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ISSUE 7.14 July 2010
Macquarie to rejoin mortgage market A new product suite from Macquarie Bank in the retail mortgage market is now on offer, to compete with the major banks .
ASIC supervision is carrot and stick Regulator promises assistance as well as enforcement
The Australian Securities & Investments Commission will assist brokers to comply with the newly introduced National Consumer Credit Code, or deploy “significant enforcement and deterrence resources” if necessary to ensure their compliance. Speaking with Australian Broker, Greg Kirk, ASIC’s senior executive leader for deposit takers, credit and insurance
providers, said the newly enfranchised credit watchdog would first seek a developmental role in the industry. “In relation to the vast majority of entities that want to comply with this regime, and are developing the systems and procedures to make sure they do it, we see our role as helping them to get there,” Kirk said. “If, despite their best efforts and in some small respects they are falling short, our intention would be to identify problems for people and to assist them.” However, Kirk said ASIC would
House price growth gradually slowing New research from RP Data shows that rental pricing and housing price figures are both flat Page 13
use its enforcement powers, which supersede any previously held by the states, should there be a need among “the much-smaller number of entities that may be less interested in complying with the law or are trying to avoid it”. The regulator will start visiting industry entities “with a slightly more compliance focus” in the months ahead. This follows educational visits during the registration process, which finished at the end of June and resulted in 14,800 registrations. Page 20 cont.
Net, working? With the rise of social media, can networking sites like Facebook, Twitter and LinkedIn be the next great marketing tool for brokers? Page 26
Industry clashes over ACL value
Glenn Lees, Mark Haron
Aggregators and mortgage brokers are taking divergent approaches to licensing under the National Consumer Credit regime, as disagreement emerges over the value of becoming an Australian Credit Licence (ACL) holder or a credit representative. Connective management told AB that brokers who wish to garner the best value from their businesses may be better off applying for an ACL and remaining independent, rather than becoming credit representatives. Principal Glenn Lees said if there are two brokers looking to sell their businesses in five years’ time, an ACL holder will command a higher price than a credit representative, a point which has been “lost in the hysteria” of the licensing debate. “Our view is that brokers are more than capable of
obtaining their own licences, and they will have a more valuable business as a result,” Lees said. Of the broking businesses that aggregate with Connective, 100% will be applying for ACLs rather than becoming credit representatives. Over 600 of these will manage their own credit representatives under licences. Connective principal Mark Haron and Lees said the advantage in this path “lies with the broker”. However, Mortgage Choice chief executive Michael Russell disagrees that there is inherent value in an ACL. “How can a business owner who is 100% compliant with the NCCP have a more valuable business than another who is also 100% compliant, simply because he or she operates under their own ACL rather than that of a third party? The only answer is that this conclusion is incorrect,” he said. As long as a broker is licensed with a reputable ACL holder, Russell said it makes no difference whether they possess a licence themselves, or become a credit
Licensing provides all of us with a ticket to the game and is not a unique selling proposition
representative operating under that licence holder. “Licensing provides all of us with a ticket to the game and is not a unique selling proposition that is earnings accretive. The fundamentals for increasing the inherent value of a business will not change.” FAST is offering brokers a choice of models, though managing director Steve Kane said “there is no intrinsic value to own a licence, it doesn’t increase your value. There are a number of benefits to both sides,” he said. “We think that for the brokers that don’t have a huge desire for risk and compliance and administration, then clearly the credit representative model is the one to go for. On the other hand, if they have a significant variation on a theme, whether it be the lenders they are using or a very disaggregated business model, it may suit them to have their own.” However, with FAST’s parent Advantedge having dedicated resources to developing the risk and compliance capacities of its aggregation businesses, Kane said the former may be a good option. “We think that for a lot of businesses the credit representative model takes out a lot of the pain they don’t have the time for, and that they don’t have the skillsets for, particularly in terms of risk management. It enables them to focus their business on what they do best,” he said. Kane said he originally expected about 70% of brokers would take their own licence, but now believes the split among FAST’s brokers will be about 50/50. The change is coming in small to medium brokerages, who “have realised what they have to do and it isn’t just about filling in a couple of bits of paper once a year and off you go.”
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Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker can accept no responsibility for loss. © Key Media 2010 Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews. This magazine is printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry
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Brokers face SMSF lockout
Forthcoming changes in the law could mean brokers will be unable to act on SMSF lending without additional training. Recommendations in the Cooper Review on superannuation advocated that those ‘advising’ on SMSFs would need to develop specialist knowledge. SMSF specialist I-Financial’s managing director, Craig Morgan, told AB that although brokers
recommending SMSF-related property sales were unlikely to be caught by this recommendation specifically, this could in fact turn out to be a moot point. “While the Cooper Review may not originally have intended to catch finance brokers in the term ‘financial advisor’, proposed amendments to the Corporations Regulations will make SMSF loans a financial product, not a
credit product, therefore subject to Australian Financial Services Licence (AFSL) requirements and not the National Consumer Credit Protection Act,” he said. “This appears to mean unless brokers have an AFSL to go along with their ACL, they will not be able to act on SMSF lending, even if it is referred by someone competent to provide advice to the SMSF. The broker would be dealing with a financial product.” Morgan agreed that this meant brokers could be “locked out” of the SMSF market. However, he did speculate that limited coverage for brokers under the regulations may be a possibility in the future. Director Ken Raiss from accountancy firm Chan & Naylor takes a more positive view, suggesting that the new regulations could actually present
an opportunity for proactive brokers – as long as they know what they are doing. “A lot of people are wary of where the line in the sand is – particularly at which point they require an AFSL. Brokers who educate themselves as to where that is, so that they don’t fall foul of ASIC, could really differentiate themselves in the market.” Raiss acknowledges that this will mean training, and potentially gaining further qualifications. He is also supportive of the idea of a limited licence or accreditation so that brokers can work in the SMSF arena in confidence. Raiss said that brokers should be involved in the nascent industry. “Brokers can play a key role in getting the best package for SMSF members,” he said. “There’s a compelling case for them and related professionals, like financial planners and accountants, to be pooling their expertise and operating in this space together.”
Nationwide pioneers fee-for-service model Nationwide Lending has launched an innovative fee-for-service product nationally after successfully testing it in Melbourne and Adelaide. The product, which is based on the lender’s Synergy Home Loan, allows brokers to receive an upfront and trail commission, or charge an upfront fee of 1.10%. The loan has offered interest rates of 6.44% pa with an annual fee, 6.68% pa without an annual fee and 7.28% pa for low-doc borrowers. For clients who elect to pay an upfront brokerage fee, the
variable rates are actually lower than the regular rates. There is also a substantial reduction in the applicable deferred establishment fees, once the brokerage product is considered instead of the inbuilt commission product. According to Nationwide Lending, clients can get a better deal both in monthly principal and interest repayments and over the term of the loan. Brokers can benefit from being able to recommend the product to clients with full disclosure of commissions payable. “The idea of fee-for-
service was being discussed a lot a couple of years ago, so we thought we would pre-empt that and create the product,” Nationwide chief executive Glen Jones told AB. SA broker Tom Osborne, who has already written two loans under the structure, said the main benefit of the product is that clients have a clear choice on interest rates and fees. Brokers are able to show this clearly by printing out a spreadsheet of the choices available, once key details of the client’s application have been inputted into the system.
