Australian Broker magazine Issue 7.11

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ISSUE 7.11 June 2010

Lawler urges industry to focus on the client  Elevating consumer confidence crucial

Matt Lawler, executive general manager of NAB Partnerships, believes that any debate over the future of the industry should always keep the client as the main driver over whether a change is good or not.

Lawler, talking to Australian Broker before leaving his role as head of NAB Partnerships, said that debate over volume hurdles and remuneration must keep the client in mind to enable the broking industry to continue on the path to professionalism.

“I think that the journey towards becoming a profession and becoming recognised as professional advice givers will not just happen because we become licensed,” Lawler said. “We need to question whether what we are doing is increasing consumer confidence or decreasing consumer confidence.”

Lawler has often spoken out against the volume hurdles put forward by some lenders for brokers to remain accredited with them, and he reinforced that message with his parting words to the industry he has worked within for the past three years.

“My own experience suggests that anything that requires the broker to focus on a volume target is never good for the client and therefore we should avoid it,” he said. “I think it’s a really important thing for the industry.”

RMBS prices slashed In a move to try and increase competition, the federal government has announced plans to cut the cost of securitisation Page 12

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Mortgage franchisees happiest Mortgage franchises have taken the top two places in a nationwide franchisee satisfaction survey Page 18

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Matt Lawler

Lawler joined the NAB broker division from MLC where he worked with financial planners.

He said that the banking industry was somewhat new to him and he spent his early days talking to brokers and learning what they wanted out of a lender.

“At that time NAB wasn’t sure whether it wanted to be in the broker market or not and it had thought about exiting the channel

at different times,” Lawler said.

“The first challenge for me was convincing executives that this is an industry worth investing in.”

Using his experience with MLC and its success with self-employed financial planners, Lawler talked the powers that be at NAB into continuing to develop its mortgage offering via the third party. page 20 cont.

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Employee discipline No one likes to do it, but sometimes it needs to be done. Addressing employee discipline requires tact and skill. AB looks at how – and when – to flash the red card Page 22

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News Superwoman’s future uncertain

The Superwoman Group, which has aimed its financial products towards the female market, is facing an uncertain future after its largest stakeholder ordered an internal review and its shares were delisted from the ASX.

Intrasia ordered the review in response to a $540,000 loan that was made to FIMA Pty Ltd. The loan was incorrectly reported as a non-related third party loan in an auditor’s report in September when in fact FIMA is controlled by a relative of the former head of Superwoman, Colin Grant.

The internal review is part of a larger, strategic review commissioned to examine why the company has made significant losses since November 2008.

Intrasia’s ordering of the review sparked a massive overhaul on the company’s board with Grant resigning alongside non-executive director and chairman John Walker and independent and non-executive director Adrianne Gavenlock.

Employees of Superwoman were told in late May that they had been made redundant with one

Stewart hits back at con claims Nathan Stewart, head of NAP Finance, has hit back at claims he conned Alzheimer patient and war hero Sir Edward Dunlop into signing large loan agreements.

Stewart told Broker News that he had been acquitted by the Victorian court system five times and, rather than defending himself against court costs from the Dunlop estate, was considering legal action to recoup the $120,000 he spent on his own legal counsel.

Stewart was defending himself from claims, first reported in The

Age and subsequently reported on Broker News, that he had acted in an improper manner when arranging the loans for Dunlop.

“We’ve won that court case five times in a row,” Stewart said. “The court has found that there is no evidence to suggest that we had any involvement or knew that he had anything wrong with him.”

The original story stated that a case was pending in front of the Victorian Supreme Court but an e-mail from Stewart’s legal counsel, David Boyall of MST Lawyers,

inside source saying all that remained was for the board to determine what to do with the Superwoman brand.

It marks an incredible turnaround for a company that was looking at boosting its offering with the acquisition of aggregator Members First just a couple of weeks prior to the suspension of its shares on the ASX. Superwoman informed the ASX of its decision to cancel the proposed acquisition of Members First Group on 19 May and was placed in a voluntary trading halt two days later. Its shares were officially suspended from ASX quotation on 24 May. A spokesperson for Intrasia declined to be interviewed while the internal review was ongoing and calls to the Superwoman board were not returned. showed the case was largely dismissed on 9 February.

Justice Lansdowne, who heard the case, struck out two orders against Stewart and The Nap Group respectively and allowed another order to be repleaded if done so by the end of March. The Dunlop estate did not take up that option so court action is at an end.

“I consider that they came to the view that any attempt to do so was doomed to failure,” Boyall said.

“Therefore, the proceedings are at an end so far as [Stewart] and Nap Group are concerned, except for obtaining a costs order against the Litigation Guardian for costs [Stewart] and Nap Group incurred.”

Boyall said that an application for such an order would be made soon.

www.brokernews.com.au Publishing director.... Justin Kennedy Managing editor.....George Walmsley Editor............................... Luke Cornish Production editors......Jennifer Cross ........................................ Moira Daniels ...........................................Carolin Wun Design manager..... Jacqui Alexander Designer......................... Lucila Lamas HR manager.................. Julia Bookallil Marketing coordinator...Anna Keane Traffic manager............. Stacey Rudd Advertising sales Simon Kerslake t: 02 8437 4786 f: 02 9439 4599 simon.kerslake@keymedia.com.au Rajan Khatak t: 02 8437 4772 f: 02 9439 4599 rajan.khatak@keymedia.com.au Editorial enquiries Luke Cornish t: 02 8437 4773 f: 02 9439 4599 luke.cornish@keymedia.com.au Distribution Australian Broker is available by subscription. E-mail all subscriptions. and mailing enquiries to: subscriptions@keymedia.com.au t: 02 8437 4731 f: 02 8437 4753

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Ad campaign to boost MFAA membership value

The MFAA has launched a $1.4m advertising campaign urging borrowers to make sure their broker is a member of the professional organisation before signing any papers.

Announcing the campaign at the MFAA national convention in Melbourne, national president Joe Sirianni told members that the next 12 months will represent a huge transition for the broking

industry and that the responsibility to lift the standards of service fell to all those who worked within it.

“It is incumbent on all of us to lift the standards of our industry,” Sirianni said. “We cannot wait for the government to tell us how to be professional; we must ensure that we are leading the way.”

Sirianni said that his aim was to increase the proportion of

borrowers sourcing home loans via the third party channel from 40% to 50% within three years.

The incoming regulation, along with the MFAA’s awareness campaign, would help achieve those goals, he said.

The ad campaign will go out in the national press and on regional TV stations, and incorporates a new logo which asks consumers to make sure their broker is an MFAA member. Sirianni said that while $1.4m is a relatively small amount of money for an ad campaign, the industry body would increase its funding if there was evidence that it was starting to gain traction.

MFAA CEO Phil Naylor insisted that there remained a place for professional organisations after regulation comes in by enforcing higher standards than the minimum set out by legislation. Once consumers begin to realise that MFAA brokers must adhere to a strict code of conduct, Naylor hopes they will be more willing to choose an MFAA-accredited broker.

“The hallmark of a professional association is not only having high standards but also enforcing

them,” Naylor said. He pointed to the fact that in October 2009, the MFAA terminated 1,500 memberships because brokers had not gained their Cert IV accreditation. Since then 750 have gained the certification and have been readmitted to the organisation.

In the past 12 months, Naylor said that four members have been expelled and 11 have been suspended. While he said he takes no pleasure from suspending or expelling members, Naylor insists that it is vital to the health of the industry body to ensure that its members all act within the code of conduct.

