if you decide to change aggregators – that’s critical,” Moulton says. Breaking an agreement before the termination of a contract can result in the loss of trail income.

Ray Hair

Mark Haron

case study: PLAN Australia CEO Ray Hair says PLAN Australia’s agreement is very straightforward. “It’s an ongoing agreement that the broker can end with 30 days’ notice,” he says. “The philosophy behind our agreement is that, as a broker, it’s your business, your customers, therefore you should be in control of that. If you breach our agreement then we terminate you. You still get your trail commissions. If you’re unhappy with our services you give us 30 days’ notice and you can leave and you still get your trail income. So you don’t jeopardise your trail income unless you breach the fundamental clauses of the lender agreement through fraud or negligence, in which case none of us get the trail.” PLAN members are not strictly limited to selling their book to other PLAN members, but Hair says it is easier because of issues with the group’s commission trust. But PLAN does have to approve the purchaser. “That’s because they are now associated with PLAN and they will now be receiving trail commissions from us, and we want to know that they are the proper person in that context. But other than that it’s not limited solely to PLAN members.”

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legal

contracts

Should brokers be involved in fraud or forgery the loss of trail is to be expected, but in other cases it is generally accepted that the broker has earned the income and should therefore get to keep it. Some exceptions could be made for brokers who receive leads from their aggregator. In this case, a new broker might choose to sign up with an aggregator who provides this service in order to keep deals coming through the door. Also, brokers should be wary of verbal assurances by aggregators about certain clauses in the agreement. At the end of the day, unless a court can be convinced that the broker was unfairly coerced, the only thing that stands up in court is the document. “Very often there’ll be a clause in these agreements called an ‘entire agreement clause’. This says that the contrast contains the entire agreement and any representations made before signing it have no effect,” Moulton says.

If you break your agreement and you believe you are entitled to trail, the best thing to do is first try to negotiate with the aggregator and go the legal route only as a last recourse. “There are cases coming up now in relation to whether or not your trail can be terminated, but I think the important thing to note is that you can spend an amount in legal costs far greater than the actual loss of trail itself. So you’ve got be very wary before you take the legal route,” Moulton says. “If you’ve got a good relationship with the aggregator, you’d seek to have discussions with them about the possibility of being released. But ultimately it’s a commercial decision that you have to take. If you’ve only been going for a year or two and your trail is not that significant, for a little piece of mind or better opportunity you might have to end up losing that trail to break the agreement,” he continues. MPA

case study: Connective The big selling point of Connective’s agreement is that it allows brokers to really own their trail book, says Mark Haron, principal. “It’s quite clear what brokers get within our agreement structure,” he says. “It’s not dissimilar from the financial planning services industry. And we think, with the focus on customer service, brokers who are truly servicing their clients should continue to get their trail no matter where they are. The ability to take that trail book with them is quite important.” Connective’s structure also allows brokers to sell their books on that open market, rather than only to another Connective broker.

Education Q&A

Where to from here? When markets contract, one of the first items to be cut – often unwisely – is the training and education budget. MPA talks to Paul Eldridge, CEO at Intellitrain, on the effects of the credit crunch on learning in the industry – and what broker education should provide in the future

To what extent has the fallout from the global credit crisis influenced the current training and education landscape? It’s been surprising. On the one hand some organisations have looked to reduce their training spending while others have actually increased it – mainly in the sales and marketing area. We’ve found that during periods of growth, sales and marketing skills tend to atrophy because brokers don’t have to work over-aggressively to win the business. It can lead to brokers developing a false sense of security, and many are beginning to realise they don’t have naturally strong sales and marketing skills. Lots of brokers who joined the industry in the boom times developed really good customer service skills, rather than sales skills.

see the interview live brokernews.com.au/mpa Paul Eldridge

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What were the most innovative changes to training in the industry over the last year? We’ve seen an increase in blended learning – a mix of face-to-face, online, distance and web-based training. People are less available to take a week or more out of their schedule, and require learning solutions that take up less time and offer greater value. People are becoming more comfortable with technology now as well, and as aggregators further reduce the amount of PD days, low-cost training options that have a wide reach are becoming more popular. The new ‘webinar’ system is a good example of this. It is especially effective for those living in outlying areas as most people have a computer and access to the internet these days.

Education Q&A

What will learning look like in the industry five years from now? Learning will take place on an ‘on demand’ basis. People will pull information rather than have it pushed at them. More information has been accumulated in that last 20 years than in the 4,000 years before that. So consumers have put effective filters in place to segregate it all, and the task for trainers is going to be getting people to pull information towards themselves. Face-to-face training will never be supplanted, but learning on demand will find its niche. If I’m at a desk, I want to be able to pull down a 15- or 30-minute segment of training that will teach me precisely what I need to know now. Online courses free up dedicated training resources so they are flexible, which is ideal. They also allow students to consume the required material. And, importantly, they can keep consuming it. If in two weeks from now I have forgotten how to do something, I can jump online and re-access the bit of material I need. Brokers will be earning qualifications like this, over time, learning on the job. What is the most pressing challenge facing training in the mortgage industry? Staying relevant by making sure the content is constantly updated and that trainers are consistently of a high quality. Has the credit crunch changed broker’s attitudes to training? It is encouraging to see how many brokers are taking control of their destinies. I’ve taken many calls from students both current and past who are looking to diversify their skill set. Students are always keen to develop themselves. Is finance and mortgage training in Australia of a high enough standard? There is some very high quality training being provided by registered training organisations (RTOs). But I see some short-term profiteering occurring too. All parties need to act with a long-term sustainable view and realise that if they are not prepared to invest properly in their people then they are going to get unsustainable results. This will be because people have been inadequately trained and are giving inadequate