Osborne said the upfront brokerage fee benefits business cash flow. While trail commissions were better for brokers over a long period, the average lifespan of a loan was only three years. Jones said he expects similar products will be offered by other lenders, as he said ASIC has taken a view that commissions in financial planning have had the potential to bias advisors.”
For industry reactions, see The Forum on page 24
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Macquarie joins bank line-up for mortgage comeback
Mortgage rates to rise across the board? The mortgage industry could see an overall increase in interest rates as a result of difficulties in obtaining wholesale funding. Lisa Montgomery, head of marketing & consumer advocacy at Resi, suggested that it is likely that the major banks will be forced to increase the interest rate out of cycle with the Reserve Bank’s recent interest rate rise. She also warned that non-bank lenders and second-tier banks might be forced to follow suit. “The question of wholesale funding is nothing new: the major banks have been talking about funding costs since before the financial crisis,” she said. “I think it is likely that rates will go up out of cycle, and if they do, it’s also likely that it will follow on to non-bank lenders, as most non-bank lenders get their funding from major banks.” Montgomery says things are generally brightening up, however. “The situation in Europe is really the catalyst at the moment, and the appetite of investors isn’t as buoyant as it was before the GFC. Sentiment does seem to be improving – although I don’t think we’ll be pricing like we did before.”
Second-tier Bendigo and Adelaide Bank also thinks out-of-cycle interest rate rises might be a possibility. “At the time the crisis hit, Bendigo and Adelaide Bank restructured its balance sheet. Now we are largely funded by our retail business and RMBS, so we are not as reliant on wholesale funding as the majors,” said Lauren Treacy, a spokesperson for the bank. “However, the cost of funding is reflected across all markets and this will eventually have an impact on the price a consumer pays. If the cost of funding for a bank rises, the price a consumer pays will also rise, because the cost to deliver those products or services has increased,” she said. A number of bank spokespeople, including CBA’s chief financial officer David Craig, went on record in early July to say that funding costs are rising, and are expected to do so in the medium term. It is feared that major banks may have to raise interest rates to compensate, irrespective of what the Reserve Bank of Australia decides to do at its regular monthly meeting.
Macquarie Bank is finalising distribution agreements with some of the country’s largest broking groups, in an attempt to regain a foothold in the mortgage industry. The push follows an announcement from Virgin Money and Citibank, who are launching a retail bank aimed at increasing competition with Australia’s Big Four banks. Macquarie said it is planning to fund up to $5bn worth of mortgages in the next 12 months. The bank has been testing the new product suite (Macquarie Bank Mortgage Solutions) through AFG and Vow Financial since late last year. Following what Macquarie labels “good feedback”, 10 aggregators are now offering the group’s mortgages. The product offers a variable rate of 7.41% and a discounted package rate of 6.81% for property investors who borrow more than $400,000. The Optimum Package, which is the flagship product, also includes a credit card and mortgage insurance. Macquarie executive director Frank Ganis said the product supported brokers who were increasingly focused on diversification by offering clients a more wholistic package. “It enables brokers to expand their service proposition to clients,” he said. Macquarie said in a statement it remained focused on the intermediary channel as its primary method of distribution, with a key focus on providing market-leading service. Macquarie owns a 10% stake in AFG and took out a 20% stake in relative newcomer Vow Financial in 2009, signalling its return to the sector. The lender wound down its participation in the mortgage
market in early 2008 when the credit crisis crippled Macquarie Mortgages, which was largely dependent on securitisation. Its exit shocked and disappointed brokers and mortgage managers. Meanwhile, Virgin and Citibank have confirmed they are committed to a 10-year deal that unites them in providing retail banking products, likely to include mortgage offerings. Initially, the new banking entrant will release credit cards and a deposit offering, which is considered a “first phase” of the agreement. However, once these products have been released, “both parties will consider launching other products”, a spokesperson said. Virgin Money Australia’s managing director Matt Baxby has said the competitive environment is ripe for a challenge to the Big Four, which he said writes more than 80% of home loans. His comments imply a mortgage offering, despite this not being part of “the initial launch phase”.
News AFG rebrands mortgage manager division AFG has relaunched its mortgage management division with a new consumer focus as it seeks to reclaim market share lost to the banks during the financial crisis. Paul O’Donnell, general manager of newly-renamed AFG Home Loans, said non-major bank lenders have had a tough time since the crisis, with a significant drop in market share. “However, the world has changed in recent months,” O’Donnell said. “From AFG’s point of view we wanted to change from a very industry-focused brand – AFG Mortgage Management – to one that was more consumer-facing. “Essentially, we’re aiming to improve competition in the marketplace by putting our money where our mouth is. We want to be able to say to our
members, ‘look, there are alternatives to the major lenders’. It’s about being able to offer a healthy range of products for our members,” he said. O’Donnell suggested there may be new products in the pipeline, including in areas such as high LVR lending, fixed-rate loans and low-doc lending. He added that AFG Home Loans is backed by “multiple wholesale funders”. O’Donnell stressed that AFG Home Loans would not be embarking on a direct marketing campaign to consumers, however, and that it would continue to deal through the broker channel. He also added that the Home Loans business is looking to be competitive on service as well as its credit proposition, by saying that deals are likely to be done within 48 hours and definitely within three days. AFG Home
AFG Richmond Lions
Loans will also have credit staff on hand to talk to brokers directly about any queries. Finally, O’Donnell maintained that AFG’s aggregator business would continue to support the
major bank lenders as well as its own-brand loans. The rebrand project commenced in June, and will be rolled out across the company over the coming months.
customers, as well as methods to attract investors, in order to take advantage of the significant activity in those areas of the market. “We have seen a huge turnaround in the market in the last 12 months and housing finance is now very much the domain of existing mortgagors,” she concluded.
Residex’s findings were corroborated by AFG’s latest Mortgage Index report, which revealed the proportion of mortgages sold to first-time buyers had fallen to just 9% of the market in June. Refinancers were the largest single group at 39%, while investors made up a further 35% of the market.