Joe Sirianni

Brokers warned over dodgy trail book deals

Steve Weston

Advantedge general manager of lending distribution Brett Halliwell has sent out an e-mail to the company’s broking group and mortgage manager partners warning them to conduct due diligence when purchasing a trail book.

“We have received complaints from some brokers that they have not received refunds of deposits paid to purchase a loan book, when the purchase does not proceed,” Steve Weston, Advantedge general

manager of broker platforms, said.

“As part of our ongoing support communications an e-mail was sent to our mortgage manager and broker partners warning them of these recent events and encouraging them to undertake all due diligence when considering the sale or purchase of a loan.”

In the e-mail, Halliwell reminded brokers and mortgage managers that they must receive Advantedge’s prior consent in order to sell or purchase a trail book.

“Advantedge strongly recommends that our business partners exercise caution when buying trail books,” Halliwell wrote in the e-mail. “If you are purchasing a trail book, you should make a payment for the purchase only after completing a due diligence on the book and on the support of executed, enforceable contracts. Please ensure you check the bona fides of the trail book, the vendor and anyone acting for the vendor.”

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ABA questions CUBS stats Australian Bankers’ Association has challenged figures put out by the credit union and building society lobby that sourcing home loans from mutual banks is cheaper than going to a traditional bank.

Abacus, the peak body for credit unions and building societies, has said that homeowners with a mortgage from a credit union or building society are $35,000 better off over the life of a loan.

The industry body said that this, along with the demise of unregulated lenders over the past three years, has led to a 30% increase in new loans provided by credit unions and building societies over the last 12 months. This equates to one in 10 borrowers turning to credit unions or building societies for their home loan needs.

Abacus also said that the market share of credit unions and building societies of new

owner-occupied home loan commitments had risen to 8.6% in March 2010 from 6.4% a year ago.

CEO Louise Petschler said the resilience of credit unions and building societies is one of the good news stories of the global financial crisis.

“While a lot of attention during the GFC was on governments’ efforts around the world to stabilise large banks, credit unions and building societies remained strong because they have a secure member base and their structure is such that they lend from their retail deposits rather than accessing toxic overseas wholesale markets,” she said.

Abacus launched a $2.5m national TV advertising campaign to highlight mutual banks’ success through the GFC. However, the ABA is challenging the research used

by Abacus to make the claims,

with CEO Steven Munchenberg calling the research deceptive.

“The research done by Infochoice is concerning because it doesn’t reveal to consumers the average interest rate charged across credit unions/building societies, but simply cherry picks from only four of 122 credit unions and building societies,” he said.

“Infochoice selectively used the best variable rates from only four credit unions/building societies but did not make the same comparison for the banks.

It compared ‘apples and oranges’ when it should be a like-for-like comparison.”

According to Munchenberg, the vast majority of bank customers with home loans do not pay the advertised standard variable rate.

The ABA said that it is seeking legal advice and considering referring the matter to the regulator.

Louise Petschler

Lenders continue to tighten criteria Most of Australia’s lenders are showing no signs of easing lending criteria following a new study of more than 2,000 home loans.

The research found a continuing decline in the number of home loans with a high LVR of 95% or above. There were 31 less such loans available in May 2010 compared to February 2010 (1,079 loans versus 1,110).

The trend was even more apparent for very high LVR loans of 98% or more. RateCity recorded only one loan in May with an LVR of 98% – Teachers Credit Union’s My First Home Loan – compared to 20 mortgages with a 98% LVR in February.

This continues a trend which started in late 2009 with rising interest rates and the end of additional first homebuyer stimulus from the federal and state governments.

Damian Smith, RateCity’s CEO, said tighter lending criteria are making it tougher for first homebuyers.

“Australia’s average house price is at a six-year high, according to Australian Property Monitors, at $542,827. Even at constant LVRs, the size of a deposit therefore keeps rising, and the tighter average LVRs we’re seeing in the market only exacerbate this challenge,” said Smith.

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Aggregator offers ownership stake A new sub-aggregation group working under Firstfolio is offering mortgage brokers who join the platform the opportunity to own a stake in the company.

Licensed Finance Brokers of Australia (LFBA), founded by managing director Julian Mitton, said that the opportunity for a new aggregation group has arisen from the takeover of many broking groups by the major banks.

With NAB owning Choice, FAST and PLAN, Westpac owning RAMS and CBA with a 30% stake in Aussie Home Loans, Mitton sees this as the perfect opportunity to bring disgruntled brokers together to share in the success of the aggregator.

Mitton told Australian Broker that the goal would be to build up the business for three years and then sell it – sharing the income with the brokers who have helped build it.

“With about 40% of home loans written by mortgage brokers, we wanted to find a way to harness this bargaining power and share the collective financial benefits with those who actually do the work,” Mitton said. “Brokers normally earn nothing when an aggregation or franchise group is sold to another financial institution while the business owners become millionaires. We want to change that.”

Mitton has promised brokers “market-leading commission

rates” as well as the industry’s lowest flat rate fee.

Firstfolio CEO Mark Forsyth sees the tie-up with LFBA as a natural fit for its

Mortgage rates set to soar

A revised forecast by the OECD expects Australia to have among the highest interest rates in the world with five rate rises likely in the next 12 months.

In its economic outlook, the OECD said the RBA was likely to push the cash rate to 5.7% by June next year. This would place Australia near the top of the table

in terms of interest rates, lagging behind only Iceland, Mexico, Poland and Turkey.

If lenders raised rates in line with the central bank then the average standard variable mortgage would rise to 8.6% from its current level of 7.4%.

The OECD report also called on its 30 members to implement a tax on financial institutions that would collect 2–4% of GDP over the long term.

In its report the OECD also revised the growth forecast for Australia and expects the nation’s GDP to increase by 3.2% in 2010 and 3.6% in 2011. The outlook is one of the strongest of all OECD economies and well above the growth forecast of 2.7% for the OECD area in 2010 and 2.8% in 2011.

The OECD’s Economic Outlook also forecasts Australia’s unemployment rate to fall to 4.8%

expansion plans. “We are seeking rapid growth of our wholesale lending program and LFBA is a good fit with these ambitions,” he said.

by the end of 2011, compared to 8% unemployment for the OECD area as a whole.

The OECD stated “managing the exit strategy from the crisis is less problematic in Australia than most OECD countries. The current tightening of monetary and fiscal policy is welcome given the rebound activity”.

While the Economic Outlook noted global recovery has become widespread over the last year, it stressed that risks remain, stating that Europe’s “underlying weaknesses are far from settled”.

As well as Australia, the OECD includes Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the US.

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Geldof preaches message of trust to brokers

At first look, it would seem as if Sir Bob Geldof, lead singer of The Boomtown Rats and humanitarian extraordinaire, would have very little to say that would be of interest to a roomful of mortgage brokers. However, since his speech at the MFAA conference in Melbourne ran long by almost 20 minutes, he managed to weave his life story into relevance for the third party channel.

This was possibly the first time that Geldof had come in contact with a mortgage broker, having paid for his first property in London with cash made from his music and most likely his most famous hit, I Don’t Like Mondays.

“It was amazing being so young

and just having paid off your place in cash,” Geldof said after his speech. “I never really understood why people would rent. It’s just throwing money away.”

Geldof said he was surprised at being invited to the conference by sponsor Genworth since he didn’t see his years of building businesses as a success story. Even less so, his passion of bringing the plight of poverty-stricken Africans into the global consciousness. However, his insights into life in the 21st century had a relevant message for brokers.

“The truth is you’re trusted,” Geldof told the audience. “And the last two years have been horrific for everyone. Nothing is trusted.”