advice. Put it this way – I would not put my mum in front of a financial planner who had achieved their qualification in nine days. RTOs must ensure that they pay due respect to the qualification and to their people. It takes time to properly deliver the training that is required. Students also need to be selective in terms of the RTOs and the courses they choose. If brokers choose a course which is a short-term offering just for a piece of paper, then they need to rethink what exactly it is they are trying to get out of it. All parties need to take that long-term approach. How should the broker professional benchmark be set? The MFAA, while it has been bashed a little bit about its stance, has done the right thing by setting a minimum certificate IV requirement. And I know there are some brokers out there who don’t necessarily agree with the stance it has taken. But the question I would ask is: do those brokers want their industry to be seen as a professional industry, and do they want to be seen as a professional themselves? And if so, then they need to look at every other profession. Accountants, planners, doctors, engineers – these people all have to have a qualification and it serves as an industry barrier to entry. I don’t think mortgage brokers can perceive themselves professional without it – especially if they want to introduce a fee-for-service model in the long term. What is not good for the industry is if you’ve got your cert IV off the back of a Weet-Bix box. The alternative is ASIC coming in and saying it doesn’t believe the standard is set high enough, and then setting a higher benchmark. How will brokers keep up with the pace of change in the industry? Similarly to every other profession: with continued professional development. IT consultants and accountants, for example, are constantly training. To say that you have done your qualification so you don’t need to do anything for the rest of your life is naive. The pace of change is more rapid now than it has ever been, and it is really your duty as a broker – not only for your own business, but also for your customers – to make sure your information is up to date. MPA

see the interview live Visit Brokernews.com. au/MPA to see an on-camera interview with Paul Eldridge and hear his thoughts on the future of training and education for mortgage brokers.

Education

conflict resolution

Constructive conflict

Whether you’re a broker, franchise owner or own your own broking business, odds are you’ve had to deal with one conflict or another in your working life. Conflict is a way of life in the workplace but there are strategies to handle it effectively. MPA investigates

ost managers – most humans in fact – dislike conflict. We would rather turn away and pretend that everything is OK or hope that the problem will sort itself out than face it head on. This, unfortunately, is an approach that can have serious repercussions. As a perfect and ultimately tragic demonstration of how turning a blind eye to potential problems can be so detrimental, one need look no further than the Space Shuttle Challenger disaster of 1986. That disaster, which claimed the lives of all seven crew members, was ultimately blamed on faulty O-rings, which could not withstand the extreme temperatures. But there was another, less tangible element involved. The NASA staff were so gung-ho about being part of a winning team that no one wanted to be the dissenting voice for fear of disrupting the group’s harmony. As such, although the O-ring problem was known, no one said a word. Within mortgage broking, the same attitude has seen many conflicts make it all the way to the public domain, bringing unwanted media attention and damaging well-known brand names. The problem, according to Nina Harding, director of Nina Harding Mediation Services, is that workplaces are being created where “being the person who speaks up and says, ‘Actually there is a problem,’ isn’t popular anymore”. Getting help In general, HR managers are involved in mediating or resolving the vast majority of

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Education

conflict resolution

disputes in the workplace. But when it becomes very complex or when the HR manager for whatever reason doesn’t have the trust of one of the parties, then it is very difficult for them to be in that mediation role. Harding says that conflict becomes difficult to mediate when something is foreign or unexpected. “What I mean by that is that people will say to me, ‘I’ve never seen anything like this – he’s never behaved like that,’ or, ‘We didn’t expect this kind of thing to happen.’ So when it becomes foreign or different, people stop focusing on the conflict and how to resolve it and start avoiding it. When conflict isn’t resolved and it’s allowed to grow, it evolves into other things,” she says. Ideally, business owners should develop their own capacity to deal with conflict, by training in mediation, and learn how to facilitate what Di McDonald, MD of ResolutionsRTK, refers to as “courageous conversations”. That knowledge can then be shared with team leaders and supervisors. An effective policy McDonald says that having a structured grievance policy in place – whether it is required by law or not – is not enough. The organisation needs to have procedures to support that policy to make it effective, and the procedures need to be understood by both managers and team members. That is where many fall down. “Some organisations will have the policy in place simply so they comply with the required legislation; where they fall down is where there’s no clear procedure,” she says. “In that procedure they also need to have clear behaviours that are acceptable in the workplace.” The key is to make it easy to complain in an informal manner – that way conflicts are nipped in the bud. “Make raising problems and issues OK in your company culture so you’re not viewed as the complainer or whiner,” says Harding. “Encourage people to say, ‘Thanks for raising that.’ Normalise it so people don’t let it fester. Encourage people to tackle problems head on as early as possible. The best organisations have grievance policies that are easy to access and understand, and the process is quick. They accept that conflict will always exist and will in fact have many positives.” Root causes The root causes of workplace conflict are differences in values, wants, needs and expectations. Communication is the key. Differences in leadership styles and how these are handled by team members are notorious

causes of friction. These conflicts can be particularly challenging, simply because leadership styles are usually intrinsically linked to who the leader is. “If those two people have good interpersonal communication, and they’ve got a relationship that’s on an even keel, they can usually sort that out,” McDonald says. “It’s when the relationship gets on a negative cycle and they can’t communicate that the issue escalates.” Harding says conflict occurs when communication breaks down or becomes toxic. “People say it’s too hard and just try to avoid it,” she says. “They start e-mailing in a very negative or closed, truncated version, but the real messages stop getting through.” Harding cites another typical example of why conflict escalates: the long-overdue performance management. “If a manager has a problem with someone, I’ll say, ‘What’s their performance like and has the problem been reflected in their performance reviews?’ Often the manager will say they didn’t do a review or if they did, they cut the team member some slack and didn’t want to be negative. The result is, when people are unaware that their behaviour is unacceptable, the behaviour continues and can destabilise a whole team.” Healthy conflict Not all conflict is destructive. It is in fact only negative when it is left to fester for a long period of time. “Conflict is actually very helpful,” says Harding. “It can lead to innovation, positive

Di McDonald

Nina Harding

Nina Harding’s top tips: 1. You need to view conflict as a leadership challenge and not as something nasty or unpleasant. 2. You need to face it head on when it arises, not sweep it under the carpet. 3. You need to use constructive language and help people you work with also use constructive language when resolving a conflict. 4. It’s good if you can think before you speak – think about what message you want to send and how the other person will hear it. How can you send this message in a way that will work for them and still get the message across? Be more cautious but also more deliberate. 5. Have a strategy for dealing with difficult conflict in the workplace. Sit down with colleagues, sit with the HR manager and map out a strategy. 6. If you reach a point where you are bewildered, confused, or frightened by it, remember that there are experts out there who will come in and assist you to have these conversations. 7. Managers need to be empathetic. Try to remember not so much a similar situation but a time when you felt a similar emotion.