Show me the money, not first homebuyers Property research company Residex has advised brokers to concentrate on re-buyers, renovators and investors instead of first homebuyers. Kim Davis, who oversees the firm’s MarketFacts broker service, told AB that the re-buyer and investor markets have shown strong growth in the last year, and that brokers should concentrate on those markets. Australian Bureau of Statistics figures show that the first-time buyer market has fallen from 24% to 9% of total secured housing finance in less than a
buyer market has fallen from 24% to 9%
year, and the figures are still trending down. “The first homebuyer market has lower security values and lenders are wary of the higher risks. It’s not a good environment for brokers right now,” commented Davis. “It means more work for less reward and the risks are higher.” Davis argued that brokers should instead concentrate their efforts on re-buyers, refinancers, renovators and property investors – areas of the market which have shown strong growth in recent months and now represent over 90% of the total value of new and refinanced housing finance loans. She urged brokers to look at ways to maintain or rekindle relationships with existing
For all the latest mortgage industry news, visit www.brokernews.com.au
Mining tax deal boosts market confidence Property industry figures have been cautiously positive about the impact of changes agreed upon recently to the mining ‘super profits’ tax. Prime Minister Julia Gillard announced a number of changes to the controversial Resources Super Profits Tax proposal in late June, including a cut in the headline rate of tax from 40% to 30%, reducing the scope of the tax, rejigging the point at which the tax kicks in and renaming it the Minerals Resources Rent Tax. Greville Pabst, chief executive of WBP Property thinks this is good news in terms of market
Mining tax: key facts 1. Cut in headline rate of tax from 40 to 30% 2. Reduced scope of the tax on the industry, including the point where the levy kicks in 3. New name: Minerals Resources Rent Tax
confidence. “Buyers at the top end of the market – many of whom have ties to the resources sector – have been sitting tight, waiting to see what happens,” he said. “The changes will have an impact in terms of the resources sector’s profitability, and I would expect there to be stabilisation at the top end [of the market].” Pabst also suggested the potential impact of the tax on property values in mining areas may be lessened, since projects that were mooted to be shelved or downgraded may be given the green light under the new levy. This, he suggested, should boost the confidence of investors and potential investors in those areas. Michael Brock, president of the Real Estate Institute of South Australia – a state which has a significant resources industry – is also pleased with the outcome. “We thought the original announcement of the RSPT was particularly ill-conceived, and we’re pleased that a compromise appears to have been reached,” said Brock. “We now
look to the mining industry to show its support for the new levy.” However, the Real Estate Institute of Queensland’s local spokesperson in Mackay, also a key mining area, maintained that the impact of the tax as originally envisaged has been overstated. “I personally have not seen a decline in the property market due to the mining tax,” said Stacey
Arlott of RealWay Property Consultants. “There has been a slowing in the market due to many circumstances – for example, six interest rate rises, the cyclone in March, rate increases, general cost of living and a decline of first homebuyers,” she said. “Even so, the changes to the mining tax are unlikely to have any impact whatever on Mackay’s market.”
For all the latest mortgage industry news, visit www.brokernews.com.au
Government reverse mortgage review is health check Strong self-regulation of the reverse mortgage sector will mean an impending Government regulatory review will only be the equivalent of a “health check”, according to the Senior Australians Equity Release Association (SEQUAL). The Government initiated its second stage of reforms to the consumer credit regime in early July with the release of its Phase Two ‘Green Paper’, which outlines options for enhancing the National Consumer Credit law in areas that will include the reverse mortgage sector. SEQUAL chief executive Kevin Conlon said any reforms would not impact the majority of providers in the sector, as SEQUAL’s membership – consisting of 95% of reverse mortgage providers – already met the standards that are likely to be legislated.
Expectations are the revisions will introduce a no-negative equity guarantee provision as a statutory requirement, and require reverse mortgage providers to produce a generic consumer statement to assist clients to understand these mortgage products. Conlon says as members of SEQUAL, 95% of the industry already meets these standards. “We have been significantly involved in the consultation process, the government has listened legitimately on the key issues, and we have been satisfied there will be little impact on the industry,” he said. The review may also develop guidelines around the scope of advice, to ensure that financial advice on reverse mortgage products is accessible and affordable for consumers.
Conlon said the legislative measures were needed due to the probability of future market players. “Not many new entrants will emerge in the short term, but with the population ageing and as volumes increase, we will see interest from banks and non-bank providers.” SEQUAL previously expressed concern that the reverse mortgage sector would suffer a blow to its reputation, as it was being reviewed along with fringe and payday lenders in part two of the legislative overhaul. However, Conlon said this was largely because the reverse mortgage market was “in good shape”, so the priority for review was not as high as it was in other areas. Conlon said he expects the consultation process will be concluded within the next few
months, minimising disruption and uncertainty to market participants. Recent calls have been made for an independent, governmentfunded equity release advice centre, where consumers can obtain information on equity release products.
Think Tank eyes commercial lending gap Commercial lender Think Tank is looking to exploit a lack of competition in commercial lending following an exodus of serious market players during the financial crisis. Chief financial officer Jonathan Street said the group was “actively back in the market” and building originations, having gained increased access to mezzanine capital. The financial crisis fallout saw lenders including Challenger, Australian Unity and Suncorp withdraw from the market, accompanied by mortgage trusts including Mariner Mortgage Trust. Barriers to entry are also currently high, due to the difficulty in obtaining funding. The result created a “rare opportunity in the Australian
market”, Street said. Competitors include Liberty Financial, Bendigo and Adelaide Bank and La Trobe Financial, though Street said the pool of competition is “quite paltry” at the moment. The push by Think Tank has arisen due to a “cautiously optimistic” outlook, though he said the sector heavily depends on the liquidity of foreign capital. The current financial woes being experienced in Europe, Japan and North America are threatening growth. Street said while there was a “clean-out” of brokers in the sector during the crisis, the stronger brokerage businesses that are still around are doing “reasonably well”. The size and total value of transactions in
commercial property was up in the second quarter, in what was the most positive outcome for the sector since the onset of the financial crisis. Average transaction size rose to above $34m, which is the biggest average seen since the final quarter of 2007. There was $3.7bn worth of transactions, up from $3.5bn in the first quarter. And the uptick
in commercial property was evidence of the increasing availability of finance in the market, according to property commentators. Office assets made up 65% of the recorded activity, or $2bn in transactions, according to real estate group DTZ. Meanwhile, $601m of the second quarter’s transactions were for retail premises.
House prices and rent growth slow House price growth appears to be gradually slowing, according to new research from RP DataRismark, at the same time as rental prices are flattening out. The property research house found national median prices increased just 0.6% in May, putting prices up 12.1% over the past year. The only city that has remained buoyant is Melbourne, where prices rose 1.5% in May to be up by an impressive 18.2% over the year. By comparison, Sydney prices rose 1.5% in May, but are up by only 11.3% over the year. Brisbane experienced a short decline in April but prices bounced back in May, rising 1.4%. Adelaide prices rose a modest 0.5% while Perth prices declined by 2.4%. According to an ANZ Economic Update, the double-digit growth in house prices that the country experienced last year in most capital cities was “clearly unsustainable” as housing affordability deteriorates, mortgage rates rise and the first homebuyer grants are phased out.
ANZ also reported that housing credit expanded 0.7% in May, making it 8.8% higher over the year, as a result of gains in both owner-occupier and investor segments. Meanwhile, investors have seen a slowdown in rental price growth over the past 12 months due to high first homebuyer activity following the financial crisis. RP Data’s rental review shows that national rent prices were flat over the June quarter, and only recorded a 2.9% increase over the previous 12 months. This puts the last year well below the annual average rate of growth rate of the past five years, which saw rents rise 7% for houses and 8% for units. RP Data research analyst Cameron Kusher said the slowdown is due to the Reserve Bank of Australia’s aggressive cuts to official interest rates as the global financial crisis hit, and the removal of the First Home Owners Grant boost by the government. “Both initiatives, coupled with softening property values
during 2008 and consistent growth in rental rates during recent years, resulted in a significant boost to affordability for first-time buyers,” Kusher said. “As a result, during 2009 first homebuyer activity was at its highest level on record. With first-time buyers generally coming
from the rental market it’s no surprise to see that the rate of rental growth has slowed so markedly.” RP Data’s research showed units continued to outperform houses over a five-year period, with an increase seen in value of 45.8% for units against 40% for houses.