He said the difference between a

good broker and a better broker was the level of trust that they were able to build with their clients.

“You’re dealing with people whose main life investment is their property. You’re dealing with people who aren’t buying a house but constructing a home.

You must be very careful,” Geldof said. “It will not be possible to succeed in your business unless people trust you.”

In the 21st century, there are two things that work in business, Geldof said – authenticity and irony. “There’s nothing ironic about trying to buy a house,” he said.

“Where 57% of your total wealth is invested, there is great fear so therefore people must trust you.”

Acting CEO of Genworth, Paul Caputo, said that he saw similarities between Geldof’s outlook on life and the company’s overall mission. “One of his key messages here is that we can really achieve extraordinary things if we have a strong partnership,” Caputo said.

“Genworth does have a very strong partnership with the Australian lending community.”

Caputo also said that Geldof was a strong supporter of morality in business and in life, and that Genworth had worked to provide a strong sense of corporate social responsibility.

“As a corporation or an entity we have a social responsibility and we take that very seriously,” Caputo said. “We have been working with our lenders now for several years, particularly around hardship.

There’s no doubt that following on from the GFC we’ve seen an increase in mortgage arrears and mortgage hardship and we have been working with our lenders to help people in distress.”

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Aggregator promises speedy response Newly formed aggregator Vow Financial has pledged to respond to broker queries within four business hours or else it will pay the broker $100.

Vow, which was created by the merger of National Brokers Group, The Mortgage Professionals and The Brokerage, is seeking to differentiate itself by providing the highest quality service. As such, the aggregator has guaranteed that in the event a Vow broker partner leaves a message for a Vow representative, the call will be returned within four business hours, otherwise the broker partner will pocket $100, no questions asked.

Marketing manager Matt Mitchener said the move was a “powerful statement that gives Vow a point of difference by assuring our broker partners of our commitment to our quality of service”.

“To our knowledge, Vow is the only aggregator to offer this guarantee to its broker network,” he said. “We have promised to listen and respond to their needs.”

Vow CEO Jeff Zulman said the company was founded on a solemn promise of empowerment, change and leadership.

“At Vow, our culture not only reflects the essence of our business – empowerment for our brokers – but a genuine

commitment to be innovative, responsive, accessible and fair,” he said. “Our national coverage and flexible structure mean the team can offer greater access, guaranteed response times and ongoing consultation.”

Vow conducted extensive market research to find out what brokers wanted from their aggregator and the survey revealed that many were unhappy with service and with the way they were treated by other aggregators. Responding to this research, Zulman said Vow has created a culture that is frank, no-nonsense and different from other messages heard or seen in the industry today.

Jeff Zulman

Government slashes RMBS pricing The federal government has announced plans to slash the cost of securitisation. This is hoped to increase competition in the lending market by giving smaller banks and non-bank lenders better access to the securitisation market, which is a key funding platform for those lenders without a strong deposit base.

Using the Australian Office of Financial Management (AOFM), Canberra intends to offer 110–130 basis points over the bank-bill swap rate for the latest Suncorp RMBS issue.

This represents a discount of 20–40 basis points off what investors currently pay for similar RMBS issues.

“Given the high credit quality of Australian residential mortgage-backed securities and the program objectives, the AOFM is willing to invest at tighter levels but this will

continue to be balanced with the desire to encourage continued private sector participation,” the AOFM said in a note that was sent out to investors. “This change in approach is directed towards bringing about lower pricing in the primary RMBS market, which will further support competition for residential mortgage lending and support lending to small business.”

Suncorp launched the $500m RMBS issue yesterday, which will be broken down into four tranches. The AOFM will bid for the entire $150m second-tier tranche, which has a maturity of six years. It will not, however, participate in the senior 1.5-year tranche of $315m, which means that investors will likely bid lower than the government given that the senior tranche would be first to be paid if the issue were to default.

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Reverse mortgage market reaches $2.7bn

James Hickey

Despite a number of high-profile providers leaving the reverse mortgage market, the segment continues to grow, hitting a total outstanding value of $2.7bn by the end of last year.

The latest study conducted by Deloitte showed that reverse mortgages increased by 4% over the six months to the end of December and 9% in the whole of 2009. James Hickey, the Deloitte

partner who led the study, said that there were more than 2,665 new reverse mortgages written in the second half of 2009.

“This was up on the same period in 2008,” he said. “Also, when you track the growth in the size of each loan from $51,148 in December 2005 when we initiated this study on behalf of SEQUAL, to the current $70,000, there appears to be a continued appetite for this equity release product.”

Hickey noted that the settlement figures for the second half of 2009 of $141m were level with the same period in 2008. “It’s interesting to see that, following the dip in settlement figures in the first half of 2009 to $122m, settlements have begun to move back up to be on par with 2008 numbers,” Hickey said.

“This gradual recovery appears to reflect the cautious optimism of the economy in general.”

SEQUAL CEO Kevin Conlon said that the perception of reverse

mortgages has been steadily improving among retirees. He firmly believes that the trend towards releasing home equity in order to fund retirement is inevitable as the Australian population ages.

“Attitudes towards retirement funding are changing as the largest generation within the Australian population, the so-called Baby Boomers, approach the end of their working lives,” Conlon said. “The home is

increasingly being considered a part of the planning process with equity release being seen as a means to unlock the substantial wealth stored in property in order to live well.”

In this survey, Hickey noted that home improvement was now the primary reason for taking out a reverse mortgage between June and December 2009. It eclipsed accessing regular income which moved to second, followed by debt repayment which remained third.

Key findings Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

$0.85bn

$1.51bn

$2.02bn

$2.48bn

$2.71bn

Number of loans

16,584

27,898

33,741

37,530

38,788

Average loan size

$51,148

$54,233

$60,000

$66,150

$69,896

Settlements

$315m

$520m

$466m

$321m

$264m

Facility (settlements)

$519m

$714m

$627m

$426m

$367m

Additional drawdowns

n/a

n/a

$125m

$116m

$126m

Discharges

n/a

n/a

$203m

$253m

$309m

Outstanding market size

12 month figures (with the addition of new data from various providers) Source: Deloitte

Property recovery moving slowly New residential building work done grew by less than 1% in the first quarter of 2010 according to the Australian Bureau of Statistics.

Housing Industry Association chief economist Harley Dale said that this highlights the potential constraining influence that a lack of available skilled labour was exerting on the pace of recovery.

“New residential work done is only 1.5% higher now than it was at the trough back in mid-2009,” he said. “The value of work in the

pipeline has been accumulating in recent quarters but actual work done is only grinding higher, and indeed fell at the end of last year. Meanwhile the value of work approved but not yet commenced remains at historically very high levels.”

The 0.8% increase in new residential work done in the March 2010 quarter included a decline in work done on detached houses.

Dale said it is a reminder of the importance of ensuring sufficient

skilled labour is available to keep the wheels of recovery turning.

“Furthermore, the extremely high value of work approved but not commenced in recent quarters highlights the risk that actual construction levels will continue to disappoint,” Dale said.

“In addition to the slow pace of recovery in actual new home building, leading housing indicators and recent experience on the ground suggests that higher interest rates are dampening

demand at the same time as supply side obstacles remain large and onerous.”

Dale worries that once the current pipeline of work dries out there will not be sufficient work to generate a second stage new home building recovery.

In the March 2010 quarter seasonally adjusted new residential work done increased by 4.4% in New South Wales, 2.3% in Victoria, 4.2% in South Australia and 5% in Tasmania. New residential work done fell by 5.9% in Queensland, 5.3% in Western Australia and 5.1% in the ACT.

