Mortgage Professional Australia magazine Issue 10.8

www.brokernews.com.au ISSUE 10.08

BANKS ON BROKERS

2010

.. . t r u o c r

u o ve y ser n

inks return

urnaround times t d n a t ppor u s on

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DECISION TIME THE PROS AND CONS OF BEING A CREDIT REP

GENERATION X ADVISOR ASSISTANCE FOR THE ‘BITTER’ GENERATION

SHOW ME THE MONEY COMMISSIONS UNDER THE SPOTLIGHT

EDITOR’S LETTER

The rise of the underdog By the time you read this, the winner’s of soccer’s FIFA World Cup will have been decided and the ringing in your ears from the vuvuzelas, beloved of the spectators, should have just about abated. And a constant theme of the early group games was the supposed superpowers ‘coming unstuck’ against unfancied minnows, be it through complacency or the sheer pluck of the underdogs. This upsetting of the natural order was also evident in the ‘Brokers on Banks’ survey in our last issue, with several of the largest lenders not performing to expected levels. Turn to page 32 to read the post-match interviews as the banks assess their broker’s recommendations.

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Elsewhere in this issue, the build-up to licensing gathers pace as we speak to aggregators and industry bodies about the role they have to play in the brave new world. Change is undoubtedly on the way – but don’t be fearful of regulation, and instead focus on the many positives that a new era of professionalism will bring for you and your customers.

In our other features this month, on page 16 we examine how brokers can help Gen X homeowners – a group of borrowers who bore much of the brunt of the financial crisis – and we also take a look at the sub-prime mortgage on page 28, a product recently castigated by Time magazine as one of the worst inventions ever. As usual, the issue is jam-packed with informative columns, insightful profiles and topical analysis pieces – so there is plenty for you to get your teeth into.

Finally, if there is an issue making your blood boil that you think we should be covering, or you simply want to chew the mortgage (or World Cup) fat, don’t hesitate to contact me. My contact details are overleaf and I look forward to hearing from you.

Enjoy the magazine and all the best for a busy month.

Barney McCarthy Editor

MPA 2.0 Our 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

cover story

46 A question of independence Aggregators and industry bodies outline their roles in the new licensing era

32 Banks on brokers Australia’s largest lenders respond to broker feedback on products, service, rates and support

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BROKERNEWS TV MORTGAGE MANAGERS ARE BACK

Ranjit Thambyrajah, Acuity Funding

Representatives from Mortgage House, AFM and Acuity Funding discuss: »» How the market has changed »» What to expect in the coming financial year »» Why mortgage managers are a viable alternative to the big banks www.brokernews.com.au

CONTENTS

NEWS ANALYSIS 10 QBE LMI on what can be done to tackle mortgage fraud

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FEATURES 16 Generation X borrowers were right in the GFC ‘firing-line’, so what next for a demographic that has little room to manoeuvre?

30 A recent TIME magazine survey claimed sub-prime mortgages were one of the worst inventions of all time. MPA looks at the case for the defence

EDITOR Barney McCarthy COPY & FEATURES CONTRIBUTOR Andrea Cornish PRODUCTION EDITORS Jennifer Cross, Moira Daniels, Caroline Wun ART & PRODUCTION DESIGN MANAGER Jacqui Alexander DESIGNERS Paul Mansfield, Lucila Lamas SALES & MARKETING

COLUMNS 50 Pop Vox: Wayne Macartney on commissions 52 Time Management: consultant Doug Mathlin discusses the importance of managing your time effectively 54 Marketing: Peter Heinrich on why you shouldn’t always save the best until last

SALES MANAGER Rajan Khatak ACCOUNT MANAGER Simon Kerslake MARKETING EXECUTIVE Kerry Buckley MARKETING COORDINATOR Anna Keane TRAFFIC MANAGER Stacey Rudd CORPORATE DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley PUBLISHING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan

PROFILES 20 Leader: Peter Bromley, LJ Hooker Financial Services is used to being in charge 24 Broker: Anita Marshall, Advanced Finance Solutions uses her skills as a writer to better her business 58 Lender: Think Tank - winning the war against the GFC

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LIFESTYLE 14 A day in the life of... Huw Bough, Westpac 64 My favourite things: James Green, Oxygen Home Loans

HUMAN RESOURCES MANAGER Julia Bookallil

Editorial enquiries Barney McCarthy tel: +61 2 8437 4790 barney.mccarthy@keymedia.com.au Advertising enquiries Rajan Khatak tel: +61 2 8437 4772 Sales Manager rajan.khatak@keymedia.com.au Simon Kerslake tel: +61 2 8437 4786 Account Manager simon.kerslake@keymedia.com.au Subscriptions tel: +61 2 8437 4731 • fax: +61 2 8437 4753 subscriptions@keymedia.com.au Key Media www.keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Hong Kong, Toronto www.brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as MPA magazine can accept no responsibility for loss

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

NEWS MARKETS

Home starts rise modestly in Q1 The number of dwelling commencements rose slightly in the March 2010 quarter, the Housing Industry Association (HIA) has revealed.

HIA chief economist Harley Dale said that total housing starts increased by 4.3% in the first quarter of 2010 to an annualised level of nearly 170,000. HIA’s forecast was for a 4% rise.

He added: “There was a strong burst in ‘other dwelling’ starts in the March 2010 quarter… The strong run up in building approvals through to early 2010 is not translating into new home starts as quickly as is desirable.”

Harley cited “unjustifiably tight credit conditions”, uncertainty about the magnitude of rate rises in 2010 and some approvals simply being reissued with no firm plan for commencement as reasons for a soft first quarter update for new home building.

The HIA continues to expect a relatively healthy rise in housing starts in the 2009/10 financial year, but claimed a positive outlook for 2010/11 and beyond is far from assured amid supply-side obstacles.

REIA bursts housing bubble Australia is not in the middle of a housing bubble according to the Real Estate Institute of Australia (REIA), contrary to recent comments by global investment management firm GMO’s chief strategist Jeremy Grantham.

REIA president David Airey said: “What we are experiencing in the housing market is normal growth for house prices. If Australia was in the midst of a so-called housing bubble, then we have been there for some time. REIA’s data highlights that historically, median prices, compared to income, have been relatively stable for the past 10 years, taking into account normal fluctuations.”

According to the REIA over the period December 1996 to December 2009, median house prices increased from around $160,000 to around $500,000, a trebling in 13 years. But within this period there were four phases.

From December 1996 to September 2000, median house prices in Australia showed a moderate average growth of 2.1% per quarter.

From December 2000 to December 2003, house prices appreciated at 3.9% per quarter on average. Then from March 2004 to December 2008, the average growth slowed to 0.8% per quarter. During 2009, growth of median house prices picked up pace to 2.9% per quarter.

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Senior stamp duty break

4.3% The increase in housing starts in Q1 Source: Housing Industry Association

Homesafe Solutions has welcomed the stamp duty relief for seniors announced as part of the NSW Budget.

The equity release provider described it as an innovative public-policy response to the challenge posed by an ageing population.

Peter Szabo, managing director of Homesafe, said: “Retirees should be aware that equity release products can provide them with the financial means to maintain their independence and current lifestyle, without the need to downsize their home. Many seniors have inadequate retirement savings to enable them to enjoy quality of life during their retirement.

Equity release products provide a valuable alternative to selling off the family home while providing retirement income.”

NEWS MARKETS

Sydney housing dream still alive Sydney may be the most expensive capital city in Australia, but there are still bargains to be had, a report from RP Data has revealed.

Its findings show that Sydney actually had the greatest proportion of total sales priced below the determined level of borrowing power.

Almost 22% of all Sydney house sales were priced below $350,444, although most of these were situated in the outer rims of the city.

The next best performer was Canberra, which had 15.3% of house sales below $301,556.

The hardest place to find affordable housing was in Perth, which recorded only 11.8% of sales under $324,444.

Research analyst Cameron Kusher said: “These results show just how important it is for buyers to do their homework. It can be very valuable for buyers to actually dig a little deeper into data. For an average income earner looking to buy property, more than ever location is becoming the most important attribute. The best prospects for growth in property value and the most desirable locations in which to live are those suburbs which enjoy close proximity to public transport, retail and social amenity, schools, working nodes, healthcare, public open spaces and major roads.”

Erratum In our Superbroker feature in issue 10.6, we incorrectly listed John Kolenda as executive director of Loan Market. Kolenda left the company in November 2009 and the senior management team is made up of executive chairman Sam White and chief operating officer Dean Rushton. The group currently has 420 brokers.

In our franchise buyer’s guide in issue 10.4, BEAT Home Loans was incorrectly referred to as a franchise when it is in fact a shareholder model. In addition, Sof Tsialtas is national sales manager, not CEO.

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1.44% The percentage of borrowers missing repayment deadlines in March Source: Standard & Poor’s

Rates: risky business for borrowers First homebuyers and self-employed borrowers are at risk of falling into mortgage arrears, according to research by Standard & Poor’s (S&P).

Figures from the ratings agency revealed that a growing number of borrowers are missing their mortgage payments as a result of rising interest rates.

The report found that the number of borrowers who had missed repayment deadlines climbed 0.19% up to 1.44% in the March quarter.

Arrears rates for sub-prime borrowers, which account for about 10% of home loans, rose to 12.24%.

S&P predicted first homebuyers, who entered the property market when interest rates were historically low, and self-employed borrowers, who are more sensitive to economic conditions, will be the most sensitive to rising rates.

The Reserve Bank of Australia (RBA) left the cash rate at 4.5% in its June meeting, as it paused to gauge the global recovery. However, economists are predicting rates will increase to 5% by the end of 2010.

Aussie banks safe from shock Australian banks could survive an economic contraction the size of the 1990s recession, the Australian Prudential Regulation Authority (APRA) has revealed. According to reports, APRA chairman John Laker ordered a stress test to be conducted to determine what would happen if there was a threeyear deterioration in global economic conditions. The Reserve Bank of Australia and New Zealand’s central bank also took part in the examination.

Laker told The Australian Financial Review the results showed Australian banks had the capital resources to weather such a contraction. In fact, none of the 20 banks tested would have failed or even fallen below the minimum amount of toprated assets on their balance sheets. However, he warned banks not to get complacent and take part in the high-risk activities that caused the economic downturn overseas.

NEWS ANALYSIS

Catch them if you can Mortgage fraud is a rising concern in the Australian market and anecdotal evidence suggests it has cost the banking and finance industry millions of dollars. Ian Graham investigates

M

Ian Graham

ortgage fraud doesn’t just impact lenders.

It is costly for all stakeholders involved in mortgage lending including borrowers, originating parties (aggregators, brokers, mortgage managers) and mortgage insurers.

QBE LMI has a dedicated fraud and investigations team that works towards identifying fraudulent activity in the marketplace and provides insights into effective ways to protect against fraud. Through its relationships with multiple lenders, the fraud and investigations team has a 360 degree view of these lenders; linking fraudulent activity and providing mitigations against future fraud. The team works with different lenders to gather evidence, evaluate documentation, investigate suspicious matters and conduct interviews with underwriters.

This helps gain insights into the application process and where it went wrong. The team is then able to collect this information and identify correlations in fraudulent borrower activity across multiple lenders. An example of this is QBE LMI’s database of ‘companies or individuals of interest’ which helps lenders scrutinise applications and detect fraud – before it occurs.

Market view Syndicated, organised fraud is on the increase.

Fraudsters are becoming more sophisticated and mortgages are viewed as a reasonably easy target.

The mortgage industry is seen as lucrative – as the

amount of money criminals can acquire is much greater than in other areas. Organised criminal rings are manipulative and work towards pilfering the identities of people who own their properties which are unencumbered. Criminals acquire loans masquerading as these people, using their property as security. Victims are unaware they have been targeted until they are contacted by a bank chasing loan repayments.

A number of different lending institutions are being targeted simultaneously as specialised criminal rings gain inside knowledge of lending practices. These criminals know how to manipulate the system and quite often these rings will involve other intermediaries, including real estate agents, solicitors, valuers, developers, accountants and originators.

Various lending institutions are also viewed as ‘easy’ targets and are continuously penetrated by criminals, who adapt quickly to improvements in identifying their activity (such as technology) and travel down the path of minimal detection.

Falsified companies, documents, and straw buyers (one who purchases property for another person in order to conceal the identity of the real purchaser) are used to take advantage of lending institutions.

A recent investigation by QBE LMI identified four separate lenders which were all being targeted by the same fraud ring. The lenders – one bank and three mortgage managers – were initially recognised by the team as having

Tips for managing fraud: early warning signs The following should flag concerns with mortgage applications. Make sure they are looked at closely.

Suspicious-looking documents including bank statements and income documents (font size doesn’t match

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original, BSB number doesn’t match branch, spelling mistakes, totals on bank statements are inaccurate, etc) No agent involved in the sale process Gift required to facilitate the transaction

Identification of inter-related parties (vendor’s agent has same surname, de facto relationships, company searches) Additional parties between the borrower and the insured lender

involved in the origination of the insured loan/ insured mortgage Highly suspicious income and age correlations Early payment default

NEWS ANALYSIS

significant claims exposure. Complex but traceable links had been sourced across the four lenders as straw borrowers were used to create legitimate loan applications.