For all the latest mortgage industry news, visit www.brokernews.com.au
Fixed rates are now in borrower sights
Consumers’ appetite for fixedrate home loans has been fast increasing, as interest rates have risen and better deals are put on the table by lenders, according to broking group Loan Market. Enquiries for fixed-rate home loans in Loan Market’s call centre have risen by about 20% over the June quarter, as the fixed rate option became more popular.
Loan Market chief operating officer Dean Rushton said not all customers are opting to take out the fixed-rate products, but it showed people “are seriously considering fixing their home loans again”. The findings mirror the start of the trend identified by Mortgage Choice back in May, which found the popularity of fixed interest loans rose in all states except Western Australia in that month, breaking 3% nationally for the first time in eight months. Lenders have moved to cash in on this interest in fixed rates, with National Mortgage Company, National Finance Club, Australian First Mortgage, National Australia Bank and Bankwest all having made reductions in fixed-rate offerings to lure borrowers. In tandem with NAB’s 0.2% rate cut on its standard fixed rate and packaged three-year fixed rate products, which brought pricing on these products down to 7.49%
and 7.39%, the bank indicated demand for fixed-rate products had increased slightly since February, though it said this was substantially lower than the demand that was seen in the first half of 2009. National Finance Club managing director Andrew Clouston said in tandem with the group’s rate cuts, “for borrowers looking for more certainty in their cash flow, fixing a portion of the loan and leaving the remainder on our standard variable rate can provide some protection against further interest rate rises.” Rushton said there was currently a number of appealing fixed-rate options out in the marketplace, though the choice would depend on the client’s financial situation. “Variable rates are still lower than most fixed rates so it is important to consider your financial situation and motivation for fixing to determine if a fixed-rate home loan is appropriate for your
The popularity of fixed interest loans rose in all states except WA in May, breaking 3% nationally for the first time in eight months
circumstances.” He said fixed rates could offer “peace of mind” in an unpredictable interest rate environment.
Financial sector job prospects hot up Employer confidence in the financial services sector has reached its highest level in a decade, with brokerages feeling the positive mood despite continued global economic trouble. Just over half of employers in the sector intend to increase their permanent headcount during the JulySeptember 2010 period, according to a report from recruiter Hudson in July. Businesses are also trying to backfill roles left vacant last year due to worries about global financial conditions. Headcount will play a role in the strong competition to increase market share as the economy recovers and international opportunities arise. The findings represent the sharpest increase in employer sentiment across any sector surveyed, with a rise of 14.3 percentage points in hiring expectations since March. Dean Davidson, a Hudson practice director, said these findings show the sector has emerged from the economic downturn, and that current skills shortages were reminiscent of 2007. Western Australian broking business LoanCom is one business exhibiting renewed confidence in the current market, though it is also growing to meet its own expansion needs. LoanCom has hired five brokers in recent months, with Simon Munrowd-Harris the latest to join from CBA, where he was WA state manager for broker-referred commercial lending. A spokesperson said the business is “bullish” at the moment, as it had been somewhat underutilised to date, and although credit conditions remain tight, the business was continuing to grow and seeing good loan volumes.
Provident says approval within 48 hours or $100 Provident Capital has offered to pay $100 if conditional approval responses are not sent within 48 hours of application. The guarantee, which Provident’s head of lending distribution, Steve Sampson, calls ‘putting our money where our mouth is’, applies to the company’s Premium Range suite of products. The $100 cash offer has been sent direct to thousands of brokers, but Sampson says it applies to anyone who submits a Premium Range credit application with all appropriate supporting documents by 30 July 2010. Provident is not the first company to offer brokers cash if service levels are not up to scratch. Recently-launched aggregator Vow Financial promised brokers $100 if they did not receive a callback within four business hours, back in May. FBAA President Peter White thinks that service levels could well be a new battleground for aggregators and lenders – and argues that it’s “a damn good thing. We’ve seen rising complaints about the levels of service from institutions over the last few months,” he commented. “One of the strengths that brokers have in this competitive marketplace is speed, but in order to come back to clients quickly they need lender support.” White cautions, however, that speed of turnaround should not mean a compromise on quality of service. “Organisations offering these kind of guarantees must make sure they’re able to cope with the volume pressures in the promised timescales with no loss of quality of service,” he added. “Realistically, a two-day turnaround should be very achievable, as long as the right information is given to the lender from day one. I’m sure Provident will have thought about this and their staff are geared up to respond appropriately. Otherwise, the company’s going to be writing a lot of cheques.”
For all the latest mortgage industry news, visit www.brokernews.com.au
Local growth a world wonder Strong employment figures, lower unemployment and having much lower debt than other advanced economies has made Australia a world leader in the global economic recovery. The International Monetary Fund (IMF) has forecast the Australian economy to grow by 3% in 2010 and 3.5% in 2011. Meanwhile, it expects advanced economies together will grow 2.6% in 2010 and 2.4% in 2011, while the global economy will grow by 4.5% in 2010 and 4.25% in 2011. The IMF World Economic Outlook said despite strength in Australia and the Asian region, global recovery remains uneven and fragile in most major advanced economies. Despite noting concerns around sovereign debt in some European countries, it stated that so far “there is little evidence of negative spillovers to real activity”.
In July, Australia’s deputy prime minister, Wayne Swan, said the recent G20 agreement demonstrates how far ahead Australia is. “Advanced economies have committed to at least halve deficits by 2013. Now of course, Australia will be returning to surplus by 2013,” he said. “I think that is yet another example of Australia outperforming the major advanced economies.” He also said Australia was the only advanced G20 economy to avoid recession. “And of course, we had the second lowest unemployment rate of any of those economies.” The prospect of a credit crunch in Europe is possible as banks face a trillion-dollar rollover. The IMF, along with the European Central Bank and the Bank of England, have all indicated this is possible in light of the sovereign debt crisis. A secondary threat is coming from European banks, which
must repay or roll over trillions of dollars in short-term borrowing in the next two years. Reports have indicated that banks will compete with government in the bond markets as both look to roll over large sums of money. Credit, as a result, will become increasingly scarce. In July, G20 countries met for a two-day summit in Toronto,
Canada to discuss the global recovery. In addition to agreeing to halve budget deficits by 2013, they agreed to stabilise government debt ratios by 2016. World leaders also agreed to allow nations to make their own rules on bank capital requirements to recoup the costs of bank bailouts, despite a push from European countries for a global banking tax.
INDUSTRY NEWS IN BRIEF Switching measures underutilised
Bank customers have so far chosen not to make use of measures introduced by the federal government in 2008, designed to make it easier to switch lenders. Briefings from Treasury and ASIC have shown that only a small number of borrowers made use of the switching scheme since it was commenced back in November 2008. The package was intended to assist customers by asking their existing banking institution to provide a list of all of a customer’s direct debit and credit arrangements, in order to facilitate the establishment of these arrangements with the new financial institution. The government has been told “awareness and take-up of the service by consumers appear to be low”.