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Mortgage Ezy bolsters loan book Mortgage Ezy took another step towards its stated goal of becoming Australia’s largest mortgage manager with the acquisition of Great Pacific Finance’s $375m loan book.

Brokers who have originated loans for Great Pacific Finance will keep their trail revenue under the terms of the agreement, with Mortgage Ezy CEO Garry Driscoll promising brokers that the mortgage manager will always look out for the third party channel.

“Ongoing trail revenues inherent to the Great Pacific Introducers would be honoured under the terms of the agreement,” Driscoll said. “In the long run our message to all brokers is that through Mortgage Ezy your interests and income will always be secure.”

The play for Great Pacific Finance’s loan book continues the aggressive expansion of Mortgage Ezy’s distribution network that has taken place over the past 12 months. Driscoll said that this

Garry Driscoll and Peter James

has provided the company with strong growth across all its prime funding alliances.

“We’ve made it our mission to do things that are really significant and valuable for broker businesses with sharp rates, great service and fair and reasonable commission structures controlled by our broker partners,” Driscoll said.

“Our business is about partnering with our brokers, not competing with them.”

Executive chairman and Mortgage Ezy founder Peter James said the purchase substantiates the company’s strong financial position in the market and dramatically bolsters its “already sizeable” portfolio.

“Timing is imperative and while there have been several reasonable purchase opportunities in recent months this was the most tactically significant and sensible one for Mortgage Ezy now,” James said.

“Tomorrow, however, is always another day.”

Mortgage repayments most likely to be missed One in three Australians has indicated they will pay bills late in the year ahead, with one in four households saying they would be most likely to miss the mortgage payment if they find themselves short. The findings are from the latest Consumer Payment Priorities Study, released by credit reporting agency Dun & Bradstreet.

The study reveals that many Australians are unaware of the consequences of paying their bills late, with 57% of individuals saying they’d be more likely to pay their accounts on time if they knew late payments were listed on their credit report and can negatively impact their credit profile. A payment can currently be listed on an individual’s credit record if it is 60 days overdue.

In addition, the study reveals that younger Australians and those in lower income households are more likely to pay their bills late in the year ahead. One in five older Australians (aged 50–64) indicated they will pay at least one bill late – this compares to one in three for the two younger

groups (18–34 and 35–49).

Meanwhile, 30% of people in high income households ($80,000+) said they expect to pay late in the year ahead – this figure jumps to 37% for households earning less than $80,000.

According to Christine Christian, Dun & Bradstreet’s CEO, the bill paying intentions of Australians are cause for concern.

“For credit providers, the fact that one-third of Australians have said they will pay bills late in the year ahead means cash flow pressures will continue, despite the strength of the economic recovery,” Christian said. “Interest rates are on the way up and the government stimulus is being wound back.

Consequently, credit providers need to keep a close eye on their customers’ payment habits if their business is to maximise the opportunities that stem from an economic recovery and prevent the cash flow troubles that are caused by late payers.”

The study showed that 40% of people had paid at least one bill late in the past 12 months.

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Mortgage franchisees most satisfied

A new survey has shown mortgage brokers to be among the most satisfied franchise owners. The survey, conducted by topfranchise.com.au, showed that Smartline brokers were the most satisfied with their franchisee/franchisor

relationship, with Mortgage Choice coming second.

“Mergers can be a challenge for any business and the fact that Smartline’s franchisees are some of the most satisfied and engaged out of any franchise system in Australia is

testament to the group’s culture,” topfranchise.com.au head Ian Krawitz said.

Smartline merged with Mortgage Force last year.

Smartline managing director Chris Acret said the survey result ref lected Smartline’s focus on ensuring franchisees had the tools and support to build successful businesses.

“The most important role of management in a franchise group is to provide whatever support the franchisees need,” Acret said. “We have invested heavily in giving our franchisees a range of tools and systems.”

Acret said that the mortgage industry is facing challenges but that hard work can overcome the obstacles that are in mortgage brokers’ way.

“While there are some challenges currently associated with being a business in the finance sector, we are continuing to develop and offer

industry leading support mechanisms and new income opportunities for our franchisees,” he said.

Food company Mrs Fields took third spot on the top franchise list, which was compiled by marketing company 10 Thousand Feet. The survey only looked at franchises with more than 10 outlets.

Chris Acret

Aussie house prices not overvalued Arguments that Australian house prices are overvalued because of the increase in the income to house price ratio are f lawed according to ANZ head of property & financial systems analysis, Paul Braddick.

Braddick said although average house prices are now five times the average household’s disposable income – up from three times in the 1980s – a permanent shift in interest rates means that the two eras cannot be compared.

“As a measure of housing affordability, house price to

income ratios are very misleading as they completely ignore interest rates,” Braddick said. “Ultimately, housing affordability comes down to debt servicing costs of which interest rates are a key driver. This not only means that house price to income ratios are fundamentally f lawed as a measure of housing affordability but also makes intertemporal and cross border comparisons of these ratios next to meaningless.”

Mortgage interest rates in Australia in the 1980s averaged around 14%. Since 2000,

however, the average has been closer to 7%. It is this reduction in mortgage rates that have driven the price of property up, Braddick says.

“This reduction in mortgage interest rates has effectively been capitalised into house prices,” he said. “The halving of mortgage interest rates almost fully explains the measured rise in the house price to income ratio, leaving the house price to income ‘mean reversion’ argument appearing myopic at best.”

The mean reversion argument is used by commentators such as

Steve Keen to suggest that house prices are set for a serious correction. The argument is that house prices will eventually revert to their long-term average. However, Braddick warns against this simplistic way of looking at the issue.

“Housing affordability and the sustainability (or otherwise) of current house price levels are extremely complex issues and drawing conclusions from simplistic aggregate metrics such as house price to income ratios is very unwise,” he said.

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Aussie businesses see revenues rise In Australia, 25% more medium-sized businesses than the global average (42%) report that they have experienced a rise in revenues.

Global economic growth is progressing steadily, but full recovery will not be reliably underway until December 2010, according to the latest edition of the Regus BusinessTracker survey. The survey’s 15,000 respondents reported a higher

percentage of businesses seeing revenue and profit growth than were experiencing decline.

However, respondents, who were asked ‘When do you expect economic recovery and growth to be advancing strongly and reliably in your country? ’, have now shifted their expectation of the full momentum of economic recovery back five months, from July to December. In Australia specifically, net growth

companies are positive at 29%, but optimistic recovery expectations have shifted a little from June 2010 to September 2010.

The survey also analysed the effects of company size on economic expectations and stimuli. In Australia, 25% more medium-sized businesses than the global average (42%) had experienced a rise in revenues; as a result, large businesses were 40% more bullish than the global average about the recovery taking place in the first half of 2010 (globally 14%).

When asked about the measures they believed would be most effective in aiding the recovery, 78% of small businesses

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(globally 64%) advocated additional tax breaks for businesses, suggesting that this measure may help smaller businesses improve their revenues and profitability on a par with their larger counterparts.

“Despite the slippage between expectations and real experience of business growth observed in this latest survey, it is important to emphasise that the experience of growth is overall still positive around the globe, with only Spain showing a net revenue decline and Australia being particularly placed to exploit demand from growing economies,” said Regus CEO Mark Dixon.

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News

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

Macquarie tackles homelessness

cont. from cover

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In the past few years, Lawler has seen NAB continue to invest in the broker channel and boost its home loan offering. In fact, NAB settled more home loans in May than in any month in its history.