Education

conflict resolution

if you do one thing… Use the following simple conversation to prevent conflict from flaring. It involves three steps and can be used both at work and at home. When you have a problem, stop and frame it in the following way: “When you do X [insert the issue], I feel Y [insert the emotion]. Next time, could we Z [insert a proposed future step]? The language you use in those brackets should be neutral, factual, emotionless language, almost like a police report. For example: “When you e-mail the president of our company in New York with our problem, it makes me feel embarrassed. Next time could you talk to me first before you e-mail outside of the country?”

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change and constructive debate. Leaders need to encourage people to see conflict in that way. Conflict should stimulate change and encourage us to look beyond ourselves.” She adds that conflict is a key leadership issue, and feels it is up to business leaders to foster a collaborative, healthy environment where conflict is encouraged. A leader surrounded by ‘yes men’ is doomed to fail. One way to encourage positive conflict is to follow the lead from organisations in Canada that are developing Respectful Workplace Programs (RWPs). The grounding principle behind these programs is that conflict needs to be resolved one way or another or it will continue to fester and spill over into the team dynamics of the organisation. The goal of the RWPs is to support the shift of workplace culture from one of conflict avoidance to one of conflict resolution. “When we talk about RWPs the aim is to equip all individuals in the organisation with the skills to deal with conflict constructively,” says McDonald. “Those skills are underpinned by organisational policies and procedures.” Equipped with those skills, if individuals have an issue, they can sort it out with interaction with each other. If they cannot sort it out among themselves, they are encouraged to go to their direct supervisor, HR manager or internal trained mediator. If the conflict still cannot be resolved, a third party – a mediator or facilitator – will be brought in. “That person will encourage discussion and develop a code of conduct,” McDonald adds. Mediation and facilitated meetings Frustrated by the time and expense of formal processes and the litigation avenue, organisations are increasingly looking at other options to resolve conflicts, including the use of alternative dispute resolution (ADR) options. Mediation and facilitated meetings are two popular ADR types. The two terms are frequently used interchangeably. Generally, mediation and facilitation will both involve a third party coming in to sit with the key parties who are involved in the dispute – for example, it might be a manager and a key report. A mediator’s goal is to get both parties as close as possible to agreement. A facilitator’s goal is to get open communication and not necessarily agreement at the conclusion. “Mediation is a structured process,” says McDonald. “The mediator controls and supports that process, and the parties control the content. The mediator has no advisory role – they only provide assistance. Sometimes they might offer

some tools or a bit of coaching to help the parties better understand each other, but they don’t give advice. The parties sort out their own issues.” McDonald outlines the typical process she would run through in her role as mediator: • It begins with a confidential intake session. In that session the mediator describes which type of intervention will be used. • If both parties are willing to proceed, they enter into a joint mediation and sign a confidentiality agreement before proceeding. • Each party presents their issues and an agenda is created for the rest of the session. • The mediator then facilitates the discussion between those parties, summarising, clarifying and asking more questions to help each person recognise where the other person is coming from. • Issues that arise are clarified and explored. • All needs are explored and then drawn down into an agreement, if possible. • If an agreement is reached, it is written up in the same meeting in words that are unbiased and neutral. • The agreement is signed and both parties use it as a guide for a way forward. At that point the mediator will usually step out of the picture and the parties will go back into the workplace. “Most of those outcomes are behavioural issues,” Harding notes. Two weeks later the mediator will check in to see how the agreement is holding up. “Sometimes they’ll say, ‘It’s a lot better than it was and we’re doing well,’ and the mediator’s job is over,” Harding says. “If it’s a more complex conflict, they may feel there are still some problems and the mediator will come back. Typically, that is the last session.” Regardless of whether a mediation has come to an agreement or not, the participants often report a great deal of satisfaction, simply because they’ve been heard and had their issues aired. Critical edge Changing the culture of an organisation to one where conflict is dealt with in a respectful and beneficial way is an “every day of the week” job, says Harding. When it comes to retention, employees will not want to work in an organisation where conflict is dealt with inadequately. “If you see a leader deal with conflict in a way that values the individual and focuses on the problem, that’s the organisation you want to stay with,” Harding says. mpa

Education

conflict resolution

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mpa lender news

contents 64 A review of news in the world of non-bank lending and mortgage management 68 Are we heading for a US-style housing crash? 70 Tim Neary reviews the opportunities and benefits in outsourcing parts of your business

Non-bank settles broker deal in five days The opportunities created for service-oriented non-banks due to problems with turnaround times has been illustrated in a recent deal involving Australian First Mortgage (AFM). AFM director of sales and marketing, Iain Forbes, said a broker in Adelaide recently came to the mortgage manager with a deal that two other lenders could not settle, despite six weeks of trying. “We settled it within five working days,” he said. Ray Aloi, a senior lending consultant based in South Australia, confirmed this. “AFM settled my deal in five working days. “Two other lenders (a bank and a non-bank) had this deal for six weeks when I referred it to AFM,” Aloi explained. “AFM, its credit manager, valuer, mortgage insurer, funder and solicitor, worked as a team to make sure the deal was approved and settled within five days.” Paul Ryan, managing director of Opportune Home Loans, listed AFM alongside Resi, Mortgage House, Firstfolio, and Opportune as being ahead of the pack in both turnaround speeds and paying competitive commissions. He said while major banks had severely tested the loyalty of brokers

and threatened their viability, brokers were starting to realise that non-banks can protect their business viability and their customers’ service experience. With people looking for personal attention and fast turnaround, Ryan said there would always be a place for “mortgage originators because they can provide the personal attention for the life of a loan.” “If the rate’s competitive, the product suits the customer needs and the broker’s commission is protected, why risk the customer experience and their future business viability by directing all business to the major banks?” “Healthy competition will only return to the mortgage sector if we challenge their 90% control of market share,” Ryan added. In an interview with MPA sister publication, Australian Broker, Homeloans Ltd general manager Tony Carn said one of the benefits of working with a non-bank lender is how closely the team works together. “Our BDMs and processing team are on the same floor and they talk to each other,” Carn said – something that would not occur at a bank.