ABA rejects Coalition contract plan
The Australian Bankers’ Association said a Coalition proposal to extend unfair contracts terms protections to small businesses could further restrict lending to that sector. “The proposal from the Coalition looks superficially attractive but could end up harming the very small businesses which it’s seeking to protect,” said Steve Munchenberg, chief executive of the ABA, referring to the Coalition’s proposal put forward in A Fair Go for Small Business. Munchenberg said the proposal would affect business standard form contracts which form the base of banks’ contractual arrangements to ensure certainty of compliance credit risk laws.
Leave super alone, Bowen tells first homebuyers
First Home Saver Accounts are a better option for people trying to crack the housing market than SMSF funds, says Minister for Financial Services, Chris Bowen. In an interview with ABC’s Deborah Cameron, Bowen said he does not support the idea of drawing on superannuation funds to buy a home. “I can see the superficial attractiveness of it,” he said. “But superannuation is about retirement, and as I said earlier, we’re all living longer, we’re all going to be in the retirement phase much longer.” Bowen said people would be “eating away at their retirement income” if they used the funds early for things such as buying a home.
Six years for Sydney deposit
The average time it takes first homebuyers to save for a deposit has increased from five years to six in Sydney during the past 12 months. New analysis of census and housing price data prepared by Bankwest revealed the average deposit for a first home in Sydney is $128,000. An analyst for the bank has said two factors combined to stretch out the time it takes to save a deposit: house prices have increased from 10 to 15% in Sydney, and there has been a reduction in the first homebuyer’s scheme. Other research conducted by the University of Technology, Sydney found saving for a home was less important than taking 12 months off overseas for young people today than for previous generations.
Property values ride the railways
Property values in Sydney suburbs with rail links to the CBD have outstripped those in suburbs without. PRDnationwide discovered that prices in suburbs near railway stations leapt by 12% in 2009, whereas those in areas without rail links only grew by 8%. “Population growth continues in Sydney and this has prompted a high demand for places located near public transport facilities as the capacity of roads to cater for the influx of residents, particularly during peak traffic times deteriorates,” said PRDnationwide managing director Jim Midgley. The research says the median sale price for properties near railway stations increased to $730,000 during 2009. The highest median price was recorded on the North Shore line, at $1,325,500.
HomeStart tweaks service offering
South Australian lender HomeStart Finance has launched new services for its broker network, including a new extranet site, an online training system, and a dedicated service team. The new services are designed to streamline the current loan system process through the addition of online applications. The extranet site will give third parties access to lending calculators, guidelines, product information and news items, while the new online training system will help speed up the broker accreditation process under new consumer credit law , as well as train users up on new products. Smartline’s state manager, Richard Bradshaw, part of HomeStart’s broker network, said the changes will improve current loan system process and turnaround times.
For all the latest mortgage industry news, visit www.brokernews.com.au
Small businesses feel the banking squeeze
Small and mid-sized businesses will continue to bear the brunt of higher funding costs, according to a new survey by JP Morgan and Fujitsu Australia. The firms’ joint Australian SME Market Report has highlighted that pressure may yet again increase on SME’s working capital requirements, due to the effects of government stimulus coming to an end and rising interest rates, despite SME profitability recovering from the lows of the last two years. Fujitsu Australia’s executive director industry group, Martin North, cont. from cover
With licensing underway, ASIC will back up the licensing process with “verification checks”, to ensure businesses have the compliance measures in place that they say they do. “We’ll visit them and see if their business is as described in their licence application”, Kirk said. However, he reassured brokers that there are “no hidden traps” in the new legislation, just sensible requirements. “Most of the legal requirements are things that we expect well-run businesses to already be doing,” Kirk said. One of the biggest changes are responsible lending requirements, Kirk said, which aim to ensure that reasonable enquiries are made about a
said the drivers of SME confidence have “changed significantly”. “The rising interest rate environment is impacting confidence,” he argued. “However, apart from the price of credit, the availability of credit for SMEs is also becoming a significant issue in its own right and is the dominant concern for SMEs.” North said this lack of credit is a direct fallout from the GFC. In addition, there has been a decline in the market share of non-major banks over the last two years.
Fujitsu’s data shows the major bank market share of the SME sector has increased from 85% to 90% over the last two years. NAB controls the greatest share at 26%, followed by Westpac/St. George at 25%, CBA at 24% and ANZ at 15%. “Addtionally, compliance issues have become increasingly onerous over the last two years,” added North. “This reflects the requirement of SMEs to provide more information about their businesses more regularly to the banks as part of a more rigorous
risk analysis process.” Even so, separate Fujitsu research into SME-banking relationships found that overall satisfaction levels continue to improve. Predictably, price is a primary source of dissatisfaction, with little perceived differentiation between the banks. Small businesses have historically paid higher rates than the mortgage sector. While it is profitable for big banks, lending to the sector has tightened over the last two years, with risk of loss climbing.
customer’s financial situation, and that an unsuitable product is not recommended, causing clients undue hardship. These legal requirements are to be married with increased documentary requirements on 1 January 2011, such as the requirement for credit proposals and the quotes for customers, meaning businesses operating more informally will need more documentation. Kirk said the regulator’s guidance to date has been “reasonably high-level”, and that it is “not seeking to interfere or dictate to people how they run their business or how they go about meeting these broad standards that are being imposed upon them.” If any confusion remained about the law, Kirk said
ASIC would release new guidance but that there was “no need” at present. “We really would like it if the regime is not designed to be black and white and dictate that you must do X, Y, and Z. It’s really that you have to make reasonable efforts, which are scalable depending on the circumstances,” he said. Much of ASIC’s future compliance and deterrence work is expected to be derived from consumer complaints, made either to the regulator or to external dispute resolution schemes. Brokers who wish to apply for an Australian Credit Licence (ACL) must now have their application in to ASIC before 31 December. Kirk said while licensing would be more complex than registration, the regulator
would try to make it as easy as possible. The licence regime had been designed “flexibly” to give businesses a choice over taking out an ACL or becoming a credit representative. In the end, Kirk said that it may come down more to the “personality” of a business, rather than difficulties in obtaining or maintaining an ACL. “At the end of the day their conduct needs to meet the same requirements regardless of whether they go in as credit representatives or get a licence themselves,” he said. Kirk said the industry associations had “played a very big role and have been a very strong voice for their members” during the development and implementation of the regime.