The challenge for brokers now is to diversify into other related

products to enable them to weather the ups and downs of the economic cycle. Lawler said he believes that brokers will soon be offering a range of related products, such as life insurance and general insurance, but he also believes brokers can capitalise on the market for helping clients raise

Sydney got a taste of World Cup fever when staff from Macquarie Group and participants of The Big Issue’s Community Street Soccer Program went head-to-head in a round-robin soccer tournament.

The friendly competition was designed to allow Macquarie’s corporate executives to learn about homelessness and social isolation in a fun, relaxed, non-competitive environment.

Mark Brennan, director of Macquarie’s banking and financial services division, was happy that goals were scored on and off the pitch.

“The afternoon was a chance for everyone to forget everyday stresses and concentrate on playing the beautiful game whilst making a connection,” he said. “The standard of the matches and level of sportsmanship was very high and there were plenty of opportunities to socialise and chat to other teams between games.”

The Community Street Soccer Program uses physical activity in the form of organised team sports as a catalyst for changing the lives of homeless and disadvantaged Australians. It reaches into the most disadvantaged and under-privileged areas of Australia, delivering lasting legacies of support to homeless and marginalised people.

The Big Issue CEO Steven Persson was delighted to have Macquarie Group come down to training today and said the experience would leave a lasting impact on both the participants and Macquarie staff involved.

“The purpose is two-fold,” said Persson. “Our Street Soccer players gain increased self-esteem and confidence through positive interactions with members of the community that they may not usually meet, while employees learn about homelessness and social isolation in a fun and interactive environment.”

home deposits through cash management accounts and certificates of deposit.

“We believe the potential of doing that, if done right, adds $70,000–100,000 extra revenue onto the business,” Lawler said.

“We’re probably two years into a five-year journey in that space and we’re starting to see very

good results. I think that in another three years’ time it will be commonplace for brokers to give advice on more than just mortgages.”

Lawler will take a couple of months off to travel around Europe and the US before deciding what challenge he will take on next.

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INDUSTRY NEWS IN BRIEF Time running out for registration

Brokers who plan to continue in the industry after 1 July must register with ASIC by the end of June and apply for an Australian Credit Licence after 1 July 2010. “After you have registered, you can continue to engage in credit activities until you complete the licence application process,” ASIC said. “When you apply for registration, you will need to show that you can meet certain requirements that will apply to you as a credit licensee.” ASIC is urging brokers to apply early for registration, warning that any applications received after 18 June may not be approved in time for the new legislation to kick in. “We will not accept registration applications after 30 June 2010,” the industry’s new regulator said. “If you are not registered with ASIC by 30 June 2010, you must stop engaging in credit activities until you either become registered or have an Australian Credit Licence.”

European debt crisis could pressure mortgage rates

Rising delinquency rates indicate that Australian borrowers are starting to feel the pinch from rising rates.

Moody’s Investors Service reported that prime mortgage delinquencies greater than 30 days increased to 1.34% in the first quarter of 2010, up from 1.10% in Q4 2009.

Meanwhile, non-conforming mortgage delinquencies greater than 30 days continued to rise to 13.02% from 12.13%.

“Since October 2009, six consecutive 0.25 percentage point rate rises have started pressuring mortgage payments, reflected by the increase in arrears over the course of this quarter,” said Ryan Lu, a Moody’s AVP/Analyst for the Structured Finance Group in Sydney. “At the same time, seasonal upward trend in delinquencies – due to holiday spending during Christmas and the New Year – is also pushing the arrears level up,” added Lu. Moody’s included details of Australia’s delinquency rates in its report on the nation’s RMBS market. The report concluded that delinquency levels are not expected to increase significantly as official interest rates return to neutral levels.

MFAA expels member

For the second time this month, the MFAA has ousted a member with Pingkie Ong of Preston West, Victoria expelled for misconduct. According to the MFAA’s Disciplinary Tribunal, Ong failed to disclose all liabilities on a mortgage application that he submitted to a banking lender as both the mortgage broker and co-borrower. “The tribunal regarded the allegations as blatant and serious,” it said, citing clause 42 of the MFAA Code of Practice. MFAA CEO Phil Naylor said: “The MFAA has a well-defined Code of Practice which demands high standards of behaviour, ethics, expertise and experience. This expulsion is part of policing those standards.”

US enjoying sub-5% mortgages

Debt problems in Europe are translating into lower mortgage rates for US borrowers as investors flock to US securities lowering interest rates close to their lowest ever point. An average 30-year fixed mortgage in the US is priced at 4.78%, down from 4.84%. The record low, reached in December last year, is 4.71%. Investors have fled equities around the world and European securities over concerns that the high level of debt and deficit held by countries like Greece, Portugal and Spain will lead to an eventual default. Those investors have shifted their money to the relative safety of US bonds, including residential mortgage backed securities. This has created downward pressure on US borrowing rates.

ASIC promotion to deal with regulation

The Housing Industry Association (HIA) has claimed the lack of funds for the development of residential supply is “untenable”. New residential work approved but not yet started was more than 10% higher in the March quarter than 12 months prior. HIA chief economist Harley Dale said a lack of available finance for viable residential projects was a major obstacle to boosting Australia’s housing supply. He added: “Australia has a substantial pent-up demand for new housing, a dwelling shortage in excess of 110,000, and yet the money isn’t being made available. The current situation where finance is extended to households in the form of mortgages on the one hand, but finance is not extended to allow development of residential supply on the other, is simply untenable.” Dale observed that in Queensland, where the GFC hit Australia hardest and housing market conditions were weakest, the value of work approved but not yet started was up nearly 60%.

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Feature

Penalty time

Gerard Sankar, director of Gerard & Associates, believes face-to-face meetings are important. He notices that he’s in the minority with this preference, especially in a Gen-Y dominated workforce. “Younger HR people are more informal about informing staff. They send out the information over e-mail,” he says.

He is more comfortable with meeting staff members personally. In a large organisation, staff can be notified of policy changes in batches. When HR conveys the information personally, few staff members can say they weren’t aware of the policy changes. And e-mails can easily be overlooked, especially since most employees’ inboxes are crammed with messages from a wide range of stakeholders. New messages are much more frequent than staff meetings, and therefore make less impact.

If the HR department calls for a meeting to discuss policy changes, it is signifying that the changes are important enough to warrant such an occasion.

Establishing consequences

 Addressing

employee discipline requires tact and skill.

Australian Broker looks at when and how to flash the red card

Employee morale suffers when staff who play by the rules see others getting away with breaking them

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obody, save perhaps the most sadistic manager, ever wants to carry out disciplinary action, but everybody acknowledges the need for this to be done.

Without repercussions, inappropriate or loss-leading behaviours are repeated and nothing is learned. In these circumstances the organisation is doomed to a downward cycle of side effects.

“We’re like a family,” says many a corporate staff handbook. But even the most positive and empowering of employers need to have ground rules in place. And this mentality – while appropriate for the purposes of employer-employee bonding – should not hide the critical need to enforce those codes of conduct.

When it comes to more typical infractions – repeated lateness, or overindulging in internet usage – the most common excuse is one of ignorance. “I didn’t know it was against the rules,” can be a common refrain. Using social networking sites during office hours is a good example. Employees who peruse their Facebook or Twitter accounts at their workstations probably don’t consider it an offence – in many organisations it wouldn’t be. This can be considered a victimless offence with an impact on personal productivity but with no wider implications for the organisation.