Iain Forbes

litigation threat against securitisers unfounded

Stuart Fuller

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The Australian Securitisation Forum (ASF) has defended Australia’s RMBS market following claims that a wave of regulatory action triggered by the credit crisis would soon engulf players in the local securitisation space. The comments come after Oscar Shub, partner at legal firm Allens Arthur Robinson, told Money Management that targets for litigation and regulatory action now included RMBS, and that this was about to impact Australia. But without denying that some cases involving the non-conforming area have come

to the forefront, chairman of the ASF, Stuart Fuller, said it was more related to Australia’s credit laws rather than the RMBS themselves. He went on to say that through its licensing regime and the Consumer Credit Code, ASIC was providing the correct avenues to regulate all lenders in Australia – including those participating in the securitisation markets – and that it was difficult to say whether there would be an increase in RMBS-related litigation, as it would depend on the particular circumstances of individual borrowers.

mpa lender news

Bluestone planning return to lending

$4bn

The portion of government’s $8bn investment in the securitisation market, guaranteed for non-banks

Specialist lender Bluestone plans to return to mortgage lending. Group CEO, Peter McGuinness, revealed Bluestone would consider offering a web-based product, though he said it would be a far more basic product than the company has offered in the past. Bluestone quit mortgage origination in September last year, but has reinvented itself as a third party loan servicer and boutique asset manager. The company has also maintained strong connections with the broker market. With a sizeable mortgage book, Bluestone continues to make substantial trail commission to brokers. “And I’m pleased to say we have had no defaults,” McGuinness told Australian Broker. “We communicate once a quarter to brokers to let them know what’s going on,” he said. Bluestone also maintains a “substantial” customer service offering for brokers to help them with queries about refinancing, settlements and discharging of mortgages. “We’re very much focused on client retention,” McGuinness said. Meanwhile, Bluestone has received a ratings boost from Fitch Ratings. Fitch affirmed Bluestone Special Servicing’s rating for the special servicing of non-conforming residential mortgages in Australia and New Zealand at ‘2’ and upgraded its primary servicing of

Peter McGuinness

non-conforming residential mortgages both in Australia and New Zealand to ‘2–’ from ‘3+’. Mike Dilworth, CEO of Bluestone Servicing, said the company was “obviously quite pleased to have Fitch validate our capabilities”. “Getting an upgrade in the current environment isn’t an easy thing,” he said. The ratings reflect Bluestone Servicing’s experienced management and servicing teams, proactive servicing and arrears management procedures and the further improvements to its servicing systems.

$ $ $ Liberty, Challenger, BoQ win RMBS mandates $$ $ $$ $ $$ $ Non-bank lenders Liberty and Challenger, along with the Bank of Queensland, have been awarded mandates to issue RMBS, with the government acting as cornerstone investor. Following the awarding of the mandate, Reuters reported Standard & Poor’s as saying that Liberty, a specialist lender, was planning to sell $600m in prime RMBS. The three lenders were selected from the second selection round for the allocation of mandates for RMBS issues to be priced by the end of April 2009.

The mandates are part of the government’s $8bn investment in the securitisation market, with at least $4bn guaranteed for non-banks. The government also revealed that following the awarding of mandates to Credit Union Australia, AMP Bank, Bendigo Bank and Adelaide Bank on 17 February (and the pricing of these issues), it had invested $350m in the Series 2009-1 Harvey Trust, $475m in Torrens Series 2009-1 Trust and $425m in the Progress 2009-1 Trust.

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mpa lender news

Homeloans Ltd takes on banks at their own game

Tony Carn

Listed mortgage lender Homeloans Ltd has launched a new mortgage product offering the functionality of a major bank home loan, but paying higher commissions to brokers and with no threat of channel conflict. Called the ‘Homeloans All in One’, it will have an interest rate of 5.29% (correct as of 1 April 2009), will include a fully functioning transactional account, and a nil interest visa account. And in a move which should remove the stigma that non-banks charge high deferred establishment fees (DEFs), Homeloans has removed what it calls “traditional non-bank DEFs” in favour of a flat fee rate in line with the major banks’ charges. To offer the low DEFs, clawbacks will be introduced, also in line with policies adopted by the major banks. But brokers will be well rewarded with an upfront commission of 65bps and a trail starting in year one of 15bps, rising to 20bps in year two and onwards. “This is a simple commission model with no metrics,” explained Homeloans Ltd general manager of sales, Tony Carn. “Brokers will know exactly what their commission will be – they won’t have to wait weeks to find out.” Carn also stressed that as Homeloans does not have branches, brokers will not have to worry about channel conflict. From his conversations with brokers, Carn said many were finding that banks were taking up to two weeks in some cases to even look at an application. But if a customer went into a branch, they would look at it immediately. “We believe the new product will be a real alternative to the banks,” Carn said, adding that top brokers he spoke to were concerned at the level of business being sent to the major banks.