Smaller Australia a Vow augments ‘double-edged sword’ service offering A focus on slowing down Australia’s population growth rate by the new Gillard Government is set to become a “double-edged sword” for homeowners. BIS Shrapnel senior economist John Alexander said a slowdown in population growth will cause weaker underlying demand for housing, though this is unlikely to change the degree of pressure currently caused by housing shortages. Australia is “well short” of the supply it needs, and Alexander said slower population growth would feed through into slower retail sales growth, which would benefit existing homeowners through less upward pressure on interest rates. However, this will result in a weaker economy overall, possibly countering these positive effects. “I suspect for the overall community it may not be the kind of positive thing that some people might perceive it to be,” he said. Alexander also said slower population growth is already happening, and that new government policy will be focused on ensuring the mix of skilled
migrants coming to Australia is the right one. The Australian Bureau of Statistics’ preliminary estimates of Australia’s annual population growth rate slowed to 2% during 2009, down from a peak of 2.2% in the year ended 31 December 2008. A May report from BIS Shrapnel predicted growth would slow down considerably in 2010/11 and 2011/12, as net overseas migration declined from record highs experienced in 2007/08 and 2008/09. “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,” Alexander said. “The increase was greatest in 2008/09, when the net population gain from long-term visitors accounted for 74% of the national net overseas migration gain of 298,900 persons.” BIS Shrapnel statistics show the main groups behind this rise in long-term visitors were skilled workers under Temporary Business (Long Stay) visas (the 457 category), and international tertiary education students.
Aggregator Vow Financial is trialling an outsourced loan processing service as part of its newly-minted third party offering, following 300 hours of broker consultation. Speaking with Broker News TV, chief executive Jeff Zulman said the new service would enable brokers to focus on writing loans, rather than processing them. “A number of our brokers have said, ‘I don’t like doing the paperwork part of the business, but I do like helping to write loans and assisting clients’.” Zulman said the service would enable brokers to “flick the paperwork part of the business to somebody else”, leaving them time to focus on their client-facing strengths. Broker feedback has also yielded a decision to allow brokers to choose if they become an ACL holder or a credit representative under the Vow umbrella, while it is now aiming to assist brokers at different stages of their ‘business lifecycle.’ “Some [brokers] are ready to retire and move on, and now we can help them find someone who might want to buy their book
from them or take over their business, and that benefits those who want to keep on growing,” Zulman said. Vow Financial emerged as a result of the combination of aggregators National Brokers Group, The Brokerage and The Mortgage Professionals in February. When formed, the group said it would build its systems from the ground up. Zulman said the aggregator was now in “third gear”, and its IT platform will be its next step. “We hope to start to take the wraps off that later this year,” he said. Vow announced a guarantee at the end of May that it would return broker phone calls within four hours, or pay them a noquestions-asked fee of $100.
Predatory lenders seek licence Two lenders that provided predatory loans to consumers have registered with ASIC as credit providers. In what will be a major test for the regulator as it takes over responsibility of the mortgage industry, ASIC must decide whether to grant these lenders a licence. Bleier Mortgage Corporation was found in 2006 to have provided an unjust loan to Michael and Karen Cook. The loan was for $195,000 and the
Supreme Court of NSW ordered the lender to repay more than $13,000 in loan fees. Permanent Mortgages, which has also applied and is based in Victoria, had a ruling go against it in the Supreme Court of WA this year. The court said that Permanent Mortgages dealt unconscionably with an 85-yearold client. However, a spokesperson for the company has said that brokers were to blame for the unfair lending practices.
The spokesperson said he expected to receive ASIC approval. Permanent Mortgages is part of La Trobe Financial, which has about $1.6bn in
mortgages and 145 employees. The spokesperson said the company had stopped working with brokers as a result of the predatory loan problem.
Exit fee crackdown to hurt competition ASIC has set
“unconscionable and unfair” exit fees in its sights, but as Ben Abbott finds, borrowers may have to trade cheaper deals on rates for this greater regulatory protection
he Australian Securities & Investments Commission’s consultation paper on “unconscionable and unfair” exit fees may end up further limiting competition among lenders even though intending the exact opposite, according to non-bank lenders. Released in late June, the consultation paper aims to regulate early exit fees, with ASIC Commissioner Peter Boxall saying “excessive” exit fees “may deter consumers from switching to another mortgage”, and so limit switching and competition. However, non-bank lenders are united in opposition to exit fee changes, which they say would threaten their ability to compete against the major banks with cheaper rates. AIMS Home Loans head of group operations, Jim Miltiadis, moved to defend exit fees after the consultation paper was released, telling AB that “you are not comparing apples with apples”, when comparing bank and non-bank exit fees. Liberty Financial chief financial officer James Boyle agrees, saying the regulator was taking “a generic approach to a non-generic market”, and that while it is a legitimate concern, the regulation assumes there is a level playing field among lenders. Lenders – particularly non-bank lenders – use deferred establishment fees (DEFs) and cheaper rates to entice customers onto the books, provided the lenders are able to recoup the costs if the borrower refinances early, typically during a three- to five-year period. Australian Bankers’ Association chief executive Steven Munchenberg said DEFs are beneficial to consumers, as they were often able to “reduce the cost to the customer of setting up a new loan at a time when they are incurring many other costs”. However, non-bank lenders make use of deferred fee cost structures more readily in order to compete with the major banks, and will have the most to lose from changes to exit fee structures imposed by the regulator. They fear any semblance of a “level playing field” may be eroded. Liberty Financial’s general manager James Boyle said banks and non-banks have been “like chalk and cheese” since the financial crisis, which pushed funding costs for non-banks out to a much higher level than banks. At present, AIMS accesses funding at a 100–130 basis point premium to the banks. Miltiadis said if non-banks are unable to recover the costs of establishing their loans through DEFs, alternative lenders will have to exit the market, and “the competition the government is looking to create will diminish.”
Exit fees: the fine print 1. Early termination fees or deferred establishment fees (DEFs): May or may not be charged, depending on how long the client has had the loan. This fee typically applies for the first five years from the settlement day. 2. Break costs (only applicable for fixed rate loans): May or may not be charged, depending on the current interest rate situation relative to the original interest rate at the time the client took out the loan. 3. Other fees: These include discharge fees, administration fees and any other fees associated with closing a customer’s loan. Source: Cannex
Boyle agrees. “The big issue with the proposed regulation is it is intending to promote competition, but it may well have the exact opposite impact.” MFAA chief executive Phil Naylor said the issue is “multi-dimensional”, and agreed in a statement following ASIC’s announcement that changes to exit fee structures might inhibit competition through impacting non-bank lenders. “Non-bank lenders were the most heavily affected by the GFC and are still recovering from this significant challenge,” Naylor said. AIMS’ Miltiadis says exit fees are only one part of the value chain, and need to be looked at wholistically. “Nonbanks don’t have the multiple touch points the big banks do.” He said banks are able to adjust their cost structures and use other areas such as deposits to increase stickiness. “The only way for us to have a profitable business is to make sure the customer doesn’t walk away within two to three years of taking out a loan without the ability for us to recover costs,” he said. Australian First Mortgage’s director David White acknowledges some penalty fees may need to change. He gives the example of lenders who charge a penalty right through the term of a loan, after the first three to five years. White said he considers a 1.5% early termination fee in the first year is “fair”, followed by a sliding scale of reducing rates after that. He argues if a lender is charging a borrower 2% or more, particularly on loans beyond a year, they may be profiting from exits. ASIC’s consultation paper implies the regulator will focus its exit fee moves on limiting exit fees that are not based on costs – that is, fees applied above and beyond the cost of providing a loan by the lender, which may have the consequence of locking clients in to a particular provider. In the end, non-banks say that their cost structures should be maintained, for reasons of competition. “Different methods and different approaches result in good results for customers. If you allow more organisations to participate, then customers will get a better deal, not worse,” Boyle said.