One Brisbane office worker says she was genuinely surprised to be sent a warning letter for repeated use of personal e-mail at her workstation. “I figured if they didn’t want us to use those sites, they would block them,” she said of management. “Nobody explicitly told me it was against the rules, and it wasn’t like I was hurting anybody.”

Whatever the company’s rationale may be for forbidding certain activities at work, they should communicate the policies clearly. Experts agree it’s not enough to simply print the rules in a handbook or on a staff intranet and assume employees will read them and take note. Instead, rules must be thoroughly – and regularly – explained.

While knowledge of the policies will deter some employees, many will continue breaking rules until repercussions are felt. Therefore, HR should make it a priority to make employees aware of consequences. This can be as simple as discussing possible reactions with employees at the time when rules are being established.

However, there are a few guidelines in this area as well.

To many employees, as well as HR professionals, ‘consequences’ and ‘punishments’ are practically synonymous. If HR doesn’t distinguish between the two, employees tempted to break rules are likely do so, but simply with greater care to avoid being caught. It should be clear that ‘punishments’ are not the only result of breaking rules. The more significant ‘consequence’ is the infraction’s impact on the company and the other employees.

Consistency is the name of the game – as staff of all levels should be disciplined equally. However, an exception should be made when teaching staff about the implications of their actions. For higher level staff, business implications are more relevant, whereas lower level staff might relate better to the financial costs of their actions.

Some methods of discipline are simply out of the question and should not be used in any case, with any member of staff. Openly humiliating employees and punishing them without explaining the reasons why are not effective. However, if a person is admonished, it is best to have a neutral person also present. Sankar says there are fewer chances of misunderstanding if there are official witnesses to disciplinary actions.

When HR has to penalise employees, there is also a question of severity. A line must be drawn between minor and major misconduct, so employees know there are increasing degrees of repercussions. Employees should also be aware that repetition of small infractions will naturally warrant more serious punishment.

HR must use its discretion in all disciplinary cases.

“You don’t want a situation where you’re handing out warning letters like fortune cookies,” says Sankar.

Exceptions must be thoroughly defined to avoid miscommunication.

Using lateness as an example, Sankar says there are no excuses. But there are ‘exceptions’, such as an accident or a family emergency.

Top five errors in employee discipline 1. Not articulating rules and types of misconduct beforehand 2. Confusing punishment with consequences 3. Confronting employees inappropriately 4. Being too severe/too lenient 5. Disciplining too late

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HR functions

Ask any HR professional why they chose their profession and you’ll invariably hear about the enjoyment of working with people. Many will go further and describe the sense of achievement they get from playing a part in identifying and nurturing talent.

Few HR professionals, if any, will say that the satisfaction in their career lies in meting out punishments. For this reason, knee-jerk reactions can occur in HR departments when disciplinary cases arise.

These are especially likely when HR doesn’t prepare well-articulated handbooks.

Also, HR professionals who already have too much on their plates might be tempted to sweep small infractions under the rug. Not only is this unethical, it is also detrimental to the organisation in the long run.

Employee morale suffers when staff who play by the rules see others getting away with breaking them.

There is also no need for HR to feel overwhelmed, as long as they can engage section heads to assist them in disciplinary enforcement. Sankar says that a HR department should play a supervisory role in these circumstances, rather than simply delegating the disciplinary process to other parties.

The role of HR makes a profound impact on employee discipline, particularly if the department knows its place in the process. Sankar says HR departments which function as rubber stamps are not productive.

If HR wants to add value to its organisation, it needs to be actively involved in both the good and the less pleasant sides of the employer/employee function.

And if not? Well, that could be grounds for a warning letter.

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Getting it right from the start Orientation for new staff members is one of the best platforms to establish policies and outline consequences. New staff enter the company as blank slates – if they are fed the correct information from the beginning, there will be no room to back-pedal and make excuses for inappropriate conduct later. “For new employees, management is responsible for carrying out a sound induction. Take them through the whole gamut of company relations,” advises Gerard Sankar, director of Gerard & Associates.

HR should also make it clear to new employees that the rules which applied in their previous organisations may not be applicable in the current workplace, and doesn’t justify an employee from breaking them. However, comparisons between the old and new rules can be made, for feedback and suggestions for better work practices.

It’s not you, it’s me Don’t let minor misconduct escalate into a performance issue. Here are some common ‘avoidance tactics’ from managers People manager unwilling to feel Out of control Rude Demanding Unpopular Disloyal Cruel Powerless Inferior Bored

So the people manager reacts with the following avoidance behaviours Tells the poor performer rather than asking coaching questions that risk getting an unexpected answer Is overly ‘nice’ and withholds negative feedback, but complains to others about the poor performer Does the poor performers’ work for them Gives too much autonomy so as to remain ‘mates’/’friends’ Puts off giving honest negative feedback to a long-serving employee Does not give negative feedback or gives it using vague words so that the consequences of continued poor performance are not clearly understood Vents frustration and threatens the poor performer to momentarily feel powerful Acts superior. Overanalyses and puts the poor performer down Glosses over the detail of tasks and outcomes wanted, not follow-up delegated tasks Source: Hewsons International

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INDUSTRY NEWS IN BRIEF Banking satisfaction drops

Business banking customers are growing increasingly disgruntled with the service banks provide according to a new report. In the 12 months to April 2010, 72.5% of business banking customers were satisfied with the relationship with their main financial institution – a decline of 5% from the same time last year. The Business Finance Monitor report released by research firm TSN found that, of the Big Four banks, ANZ and Westpac fared the best with their customers. ANZ topped the charts with a customer satisfaction rating of 73.8% while Westpac came second with 71.1%. CBA and NAB followed at 68.2% and 66.7% respectively.

Positive outlook for credit unions

Moody’s Investors Service reported a positive and stable outlook for Australian building societies. In its paper ‘Australian Building Societies – Industry Outlook’ the agency stated “Moody’s industry outlook for Australia’s building society sector is stable, reflecting sound prospects for the Australian economy”. The report went on to say “as the sector is composed predominantly of mutuals, it is not under the same pressure as listed institutions, given the absence of shareholders pressing for returns.”

The peak industry body for mutuals welcomed the report: Abacus CEO Louise Petschler said it acknowledged that building societies are generally conservative business models that have weathered the GFC. “This is true because most building societies – like credit unions – are mutuals, so they don’t pay dividends to external shareholders but rather put their profits back into outstanding service, excellent products and competitive rates for their members,” Petschler said.

Non-bank lender to pay ACL, association fees

Non-bank lender Nationwide Lending has offered to reimburse the industry group’s Australian Credit Licence fees of its brokers. “With the upcoming restrictions and requirements of the ACL, Nationwide Lending has listened to the concerns and needs of our accredited brokers,” said BDM Shane Howley. To be eligible for the reimbursement of up to $1,000 for the ACL fee, accredited brokers must settle at least six loans with the lender within six months of ACL commencement or the renewal date.

If a broker is able to settle 12 home loans with Nationwide, they will be eligible to have their annual MFAA or FBAA membership fee reimbursed.

Population growth expected to slow

The surge in Australia’s population, which has underpinned a strong increase in home prices, is expected to slow in the next two years according to BIS Shrapnel. The forecasting group said that the strong growth Australia has experienced recently comes as a result of an unusually large number of foreign workers and students receiving visas. This number is expected to fall, meaning that the bulge in demand will slacken as those visas start to expire.

BIS Shrapnel predicts that the high of 299,000 immigrants in the year to June 2009 will fall to 240,000 by June 2010. It will then drop to 175,000 in 2011 and 145,000 in 2012. “Most of the rise in net overseas migration over the past three years has been the result of a surge in the number of long-term visitors, not permanent migrants,” said BIS Shrapnel senior economist Jason Anderson.