As expected, fraudulent borrowers had the support of a number of intermediaries during the application process. Links were identified through historical company director searches. With the main players still active, QBE LMI’s intelligence had assisted in identifying live fraudulent applications with these and other lenders.

Fraud hot spots Over 75% of fraud investigations conducted by QBE LMI are based in Sydney. A number of these suspected fraudulent loans have been linked to addresses predominantly in west and northwest Sydney. Recent large-scale syndicated fraud investigations found fraudulent securities of apartment blocks throughout Sydney were being used. Lenders were led to believe that they were owner-occupied purchases, however, they were all tenanted and the rental funds were sent offshore.

The fraudsters utilised straw buyers as the vehicle for purchasing the properties and most of the parties involved were linked either via addresses, employers, family and friends.

The investigation also showed that not all of the funds were used towards the purchase of the property – with disbursements made to originators, brokers, borrowers and companies linked to the fraudsters.

Technology Mortgage fraud detection technologies are fast becoming an essential risk mitigation tool.

Integration of automated valuation models (AVM) into QBE LMI’s core underwriting process has been achieved through real-time XML interface, for individual applications and via a batch process for bulk lenders’ mortgage insurance requests.

For individual applications the underwriters are notified of an exception when the AVM result causes one or more of the QBE LMI credit rules to fail. When an exception is identified the application is escalated to a senior underwriter who has access to a variety of tools (online comprehensive property information services and independent professional valuers) to determine if there are any anomalies in the property valuation.

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Quality control Quality assurance procedures are essential to preventing funding involving fraud. Pre-settlement and post-settlement checks are both strong measures in preventing fraud.

Pre-settlement checks Verbal verification of employment and income Carry out independent credit report checks in addition to document checks Ensure loan documentation received is original Obtain correct borrower/guarantor identification including photo identification Verify the seller on the contract is the owner on record Specify in settlement instructions to the lender’s solicitors if source of funds should be verified Choose referrers wisely Post-settlement checks Have an internal computerised fraud report and cross-checking system which regularly reviews all delinquent files for systematic relationships Check any files that are immediately put into substantial credit following loan settlement

Industry cooperation The financial services industry has a strong role to play in fraud management. Greater cooperation within the industry and cross sharing information will upset the flow of fraudulent business. To effectively deal with mortgage fraud lending, institutions need to monitor customers across all channels and consolidate information, in order to identify evidence of manipulating lending scores and credit-seeking behaviour.

It is also important that lenders constantly review their watchlists and that they actively participate in industry forums to ensure their intelligence is up-to-date, as fraudsters target vulnerable entities. QBE LMI works cooperatively outside of the industry with relevant law enforcement and regulatory bodies to not only share insights into what we are seeing in the marketplace, but to gain knowledge and keep up with developments in fraudulent activity. MPA Ian Graham is chief executive officer of QBE LMI

NEWS ANALYSIS

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COLUMN

A DAY IN THE LIFE OF...

A day in the life of…

Huw Bough, general manager of Westpac’s mortgage broker distribution, spends most of his work life interstate, but managed to catch up with MPA to share an average day’s schedule

0600h

I usually start the day by reviewing any e-mails received overnight and then try to squeeze in 30 minutes on the treadmill.

0730h

When interstate, I catch up with internal stakeholders or customers for breakfast or I am catching a plane at this time. Today, I caught up with an external agency to garner some market intelligence.

Huw Bough

“ At any given moment, we have a number of strategic initiatives we are driving ”

0900h

Weekly specialist mortgage sales meeting – review past week’s results, garner insights and adjust plans as necessary.

1030h

One-on-one with the NSW mortgage broker state manager. At any given moment, we have a number of strategic initiatives we are driving, ranging from reviewing broker feedback on our planned broker base gateway to doing postreview follow-up of key activities, such as our recent Westpac ‘A+ Red Room’ event in Melbourne. Today I also met with the state general manager of our retail network to discuss our broker business.

1100h

Caught up with a couple of brokers who had been utilising our facilities at our international head office – 275 Kent Street in Sydney.

1400h

Typically I will have a number of meetings or teleconference calls scheduled during the afternoon. Today we had a one-on-one with a BDM, followed by a review of performance objectives for one of our roles.

1500h

Meeting with operations, product and risk teams.

1600h

Towards the end of the day I catch up on any outstanding tasks and when in Sydney I always find time to catch up with our marketing manager to discuss communications and our local strategy.

1830h

1130h

1900h

1230h

Try to take half an hour or so at lunchtime to grab a coffee and light lunch, usually with a

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1330h

Catch up with a potential future candidate via referral – I believe it’s important to keep in touch with people in the industry, in the event a relevant opportunity arises.

Set aside an hour to catch up on e-mails, check previous day’s results and return a couple of phone calls.

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direct report or customer – this is an opportunity to communicate and ensure we are on strategy. Today, I caught up with one of our key aggregator partners to discuss our strategy; we are fortunate that our lenders, aggregators and brokers have a better partnership than in most countries.

Return broker and state manager calls, review activity, then head back to the hotel. Review the balance of e-mails and any reports.

Grab some dinner and then back to work reviews before unwinding for the evening.

2100h

Hope some soccer is on the television and always remember to call my family.

FEATURE GENERATION X

High levels of debt, young families, mid-career – Generation X had the most to lose during the GFC. Andrea Cornish uncovers what it’s like for the ‘bitter generation’

generation R

eality continues to bite for Generation X. For the 4.4 million Australians born between 1965 and 1980, history has not been kind – and not just because they were too young for Woodstock.

Unlike the Baby Boomers – the generation born between 1946 and 1964 – many Gen X missed out on free education and lower house prices. And, perhaps most damaging, they were heavily exposed to the global financial crisis.

This is the demographic labelled by demographer and partner at KPMG Bernard Salt as the “bitter generation”. In a column in The Australian newspaper, Salt outlined why he thinks Generation X has it worse off than the Baby Boomers or Generation Y. “The consumer segment most affected by recession is Generation X, who are mostly aged 30-something. At this time in life, the average Australian household is committed to marriage, children and a mortgage. From about 33 to about 43 the household drops from two full-time incomes to one or one-and-a-half incomes.

“There is no room to manoeuvre for Generation X; all the bases are loaded,” Salt says.

The boost to the First Home Owner Grant, which was introduced as part of the federal government’s Nation Building Economic Stimulus Plan in October 2008, gave a huge helping hand to many Gen Xers who were looking to break into the homeownership market.

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The boost consisted of an extra $14,000 which was available to first homeowners buying or building a new home, and an extra $7,000 for those buying an established home. The scheme was extended to December 2009.

In the first six months 78,154 borrowers took advantage of the incentive, with more than a third of borrowers (27,185) located in NSW, followed by Queensland with 17,081 and Victoria with 16,324.

Yet the problem with first homebuyer grants is that competition for houses in the lower price spectrum has pushed house prices up significantly.

House prices The sharp increase in house prices over the last 15 years has affected all Australians – none more so than Gen X who faced the massive hikes

FEATURE GENERATION X

in house prices, at a time when they were trying to break into the housing market.

According to the Real Estate Institute of Australia (REIA), median house prices have increased almost three times – from $160,000 to around $500,000 over the period from December 1996 to December 2009.

The REIA statistics also reveal that from December 1996 to September 2000, median house prices in Australia showed a moderate average growth of 2.1% per quarter.

From December 2000 to December 2003, house prices appreciated at 3.9% per quarter on average.

Then from March 2004 to December 2008, the average growth slowed to 0.8% per quarter.

During 2009, growth of median house prices picked up pace to 2.9% per quarter.

“ The issue at stake here is that our modern spending behaviour has evolved in line with the increasing availability and ready accessibility of credit ” Who’s to blame?

Some say the lavish spending habits of Gen X is the real cause of housing stress for this demographic. Easy access to cheap credit has created a generation that is used to the idea of instant gratification.

Unlike previous Baby Boomers, many Gen Xers lack the patience to save up for the things they want. Resi’s head of consumer advocacy Lisa Montgomery says “the issue at stake here is that our modern spending behaviour has evolved in line with the increasing availability and ready accessibility of credit.”

“Where our parents’ generation would have diligently saved up for big-ticket items, subsequent generations have learnt that they can purchase these items now and pay for them later – and for first homebuyers freshly dealing with the enormous financial commitment of a home loan, this behaviour can be very dangerous. The ‘spend now, pay later’ attitude could be hazardous for first

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FEATURE GENERATION X

“ Property is a long-term investment and only reaps rewards through ongoing diligence and by exercising restraint ” homebuyers that jumped onto the housing ladder in a relatively low interest rate environment.

These borrowers need to exercise extra caution about their spending habits as the Reserve Bank of Australia steadily increases rates in the coming months,” she says.

“First homebuyers need to continue to apply the discipline they used to get them into their home in the first place and not succumb to feeling they need to have it all – and have it now. Property is a long-term investment and only reaps rewards through ongoing diligence and by exercising restraint,” Montgomery says.

However, the Housing Industry Association’s chief executive Chris Lamont has defended Gen Xers – at least when it comes to their housing desires. In a recent opinion piece, Lamont claimed ‘young starters’ are not buying McMansions – most are spending more than 30% of their income on housing and are opting for the cheapest unit they can find.

“In terms of expectations, most are seeking accommodation within 20 kilometres of work and with reasonable amenity and surrounding support services,” he says. Yet despite having reasonable housing requests, Lamont says Generation X is unfairly criticised.

“Generation X is labelled as unreasonable and accused of expecting the spoils upfront. This is an interesting criticism, especially when we consider that this is a generation that is paying more tax (on average) than its predecessors, is working longer hours, operating in a user-pays economy, and funding not only its own retirement but those of previous generations as well,” he says.

Relating as brokers A good portion of mortgage brokers are Generation Xers, so relating to this demographic should not be a stretch. A 2009 study by Genworth revealed

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Tips brokers can pass along to their Gen X first homebuyers 1. Keep loan and credit arrangements to a minimum and refuse new offers of additional credit 2. Try to use cash for all discretionary spending 3. Keep a rainy-day buffer in your budget for any unforeseen expenses, as well as the time when your mortgage repayments may increase 4. Spend money only on essential repairs to your new home and use the relevant skills of friends and family if necessary to fix a problem 5. New furniture is not essential in a new home.

Look instead at second-hand furniture that you can often find at charity shops or council throw outs, or opt instead for a minimalist look and acquire things as you can afford them 6. Holidays are not a holiday from financial obligations. Stay-at-home vacations are becoming increasingly popular in achieving down time – without the financial burden of having to travel anywhere to get it 7. When you plan to catch up socially with your friends, entertain at your own restaurant – your home – and keep the rules simple by asking everyone to bring a plate Source: Resi

FEATURE GENERATION X

that 54% of Gen X borrowers say they have used a broker in the past, compared to 58% of Gen Y and 46% of Baby Boomers.

It also found that 57% of Gen Xers revealed they would use a broker in the future, as compared to 59% of Gen Y and 50% of Baby Boomers. While many Gen Xers are comfortable using technology, your Twitter and Facebook marketing strategy is probably better suited to Gen Ys.

Instead, the way to win Gen Xers is through the heart, not the head. Social demographer Mark McCrindle of McCrindle Research told MPA that the drivers that influence making decisions with Gen Xers are more emotive.

He says that the strength of a relationship or the influence of someone they respect or know is often going to carry over a sale and win the day, more than pie charts or statistics. MPA

Australian home ownership A 2009 research report by the Flinders Institute for Housing, Urban and Regional Research found that home ownership for medium-high income earners has fallen by 15% between 1986 and 2006.

It also found that while the First Home Owner Grant encouraged home ownership for Gen Xers, the reality is high property prices and the lack of inheritances received mean many are still renting.

Joe Flood, who revealed the report’s findings, stated that if house prices continue to outpace incomes, “Australia will have to get used to being a country of low home ownership, people living with their parents, and

small houses by international standards. The country that promised limitless land, cheap housing and near universal home ownership to all comers now has the most expensive housing in the world,” he says.

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BUSINESS PROFILE LEADER

First past the post Whether it’s at the office or on the athletics track, LJ Hooker Financial Services general manager Peter Bromley is used to being in charge

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“A

thletic clubs and associations are basically the same as franchising – it’s all about building a base and improving the product”. So begins Peter Bromley, general manager of LJ Hooker Financial Services (LJHFS), on the similarities between his day job and his passion for running. Not content with holding down a senior position at the real estate giant, he is also chairman of the board of directors of Athletics NSW, but more on the hereditary Bromley running prowess later.

He has spent his entire career in banking and finance. After a stint straight from school at the Commercial Bank of Australia (which would later merge with Bank of New South Wales and become Westpac) Bromley then spent more than 11 years in the building society sector, before moving to the Bank of New Zealand (BNZ) and getting involved with the nascent mortgage broking scene in Australia in the early 1990s.

After departing BNZ, Bromley found himself at Westpac, before joining LJ Hooker in 2005 after a five-year spell at RAMS Home Loans.