Nationwide takes on banks with ‘fee free’ mortgage Brokers will be at the centre of mortgage manager Nationwide Lending’s relaunch of its Fee FREE Home Loan. Nationwide distributes its mortgages via approximately 250 accredited mortgage Glen Jones brokers and still pays “decent commissions” on its full suite of products. The Fee FREE Home Loan – available to borrowers who take out a loan greater than $200,000 – has no fees attached to it, bar the relevant government charges to obtain the home loan. The product is also free from any ongoing annual or monthly fees. CEO Glen Jones said quality brokers were keen to support non-bank lenders, but that “the entry costs for most products from non-bank lenders can be a hard sell in the current market”. Nationwide is offering a variable interest of 5.55% pa – lower than the banks’ standard variable rate. Nationwide Lending remunerate brokers directly with an upfront commission of 77bps and trail income of 16.5bps from day one. The product also has a zero clawback policy. Jones questioned how any lender could “justify taking part or all of the broker’s income back if a client discharges their loan”. He said, “clawback policies should be outlawed.” Nationwide has long made its intention to give banks some healthy competition through matching the RBA’s rate reductions and by its promise to brokers of no clawbacks on all its products. “Our offering will promote the resurgence of non-bank-lending,” it said.

The number of working days it took AFM to settle a loan that two others could not get right in six weeks

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mpa lender news

Firstfolio chief tips early property recovery On the back of a doubling of enquiries at its mortgage broking website, eChoice, Firstfolio CEO Mark Forsyth has tipped an earlier than expected recovery in the property market. Since the RBA cut rates to 3.25% in February, traffic at eChoice more than doubled to 15,000 hits a day from 6,000. Forsyth said a new housing boom could begin as early as the second half of 2009. He told AAP: “If you combine the last rate decrease with news that there’s going to be another decrease, with rental yields going through the roof, a shortage of supply of property and the First Home Owner Grant, it’s a perfect storm of a positive nature.” “We’re creating the next housing boom – or bubble, potentially.” As reported on brokernews.com.au, Forsyth also reaffirmed plans to expand eChoice into the Middle East and into South East Asia. “Thailand would be up on my list as it has a large and reasonably sophisticated domestic population, and good IT,” he said. More potential locations include Vietnam, Malaysia, Indonesia, India and China.

ASIC intervenes in low-doc enforcements ASIC has formally intervened in three proceedings commenced by Tonto Home Loans Australia Pty Ltd (now Firstmac Limited) relating to the enforcement of low-doc loans against collapsed property investment group, Streetwise. The proceedings, which were scheduled to be heard in the Supreme Court of NSW on 23 March, concern the conduct of the Streetwise Group of Companies which has been subject to a longrunning investigation by ASIC. ASIC has intervened in three proceedings commenced by Tonto and Permanent Trustee Company Ltd seeking to take possession of properties owned by former Streetwise borrowers. In ASIC’s view, these cases provide an appropriate vehicle to test the legal and regulatory framework that applies to enforcement action taken against borrowers by low-doc lenders (in this case Tonto and Permanent) where the conduct of an

intermediary (in this case Streetwise) toward the borrowers is, or may be, in question. ASIC’s intervention is based on public interest grounds to assist the court in relation to the construction and application of the Corporations Act and the ASIC Act (and cognate legislation) as part of its overall role to uphold the integrity of Australian financial markets and the protection of consumers. Founder of the Streetwise Group, Kovelan Bangaru was extradited to Australia on 1 February 2008. The Streetwise group collapsed in 2005, owing more than $16m to unsecured creditors and $14.5m to secured creditors. According to ASIC, Streetwise procured investors by spruiking its services at shopping centres and by word of mouth. Streetwise advised and assisted investors to use the equity in their homes to invest. Some also invested their savings.

15,000

The eChoice web traffic hits per day since the RBA cut rates to 3.25% in February – up from 6,000

mortgage managers “true broker partners” As a result of poor service and turnaround times by the major banks, mortgage manager, Mortgage Ezy, says brokers are recognising real partnership opportunities in the non-bank sector. “The broker mindset is evolving rapidly and brokers are now starting to realise that non-banks still offer competitive products, rates and exceptional service levels,” said Mortgage Ezy CEO, Gary Driscoll. “Also, mortgage managers are prepared to truly partner brokers to help them grow their business – as opposed to the major banks who only appear to be concerned about their profitability.” In line with this philosophy, Driscoll said Mortgage Ezy had made “some aggressive

changes”, including the release of its YZ3 Variable Term Loan and YZ3 Fixed Solution products. The YZ3 Variable Term Loan, launched in February, features no application, valuation or ongoing fees and a rate starting at 5.29%, while the most recently released YZ3 Fixed Solution offers customers a one-year fixed rate starting from 4.19%. “Ultimately, we’re providing compelling reasons and choices to the market at a product level, and backing that up with fast turnarounds using our in-house delegated lending authorities to approve loans quickly and efficiently. What we can achieve in three days the banks struggle to achieve in three weeks,” he said.

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mpa lender news analysis

History repeating itself? L

ow interest rates and first homebuyer incentives have enticed more borrowers into the market, but some fear that if housing prices slip, new borrowers will be left stranded when rates return to normal levels. “The incentives for first-time buyers are creating demand pressures, but there’s a significant risk building when rates turn up and house prices fall,” said Martin North, managing consulting director for Fujitsu Consulting. “We’re mirroring the US situation before the financial crisis three years ago.”

“Most lending is now staying on balance sheet, and a greater share is being done by banks, which have tended to reduce their maximum loan to value ratios,” said Richards. “Our discussions with banks indicate that they’re indeed testing the ability of borrowers to continue servicing their loans if interest rates were to rise significantly.” The major banks and a couple of second-tier lenders have reduced the number of maximum LVR loans in recent months, demonstrating an increasing shyness towards riskier no-deposit, high-LVR loans.