While a decrease in population growth could slow the property market, it would also relieve the RBA of inflationary pressures allowing it to hold rates down – making property investment a more attractive proposition for borrowers.

Sub-prime mortgages make worst invention list

Sub-prime mortgages, which brought the entire world’s economies to its knees, have been ranked as the sixthworst invention by Time Magazine, listed behind Segway, New Coke, Clippy Agent Orange and CueCat. “When interest rates dipped in 2004, banks began granting mortgages to people who really, really shouldn’t have had them,” the article said.

These mortgages were generally set as two or threeyear fixed with a very low introductory rate that rose by 4–5% after the fixed period was over. “The result was a wave of foreclosures and banks with a lot of bad loans on their books,” Time said. “In short, financial catastrophe.”

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OFF THE CUFF Shane Oliver

Chief economist, AMP Capital What was the last book you read?

Hullabaloo in the Guava Orchard by Kiran Desai.

If you did not live in Australia, where would you like to live?

New Zealand – it’s peaceful and relatively pristine, a bit like Australia.

If you could sit down to lunch with anyone you like, who would it be?

Brian Wilson – he, with the Beach Boys, created some of the most amazing and beautiful music I have ever heard.

What was the first job you ever had?

Gardening for an elderly lady when I was a teenager for about five years.

I learned how to be conscientious.

What do you do to unwind?

Relax on my boat.

What’s the most extravagant gift you ever bought yourself?

A boat.

What CD is currently playing in your car stereo?

The Fame Monster, by Lady Gaga. She creates very good tunes (although not anywhere as good as The Beach Boys!)

If you could give anyone starting out in business one piece of advice, what would it be?

Do the right thing by your customers and (the odds are) they will do the right thing by you.

If I was not working in the mortgage industry, I would like to be…

A singer/songwriter.

Where was the last place you went on holiday?

Argentina, Brazil and Peru.

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Column

Christopher Joye is managing director of research group Rismark International which produces the RP Data-Rismark Hedonic House Price Indices. Rismark also operates a series of funds that invest in residential mortgages.

JOYE

THE GOVERNMENT’S RMBS PROFIT

Can the government’s decision to invest liquidity in the securities market post-GFC be developed into long-term policy?

The government’s investments in the residential mortgagebacked securities market (RMBS), which Joshua Gans and I first advocated in March 2008, have proven to be very successful from both a financial and policy perspective.

Based on a media release issued by the Australian Office of Financial Management (AOFM), the Commonwealth has invested $8.7bn in 27 transactions to date (in total, $16bn has been committed to the venture by Wayne Swan).

Most encouragingly, ‘spreads’, which is the market vernacular for the cost of funding that lenders pay to investors, look to have contracted further, with the Commonwealth now willing to purchase AAA-rated home loans at just 1.1 to 1.3% over the benchmark rate (known as the ‘bank bill swap rate’ or BBSW). Private sector demand for these securities is very healthy, and the Commonwealth has been able to scale back its investments to facilitate more private market participation.

When Joshua and I first published our work we estimated that the ‘break-even’ spread for most securitisers was about 1% over the benchmark rate, which was subsequently confirmed by the RBA. Yet with the expansion in mortgage margins effected by the major banks, combined with a significant reduction in the cost of selling home loans (via big cuts in the commissions paid to brokers), many smaller lenders claim that they can make money at spreads of around 1.3%. That is broadly in line with where the market and the AOFM are independently offering funding today.

How much money are taxpayers making from this policy?

We can look at this in two ways: intuitively and then by referencing the AOFM’s actual reported performance.

Since the cost of funding paid by the Commonwealth when it issues AAA-rated government debt to finance these investments is substantially below the returns generated by the securitised portfolios (also mortgage-loss insured) taxpayers should cream a near-riskless profit.

We can run a rough calculation of the profits taxpayers are making by quickly quantifying the differential between, say, the cost of three year government debt and the returns yielded by the government’s investments to date. My numbers suggest that this spread is about 1.3% pa. So once the Commonwealth puts all of its $16bn to work, which will happen relatively soon, taxpayers will, in theory, be left with $208m every year after the Commonwealth has fully repaid its interest costs. As the Commonwealth is investing in AAA-rated assets, there has been no increase in net government debt.

This analysis is verified through the Commonwealth’s reported performance. In its 2008-09 Annual Report, the AOFM confirms that it has been able to invest in RMBS at spreads that were “attractive in historical terms”. Prior to the GFC, these assets would sell for around 0.2-0.3% over

the benchmark rate. The AOFM was able to buy them much more cheaply at prices that implied far higher returns of between 1.2 and 1.4% over the benchmark.

My back-of-the-envelope estimates were also uncannily close. The AOFM reported that on its first $6.2bn of investments it captured “a weighted average margin of around 1.3% pa over the one month bank bill rate... above the AOFM’s cost of short-term funding, which has historically been below the bank bill rate.” The AOFM is telling us that the spread they earned for taxpayers was actually greater than the 1.3% I had assumed. I should add that the Treasury was never supportive of this policy measure and, bearing this in mind, it is interesting to see that AOFM emphasises that during the GFC it could have acquired the home loans for even cheaper fire-sale prices.

The AOFM notes that this would have, in theory, further boosted its margin by another 0.8% (or 80 basis points) to 2.1% per annum in total over the benchmark rate.

The fact is that these fire-sale prices no longer exist, in large part because of the Commonwealth’s successful effort in restoring liquidity to the marketplace. I guess to hedge its policy bets, the AOFM discloses that if it were to value its investments using the fire-sale GFC prices, it would have technically bought the assets at a “mark-to-market” loss.

This is irrelevant for four reasons. First, there was no market at the time for the assets, which is why regulators around the world stopped using the mark-to-market approach (nobody, including the RBA, thought that a spread of 2.1% was remotely near fair-value). Second, the returns AOFM cares about are the actual returns generated by these investments, determined by the positive 1.3% spread it reports. Third, AOFM’s investments were never motivated to produce the highest possible payoffs – the whole point of the initiative was to supply liquidity to a market that was shut. Finally, if one did want to value the AOFM’s portfolio today using mark-to-market prices, it would show a positive return given spreads have fallen back below entry levels.

The first $8bn of AOFM investments quite literally prevented the failure of many smaller lenders during the GFC – nevertheless, it could be improved. I have long argued in favour of a new APRA-managed licensing regime for securitisers that dictates minimum solvency, documentation, structuring, and information disclosure standards. The industry needs to understand that there are no guarantees that the AOFM will be there in the next crisis.

Finally, I would like to see the government develop a much longer-term, strategic policy framework for supporting liquidity in the non-intermediated securitised housing finance market, as it does in the bank intermediated sector.