Growth Back in 2005, LJ Hooker had just branched out into financial services and part of Bromley’s remit was to organically grow the number of franchises and brokers. From nine franchises, the number has swelled to 45, and Bromley is optimistic about the next 12 months. “We’d like to add around 20 franchises, and ideally have 10 confirmed before Christmas,” he says. “We will be looking to recruit another 25 mortgage brokers on top of that, too.”

Bromley says LJHFS is now confidently entering this recruitment phase after a period of rebuilding last year. Having been owned by Suncorp for more than two decades, ownership of LJ Hooker is now back under family control, after founder Leslie Hooker’s grandson – and erstwhile Olympic rower – Janusz Hooker acquired the business in October 2009 with his co-investors.

Bromley admits the period immediately after the change of ownership was “a time to stop and pause”, but that the organisation is ramping up its vision for growth.

Part of this new phase will be a relaunch of LJ Hooker’s website. A dedicated financial services section will help drive referrals and leads and it has also launched its own ‘Classic’ home loan.

BUSINESS PROFILE LEADER

“ We have the capacity to borrow and offer aftersales service to the customer, meaning our offices can become real one-stop shops ” The mortgage is available up to 90% LVR and currently carries a rate of 6.66%. Although LJHFS has not been vocal about its introduction and is only using it in-house at present, there are plans to offer it beyond their business customers. “We are starting to build our own range,” says Bromley.

“We have a strong, recognisable brand and a good distribution channel in place. We have the capacity to borrow and offer after-sales service to the customer, meaning our offices can become real onestop shops. We will be working with a range of funders over the coming year.”

A new professionalism The next 12 months poses a series of challenges for brokers, according to Bromley. The financial cost of licensing and ensuring that correct compliance procedures are in place is at the forefront of most introducers’ minds, but he thinks some won’t have the stomach for the fight. “Many of the original broking community moved into it from the banking sector because they didn’t like the constant accountability of being managed, so may move away from a licensed broking regime for similar reasons,” he suggests. The days of part-time brokers seem to be numbered, too.

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BUSINESS PROFILE LEADER

“ If you’re handling activity of less than $1m a month, you have to ask yourself what you are doing. We decided that part-time brokers can’t be part of our business going forward ” “If you’re handling activity of less than $1m a month, you have to ask yourself what you’re doing.

We decided that part-time brokers can’t be part of our business going forward.” Bromley is keen for LJHFS brokers to be as efficient as possible. As such they have to submit business plans, develop a scorecard and put in a quarterly activity plan.

Up close and personal + Family: Married to Kate.

Two adult children, Nick (27) and Alicia (29).

Alicia is married and her second child is due in August. Nick is an international athlete + Favourite sports: Athletics and surfing + Favourite past-time: Spending time with the family, athletics and travelling to new places + If not in the mortgage industry I’d be working in: The sporting industry + If the house was burning and the family was safe, I would grab: Family photos and my running shoes

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+ Myself in five words: Competitive, compassionate, healthy, poor gardener + Qualities I admire most in business people: The ability to take a challenge and turn it into a win for all parties by providing leadership.

In addition, it is about taking a plan and actually being able to implement what was written and agreed, which can often be harder than it seems

Family guy LJ Hooker isn’t the only family success story here.

The Bromley lineage is famous in NSW athletics circles – Peter’s father was a state champion athlete, as was Peter after him. Peter’s son Nick is the pick of the crop: a four-time national champion who represented Australia in the 800m at the 2006 Commonwealth Games and spends the Australian winter training and racing in Europe. Daughter Alicia is also a former state champion and plans to run a marathon after having her second child.

After getting back into athletics in the early 1980s, Peter joined his local club and soon became involved in the administrative side of things. He wanted to act on the comments of his fellow athletes, a can-do attitude that has served him well in business. As well as growing LJ Hooker’s franchise and broker community, Bromley has also overseen an increase in membership of Athletics NSW, proving he is adept at getting people to follow his lead.

He is also involved in bringing a series of top-class athletic meets to Sydney, including a prestigious IAAF event next year. Family rivalry is still alive and well too: Nick Bromley broke the family record at the City2Surf race in Sydney two years ago, posting a scorching 43:40 to place inside the top 15, beating his dad’s best time of 44:48 from the early 1980s.

Whether you’re a broker looking to extend the reach of your business by opening a LJ Hooker franchise, or a casual jogger looking to take your sport to the next level by joining a club, the Bromley recruitment whirlwind could well be coming to a town near you soon. MPA

BUSINESS PROFILE LEADER

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PROFILE BROKER

PROFILE BROKER

Business writer Advanced Finance Solutions’ Anita Marshall has used her skills as a writer to better her business

T

he published co-author of two books, Anita Marshall is no stranger to the written word.

But she’s taken her gift for writing and gone digital. Facebook, blogs, monthly newsletters – Marshall has embraced social marketing and says it is working for her business.

“It’s important that we stay innovative, keep in touch with our clients and that they remember who we are and see us as being ‘in touch’ with the industry as well as the modern world. It’s the latest way of communication and we need to be in among it all,” she says.

And as most of these tools are free, any return on investment makes it worth her time. Marshall receives at least one enquiry a month from the newsletter and at least one enquiry a week from Facebook.

The business of mortgage broking has changed considerably since she first opened the doors of Advanced Finance Solutions in 2005.

Marshall turned her hand to broking after spending 16 years with a credit union. While she enjoyed working in finance, she became “disillusioned” with working for other people. “I wanted to use my skills and expertise to create my own successful business instead of doing it for someone else,” she says.

Her professional background and ability to communicate on many levels with people from all walks of life made mortgage broking a natural fit for her.

“I am honest and trustworthy and I think this is important. If people have trust in you they are happy to refer you to friends and family.”

But the early days were tough.

“I had $16,000 to start the business and pay my expenses and wages. I had no idea what I was doing really and it was a case of jump in at the deep end and swim as fast as I could. I worked some seriously crazy hours – 4am starts and working till midnight was not unusual. I studied as much as possible about lender policies and loan structures, and learnt as much as I could in the shortest time possible. I’m not sure I would have the energy to do it all over again.”

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PROFILE BROKER

Marshall’s business is based in the Hunter Valley/Port Stephens area in NSW – her home town and close to her son’s school.

“I am a single mum and Blake lives with me full-time so it was important that I was home before and after school. Being a home-based business suited me perfectly in the younger years of the business.”

The flexibility and the reward make being a mortgage broker one of the best jobs out there, Marshall says.

“I can’t think of any other job where I can drive my son to school, pick him up, be home with him at night and still earn a decent income to give us the lifestyle we have and deserve.”

Marshall started the business from home, but gradually moved to office premises. She has also expanded from being a sole operator to employing a client-liaison team, as well as loan writers to handle new business.

She says one of her biggest mistakes was waiting so long to hire people.

“I’ve made many mistakes but probably the biggest one was staying a sole operator for so long – there is only so much you can do yourself and it’s important to let go a bit and delegate.”

Another important turning point for Marshall has been the decision to stop paying referrers.

“I had a couple of referrers that were on a split commission system for a period of time. Once I stopped this I found that there was no reduction in leads but more money in our pocket. This was a very profitable decision.”

Referrals from her existing database, her clients and investment seminars have been the three biggest sources of leads.

About once a month, Advanced Finance Solutions holds investment seminars. This market segment makes up the largest proportion of Marshall’s clients. While 80% are investors, Marshall does handle a small percentage of firsthome buyers and upgraders/refinancers.

Fortunately investment activity has stayed strong, Marshall says.

“We have never really slowed down as far as investors go. I have noticed in the last month that it seems to be picking up a bit more. We had a record number of new lodgments for May this year, which is a great sign.”

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Personal fact file: Anita Marshall + Age: 42 + Family: Son, Blake, 13 years old + Hobbies: Boating, waterskiing, wakeboarding, swimming, reading, eating, drinking + Next holiday: True North Cruise in the Kimberleys + Short-term goal: Meet target for June– December 2010 + Long-term goal: Sell the business, buy a Winnebago and become a “blonde nomad” + Settlements 2009: $48m + Industry accolades: AFG NSW/ACT Regional Broker of the Year for 2009

And as long as rates don’t climb dramatically, Marshall says this area should continue to do well.

“Investors seem to have quite a bit of confidence in the property market and there is still the underlying issue of supply and demand.”

Marshall is confident the worst of the GFC is over, but predicts lending will continue to be difficult. She says it was an extremely stressful time for the business and her clients when finance was hard to obtain.

“We had formal approvals in place for investor clients and lenders that had run out of funds and were unable to proceed to settlement. It meant re-writing a lot of our loans and some clients had to fall over on properties. It was very stressful for everyone involved and it was something I don’t ever want to see repeated,” she adds.

But some of the best advice Marshall ever received came during the crisis. Chris Jones, her BDM for Suncorp, encouraged Marshall to turn off the news and stop listening to the negativity about the money market.

“It really did help me because all I heard was doom and gloom.”

Marshall also beats stress by walking 40 minutes every day, doing Zumba dance once a week and spending lots of time out on her boat.

She also takes at least four weeks’ holiday a year, which she says is essential for recharging the batteries. “I try to go somewhere exciting so that all the crazy things that go on throughout the year are worth it. I also try to completely switch off from work once I leave each day – it’s easier said that done though.”

Marshall puts about 45 hours per week into her business. She says moving the business into its own office played a huge part in helping her achieve the work/life balance.

The best thing she ever did to help her with time management was a course through the selfstyled ‘productivity queen’, Lorraine Pirihi.

“She totally changed the way I organise my week. It’s a totally brilliant system.”

Somehow in all of this, Marshall has found the time to co-author two compilation books – The Path to Success and Sprout the Life you Love. Both contain true success stories of entrepreneurs.

“I wanted to share my ideas with others to inspire them,” she says. MPA

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27

FEATURE SUB-PRIME

On the

O

lestra was a bad idea. It sounded good at first – a food additive that replaces the fat in your favourite snacks. Zero fat, all the fun – bring it on! But the fine print on Frito-Lay packaging revealed a darker truth. Turns out the side effects included cramps, gas and loose bowels.

Then there’s Farmville. An annoyingly addictive Facebook game that gets users to perform chores on their digital farm. Amazingly about 10% of Americans spend countless hours planting crops, attending barn raisings, and going to the market with their yields.

What do these two things have in common?

Both made Time magazine’s recently published list of the 50 worst inventions, subtitled “from the zany to the dangerous to the just plain dumb”.

And featured alongside asbestos, DDT, suntanning beds, New Coke and Clippy (that smug, know-it-all paperclip created by Microsoft – no, I am not writing a letter, thank you very much) are sub-prime mortgages.

The magazine described the mortgage products as “the flimsy piece of foundation that brought the US economy tumbling into recession, sub-prime mortgages are risky loans given to people with shaky credit histories. When interest rates dipped in 2004, banks began granting mortgages to

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Time magazine listed sub-prime mortgages as one of the worst inventions. Andrea Cornish investigates whether they were misfortunate or simply misunderstood

people who really, really shouldn’t have had them.

Even worse, many were structured adjustablerate mortgages, with interest rates that climbed after the first few years. The result was a wave of foreclosures and banks with a lot of bad loans on their books. In short, financial catastrophe.”

But are the inventions listed really all that bad? Surely some drinkers were tired of the old coke (before it was made ‘classic’) and maybe some people really did need help from an animated friend to structure their letters.

Mortgage Ezy CEO Garry Driscoll thinks subprime products were definitely a bad idea – at least in the US. “The way they were sold in the US, I would agree with the article, but not everyone in the world is as reckless and irresponsible as the brokers in the US who marketed these products and the bankers who packaged them up to look like highly rated securities. The more of these people that end up in jail the better,” he says.

Citibank’s Peter Hayward also agrees with Time’s inclusion of sub-prime mortgages. “I think the evidence for this was that it largely brought a halt to the globe for an extended period of time with the ramifications still reverberating around the world. Sovereign support was required across the globe to ensure that the system did not go into

“Not everyone in the world is as reckless and irresponsible as the brokers in the US who marketed these products … ”

meltdown. I don’t know too many inventions that drove this level of activity and engagement from governments,” Hayward says.

However, according to Liberty chief operating officer James Boyle, the entire global financial crisis can’t be pinned on sub-prime products. “The sub-prime crisis was about more than bad loans, it was a combination of economic circumstances and irresponsible practices in America,” he says.

“Perhaps it would be more accurate to say that the practice of lending money that could only be repaid when house prices increased must be [one of the worst] American trends this decade.”

Were sub-prime mortgages good products perverted by bad people? Steve Sampson, Provident Capital’s group national lending manager, says the products were misused.

“To be on the same list as asbestos and leaded petrol certainly says something about US subprime mortgages. There is no doubt that the world could have done without the sub-prime crisis and its subsequent global financial meltdown – there were few households and businesses worldwide that weren’t affected. In that respect it certainly is one of the worst inventions of all time,” he says.

“To be fair on the product, however, I believe it was tinkered with, misused and then abused in parts of the world such as the US, whereas other countries such as Australia, on the whole did use the product the way that it was intended.