www.brokernews.com.au Joe Trimarchi is a principal at the law firm Joseph Trimarchi and Associates that specialises in Australian credit reporting law. He can be contacted on: email@example.com
Ben Abbott, editor of Australian Broker
CREDIT FILE FOOTPRINTS A CLIENT HAZARD
Borrowers may be putting themselves at risk of credit difficulties by not watching their credit footprints, as Joseph Trimarchi discovers A footprint is defined as activity recorded on a credit file, and the content of such activity is wide and varied. Most footprints are placed on a credit file unilaterally by a credit provider in response to a failure by a consumer or organisation in honouring the terms of a credit agreement, typically the failure to pay or late payment. Other footprints are placed on a credit file by the consumer simply making an application for credit, irrespective of whether or not they take the loan. The implications of excess credit enquiry on a client’s file is that it affects the outcome of approvals and ultimately obtaining credit. Some lenders score excessive credit enquiries harshly and view them with the same disdain as a default or judgment. Accordingly, the credit enquiries of clients, where possible, should be kept to a minimum. Internet applications for credit or using the internet to search for various credit options contribute most to excessive credit enquiries appearing on credit files. In most cases it is not apparent from the website that an enquiry is being logged and recorded. The nasty surprise normally rears its ugly head sometime in the future once the shopping around is complete and a true request for finance is made. But by then it’s too late and the damage is done. Clients need to be protected from falling victim to excessive credit enquiries. We suggest the following: . • Clients should read the terms and conditions of a website to see if it’s their policy, before making an online enquiry on all enquiries and applications. • Finance brokers should make clear whether the client is just shopping around, in case the client does not wish for an enquiry to be listed against their credit file. • A broker or institutional representative can assess the application prima facie before lodging an application or even making an enquiry.. Remember, credit enquiries stay on a client’s credit file for a period of five years. The credit file is an important instrument which gives lenders an insight into the client’s creditworthiness. Therefore, all steps should be taken to preserve its integrity and portray the client in the best possible light to prospective credit providers.
Possible credit file footprints • Defaults • Judgments • Credit enquiries • Cross references • Previous directorships • External administration • Bankruptcy and Pt 9 Debt Agreements • Court writs & summons
When ASIC completed its registration process and assumed the supervision of the credit industry on 1 July, it was only a week after I had commenced work at AB. Speaking to many brokers, aggregators and lenders since then, I’ve gained a strong impression that I have joined this leading title and the industry at a time of profound change – but also, one it is more than ready for. It is fitting then, that this issue features a conversation with ASIC’s senior executive leader for credit, Greg Kirk, who is responsible for spearheading much of this change through the rollout of the National Consumer Credit Protection regime. Taking stock following the end of registration, Kirk tells us that the broking industry, in particular, has been engaged with the process, and that coming licensing measures should not be feared. Some industry participants may worry how the regulator will approach its new remit, however, Kirk has moved to reassure us. ASIC will not move to crack down unnecessarily on minor infringements, just to flex its muscle. The regulator will not seek to interfere and micro-manage the way businesses operate, creating an unnecessary compliance burden that will drown small businesses in “volumes of paper”. Instead, ASIC sees itself as offering a helping hand – a guide – to push the industry in the direction it needs, with an agenda driven more by the protection of consumers than the regulation of brokers. This approach will be welcomed among a receptive industry. Recent FAST research showed that 78% of its brokers thought that coming regulation was a positive development, as it would increase industry professionalism. The only caveat being that it not burden them with compliance. Indeed, much of the lobbying the MFAA and other industry associations have done has been focused around avoiding this compliance trap, following Financial Services Reform which tied financial advisors up through a large amount of compliance. Who, after all, sees the necessity in having 80–100 page Statements of Advice (SOAs), as emerged under the FSRA? Perhaps the lessons of the financial planning industry have been well learned. However, ASIC’s partnership approach may not last forever. The UK’s Financial Services Authority (FSA) took a similar developmental approach for some years, before taking an about-face and going on the offensive. Just before this article went to press, the FSA had banned six brokers in one week. Yet while ASIC may one day also take this path, it appears brokers are safe for now.
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Comment THE FORUM
ARE FEE-FOR-SERVICE PRODUCTS THE WAY FORWARD? When Nationwide released a new fee-for-service-style product around Australia after limited trials, the response from the industry was immediate. AB posed the question – are fee-for-service products the way forward? Here’s what you said: Commented by: James, 05 Jul 2010 at 11:42 AM Fee-for-service can supplement your income. I am trying it . now with some NAB business. You simply get a fee agreement signed before giving the lender’s name. For example, I can save a customer $3,000 pa by getting it priced and charge him $2,000 once . only for the savings. Further, it will only cost him a few bucks a month when built into the loan. Commented by: broker Tony, 05 Jul 2010 at 12:10 PM Fee-for-service is a good concept but if you project things forward to a time when it is widely accepted and clients are receiving cheaper deals from brokers than from banks then guess what? Banks decide brokers don't need trail because they are happy to give it up. Brokers also don't need upfronts because they are charging a fee. Can you imagine a bank allowing its branches to lose deals to brokers on price courtesy of cheaper base rates? Logically the banks will stop paying commissions altogether and ensure everybody receives the same price. Then we are behind the eight ball again trying to win a deal charging a fee that the competitor doesn't have. Concept is good but this has no long-term benefit to brokers. Commented by: Fez, 05 Jul 2010 at 05:30 PM It's the way forward for anyone wishing to be a broker long-term. We need to portray ourselves as professional people, whose knowledge, experience and advice are worth something tangible! I think it'll also help to reduce the number of tyre-kickers out there and allow us to focus more on genuine customers, thereby enhancing our ability to offer them an even better service than we do already. Commented by: Steve, 05 Jul 2010 at 11:04 AM After our industry has unfortunately trained people for so . many years that our service is free and the cheapest interest rate is . best, it is a very long uphill battle to change the consumer’s idea. . Unless there are products that are only offered through brokers that . are cheaper than the big banks it will always be near-impossible to . get fee-for-service up to any decent level of income. A true fee-for-. service model would eventually see lenders taking trail away completely, so unless you have something better to offer than what a client . can get themselves going direct, most clients will just use brokers . for information.