No concerns at this stage According to the Reserve Bank of Australia’s analysis of the housing sector, however, a repeat of a US-style sub-prime crisis is unlikely to occur in Australia. In an address to the Fourth Annual Housing Congress, the RBA’s head of economic analysis, Anthony Richards, quelled concerns that low mortgage rates in Australia could lead to the same problems experienced in the US. “So the question arises whether a period of low interest rates in Australia (combined with the boost in grants to first homebuyers) could lead to an expansion of lending to riskier borrowers who will only be able to afford their mortgages as long as interest rates remain low,” Richards said at the congress. “I think there are good reasons to think this isn’t a major risk.”

When it’s time to sell A recent Datamonitor survey has found that repossessions are on the rise in Australia. St.George repossessed 132 homes in March, compared to an average of around 80 during the boom times, and other large banks have experienced similar increases. But Australian lenders are reluctant to repossess homes in Australia. Some banks offer temporary relief such as interest-only payments and mortgage repayment holidays. Meanwhile, there has been some attempt by the NSW government to introduce new laws that will protect consumers from banks and mortgagees selling repossessed properties at significantly undervalued prices. The current practice is for lenders to sell properties as quickly as possible to cover their own liabilities, leaving the owner with little or no equity. During the parliament’s budget session, an amendment will be introduced that will require the mortgagee to properly advertise and auction a house. Consumers will have the ability to sue for damages if they are able to prove that a property was sold for significantly less than the market value. The RBA has said in the past that voluntary house sales fetch up to 20% more than their mortgagee-in-possession counterparts. mpa

Safe steps taken Richards maintained that Australian lending standards were stricter than those in the US before the earlier boom – a fact supported by looking at the proportion of non-performing loans on bank balance sheets in the two countries. He also said lenders that might have been more likely to write risky loans have scaled back activity in the last 18 months, evidenced by ever-shrinking low-doc and no-doc lending.

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mpa lender news analysis

mpa lender outsourcing

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mpa lender outsourcing

Third party outsourcing isn’t exactly a new industry phenomenon, but it might be a new option for business owners wanting to make it through the economic downturn alive. Be careful, though, because as MPA found out, it’s not as easy as it sounds

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mpa lender outsourcing

inding a third party service provider is not particularly difficult. However, it is just as easy to find the wrong one, thus turning a business challenge into a living nightmare. There are two classic outsource blunders that can be made: 1 – selecting the incorrect business element to outsource, and 2 – outsourcing it in an inappropriate way. So says Martyn Beer at Sandstone Technology. The only way to avoid falling into these traps, Beer advises, is to do your research diligently.

first-hand experience MPA asked Prem Maan, CEO of Foundation Mortgage Securities, about his decision to outsource the collections arm of his business. What prompted your decision to outsource? It was a commercial decision we took after investigating the cost of buying systems and bringing that function in-house, hiring staff and so on. The company had reached a size where we felt we needed more professional management and better systems to manage our mortgages. Why Bluestone Servicing? Because they provided the best solution for us based on costs and the ability to access information quickly. With the market the way it is, investors want to know that the mortgage book is stratified every which way, and that you have the ability to quickly answer people’s queries, so you need to have systems in place. We were in a situation where we had to have information provided to us quickly and efficiently. How has it helped your business? In a number of ways. From a capital point of view, it was quite efficient since we didn’t need to invest in IT systems or set up a fixed overhead structure. Their IT system is designed for mortgages and well proven, so that was a big plus. Also, we didn’t need to go through the stress of finding our own staff with the experience to deal with client enquiries, applications, changing loans, or following up queries. The variable cost structure really sealed the deal. In this market, we feel a variable cost structure is far better. Volumes are down and we’ve had to rethink a whole lot of fixed overheads. Which additional advantages does it allow you? We’ve tightened credit criteria as well, so we’re not aggressively chasing business. But we have the base set now and offer new products, and we can grow from here. What advice would you offer other businesses in the industry? Work out what your own business is, what the service provider’s expertise is and what sort of systems and staff they use. Then match what you need against what they can deliver. Foundation Mortgage Securities is a wholesale mortgage lender that sells through mortgage managers and brokers. It does prime mortgage lending in NZ

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‘Doing the research’ means completing an end-to-end assessment of your business to establish which elements of it you can automate and which you can eliminate altogether. The remaining processes, Beer says, are the most appropriate candidates for outsourcing. In many cases, however, organisations that turn to an outsourcing option have had minimal prior exposure to it. They almost always make the cardinal error of doing no research at all before deciding what to outsource. Business owners can then compound the mistake by letting it ride, because the cost of undoing the arrangement is often prohibitive. If you are not certain you have the expertise to conduct the research properly in house, Beer advises leaving the heavy lifting to the experts. “Engaging consultants with experience in all of the key facets of the lending process to develop and implement the outsourcing strategy is crucial to reducing the risk of making these well-documented mistakes,” he says. Value drivers So when should a business consider using an outsourcing option? The short answer is: as soon as any business benefit can be derived from doing so. To determine exactly when that is, you will need to break your business processes into each of their component parts and develop a set of ‘value drivers’ for each one. Or have a consultant do it for you. “Understanding the value drivers is critical in evaluating each step in the process, and the precursor to developing the business case to deliver a detailed implementation program,” says Beer. And since a key driver of outsourcing is cost reduction, he feels that there is not any one particular time better than another. “The search for cost effectiveness in process management should be maintained whether the economy is buoyant or contracting,” Beer advises. Michelle Newby, director at specialist broker outsource company LoanTrack, confirms that any time is a good time for a business to implement an outsource strategy.