When used the way it is intended and with appropriate lending policies in

FEATURE SUB-PRIME

place, I believe it to still be a viable product.”

According to Better Mortgage Management’s managing director Murray Cowan, sub-prime (or non-conforming mortgages) can make a significant difference to a borrower’s financial situation in circumstances where the borrower has an adverse credit history or needs to consolidate many debts.

“The problem with these loans is that they are higher risk, although this risk can be managed through stringent lending policies and credit assessment. If lending policies and credit assessments are not stringent enough (as they weren’t in the US), there is a significant risk that these loans will fall into arrears,” he says.

“Sub-prime loans are not a bad invention provided robust lending policies are in place to manage their distribution,” Cowan adds.

Most industry experts make a distinction between the products sold in the US and their cousins, known as non-conforming products, which are more common in Australia. Boyle says the two are like chalk and cheese. “ ‘Non-conforming’ is a label that refers to customers who require specific solutions for their unique circumstances but who, in the vast majority of cases, end up with generic 30-year amortising loans. Sub-prime loans, in contrast, relied on house price growth as a fundamental requirement for performance and had specific contractual loan terms such as interest rate resets that accelerated the meltdown.”

Cowan also points out that sub-prime loans in the US were non-recourse, which means the lender cannot make any claim against any other asset of

the borrower in the event of default, ther than the security property.

“Therefore, many borrowers were more than happy to simply hand in their key and walk away when they were no longer able to meet their repayments,” he says.

In Australia, borrowers are personally liable for their debts, and any shortfall from the sale of their property needs to be met by them personally.

Another distinction is that US sub-prime loans often use a reset rate structure where borrowers start on an artificially low rate, which increases significantly in future years.

Cowan adds that credit requirements for US sub-prime loans appear to have been much less than Australian requirements in the past.

“Distribution of these products would appear to have been less regulated, with more regard placed on sales managers achieving commission benchmarks rather than properly assessing borrower serviceability.”

However, Sampson maintains there is a place for non-conforming loans in Australia. “The fact is that low-doc loans only account for 7% of loans in the Australian market and non-conforming loans account for less than 1%. Australian institutions are not reckless lenders and as most mortgage brokers would know, there is a genuine need for finance lines that support the business and selfemployed community.”

In a post-GFC world, Cowan argues that there is even more of a need for non-conforming products for some borrowers. “Due to tightening credit requirements from lenders and mortgage

Failings of sub-prime products Resi’s head of consumer advocacy Lisa Montgomery breaks down the failings of sub-prime mortgages. “I think it’s fair to say the US sub-prime mortgage model was certainly one of the worst inventions in the financial world; it evolved out of greed, and was always going to be unsustainable. The three key failings of the US sub-prime market were: • Mortgages could start off with a low interest rate which may be adjusted up to four times that initial rate over time, which was deemed acceptable based on the assumption that property values would rise, but they didn’t.

• The financial incentive for brokers to make significant money on these loans meant that over time predatorial behaviour became commonplace, with the type of credit-impaired borrowers targeted but clearly ill-equipped to manage and sustain the mortgage over time, especially if property values dropped (if you had a pulse you could have a loan).

• The risks involved for financial institutions were twofold. A borrower unable to pay the loan could hand back the keys and walk away from not only their house but their debt as well, giving little recourse for lenders, while some institutions saw their investments in sub-prime pools of funds become worthless.”

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“Sub-prime loans relied on house price growth as a fundamental requirement for performance ”

insurers, the scope of non-conforming borrowers has expanded. For example, prior to the GFC, mortgage insurers would usually overlook a paid default for a late payment of a telco or utility bill if there was a reasonable excuse for the late payment and the amount was not large. However, today there is a zero tolerance policy among mortgage insurers – which means many borrowers are now considered non-conforming with just one late payment in their credit report, of amounts as low as $100.” According to Cowan, the good news for borrowers is that there is more funding availability for non-conforming products in Australia than was the case 12 months ago, so the industry clearly is demonstrating that there is a future for this form of lending.

“However, while there remains a place for non-conforming lending, we can’t see this market segment growing substantially while the domestic economy remains strong.”

Going forward Although Australia’s non-conforming products are substantially different from sub-prime products in the US, there is always room for improvement, says Sampson.

“The NCCP will add further rigour to the consumer protection regime,” he says. “By and large, Australian lenders are acutely aware of the need to continuously assess lending criteria, product offerings and overall risk management strategies to ensure that there is a balance between rigour and commerciality.”

Resi’s head of consumer advocacy Lisa Montgomery adds that these products will always be priced for risk. “However, I think the very framework of a nationally consistent Consumer Credit Protection package will ensure the sale of non-conforming products will align more closely with that of conventional mortgage products.

“It will also be simpler to compare one borrower against another which will significantly assist the management of any risk for both providers and borrowers,” she adds.

“Moving forward, both regulators and lenders will ensure that specific products and lending criteria in the non-conforming space will continue to be reviewed in line with the market, to ensure the sector remains effective and viable in the long term and the choice remains for borrowers.” MPA

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BANKS ON BROKERS

2010

in

your

court 32

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BANKS ON BROKERS

2010

The last issue of MPA saw brokers sounding off about the major banks in the eighth annual Brokers on Banks survey. This time around the lenders have their say, as Barney McCarthy listens in

A

t MPA, we have been conducting our Brokers on Banks survey for eight years now and each time the mail bag bulges with your responses. This year saw a record number of respondents, with more than 800 taking part to rank the banks on topics such as service, turnaround times, products and interest rates. We listened to your criticisms and praise, learned new things about the industry we thought we had down pat, and brought your rankings to the attention of the big banks. They will be the first to admit they don’t always get it right, but valuable exercises such as this can help them improve their processes and make life for the broker easier.

As covered in last month’s results special, ANZ was the overall winner, scoring an average of 3.23 out of five in the categories we quizzed brokers on: BDM support, broker support, interest rates, internet platform, overall service levels, phone support, product range, satisfaction with credit policy, support systems, transparency of commission structures and turnaround times. ING landed the second spot with an average of 3.06 and CBA came home third with an average rating of 3.05.

For the first time this year, we also separated the ratings from the topgrossing mortgage brokers – as ordained by MPA’s prestigious Top 100 Brokers – to see if the leading introducers had a different experience of dealing with the banks. ANZ and CBA maintained their podium positions from the broader market responses, but Westpac was sandwiched between them in second.

Read on to find out the banks’ opinions on how they performed, how they have found the past 12 months, what the future holds and their thoughts on the categories that mattered to you most – turnaround times, service levels and broker support – in our 2010 Banks on Brokers exclusive report.

BANKS ON BROKERS

2010 ANZ

SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

2.82

2.20

0.62

BDM support

3.26

2.85

0.41

Broker support

2.69

2.41

0.28

Interest rates

3.47

3.05

0.42

Internet platform

3.28

3.30

-0.02

3.17

2.54

0.63

Phone support

3.20

n/a

n/a

Product range

3.86

3.48

0.38

3.10

2.61

0.49

Support systems

2.96

n/a

n/a

Transparency on commission

3.65

3.17

0.48

Overall standings

3.23

2.85

0.38

Overall service level to brokers

Satisfaction with credit policy

ANZ ANZ was undeniably this year’s major winner, improving from last year’s sixth place to triumph this time around. It was also named top bank by the MPA Top 100 Brokers, an achievement the bank described as “the icing on the cake”.

It did so by topping a number of categories, including phone support, product range, satisfaction with credit policy and transparency of commission structure – and improving in every section bar one from last year’s results.

Meg Bonighton, ANZ’s head of broker distribution, says the bank’s success is testament to the fact it is focusing on the things that matter to brokers. “We have a long history of commitment to the broker channel,” she explains.

“An important part of that commitment is maintaining collaborative relationships and striving to truly understand what brokers need to run a successful business and the results show this strategy is working.”

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Bonighton attributes its strong improvement in the overall service category to a heavy focus on the area, citing “continuing to ensure we have quality BDMs on the ground and investing in its back office” as contributory factors.

When it comes to the product category, Bonighton says “we are fine-tuning our product range in response to changing customer needs.

ANZ’s Simplicity PLUS continues to be a popular product with brokers and their customers, as is the Breakfree package, because they are easy to understand and simple to use.”

It is not easy to keep onside with brokers when it comes to credit policy, but ANZ managed it by being open and frank about any developments. “Our first place in this category is indicative of the close relationships we have developed with brokers, especially in the rapidly changing environment over the last two years,” Bonighton explains.

“From time to time changes to credit policy are inevitable and our commitment to communicating transparently on credit issues appears to have worked for us and our broker network.”

There is no chance that ANZ will rest on its laurels though, and Bonighton reveals the bank has plenty in the pipeline to help it continue to improve. “Our next major focus is to provide brokers with information and training to help improve application quality and conversions,” she says. “The aim is to reduce turnaround times and conversion performance by getting applications right the first time. Improving processes is always a priority and will deliver a better experience for brokers and their customers.”

With pledges like that, it would take a brave punter to bet against ANZ repeating its success in 2011.

“ From time to time changes to credit policy are inevitable – our commitment to communicating transparently appears to have worked for us and our broker network ”

BANKS ON BROKERS

2010

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BANKS ON BROKERS

2010

ING Direct SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

3.07

3.00

0.07

BDM support

3.18

3.45

-0.27

Broker support

2.67

2.98

-0.31

Interest rates

3.49

3.32

0.17

Internet platform

2.93

3.00

-0.07

Overall service level to brokers

3.12

3.26

0.14

Phone support

2.92

n/a

n/a

Product range

3.33

3.13

0.20

Satisfaction with credit policy

2.73

2.86

-0.13

Support systems

2.80

n/a

n/a

Transparency on commission

3.45

3.39

0.06

Overall standings

3.06

3.16

-0.10

ING Direct ING Direct is nothing if not consistent, matching its second place last year with the silver medal this time around. Although it didn’t top any categories outright, regular placings in and around the medals ensured its lofty overall position. Lisa Claes, executive director of mortgages, says the lender is pleased with its performance but mindful there is always room for progress.

“Consistent service levels, customer-friendly products and great broker relationships are what made this result possible,” she explains.

“That said, we believe there are a number of opportunities for continual improvement in the ING Direct offering. Given our branchless model, brokers are our main source of mortgage distribution and we continue to strive for high rankings in Brokers on Banks.”

The importance of introducers to ING Direct is evidenced by the bronze medals it obtained in the turnaround time, broker support, service level and commission structure categories, not to mention the silver it picked up by way of its interest rates.

“As we continue to develop our range of mortgage products, it is great to see brokers in support of these initiatives through the survey areas on

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interest rates and product range. Strong showings in these categories reinforce our commitment to providing simple and straightforward mortgage products that offer true value for money to our customers,” Claes says.

After a busy 12 months which saw ING Direct launch an offset home loan (Orange Advantage) which utilises its transaction account Orange Everyday and received positive feedback from brokers, Claes is keen for the lender to carry on bringing the fight to the ‘Big Four’ in the year ahead. “The next 12 months will see ING Direct continue to offer a true alternative to the major banks,” she promises. “Service, products and relationships will ensure this occurs. The gravitation towards the major banks since the GFC has shown strong signs of abating, with brokers and customers again appreciating choice in making home loan decisions. Given our plan of further mortgage growth going forward, we’re working on improving our processing capabilities to ensure we continue to offer great turnaround times.”

If ING can continue to occupy the upper echelons of the Brokers on Banks survey, the mortgage monopoly enjoyed by the big banks could soon be under threat.

BANKS ON BROKERS

2010

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BANKS ON BROKERS

2010

CBA

AMP

CBA improved from last year’s fourth place to take bronze overall in 2010 and was only a whisker off second place. It was ranked top of the pile in three categories – broker support, internet platform, and support systems – and was top or thereabouts in several others. CBA was also looked upon favourably by the Top 100 Brokers, taking third place in their estimations.

Kathy Cummings, executive general manager of third-party and mobile banking at CBA, says the scale of its operations should be taken into account when comparing the medallists. “If you consider the size of our mortgage book and the number of brokers we deal with, which is much greater than ANZ and ING Direct, the results are exceptionally good,” she says. “In the eyes of the broker we are obviously performing well and doing many things right.” Cummings is particularly proud of CBA’s strong showing among the top brokers and says it is proof that the lender’s segmentation model is reaching the main introducers and providing them with the service they need to be at the top.

Cummings says the past 12 months have been a difficult time in the mortgage market, but is proud of the fact that CBA never stopped lending.

“It seems that each year is more challenging than the last,” she observes. “We showed the courage to embrace the challenges of efficiency in a time of extreme volumes. The past year saw us deliver improved efficiencies in processing through our peerless process. We also pursued responsible lending practices which may have limited some lending – but it has ensured we are lending to a better quality of applicant.”

A number of CBA initiatives have also made life simpler for brokers and their customers over the last year. Real-time tracking of home loans allows brokers to see what stage their application is at, and its repayment alert program helps brokers steer their customers away from potential financial hardship and a bad repayment record.

“We have used technology to make it easier for brokers to do business with us and with their customers,” says Cummings.