This article first appeared in Business Spectator

The industry needs to understand that there are no guarantees that the AOFM will be there in the next crisis

September 24, 2010 The Westin Hotel, Sydney

To book your table, visit www.australianmortgageawards.com.au Official event partner

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Caught on camera The broking industry was out in force for the MFAA convention in Melbourne. From rock stars (Bob Geldof) to movie stars (R2D2 and C-3PO), everyone enjoyed themselves at the three-day event Photography by Simon Kerslake 1

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11 PHOTO 1: Sara Thompson (Pepper Australia) PHOTO 2: Liberty team PHOTO 3: (L–R) Marc Dunston (Australian Securities Ltd), Andrew Peacock (Australian Securities Ltd), Nigel BH Gohl (Australian Securities Ltd) PHOTO 4: C-3PO (Protocol Droid), Kama Atcheson (Hemisphere Fin Services), Yoda (Jedi Grand Master) PHOTO 5: (L–R) Emoke Palos (CBA), Melanie Condon (CBA), Don Kitto (CBA) PHOTO 6: (L–R) Kim Cannon (Firstmac), Bob Geldolf, Marie Cannon (Firstmac) PHOTO 7: (L–R) Melissa Brown (Mortgage Ezy), Tracey Blooffwitch (Broad Finance), Ekrem Onuk (Mortgage Ezy), Chris Wisbey (Mortgage Ezy) PHOTO 8: Genworth Financial ‘Hard Rockers’ PHOTO 9: (L–R) Tahlia (Rebel Fighter X-Wing Pilot), Scott Spencer (Stargate), Jade (Rebel Fighter X-Wing Pilot), Brett Spencer (Stargate) PHOTO 10: Westpac team PHOTO 11: (L–R) Kama Atcheson (Hemisphere Fin Services), Frank Knez ((Hemisphere Fin Services) PHOTO 12: Citibank golfers

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Feature

One year on What a difference 12 months can make … or maybe not.

Australian Broker reflects on the stories that made headlines in the magazine one year ago

Issue: Australian Broker issue 6.11 Headline: “Odds narrow on Mortgage Choice– Count deal” (cover page) What we reported: A merger, takeover or alliance of some sort looks increasingly likely between Mortgage Choice and Count Financial, after a meeting of senior executives. The meeting between Mortgage Choice CEO Michael Russell and Count Financial chairman Barry Lambert took place on Friday 15 May, though both claimed later that it was set up purely to get to know each other. But it did send the rumour mill spinning, with Russell giving it yet more momentum when he told Australian Broker that he would be looking to engage companies in a bid to form alliances to expand and strengthen the brand. Speaking to AB before the meeting, Russell said he would try to use the occasion to determine whether any opportunities existed between the two organisations. He said he was “pretty keen” to discuss such opportunities in lieu of an unwanted takeover.

What has happened since?

While a takeover of Mortgage Choice by its biggest shareholder has failed to eventuate, Michael Russell was telling the truth when he said he was looking to explore opportunities with other companies. In April, Mortgage Choice unveiled the new look LoanKit aggregator that targets existing brokers and offers them a range of options in the face of upcoming regulations. Speaking to AB, LoanKit CEO Kym Rampal said that

Michael Russell

the uptake in the industry had been very satisfactory. What Rampal said makes the LoanKit proposition different is the chance for brokers to use the aggregator’s compliance software and procedures but still hold their own Australian Credit Licence. As well as this option, LoanKit offers brokers the chance to become Authorised Credit Representatives under their ACL or hold their own ACL and use their own compliance methods.

Headline: “Aggregators unlikely to wear licence risk” (page 4) What we reported: While aggregators are waiting to hear what final form the new licensing rules will take, the balance of opinion is swinging in favour of members holding their own licence, rather than allowing them to be Authorised Credit Representatives. Current licensing proposals contained in the National Consumer Credit Protection Bill allow licence holders to grant authority to ‘credit representatives’ to perform credit activities (such as loan writing) on their behalf, without the need to hold their own licence. The catch being that the licence holder bears all the risk, should the conduct of their representative result in losses for the borrower.

What has happened since?

This one appears to be mainly a matter of scale and preference. There are aggregators out there that are either insisting that all their accredited brokers obtain their own Australian Credit Licence or have not yet decided whether or not to offer a credit representative model. But there are some industry leaders who are pushing for

their brokers to become Authorised Credit Representatives. Advantedge has been a strong advocate of the efficiency that can be gained from having the majority of its brokers operate under its own licence. Other aggregators also believe that it will be beneficial for the industry to have brokers act as credit reps. At the end of the day there are enough opportunities out there for brokers to become credit representatives if they choose to do so, even if it means switching aggregators. However, most brokers AB has spoken to seem to prefer the security that holding their own licence will bring.

Headline: “Whittingham selling database” (page 8) What we reported: Losing two VCAT cases has seemingly not battered Mark Whittingham’s spirit, with the director of Home Loan Selection Services (HLSS), LeadSearch and My Mortgage advertising the sale of 40,000 customer data bases across Australia.

Whittingham first came into the spotlight after reports of lead scams began to surface at the beginning of the year. Since then more than 40 brokers have contacted AB with complaints against the lead provider. He has also been involved in several VCAT cases, two of which he lost at the beginning of May last year. Undeterred, Whittingham has recently sent out an e-mail advising brokers of an opportunity to buy customer databases.

The e-mail claimed there were 9,000 names in Victoria, 10,000 in NSW, 13,500 in Queensland, 4,500 in Western Australia, 4,500 in South Australia and 500 in Tasmania.

What has happened since?

Twelve months on and Mark Whittingham is continuing to use his vast database of mortgage brokers in Australia to peddle his wares. This time he is selling trails via the BuyATrail website (www.buyatrail.com.au).

Brokers who have done business with him before and those that he has managed to find their contact details are receiving e-mails offering the opportunity to buy trails from Choice, TMP, Plan, Connective and AFG. The e-mail offers $400 per month for a Choice Merimbula trail in NSW, and up to a $7,000 per month AFG trail book in the Gold Coast.

While it is not clear whether or not these deals are legitimate, one broker contacted AB and said that due to his past dealings with Whittingham, he has learned to be sceptical of any offer made by him or any of his companies.

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Services

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au Liberty Financial 13 11 80 www.liberty.com.au page 3

AGGREGATOR / WHOLESALE BROKER LoanKit 1800 466 085 www.loankit.com.au page 23

MKM Capital 1300 762 151 www.mkmcapital.com.au page 8

PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5

RAMS Home Loans 1300 130 769 www.ramsbroker.com.au page 13

Vow Financial Pty Ltd 1300 730 050 www.vow.com.au page 16

MORTGAGE MANAGER / NON-BANK Mango Media 02 9555 7073 www.mangomedia.com.au page 1

COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 9

Royal Guardian Home Loans 133 455 www.royalguardian.com.au info@royalguardian.com.au

Think Tank Property Finance 1300 781 043 www.thinktank.net.au deal@thinktank.net.au page 31

NON-BANK LENDER Hemisphere Financial Services 1300 793 742 www.hemispherefs.com.au page 17

DEBTOR FINANCE Oxford Funding Pty Ltd 1800 850 509 www.oxfordfunding.com.au info@oxfordfunding.com.au page 21

Mortgage Ezy 1800 TOO EZY (866 399) www.mezy.com.au ezyquit@mezy.com.au page 32

EQUIPMENT/VEHICLE LEASING Macquarie Leasing Pty Ltd 1800 005 046 introducer@macquarie.com page 14 www.residex.com.au

LENDER Citibank Mortgages 1300 651 059 www.mortgagebroker.citibank.com.au page 7

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The House Price Information People

OTHER SERVICES Residex 1300 139 775 www.residex.com.au page 25

RP Data www.rpdata.com page 24 Trailerhomes 0417 392 132 page 26 SHORT TERM LENDER Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2 Interim Finance 02 9971 6650 www.interimfinance.com.au page 6 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 10 Rapid Capital 07 5562 2485 www.rapidcapital.com.au page 4 SOFTWARE / IT Stargate Group 1300 723 613 www.stargategroup.com.au Symmetrycrm@stargategroup.com.au page 11 WHOLESALE Resimac 1300 764 447 www.resimac.com.au newbusiness@resimac.com.au

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