mpa lender outsourcing

Furthermore, she makes the point that in this current economic climate many organisations need to implement new strategies to generate added revenue streams, ensuring the ongoing viability of their business. On the menu Newby says there are so many outsourcing strategies available that choosing the correct one is not always easy. However, she quickly adds that a good outsourcing company would ensure that the right strategy was implemented based on a client’s business style, culture and client base. “On the one side of the scale we deal with very sales-driven brokers who struggle with the day-to-day mechanics of a deal progressing to settlement,” she says. “On the other is the broker who doesn’t have the time to spend hours each day on hold to different lenders chasing up file status. There’s an outsourcing option for both, to ensure the deal settles.” You will find outsourcing partners in most stages of the mortgage lifecycle, agrees Beer – from lead generation and qualification, to settlement, securitisation and all post-settlement management functions. Brokers can, for example, focus on the provision of pools of funding only and outsource

the entire business acquisition and post-settlement management functions. “Alternatively, they might limit activities to mortgagor management functions such as sales and post-settlement processing, with documentation and settlement outsourced to [a third party] and funding to be provided by one of the wholesale funders,” says Beer. He adds that it is not uncommon to see funders outsourcing processing to mortgage managers and aggregators, mortgage managers outsourcing sales and application capture to brokers, and brokers outsourcing lead generation and qualification to other parties. Also, to some extent, many participants in the industry ‘outsource’ assessment to funders or mortgage insurers. Newby, who specialises in the broker ‘middle office’ market, agrees that outsourcing can complement any business, regardless of which lifecycle stage it is in – be it downsizing, growing or maintaining existing volumes. Furthermore, she says that outsourcing allows the business to run more efficiently and focus on its core strengths. “Often, if a group is working with a professional outsource operation, they’ll implement new strategies as required to fit the business model of the broker,” she adds.

Mike Dilworth

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mpa lender outsourcing

The other side of the coin We know now that every action sets off an equal and opposite reaction. Isaac Newton might not exactly have had it in mind at the time, but his third law covers third party outsourcing as well. “Most certainly,” says Beer, “and most of the downsides occur when the end-to-end lending process evaluation isn’t followed.” He says the results of outsource mistakes can be very frustrating and cost more in the long term, particularly when delays occur and lending has to cease due to non-compliance. Several examples come to mind, such as outsourcing document template management to non-English speaking countries. Another is that country-specific legislation and/ or regulatory compliance requirements can be misunderstood when application system maintenance is outsourced. Newby adds that in her business, the main downside is the number of brokers who cannot let go of the file. “There are a lot of brokers who initially advise that they’re ‘control freaks’ until they’ve sent through a few deals and realise the true potential of outsourcing,” she says. “But there are the odd few who refuse to take their hands off, and in the end it only complicates the process.” In action To get a better idea of how the theory finds its place in the real world, consider how specialist third party outsourcer Bluestone Servicing goes about its business. Mike Dilworth, CEO of Bluestone Servicing, says that with the credit crunch, his company is able to offer an outsource solution to people who have a book they have built to a scale but that has never really got going, or to new entrant mortgage managers keen to move onto the next step of their business. He says Bluestone Servicing’s solution would suit someone with a loan book of a “couple of hundred” million dollars. “Either a book in decline of say $200m – anything less doesn’t give you time to earn your investment back – or a stagnant book of $100m,”

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he says. “Our platform is designed as a solution to facilitate those guys. You bring the funding and the distribution, and we’ll bring everything else.” Bringing ‘everything else’ means ensuring the direct debit is processed when the payment comes in, and that interest is charged appropriately, accurately and in a timely manner. In addition, on a start up, Dilworth says he is quite willing to participate before there is any volume. By bringing in the support, a company like Bluestone Servicing will be helping to get the operation set up on a “fairly low” marginal cost, claims Dilworth, because it is leveraging off an existing infrastructure. “This is so it doesn’t cost a lot for somebody to establish a platform and get ready to grow,” he says. “And we take the risk – we helped them get to that stage and if it never takes off, well, that’s part of the skin in the game. But if it does takes off, then as the operating partner, as they grow, we become more profitable.” Dilworth continues: “We share risk and we share upside.” But rather than take equity, Bluestone Servicing enters into an agency agreement with its partners. Under that agreement, Dilworth’s company charges a fee for service. The fee has two components. The first part is portfolio based – to keep the system running – and the other is activity based and driven by the borrower. “So we’ll charge something to get the book across and set up on our system – although often we won’t charge the full cost; we’ll wear some of that – and then we charge fees for the outstanding portfolio, and then we layer on top of that activitybased fees,” Dilworth says. Instead of charging a flat rate of a dollar for everything, Bluestone Servicing will charge, for example, 25 cents to keep ‘the collections platform moving’. Then, for every event the borrower wants to add to their original contract – like taking out an additional security – Bluestone will charge extra. “So we might earn a dollar over time, but to the borrower it’s a ‘pay-as-you-go’ kind of thing,” Dilworth says. “It’s revenue based on effort.” MPA

Michelle Newby

september 2009 • sydney

Who’s your number one?

Nominations are now open for AMA09 The Australian Mortgage Awards return to Sydney this September. Ensure you nominate the individuals and companies you think should be recognised as best in the Australian mortgage industry.

Cast your vote online at www.australianmortgageawards.com.au OFFICIAL ONLINE PARTNER

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websites

Web reviews

MPA’s web expert Sam Benjamin reviews what’s hot and what’s not on your screen…

Australianrealestate.com.au

Tre.com.au

Design This is a very straightforward, plain and simple design. The downside of this is that the site does not reach out and grab the user’s attention from the word go. The font size is very small and the text spans the entire width of the site which makes reading difficult. Indenting margins would improve the user’s experience. In the news tab, newsletters are presented with font and formatting inconsistencies.

Design The flash banner is timed well and the pictures are actually captioned, which is a nice touch. The colours are neutral and earthy which project an elegant image for the business. But the third row/ grid of the design is too busy and diverts attention away from the menu – and one banner is generally enough. Once again the font size is an issue on this site as it is quite small.