Looking to the future, Cummings expects efficiency to be key. “The next 12 months will see increased pressure on wholesale funding costs and the availability of funds. Error-free applications that convert will be critical,” she says.

Last year’s victor AMP finished a creditable fourth this time around, proving that smaller lenders can still mix it with the big boys in the post-GFC economic climate. Stephen Craig, head of sales and marketing, says “AMP prides itself on being a viable alternative to the majors and a partner of choice for our distributors. We are very satisfied with how we’ve performed – particularly when you consider the challenges smaller lenders like us have faced over the past 12 months, much of it outside our direct control.”

Craig adds that despite the market uncertainty, AMP hasn’t been a spectator on the sidelines and has been proactive every step of the way. “We’ve evolved our business model to gear ourselves for growth, our BDMs have been focused on providing the highest level of support for our brokers and we’ve been supportive of government initiatives in helping smaller lenders, particularly the Australian Office of Financial Management

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CBA SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

2.67

2.04

0.63

BDM support

3.02

2.77

0.25

Broker support

2.97

2.87

0.10

Interest rates

3.75

2.97

-0.78

Internet platform

3.39

3.15

0.24

Overall service level to brokers

2.71

2.48

0.23

Phone support

3.10

n/a

n/a

Product range

3.41

3.84

-0.43

2.86

3.15

-0.29

Support systems

3.17

n/a

n/a

Transparency on commission

3.21

2.83

0.38

Overall standings

3.05

2.99

0.06

Satisfaction with credit policy

AMP

initiatives in relation to securitisation,” he says. “In addition to this, we’ve worked hard on diversifying our funding model, with particular attention given to raising retail deposits. This strategy has allowed us to keep lending throughout the financial crisis.”

The bank was pleased with its silver medal in the BDM support category, a justified reward for what Craig describes as a concerted effort to ensure clients get the level of support they need.

“We have gained valuable insights from this survey and we intend to put these to good use,” he admits. “We’ve already made moves to improve our products and policies, changes which have been well received by our broker partners. But the clear message to all of us is around maintaining high service quality, specifically fast turnaround times.”

After weathering the storm over the past 12 months, AMP is now looking to expand. “The next 12 months are all about growth,” says Craig.

“We’re positioned to seize opportunities as funding markets open up.”

SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

2.99

3.50

-0.51

BDM support

3.34

3.39

-0.05

Broker support

2.61

2.77

-0.16

Interest rates

2.64

2.75

-0.11

Internet platform

2.45

3.08

-0.63

Overall service level to brokers

2.99

3.38

-0.39

Phone support

2.84

n/a

n/a

Product range

2.94

3.07

-0.13

Satisfaction with credit policy

2.88

3.11

-0.23

Support systems

2.41

n/a

n/a

Transparency on commission

3.58

3.65

-0.07

Overall standings

2.89

3.19

-0.30

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Bendigo and Adelaide Bank SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

3.16

3.07

0.09

BDM support

2.93

2.82

0.11

Broker support

2.47

2.14

0.33

Interest rates

2.77

1.82

0.95

Internet platform

2.53

2.46

0.07

Overall service level to brokers

3.03

2.47

0.56

Phone support

3.18

n/a

n/a

Product range

2.69

1.96

0.73

Satisfaction with credit policy

3.05

2.25

0.80

Support systems

2.51

n/a

n/a

Transparency on commission

3.34

3.46

-0.12

Overall standings

2.88

2.50

0.38

SCORE 2010

SCORE 2009

CHANGE

3.16

3.32

-0.16

BDM support

3.56

3.57

-0.01

Broker support

2.54

2.85

-0.31

Interest rates

2.20

2.40

-0.20

Internet platform

2.66

2.78

-0.12

3.01

3.20

-0.19

Phone support

3.00

n/a

n/a

Product range

2.47

2.82

-0.35

Satisfaction with credit policy

2.89

3.04

-0.15

Support systems

2.64

n/a

n/a

Transparency on commission

3.39

3.66

-0.27

Overall standings

2.87

3.07

-0.20

Citibank Approval/loan turnaround times

Overall service level to brokers

Bendigo and Adelaide Bank Bendigo and Adelaide has a strong shot at being this year’s most improved bank, recording improvements in all categories bar one and leaping to fifth in this year’s ratings. It triumphed in the turnaround time section and also merited a clutch of medals elsewhere.

Damian Percy, general manager of third-party mortgages at the bank, says its gold category medal was the result of a calculated business approach. “We are very pleased with our rating for turnaround times given our long-term emphasis on providing our broker partners and their clients with the most rapid and reliable response times we can,” he says. “As we accelerated volumes over the last year, we were very conscious of the traps others had fallen into and decided to recruit processing staff well in advance of expected activity. It wasn’t without risk, but with service at the centre of our proposition and brokers experiencing difficulties across the market, we thought it worth doing and I’m glad we did.”

Percy also welcomed the two second-place finishes in the phone support and credit policy categories. “I suspect our preference for actually talking to people contributed significantly to the former placing,” he says. “The credit policy measure was also a pleasing result, though I have a strong suspicion it relates more to the fact that our credit team remains accessible and engaged rather than anything to do with our specific credit appetite. Lending is still a people business, and credit staff [who are] willing to discuss a deal or explain a decision still carries weight.”

Percy admits a raft of mid-table finishes in other categories were justified. “This is a fair reflection of where we’re at and why we’re in the process of gearing up for a sustained period of investment in the business, particularly on the technology front. I was a little surprised with the product range result [the bank came towards the bottom of the rankings despite an impressive year-

“ Lending is still a people business, and credit staff [who are] willing to discuss a deal or explain a decision still carries weight ”

BANKS ON BROKERS

2010

on-year improvement], so perhaps we’ve got some work to do there.”

Finalising merger-related matters and working with its retail business on restructuring the group’s funding program has obviously preoccupied Bendigo and Adelaide over the past 12 months, but Percy is optimistic about the year ahead.

Citibank Citibank performed gamely in this year’s survey, notching up a gold medal for BDM support, a silver for turnaround times and a bronze for credit policy. Peter Hayward, head of distribution and marketing, says the bank has focused on several strategic areas over the last year. “Our brokers have told us that BDM support is critical to business success, so we directed considerable focus on providing the best possible service,” he says. “Our number one ranking for two consecutive years indicates that our efforts have paid dividends.”

Hayward adds that Citibank has plans for modest augmentation going forward, after what has been a difficult period for the market and the economy in general. “We are still operating in challenging conditions but due to our decisive and responsible actions during the onset of the GFC, our business performance over the last 12 months has been solid,” he says. “We have strengthened our important relationships and assisted our brokers to build their own businesses while continuing to lay foundations for our own business growth.

Citi maintains prospects for conservative growth in the 12 months ahead. We’re aiming to write more business, but we will continue to focus on specific segments that are aligned with Citibank’s positioning in the marketplace.”

The bank plans to broaden its product offerings but still has its sights set firmly on the introducer community. “For a long time, Citibank has gone on record in saying that relationships with our brokers are critical to our success,” Hayward says. “We’ve worked to ensure our relationships are strong and we aim to consistently deliver a tangible benefit to brokers; we’re pleased that we’ve continued to maintain high standards of service throughout challenging times.”

Business from existing referrer networks – changes to licensing requirements On 23 June 2010, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP announced some changes to the National Consumer Credit law regarding the exemption of the referral of customers to banks and brokers. The changes will allow people who only refer customers to registered entities such as banks or brokers incidentally as part of another business they carry on, to do so without obtaining an Australian Credit License, provided they do this as a representative or licensee of the person they refer to and they have not been banned from engaging in credit activities under any law of Australia.

The referrers will not be allowed to charge a fee to the customer for the referral and must inform the customer of payments or benefits that they may receive from the registered entity they refer to. They must also obtain the consent of the customer to pass their name and contact details and the purpose for which the credit is sought to the registered entity.

The changes will be effective from 1 July 2010 and ASIC has agreed not to take action against those affected for failure to be registered for the period commencing July 2010 until the changes are implemented by amendment to the Regulations.

To take advantage of the exemption going forward, from 1 October 2010 referrers must: • not conduct business from temporary or non-standard business premises.

• pass on the customer’s contact details within five business days; and • enter into an agreement with the registered entity where they acknowledge and agree to the limitations on information that they can provide a customer and the need to obtain their consent to having their details passed on.

Also, from 1 October 2010 registered entities must: • contact the customer within 10 business days; • inform the customer that they have obtained their details from the referrer and advise the financial benefits the referrer may receive as a result of the referral; and • ask the customer if they are happy to continue.

These changes will be effected by amendment to the National Consumer Credit Protection Regulations 2010 and the National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2010, proposed in July 2010.

BROKERNEWS.COM.AU

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BANKS ON BROKERS

2010

Suncorp SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

2.95

2.81

0.14

BDM support

2.88

2.57

0.31

Broker support

2.28

2.16

0.12

Interest rates

3.08

2.58

0.50

Internet platform

2.64

2.50

0.14

Overall service level to brokers

2.78

2.39

0.39

Phone support

2.80

n/a

n/a

Product range

3.20

2.78

0.42

Satisfaction with credit policy

2.75

2.47

0.28

Support systems

2.50

n/a

n/a

Transparency on commission

2.87

2.72

0.15

Overall standings

2.79

2.56

0.23

and confirms its position as the fifth-largest bank in Australia and the largest with an A rating. He is also keen to stress that Suncorp is poised to increase its slice of the pie. “Our bank is strong and ready to take advantage of the opportunities being presented to grow our share of the market.”

St.George This year’s results make positive reading for St.George, improving as it did in every category bar one. It warranted bronze medals for its product range and support systems and was just shy of the medals when it came to phone support and its internet platform. Steven Heavey, general manager of intermediary distribution, says “these are encouraging results and highlight a number of our key strengths in the market.

We always appreciate feedback from our broker partners on areas where we can improve, so that we can meet our goal of being the best mortgage lender that brokers deal with.”

Echoing the lender’s famous tagline, Heavey says St.George is proud to be known as a bank that offers customers the strength, security and full range of products and services a big bank can, while maintaining the genuine care and friendly

Suncorp Despite perhaps not finishing as high up the ladder as it would have liked, Suncorp can be rightly proud of the fact that it is the only bank to improve in each category compared to 2009’s results.

Paul Evans, executive manager of Suncorp, says the bank is pleased its performance has improved on every measure. “Suncorp is working hard with broker industry participants to improve the overall proposition offered to the broker channel. We have invested heavily in improving our back-office capability, leading to significant improvements in our service proposition and ultimately turnaround times delivered to the broker market. These improved results reflect our continued commitment to this channel.”

Evans says work the bank has undertaken to enhance its loan assessment and processing is starting to be reflected in the results of the poll,

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“ We always appreciate feedback from our broker partners on areas where we can improve ”

St.George service of a small bank. St.George also remains dedicated to intermediaries. “We’re pleased that we have maintained high levels of customer advocacy over the past year and we have continued to make investments in our support infrastructure for brokers over the last 12 months,” Heavey says.

“That said, there is always room for improvement and our commitment to the broker channel is stronger than ever.”

Looking ahead, St.George intends to offer additional support for brokers through initiatives including a performance dashboard that brokers can view online, loan status availability in real time and the ability to view conversion ratios at loan level and receive online commission statements.

Bankwest Bankwest slid slightly down the ladder this year, but performed commendably in a number of categories. Mark Reid, head of business and private banking, says “our ranking of equal eighth is clearly disappointing in light of our fifth placing last year and I acknowledge we have work to do. In saying that, our BDM team was ranked solidly as was our transparency of commission structure and credit policy satisfaction.”

Reid assures brokers Bankwest is committed to refreshing its product suite over the coming months as well as streamlining its servicing experience.

The lender is also looking to improve the class of cases it handles. “As many of our brokers will be aware, we are heavily focusing on the quality of deals coming through the door,” says Reid. “That will be achieved through ongoing refresher courses for those who perhaps haven’t used us for a while, use of focused management information to pinpoint areas of concern at an individual level and regular interactions with our aggregation partners.”

As further proof of its commitment to introducers, Bankwest will be conducting roadshows across Australia to garner further feedback from brokers, to ensure it is doing everything it can to support their businesses. “We are focused on customer satisfaction,” declares Reid. “We’ve done some great work in providing improved information on our website and we’ve empowered our staff in our call centres to ensure we’re helping people quickly and proactively.”

SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

2.68

1.63

1.05

BDM support

2.76

2.17

0.59

Broker support

2.55

2.27

0.28

Interest rates

3.05

2.32

0.73

Internet platform

2.94

2.79

0.15

Overall service level to brokers

2.71

2.16

0.55

Phone support

3.07

n/a

n/a

Product range

3.41

3.42

-0.01

Satisfaction with credit policy

2.74

2.46

0.28

Support systems

2.83

n/a

n/a

3.11

2.70

0.41

2.87

2.53

0.34

Transparency on commission Overall standings

Bankwest SCORE 2010

SCORE 2009

CHANGE

2.47

2.64

-0.17

3.16

2.94

0.22

Broker support

2.43

2.51

-0.08

Interest rates

2.76

3.08

-0.32

Internet platform

2.79

2.91

-0.12

Overall service level to brokers

2.63

2.70

-0.07

Phone support

2.64

n/a

n/a

Product range

2.92

2.99

-0.07

Satisfaction with credit policy

2.86

2.81

0.05

Support systems

2.61

n/a

n/a

Transparency on commission

3.42

3.22

0.20

Overall standings

2.79

2.87

-0.08

Approval/loan turnaround times BDM support

BANKS ON BROKERS

2010

Westpac Westpac received mixed reviews from brokers this year, underachieving somewhat in the eyes of the broader market but excelling according to the Top 100 Brokers. It registered just one podium finish in the main poll – a bronze medal for its internet platform – but swept the board among the eminent introducers, registering three gold medals and a further seven podium finishes.

Huw Bough, general manager of mortgage broker distribution for Westpac, says “we value and always carefully review any critical insights that come directly from mortgage brokers that may help deliver improvements across our business. Our current broker relationship model is working well for our professional brokers who have strong local relationships with us.”

Westpac’s local broker relationship model was launched in May 2009 and is aligned to the bank’s overall strategy of pleasing brokers and customers.

“We want to earn all of the customer’s business through a strong service proposition,” adds Bough.

“This means being the lender of choice for our key broker partners: those whose customer segments and values are closely aligned to ours.”

Bough also acknowledges the escalating role online platforms will have going forward. “Web presence is an increasingly important part of third-party banking,” he says. “Ultimately, online submissions mean quicker processing times and better quality loan applications and we are pleased to see Westpac ranked at the top of this category by the Top 100 Brokers. Our online process is consistently recognised as one of the easiest to use and this, coupled with our Introducer Net website, enables brokers to track the progress of their client’s loan application.”

Looking ahead, Westpac intends to make further enhancements to its local relationship model. “With regards to overall advocacy and support, Westpac’s accredited brokers are meeting their local bank managers to harness a one-team approach, leading to reductions in potential channel conflict and improved cross-selling opportunities,” Bough adds. “We will continue our focus on building stronger local relationships through activities, events and training between brokers and our branch teams that result in delivering sustainable and valued business partnerships to benefit the customer.”

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“ We want to earn all of the customer’s business through a strong service proposition. This means being the lender of choice for our key broker partners ”

Westpac SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

2.74

2.12

0.62

BDM support

2.68

2.77

-0.09

Broker support

2.36

2.25

0.11

Interest rates

2.20

3.15

-0.95

Internet platform

3.15

2.96

0.19

Overall service level to brokers

2.51

2.39

0.12

Phone support

2.80

n/a

n/a

Product range

3.28

3.45

-0.17

Satisfaction with credit policy

2.58

2.68

-0.10

Support systems

2.79

n/a

n/a

Transparency on commission

3.23

3.12

0.11

Overall standings

2.76

2.77

-0.01

NAB SCORE 2010

SCORE 2009

CHANGE

Approval/loan turnaround times

1.89

2.89

-1

BDM support

2.52

2.80

-0.28

Broker support

2.65

2.74

-0.09

Interest rates

3.87

2.81

1.06

Internet platform

2.66

2.64

0.02

Overall service level to brokers

2.23

2.61

-0.38

Phone support

2.20

n/a

n/a

Product range

3.30

3.05

0.25

Satisfaction with credit policy

2.37

2.73

-0.36

Support systems

2.35

n/a

n/a

Transparency on commission

3.04

2.87

0.17

Overall standings

2.64

2.80

-0.16

NAB NAB is another one of the ‘Big Four’ banks that – by its own admission – produced a sub-par set of results in this year’s poll, but its performance wasn’t without highlights. In securing the gold medal in the interest rates category, it also recorded the single-biggest increase in any division by any lender. It was perhaps because of its keen rates that the bank became a victim of its own success, as John Flavell, general manager of distribution for NAB Broker, points out.

“Our service levels were not where we wanted them to be at the beginning of the year,” he

BANKS ON BROKERS

2010

concedes. “Large volumes as a result of our relative pricing to the market and system issues blew out our turnaround times. We have focused on improving areas of our service delivery since late last year and have made significant progress in enhancing servicing times with changes to policies and processes.”

Such honesty at recognising problems will earn the bank a lot of respect from brokers and Flavell says signs are evident that NAB has turned the corner. “In May 2010 we achieved our largest settlement volume ever and record numbers of applications and unconditional approvals,” he says. “We processed these record volumes with no staff overtime and brokers gave us positive feedback on our improved service and we are becoming easier to do business with.”

Flavell is confident that investments in technology, people and training will ensure the bank is in good shape to manage increasing volumes and deal with any future bottlenecks.

Another area of focus this year is the provision of guidance and advice to help brokers build up sustainable business, as the industry transitions to licensing. Flavell expects NAB’s overall funding costs to continue increasing into 2011 due to the rising average cost of term wholesale funding and higher retail deposit costs, but says the bank will endeavour to maintain its position with competitive prices.

Flavell concludes that NAB is looking forward to next year’s survey results to see how well it has delivered against its range of commitments.

With such a can-do attitude to addressing problem areas within the business, so are we. MPA

BROKERNEWS.COM.AU

45

FEATURE LICENSING

M

ortgage broking in Australia is about to undergo perhaps its most significant change to date as a new wave of licensing legislation looms into view. While many of you will be prepared for the new regime as existing requirements necessitate proper practices and behaviours, there are still adjustments and key decisions to be made, chief among which is whether to become individually licensed or become a credit representative of an organisation you operate through, such as an aggregator. You owe it to yourself and your business to conduct the proper research to ascertain what will suit you best.

State of independence One of the main concerns around brokers becoming credit representatives is that it is seen as the least difficult option. This is a view that Peter Heinrich, founder of training solutions provider

The National Finance Institute, subscribes to, and fears this goes against the point of why individuals became brokers in the first place. “A large number of brokers are becoming credit representatives because they feel it is easier to do so, but I don’t think they understand the loss of individuality this may represent,” he warns. “Many of them will effectively go from being self-employed entrepreneurs to potentially becoming almost employees of their aggregators by opting for the credit representative version.”

Heinrich claims aggregators will argue that becoming credit representatives won’t make much difference to brokers, but says that as they are effectively becoming responsible for the representatives, aggregators are likely to put some rules and regulations around the arrangement. He adds: “I think it will make a big difference to the broker’s ability to run and manage their own

A question of

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BROKERNEWS.COM.AU

FEATURE LICENSING

business, whether they can change easily to another group, who owns the client, how they will be able to market themselves and their business and the degree of autonomy they will lose.”

Worrying words indeed, but aggregators are quick to allay fears of brokers losing their independence.

No handcuffs Jeff Zulman, CEO of Vow Financial, says the aggregator takes the view that no two brokers are the same and admits that for some introducers there may be a more compelling case to be individually licensed. He adds that becoming a credit representative would allow brokers to focus on their own businesses rather than be preoccupied with compliance issues. “Getting an individual licence is only part of the battle, it’s maintaining it and taking care of dispute resolution that eats up time and might make it not

viable for a one- or two-man band.” He also adds that being regulated through an aggregator ensures a certainty of cost not available to the individually licensed and also reduces the logistical burden, comparing the 13 criteria brokers seeking their own licence have to meet to the five if they obtain representation through Vow. “We recognise that some brokers might have direct accreditations, may find our panel limiting or may already have sufficient scale or compliance resources to go it alone,” he explains. “But for those brokers worried about maintaining their independence, we want to make it clear we are not locking them in or putting handcuffs on them. If brokers feel like they want to fly the nest after initially being a credit representative of us, we would encourage them to do that.”

Steve Weston, general manager of broker platforms for Advantedge, is another aggregator

“ Getting an individual licence is only part of the battle, it’s maintaining it and taking care of dispute resolution that eats up time ”

independence Following on from our special feature in MPA 10.6 on becoming individually licensed or a credit representative, Barney McCarthy delves deeper into the aggregator options and asks what the future holds for industry associations

FEATURE LICENSING

representative who is keen to reassure brokers that whatever they decide, it does not have to be a binding commitment for life. “At any time, brokers are free to get their own licence and are not boxed in one way or another,” he explains. “Although the financial part of the equation is by no means the only issue, brokers are waiting to see what the cost comparison is between the two models.”

It is this aspect that Weston expects to be the deciding factor for many brokers, as compliance matters could easily eat into the time they should be spending writing mortgages. “Brokers still need customer interaction,” he adds. “The greater burden of having your own licence could be an impost on that.” Weston also makes the valid point that dealing with possible complaints or disputes could consume chunks of their working lives and also impact on brokers’ social and family time.

Having the weight of an aggregator organisation behind you when fighting any disputes may be a consolation too, rather than fighting any battles yourself, Weston proffers. He expects the majority of Australian brokers to become credit representatives, much like their British counterparts when regulation was introduced in 2004.

Best of both worlds As with Vow, Loankit is another aggregator that has been remarkably frank in acknowledging the dilemma facing brokers, with head Kym Rampal calling licensing a “compliance quagmire” for introducers and describing the crossroads thus: “Should brokers play it safe and be a slave to their aggregator panel or go the extra mile and be independent?” The aggregator has come up with a solution to the conundrum facing introducers by offering them a third choice: a middle ground.

“With our ‘compliance in a box’, brokers can have a full-time compliance officer providing not only guidance, but also keeping all the broker’s material up to date with ever-changing compliance regulations,” he explains. “This means brokers can have the safety net of a credit representative, but also have the freedom of an independent licensee.”

Rampal says the proposition was born out of the recognition that brokers have prided themselves on establishing

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their independence by forging some direct relationships with lenders, a position that the aggregator supports wholeheartedly and wanted to help continue by offering the best of both worlds.

Guilty by association?

Brokers aren’t the only ones facing change as licensing comes into effect: the whole mortgage industry will be impacted. Associations and bodies will have to evolve to ensure they are still meeting the needs of their members and the requirements of the new regulatory landscape. A recent question on the Broker News online forum asked what the future held for industry associations once the Australian Securities & Investments Commission (ASIC) assumes control of regulating the mortgage market. Brokers were keen for bodies such as the Mortgage & Finance Association of Australia (MFAA) to continue to prove their worth and fight in the brokers’ corner.

Phil Naylor, chief executive of the MFAA, has a clear idea of its responsibilities as ASIC takes a greater role in policing the industry. “The MFAA’s duty is to represent professional credit advisors, to ensure our standards are higher than those applying to non-members and higher than those required by legislation,” he sets out. “We also aim to represent members with a unified voice in political and regulatory advocacy, to lead stakeholder engagement and increase consumer awareness of the higher standards of MFAA members.” The MFAA will seek guidance from ASIC on industry issues such as volume hurdles where it feels a broker’s obligations under NCCP may be impacted.

After consultation with the major lenders, the MFAA was advised that the big banks will still continue to insist on membership of a relevant industry body, despite the fact a government agency will be overseeing the industry. James Green, general manager of Oxygen Home Loans, claims industry bodies should leave this to ASIC.

FEATURE LICENSING

“The associations should now concentrate on facilitating industry discussions and education,” he says. “I don’t think they should lobby the lenders to make membership an accreditation requirement as this could give the wrong message … it could be interpreted as the association saying ASIC’s standards are not sufficient.”

Fighting in the brokers’ corner Heinrich says associations such as the MFAA will maintain relevance and suggests their future role will focus on CPD, advocacy and consumer awareness. He cites lenders still requiring membership of a professional body as concrete justification for their existence. Rampal identifies bodies such as the MFAA and the Finance Brokers Association of Australia (FBAA) as being vital.

“The job of an industry body goes far beyond providing regulatory guides,” he says. “It is the consolidated voice of brokers, representing them as a cohesive body and allowing the body to bargain, cajole and guide regulatory organisations such as the government and ASIC. If the MFAA or the FBAA were to disappear, who would represent brokers? Certainly not ASIC and it would be difficult for aggregators to meet as a single representative body.”

Rampal’s words are a powerful antidote to those calling for the disbandment of such associations once ASIC arrives on the scene. It is clear that the regulatory burden should lie with ASIC, but brokers still need someone to trumpet

Steve Weston

“ Although the financial part of the equation is by no means the only issue, brokers are waiting to see what the cost comparison is between the two models ”

their cause. Weston doesn’t envisage any conflict between ASIC and the various bodies and says they are critical in highlighting the importance of using a broker. “While 40% of mortgages are arranged through a broker, of the 60% that don’t use an intermediary, many don’t have a good view of introducers,” he explains. “Regulation will help reduce the number of fraudsters.”

Zulman says ASIC’s main concern is that its members are compliant and is not interested in helping the industry achieve common standards or resolve conflict, both things an association can assist with. “A good industry body should encourage new people into the sector, offer guidance and training to existing members and govern disputes between them,” he says. “Going into the new era, trade bodies must be effective or risk becoming dinosaurs.”