Navigation and usability There is a clear static menu across all pages which is a must for a good site, and the buttons complement the content well. The search feature is easy to use, but when you click on ‘more details’ the layout does not utilize the full width of the site. Perhaps adding bullet points in the text would make the information easier to scan for the user. Content There is a tips and advice page which lists only four tips. These tips are not categorised according to topics and the section is too brief. The Home Tracker System should be marketed better as the aim of it is to capture leads. Therefore a strong call to action is warranted for this feature. Suggested improvements The site would benefit from the addition of more relevant information. Replacing some photos with more vibrant images perhaps, with pictures of property as it is a real estate site after all. There should be a link on the internal pages to the search feature. Rating

Content There are some good tools available on the site such as calculators and the e-guide. Having these on the site keeps the user on the site longer – this is a proven way to capture more leads. The stamp duty calculator does not take into account the First Home Owner Grant benefits and as such can be misleading. The inclusion of client testimonials is also a nice feature as there is nothing like a recommendation from happy clients to prospective clients. Suggested improvements Fix the broken links to some pages, add a newsletter opt-in form and provide a link on the internal pages to the search feature. Rating

Sam Benjamin works for Finance Tools. To contact Finance Tools visit www.financetools.com.au or call 1300 300 790

Navigation and usability The top menu buttons are not functioning and are only there as a heading for the sub menus, which can prove annoying for some users. The search function presents the results in a visually appealing format. But there is an error with the naming of the icon’s ‘rollover tag’. This should be fixed as anything which results in confusion to a user can mean they instantly lose interest in the site and click away.

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websites

Brisbanerealestate.com.au

Blre.com.au

Design The black background on this site makes the text difficult to read. This is not helped by a home page that is extremely busy. There is no one particular item on the home page that is designed to stand out; it is almost as if all the elements are competing for attention at the same time.

Design This is an example of a fairly well structured site. It does get a bit busy in some places but not overly so. The property alerts feature is very prominent and the design of the link is quite eye-catching. The third row/grid of the home page needs an adjustment as the alignment of the columns is not quite right.

Navigation and usability The menu icons cheapen the site and look tacky. Users need a well planned menu which aims to be clear and concise and will take a them where they want to go in three clicks or less. This site seems to have been thrown together with no thought of the user, and this is clearly evident by the lack of a specific search facility. The only way to view properties is via a list of suburbs which are displayed only on the front page and are all jumbled together. If the user is not looking in a specific suburb there is no way to search for something specific eg, all three bedroom houses in the $500–600k price bracket. This disadvantages not only the user but the business as they lose the opportunity to present their product for sale.

Navigation and usability Access to the search function is available on every page which is excellent for the business as it allows the user to focus on the properties, which is the main aim of any real estate agents' website. There is a static menu ensuring the user will not get lost or confused on the site. The results of the search are well presented – there is a paragraph of information to read if you are interested in the property, icons which highlight the main features of the property as do bullet points. This format is easy for the user to read and digest.

Content It is difficult to understand the purpose of this site. Is this a site for one particular agency or for agents in Brisbane generally? There is no ‘about us’ page, only agent profiles – and some are incomplete. Suggested improvements The music which plays automatically when the site loads is irritating. This is one occasion when I would suggest the business rethink the entire site! Rating

Content Having a Property of the Week feature is a great way to promote the product and increase leads and sales. There is good relevant information available and positioned where you would expect to find it. The about us page shows well presented, professional photos of all staff. This gives the user confidence in the professionalism of the business. Suggested improvements Set the video on the home page to start only when the user clicks on it, not immediately upon loading. Rating

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Lifestyle reviews

sophistication

marks

the X

Recently renovated and under new ownership, the Goldfish in Sydney’s Kings Cross gives patrons the chance to watch the world go by with a cocktail in hand. Luke Cornish popped in for a drink Turning a once-seedy backpacker haunt into an upmarket cocktail bar is a challenge too daunting for some, but for Ben Walsh and Dan Rice it was just another step in their quest to make Sydney the cocktail capital of Australia. Having already given The Victoria Room a reputation for making the best cocktails in town, Walsh and Rice transformed the former Goldfish Bowl from a typical Kings Cross establishment to a sophisticated hot spot. Walking into Goldfish, you are greeted with an island bar, friendly staff and a cocktail menu containing all your favourites as well as original creations like the Pomegranate and Tahitian Lime Fizz. This is the one my companion opted for, and she was delighted with its sweet and tangy taste. Being slightly more conservative in my choice of drink, I chose a Harvard Cocktail – a combination of Martell VS Cognac, lemon juice, bitters and grenadine. Cocktails were enjoyed in the outside enclosure, allowing us to watch the world rush by. For dinner, we sat in a corner with a view of the jazz band that entertains Goldfish patrons on

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a Tuesday evening. We chose a selection of tapas from the bar menu with the Moroccan spiced lamb hummus with pickled chilli and flat bread being my favourite. We also shared a large bowl of Sicilian marinated olives and a plate of Moorish pork skewers served with tabouli and pistachio pesto. The food, drinks and music entwined to create a sophisticated yet informal dining experience. As well as its extensive cocktail selection, Goldfish offers a reasonably priced selection of thirst-quenching iced teas and punches served up in jugs for groups to share. Dining at Goldfish is a different experience depending on which night of the week you go. Monday night is poker night and a signature Thursday night features tunes spun by DJ Bell and live funk music. For those who think of going out in Kings Cross as something of a seedy experience, checking out Goldfish will be a pleasant revelation showing that there is a sense of sophistication and quiet in the heart of Sydney’s most famous nightlife district. mpa

Goldfish 111 Darlinghurst Road, Kings Cross (02) 8354 6630 Sharing plates: $9–28 Cocktails: $14–24

Profile leaders

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lifestyle favourites

Paul Gollan + CEO + Australian Mortgage Brokers

Favourite things Book The Snowball: Warren Buffett and the Business of Life is outstanding.

Music/band Silverchair, P!nk

Movies A Few Good Men, Dumb and Dumber Food A great steak or a seafood marinara Place to be at the beach with my family Hobby Reading, relaxing

Sport More of a spectator than player these days! League, Union, AFL

Drink A good coffee or a glass of Shiraz from the Barossa

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Vacation spots we love Hamilton Island. As for overseas: Paris & NYC