Brave new world There is no doubt that the next 12 months is set to bring about change and a period of adaptation as ASIC and the industry feels its way into the new regime. It is important to view licensing as an opportunity rather than a threat to your business though. After all, increased professionalism and higher standards can only help increase your standing in the eyes of consumers. Licensing is bound to weed out the few fraudulent practitioners who occasionally give the rest of you a bad name and ensure the mortgage industry as a whole is a fitter, leaner model moving forward. MPA

COLUMN COMMISSIONS

Commission statement In a time of change post-GFC, after a round of mergers and acquisitions, with NCCP upon us and new market entrants emerging, Wayne Macartney says the fact remains that we all need to make a dollar to stay in business

A

s the mortgage industry matures and focus shifts from volume to revenue to profitability, we at Loanworks Technologies thought it worthwhile to conduct a ‘State of the Union’ survey on commissions. Participants were sent a series of five broad questions, and asked to provide commentary. Their responses were both insightful and thought-provoking.

The customer is always right The first question we asked was “which aspects of commissions are important to your customers?”

The answers included accuracy, timeliness, consistency, transparency and clarity, with the suggestion that commission reporting needed to be both clear and usable as a tool for reconciliation.

David Pond, senior manager of accounting operations for Aussie Home Loans, commented that there needed to be “full disclosure of the components and make-up of the commission”. Julie Levitski, corporate solutions manager for Angus Marks Consulting, noted that “access to friendly, helpful commission staff for queries” also added value. There was general comment that, from a

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BROKERNEWS.COM.AU

remuneration perspective, the arrangement must be commercially sustainable to both parties.

Competitive advantage We were interested to see whether participants had a clear vision as to whether commissions provided a competitive advantage to their organisation. There was a wide range of responses to this question, which reflected the range of industry sectors represented. There was discussion around paying trail in the first year, the abolition of minimum-volume thresholds, and clawbacks and the ability to provide flexible, hierarchical models. Some respondents felt that high levels of automation gave them an advantage, while Dean Rushton, chief operating officer of Loan Market Group, nominated the ability to pay commissions multiple times within the month.

It is interesting that some recipients cited transparency, timeliness and clarity, which would seem to be a standard customer expectation.

Does this imply that collectively, this is done so poorly that an organisation that gets it right will stand out from the crowd? Or that to date, little thought has been given to how commission payments as a value activity can provide a sustainable advantage?

In the recent MPA ‘Brokers on Banks’ survey (issue 10.7), brokers nominated commissions as being the least important topic. Are commissions actually a non-issue, or is it a case that there are organisations that need to get a host of other

COLUMN

COMMISSIONS

things right – such as turnaround times for approval – as a higher priority?

Commission evolution With the industry in a state of flux, the survey asked how recipients saw commissions evolving in the future. Jeff Chapman, head of credit and risk operations at National Mortgage Company, summed up the consensus view. “I think trail income may continue to come under threat,” he warned. “It will come down to whether there is a true ongoing addition of value from brokers.”

Suzanne Barrett, general manager at Australian Financial, remarked that ongoing pressure on commission rates to brokers would provide opportunities for mortgage managers. John McDonald, chief financial officer at Aussie Home Loans, forecasts greater levels of self-service, while Levitski proposed that upfronts paid on settlement was a potential innovation. From an industry perspective, “hopefully we will see a standardisation of lender commission data and electronic transfer which will reduce the level of queries and improve the speed of delivery, ” Rushton added.

The impact of legislation With National Consumer Credit Protection (NCCP) a pertinent issue, we asked respondents what impact they saw the legislation having on commission as a remuneration model. A number of contributors felt that there would be minimal or no impact, but larger broker groups felt that there would be increased administrative costs which would impact on remuneration models.

McDonald notes “[NCCP legislation is] likely to drive restructure so that overhead costs that are driven by broker numbers are being recovered irrespective of volume.” In contrast, Barrett didn’t think much would change. “As a holistic financial services group, it is a similar structure to the one we already manage within the financial planning division,” she said. “As a group, we will not be negatively affected by NCCP, it will only provide us with greater opportunities.”

Some respondents speculated on a fee-for-service model without providing specific detail on how this might work.

Technology matters The final question of the survey centred on technology, asking whether respondents’ current platforms were an enabler or a roadblock to innovation in commissions. The consensus response was that technology provided real value, allowed for innovation, and provided economies of scale and scope.

Erik Fenna, chief executive of LIXI Limited, says “existing technology seems to be a recurring theme as a roadblock to change and innovation.

The feedback that I hear is that change and innovation is much easier to justify as a component of new development, than as an adjunct to existing platforms.” Levitski took a big-picture view across the value chain and observed that “technology is part of the sales process and therefore integral to the future growth and therefore profit margin of the industry”.

Company bio Loanworks Technologies is a technology provider specialising in proven turnkey solutions for lead management, loan origination, CRM, commission processing and B2B integration.

Established in 1998, Loanworks Technologies’ experience and responsiveness mean that it is the trusted solutions partner of choice for some of the premier brand names in the financial services industry.

Final thoughts From the responses to the survey, Loanworks observed that organisations have a clear focus on increasingly meeting customer expectations while gaining operational efficiencies through greater levels of automation. On the other hand, organisations who continue to manually compile and transmit commission payments still exist. And while calls for clarity and transparency continue, some commission models are as difficult to understand as a mobile phone plan.

We are yet to see a minimum standard or ‘starting line’ – although competition will drive this – and would like to see the evolution of a definition of best practice. We believe that the technology exists to support both cost leadership and differentiation through innovation. There is a clear space for new market entrants to innovate across all value activities, from sales to distribution and pricing, to support activities such as commission processing – and a challenge to existing participants to find and fill this space in advance of the competition. MPA Wayne Macartney is the sales and marketing manager for Loanworks Technologies. For inclusion in next year’s survey, e-mail Wayne at waynem@loanworks.com.au BROKERNEWS.COM.AU

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COACH’S COLUMN TIME MANAGEMENT

time will tell Consultant Doug Mathlin explains why now is an opportune juncture to review your business and plan again

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s the financial year draws to a close, now is the perfect time to review the successes and shortcomings of the 2009/10 financial year and plan for improvement in the 2010/11 year. Don’t just review revenue and total settlement volume – review everything that contributed towards the results that you have achieved.

Check all of your KPIs – leads, appointments, applications, approvals and settlements and the relationship between each. If you achieved a lead-to-settlement ratio of 55%, work out how to get it to 60% next year. If your application-toapproval rate was 90% this year, how will you improve on that next year?

Review all of your current strategic relationships – did they meet your expectations this year? Set new goals and plans with your referring partners for 2010/11 and identify how each party can pre-sell each other more effectively in the future. Also, look for ways to identify more potential clients for each other, go over the scripts

that you use to promote each business and seek feedback from your clients on the service provided by the referrer’s business.

Share that feedback (good, bad and indifferent) with your strategic partners and help them to improve their business. This will hopefully encourage them to do the same for your business.

Actively helping to grow each other’s business will help to further improve the relationship.

Calculate the number of clients in your database that recommended your services in 2009/10. If you can’t do this or do not have access to that data, make sure that you can in the next financial year. What proportion of your total database does this number represent? How will you increase this number next year? Your target here should be 20–25%.

Finally, complete your own business plan for 2010/11. Specifically state what you want your business to look like in 12 months’ time with respect to the following:

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• • • • • •

staff numbers average number of transactions/month number of strategic relationships personal income goal your KPI goals (from above) major strategic initiatives to be implemented Complete a time/activity-block schedule to ensure that you have time each week to implement (and refine) the new strategies, as well as work on high-paying activities. You might need to stop doing (or outsource) some of the low-paying activities you currently do in order to make way for the new ones.

Use your business plan to manage your time more effectively. Once you have completed your business plan for 2010/11, it will be time to create a monthly and weekly plan to give yourself the best chance of implementing all that you want in the time that you have. It is very difficult to implement daily, weekly and monthly plans if you don’t have an overall goal.

Your business plan should be used as your ‘road-map to success’. Like all maps, it needs to be reviewed and updated regularly throughout the journey to ensure you have the best chance to reach your destination. To help make this happen, block time in your diary every Monday morning to review the results from the previous week and to implement the major tasks that will help to achieve your goals for the week ahead. Just ensure that these tasks are aligned to your yearly goals.

Many of the businesses that we work with identify with high and low-paying activities. That

is, business owners tend to spend too much time on tasks that other people can do (at a much cheaper rate) or don’t contribute to the success of the business, and don’t spend enough time on the tasks that really earn money.

If business is quiet during this part of the year, don’t wait for enquiries to increase with market conditions – act as if you are already busy. In busy times, you are normally much more scrupulous with your time and activities. You divide your available time into marketing, referrer management, client appointments and working on the business – why should you be doing anything different now? In fact, if you are not doing these activities, are you really being productive?

At FrontRunner, we are very optimistic about 2010/11. This will be a great year for ‘fit’ mortgage businesses. Consumer confidence is on the way up, the property market is improving and new lenders (and old ones) are entering the market (all positive signs). This is the year where you really can become the ‘trusted advisor’ to the people that use your services.

A popular view is that broker numbers will also fall – and if this is a reality then there will be more opportunities for those robust businesses that remain.

Now is a great time to contact all of your clients and referrers by letter or e-mail to remind them of the services that you offer, tell them about your plans for the year and how this can assist them, and offer complementary advice and reviews for their family and friends. MPA

Doug Mathlin

Bio Doug Mathlin is a founder of FrontRunner Consulting Group.

FrontRunner provides performance coaching programs for people in finance. For more information or to contact Doug visit www.frcg.com.au

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COLUMN MARKETING

Best foot forward Peter Heinrich discusses the interests of efficiency and why you shouldn’t always leave the best until last

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recently received an interesting e-mail from a national self-storage company who provides me with a relatively small self-storage unit in a very large complex. I use it to store a substantial amount of documents I feel I need to keep and some items of equipment that I no longer use. The e-mail read: “like all businesses we need to keep pace with changing economic conditions and the rising costs of doing business in today’s economic climate. To ensure we maintain parity with our cost structures, it is necessary to apply an increase to your unit.”

The letter made me stop and think. So that they can maintain parity with their cost structures, I had to pay more? The letter wasn’t so unusual in itself but it was the third such letter I had received from the same company since November 2009 – three price rises in eight months.

My storage unit was the same size, in the same place with the same stuff in it, but I had to pay more to maintain their parity with cost structures?

I compared that with the lot of the average mortgage broker who not only has had a cut in commissions being paid by lenders, but has experienced the same economic conditions as the self-storage company over the past couple of years.

I rang the company and expressed my concerns and I was cheerfully offered a few alternatives. I could rewrite my contract on the current rate because increases don’t apply to contracts in their first three months, if I paid six months’ fees in advance there was a 5% discount and if I paid 12 months’ in advance there was a 10% discount – good incentives I thought. I mentioned to the company that there were a lot of empty units

appearing around mine and was informed that a lot of customers had left after the previous rise.

The other point of note was that the special offers were only made when I notified I was leaving. Is there a lesson there? How loyal (or slow) was I waiting for the third rise to seriously think about it when others acted much sooner?

Relating back to the mortgage broking business, how have the good mortgage brokers survived the same conditions as the storage company without being able to put their fees up?

Well, most have written more loans or cut their expenses as much as possible and generally have become more focused and efficient. The really good salespeople have started to charge fees. They certainly haven’t hung about waiting for things to happen. All good points – but great care needs to be taken with the implementation of cost cutting.

One broker I spoke to said she had cut her expenses substantially: when I asked where she had made the biggest savings she said ‘marketing’.

This was something I had to seriously question. I am all for effective marketing, but that is totally different to eliminating it and marketing does not have to be expensive. Several years ago I helped change the nature of marketing of a longestablished broker from essentially acquisitiontype marketing to ‘retention’ marketing and his business grew by 30% in the following year. The dollar value spent didn’t change, just the emphasis. Newer brokers may have more emphasis on acquisition than retention until they become established, but I promise you will not become more efficient by cutting marketing. You must just become more focused.

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Second, do not leave your best offer until last.

Let people know you have special offers. For example, your offer may be that if you can find your client a better deal than they can get from their own bank, you will refund their application fee. Or if they obtain a loan through you, you will pay the application fee for any subsequent loans.

The offers have a high perceived value, but are not expensive and are deliverable. Also, you must stay in touch with your clients. You can’t ignore them for months and then suddenly start contacting them with good offers. There are many things you can do, but the client will not know unless you tell them. Don’t wait until they are leaving you to bring it to the table.

I have now gone through the boxes that were in self-storage and about two-thirds of the documents are no longer required and have been thrown away. The excess furniture is on eBay and the rest is in a skip. I no longer have a self-storage unit and have saved my business $2,000 a year. Go through everything you do in your business and cut out the things that don’t make you money and outsource

things that others can do better, so you can concentrate on things you do well and that make money.

It was recently suggested that we shouldn’t be proud of the fact that brokers have 40% of the market – as 60% of people still use their bank for their loans and thus restrict the range of products and services they can potentially access. Brokers can offer numerous products and services, not just one range as the banks do. As far as I am aware the broker’s service is still free to the clients with all the fees and charges coming from the lender.

There has to be a good story there.

The challenge to brokers is that 60% of the borrowing public need to be shown the benefits of using an efficient, well-trained broker, whose fees won’t go up, who will always be there for them and whose best offer is upfront. It is in the brokers’ best interest to increase their market share as it will make it harder for commissions to be cut and give brokers a bigger voice in the industry.

The clients will definitely be better off dealing with a broker for all the above reasons. MPA

Peter Heinrich

Bio Peter Heinrich is founder of The National Finance Institute and co-author of The Australian Mortgage Marketing Handbook.

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CONTENTS 56 NEWS: A REVIEW OF NEWS IN THE WORLD OF NON-BANK LENDING AND MORTGAGE MANAGEMENT 58 IN PROFILE: THINK TANK

Banks encourage cross-selling Increased cross-selling of products via the broker community will feature in mortgage lenders’ strategies and brokers will be incentivised accordingly, says Citibank.

Head of mortgages Steven Ramage argued in a roundtable event that using the broker community to cross-sell products – including products bundled with mortgages – will be key to lenders’ strategies going forward.

“Forty to forty-five per cent of loans come through mortgage brokers; it’s a big part of the market,” said Ramage. “The question is how can you use brokers as a distribution channel to encourage customers to take up more than just a mortgage? A lot of the remuneration schemes in place are focused towards that: essentially paying more if a broker can sell more products or cross-sell the right products that will give you more revenue across the board.”

Such schemes could be either direct or indirect, added Ramage. While Citibank is choosing to reward brokers indirectly through a scorecard system, where brokers will fall into different commission categories according to various criteria (including bundle sales), other banks have chosen to follow a more direct route.

Citibank has been working hard to ensure that any remuneration structures are in line with the National Consumer Credit Protection Act 2009.

Lenders benefit from restless customers Banks made $5bn in establishment and exit fees last year from customers switching from fixed to variable rate loans, according to the Reserve Bank of Australia (RBA), with information suggesting that break fees on fixed rate loans accounted for a significant proportion of the overall growth in fees.

A number of bank customers chose to refinance their fixed rate housing loans with variable rate loans, given the significant fall in the cash rate during the banks’ 2009 financial year.

Figures from the RBA indicated that banks earned $12.7bn in total fees last year, an increase of 9%, from residential and business lending charges.

The amount earned on fees from home loans increased by 17% to $1.23bn, while personal lending fees grew by 14% to $522m and credit card charges went up by 8% to $1.43bn.

Foreign investment boosts competition “There is a wall of money that investors want to release from Europe into Australian mortgages,” said FirstMac’s managing director Kim Cannon – who attended the Global ABS conference event in London. “The cost of swapping from euros into Australian dollars, however, is the major limiting factor. The Australian industry attending the forum tried to help devise innovative ways to facilitate European investment at the right price.”

Cannon claimed foreign investors are eyeing up Australian mortgage-backed securities and called for the Australian Office of Financial Management (AOFM) to consider supporting foreign currency transactions to help European investments flow into the country.

Foreign investment into Australian mortgage-backed securities would help boost competition, which has suffered as a result of the GFC. According to Cannon, the investors – both from Europe and the US – have enormous respect for the AOFM and its initiatives to support residential mortgage-backed securities in Australia.

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The total amount generated in fees by banks in 2009 Source: RBA

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Combating fraud The National Consumer Credit Protection (NCCP) legislation came into effect on 1 July, enshrining into law responsible lending obligations. Having a process in place to mitigate fraud is part of the new obligations, so brokers and lenders may need to look at ways to bolster their verification and validation procedures, as Craig MacKenzie explains

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Craig MacKenzie

s a provider of lenders mortgage insurance, Genworth Financial works with close to 200 lenders, so we see first-hand the types of fraud committed and the effects it has on all parties concerned.

The impacts are widespread: civil action is possible, reputations can be damaged, business continuity can be impacted, commissions are almost certainly affected, and potential criminal sanctions apply under the NCCP legislation.

Fraud falls into two categories: soft and hard.

Soft fraud involves mostly isolated incidents where borrowers misrepresent details, such as an exaggerated income or having fewer dependents, so they appear better able to repay a loan. And sometimes it’s blatantly obvious. Like a roadside fruit stall manager who had a declared income of $120,000 and was working for a company that wasn’t registered for GST. Obvious discrepancies like these demand closer scrutiny.

Hard fraud is more complex and may involve organised crime or collusion between a number of parties including the borrower, broker, valuer or real estate agent. In one case, a developer sold land to borrowers promising to build houses on them and sell them at a profit six months later.

Working together with the developer, the local valuer had inflated land prices by over $100,000 and the developer’s son, a broker, arranged financing by inflating employment and income details. The houses were never built, and lenders took possession when it became clear the borrowers couldn’t repay the loans.

In 2007, Genworth introduced minimum verification and validation guidelines to help brokers and lenders more effectively mitigate the risk of fraud. In many cases, these simple checks are enough to pick up inconsistencies.

Bank statements in particular are very useful in providing a ‘window’ into a borrower’s life and serve as a great tool to validate the accuracy of other information provided by the borrower.

For example, are deposits made by the employer?

Are living expenses accounted for? Are there any credit card payments appearing on the statements that do not appear on the liabilities section on the application?

We all have a part to play in reducing the cost of fraud on our community. In conjunction with the introduction of the NCCP legislation and the focus on responsible lending, Genworth is committed to working in partnership with brokers and the industry to uphold prudent and responsible lending practices and improve detection procedures. Indeed, as brokers are dealing directly with borrowers, they are in prime position to mitigate the risk and incidence of fraud by ensuring documents are closely reviewed and information supplied is scrutinised with a keen eye. In summary, a ‘know your customer’ approach to business ought to ensure that fraud is minimised and potential NCCP risks are mitigated.

Craig MacKenzie is general counsel and head of corporate affairs at Genworth Financial

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Storm trooper T

hink Tank had barely opened its doors before the global financial crisis hit, creating a baptism of fire for the non-bank. But its ability to withstand pressure early on bodes well for the company, which has since set itself apart as one of the country’s leading non-bank commercial lending institutions.

Think Tank was incorporated in January 2006 and settled its first loan in September of that year, but general manager Peter Kearns says the origins of the business stretch back to early 2004.

“A group of us got together and decided to initiate the process of setting up a genuine non-bank commercial lending operation that would be around for the long term,” he says.

Both Kearns and non-executive director Per Amundsen had a successful run at AMP Property Finance where they built up a commercial portfolio of about $1.5bn, including $500m in small ticket construction. Non-executive director Glenn Maynard had an established broking business with a book of around $500m, a large part of which was commercial, and executive director Jonathan Street’s background was in retail banking, predominantly with SMEs. “We do have a lot of experience between us in areas including residential lending and equipment finance, but our core area of expertise is really in commercial,” Kearns says.

In Think Tank’s early days, the competitive environment in commercial lending was intense and borrowers had a range of lenders they could turn to – whether it was high LVR, very sharp

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While non-bank commercial lender Think Tank has nothing to do with war planning, it did face a major battle in the form of the GFC. MPA finds out how it won the war pricing low doc or no-doc loans. “Basically whatever you wanted, you could obtain somewhere,” Kearns says. “Outside of the major banks, institutions such as Bankwest, St.George, Suncorp and Adelaide Bank all strongly courted new business, and then there was a plethora of non-banks and mortgage investment trust lending alternatives. Wholesale funding was in abundant supply, and pricing and availability was more about volume than risk. Things then started to change rapidly from about mid-August 2007.”

Think Tank faced one of its first major turning points when the financial crisis hit. Kearns says the company sensed within a month that it would not be immune from the repercussions. “If a storm was going to hit, we had to be sure the basics of the business were as well managed as they possibly could be. Those considerations in the main were arrears management, responsive credit criteria, proper pricing for risk and keeping our skilled team together as best we could.”

The GFC presented a few challenges, but Kearns says there was a silver lining. “It has realistically presented us with perhaps a greater market opportunity than when we started out.

From a very competitive marketplace in

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commercial lending through to late 2007, the majority of our competitors have now dropped away and the barriers to entry for new entrants are formidable for the time being,” he says.

While the GFC put Think Tank in a good place relative to the market, many of the same forces that affected its competitors were pressing down on the company.

For an extended period, Kearns says Think Tank had to manage its funding capital intelligently and work with its funding partners to ensure it paid full attention to those areas it was most sensitive to. “Our business and funds under management kept growing, but it was at a modest pace which maintained a prudent level of headroom within our facilities,” he says.

The GFC forced Think Tank to change its lending criteria, but only slightly. The company reduced its maximum LVR from 85% to 75% on full-doc loans and increased its minimum serviceability level when interest rates dropped significantly. Otherwise it maintained basically the same eligibility criteria across its range.

Kearns is proud the company continued to lend without disruption since the doors first opened, but he adds “it was only from the second half of 2009 onwards that we have been able to progressively emerge from relative hibernation into more of a growth mode again. March this year proved a notable turning point for us when we really started actively getting out in the market again. The last thing we want to do is draw in new business and then not be able to settle it.”

Kearns takes a cautiously optimistic approach to the future. “We still consider there to be systemic risks within global capital markets, particularly with the extent of sovereign debt problems in Europe which may precipitate further crises of liquidity. We are reliant on continued access to wholesale funding and another Lehman Brothers-type event would be unwelcome. We remain quite optimistic though that capital markets will continue to function in an open and orderly manner, and are encouraged by increasing activity in the Australian securitisation market.”

Think Tank’s long-term funding partner is CBA, which Kearns describes as being “exceptionally good from the very beginning”.

The company also draws on funding from RMB Australia, which is also one of Think Tank’s

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“ When the loan information is submitted in a concise and well-presented manner, Think Tank can provide approvals on straightforward deals inside of 24 hours ” shareholders. RMB Australia recently increased its facility in support of Think Tank’s current growth strategy.

Kearns indicates that Think Tank is in the process of bedding down some new funding partners that will give the company an opportunity to move forward.

Peter Kearns, general manager

Key responsibilities: To ensure all facets of the business are performing in accordance with policy guidelines, our growth strategy is succeeding and in conjunction with our CFO, that the financial health of the company remains on track. On a day-to-day basis, I tend to be more heavily involved in relationship development, product marketing, credit decisioning and arrears management.

Broker relationships Think Tank has associations with over 100 broker groups, which includes more than 1,000 individual commercial introducers. But as with most businesses Kearns suggests that the 80/20 rule applies, and the company has a solid core of broker partners that it does regular business with.

According to Kearns, Think Tank’s focus remains squarely on continuing to build and expand its quality broker relationships. “We get a little bit of direct business and we have an increasing number of deals coming through from the accountancy, financial planning and legal professional groups, but our structure is specifically geared towards the finance broking industry at present. That is where our energies will continue to lie,” he says.

Think Tank’s advantage is its ability to approve finance quickly: when the loan information is submitted in a concise and wellpresented manner the company can provide approvals on straightforward deals inside of 24 hours. “And that is formal to ‘letter of offer’ stage, not just indicative,” Kearns says.

Think Tank also recently introduced an Express Loan product and blew the first introducer away by approving it in four hours. “We can’t promise to do that all the time but it compares incredibly well with the service and turnaround times of the banks at the moment.”

Think Tank’s other advantage is its fully flexible upfront and trail commissions to introducers. There are no ongoing fees except for its new Line of Credit product; it does not require

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annual reviews or regular security re-valuations; and according to Kearns the team is always accessible and responsive. Think Tank has three dedicated BDMs who are specifically tasked with managing and developing relationships with its introducers.

“Perhaps most importantly, we respect the introducer as the ultimate owner of the borrower relationship and we never step across that line which is the enduring and highly-charged issue for brokers taking any sort of deal to a bank,” he says.

For brokers looking to crack into commercial loans, Kearns says lack of experience should not be a barrier. “We offer personalised assistance to help brokers with commercial deals and we’ve had good success in being able to settle deals for brokers who haven’t done much or any commercial before.

We don’t charge for this and with our fully flexible commission structure, the broker typically ends up earning more out of a commercial deal with us than a resi (residential) deal of the same size.”

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“ Perhaps most importantly, we respect the introducer as the ultimate owner of the borrower relationship and we never step across that line... ” Goals Think Tank is aiming to consolidate on rising lending activity. In particular, Kearns says there are some new relationships in development that the company believes will become very successful, long-term associations.

Think Tank also has a few new products and changes in the final stages of development. Down the track, Kearns says “we see ourselves as becoming a significant, independent financial services provider to the commercial and SME sector with a full product and service offering. We are well on the way to making that happen.” MPA

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LIFESTYLE FAVOURITES

CELEBRITY My wife and I were lucky enough to be asked out to dinner by Bob Geldof and manager Mark Crowne. The four of us kicked on to Ivy; it was a late night

MUSIC I am having a bit of a Frank Sinatra revival DRINK Green tea

James Green + General manager + Oxygen Home Loans

Favourite things VACATION SPOT Santorini, Greece

MOVIE Old School

BOOK You Inc.

HOBBY Stock market

SPORT Rugby and rowing

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PLACE TO BE Balmoral Beach with my wife