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On Self Managed Super Funds (SMSFs), and the possibility of brokers being locked out of providing advice on SMSF lending following the recent Cooper Review. Here’s what you said: Commented by: Keith Nicholson, 07 Jul 2010 at 09:36 AM I am a mortgage broker and have arranged funding for SMSFs for both residential and commercial property. I also have my own SMSF with property investments. Quite frankly my experience with financial planners and accountants is that they have little understanding of how the funding process works and the requirements of the lenders. Even if their licence does cover this type of transaction I don't see how they will obtain accreditation with the lenders. I have yet to see a financial planner who recommends direct property purchase over managed funds and property trusts – for obvious reasons. Commented by: Peter Moore, 07 Jul 2010 at 10:02 AM I am a financial planner and also hold a ACR (mortgage broker) with my AFSL with my dealer group. I agree with the Cooper Review. SMSF can be complex. Commented by: Dylan, 07 Jul 2010 at 11:14 AM Yes it can be complex, but maybe extra training by lenders that do SMSF is the answer. I don’t think brokers should be allowed to recommend opening, nor do I think they want to, but to cut them out of the emerging market or lending to SMSF is harsh. Also considering accountants and financial planners have enough on their plates, why not let brokers do what they do best? Commented by: Albertus Waldron, 07 Jul 2010 at 12:31 PM I am a broker working with a financial planner to offer clients all the options available. With nearly 20 different loans available I know the financial planner I work with certainly doesn't have time to know the ins and outs of each lender’s products or requirements. Where is the ‘responsible’, ‘most suitable’ product question in this equation? Commented by: Martin, 07 Jul 2010 at 01:14 PM Superannuation is a complex legal environment, which is only really appreciated when dealing with SMSFs. Being an advisor and broker for over 10 years specialising in SMSFs, I find it difficult to understand why brokers are so keen to expose themselves to the risks of advising SMSFs. Believing that your responsibility is simply to arrange the finance is shortsighted and dangerous. It has been my own personal experience since the laws changed in September 2007 that many brokers did not – and still do not – understand how certain lending contracts affect an SMSF and how this may or may not leave the trustees exposed. At a training session in the early days of this super property strategy a product provider reluctantly agreed that the broker carried all the responsibility if their contract in some way contravened the superannuation laws and left the fund non-complying, something the brokers in the room were very surprised to find out.
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Net, working? Could social media sites like Facebook, Twitter and LinkedIn be the next great marketing tool for brokers? Kevin Eddy investigates
ocial media, social networking, Web 2.0: these terms have become ubiquitous over the last few years amongst technophiles and internet Luddites alike. It’s increasingly becoming the case, too, that social media sites and services like Facebook, Twitter, LinkedIn and others, are being used by businesses as a way to market their brands and connect with customers directly. Recent research by PR agency Fleishman-Hillard and market research firm Harris Interactive has found that 75% of people surveyed thought that companies that ‘microblog’ (typically sending Twitter messages or posting status updates on Facebook) are ‘more deserving of their trust’ than those that do not. So, should brokers be taking advantage of this new way of interacting with customers and peers – and could it ever replace more traditional methods of communication? Aggregator Mortgage Choice is one company that has embraced social media as a communications tool. It set up a Facebook fan page in early March 2009, and a corporate Twitter account at the start of June that year. Both sites have grown at a steady pace – the Twitter account alone has over 1,000 followers. Mortgage Choice also operates its own YouTube channel, has a regular blog and has maintained a LinkedIn profile for close to two years. Senior corporate affairs manager Kristy Sheppard is enthusiastic about the benefits of social media. “If it’s used right, social media can really boost customer loyalty to your brand,” says Sheppard. It’s very easy for larger organisations to become faceless, to lose the essence of their corporate personalities, and social media provides a great way for stakeholders to approach the brand – and the people behind it – directly. “It’s also a great way to communicate with various stakeholder groups without messages getting confused: for example, we don’t only have existing and potential customers following us on Twitter, but also media, industry participants and government. It’s also a great
Sarah Thomas’ top five tips for social media 1. Start listening 2. Have a plan 3. Fish where the fish are: find out where your customers are and who they’re talking to 4. Build relationships: it’s not an advertising campaign 5. Use social media as part of a bigger, long-term strategy mechanism for bringing in leads.” Scott Beattie, business development manager at Cube Home Loans in Brisbane, thinks that using social media can be just as useful for smaller outfits – if not more so. The core of his social media strategy is based around Cube’s Facebook profile, which is integrated with its Twitter feed so each automatically updates the other. “The smaller you are, the smarter you have to be with your marketing,” says Beattie. “It’s a great way to leverage one of the key benefits you have as a small operator, which is that you offer a personal service – and social media is all about personal connections. It’s also a cheap way to market yourself,” adds Beattie. “It doesn’t cost anything to set up a Facebook fan page, apart from the time you need to invest in it, and it’s certainly cheaper than redesigning your website. I have written loans for contacts I’ve made via Facebook,” says Beattie. “We’ve also used it for web-only special offers: we’ve already done a special discount on insurance, and are considering an offer where we’ll waive the bank application fee if you come to us via Facebook and apply for a loan. There are also amazing things you can do with targeted advertising, if you choose to.”
The personal touch
It all sounds good – but how can you make the most out of social media, and avoid the infamous ‘tweeting what
Social media provides a great way for stakeholders to approach the brand – and the people behind it – directly
you had for breakfast’ faux pas? Sarah Thomas, owner and managing director of social networking agency Crave Consulting, says the key thing is to plan ahead. “Most of the tools in this space are free: as a result, people sometimes see this as something apart from their normal marketing strategies. It’s not – social media should be incorporated as just another part of your marketing plan.” She also recommends that you dedicate resources to researching before leaping in. “Listening is crucial: you need to find out what is going on in the online environment, and where the communities you want to access are gathered. There’s a huge risk involved in jumping in head first without looking, and if you get it wrong you tend not to get a second chance in this space.” Sheppard agrees that it’s essential to know your audience and to use different social media for different purposes. It’s also worth thinking about what time of day you plan to update, what tone you want to use and whether that will differ from site to site, she adds. Beattie agrees that you have to think carefully about your message. “You do have to be somewhat careful about what you put online: you have to treat it like a work tool. Sure, including some social material is important in order to achieve the personal touch – and not every posting should be pushing a product – but if you’re too informal, there’s a risk that you could turn people off.” Thomas urges users to remember that they are representing a brand. “Yes, you need to be real, human and authentic, which may occasionally mean talking about what you had for breakfast, but you need to keep in mind people aren’t following you due to your culinary expertise,” she points out. “You need to add value and expertise in your area: so for mortgage broking, you should be providing industry news, hints and tips and so on. However, if you do your research first, you’ll soon work out what your community does and doesn’t like, and there are plenty of free online tools that will help you measure whether you’re being successful.”
It’s a great way to leverage one of the key benefits you have as a small operator, which is that you offer a personal service
New world order?
Will the rise of social media mean traditional marketing becomes redundant? Beattie doesn’t think so. “We still do the normal communications – a fivedollar scratchie on customers’ birthdays, contacting borrowers to find out if they want to refinance, that sort of thing. It won’t replace traditional marketing, but it is another very useful method of getting to new and existing customers.” Social media may not be a replacement for existing methods of communication. Ultimately, you can’t beat getting on the phone or meeting up with someone to really cement a relationship. However, it is a new and growing form of communication, especially in an increasingly globalised and web-oriented world – and one that brokers ignore at their peril. As Beattie points out, “if you’re not doing it, your competitors are – or soon will be”.
Horses for courses: expanding networks Social media isn’t just useful as a marketing tool: it can also help you expand your business network. Glen Miller, licensee of Mercantile Group, rates LinkedIn for this very reason. “I find LinkedIn is good for networking within the industry,” says Miller. It’s especially useful in Australia, he adds, due to the distances sometimes involved. “I’ve got contacts in pretty much every major city in Australia, as well as one contact in Qatar. It’s useful for getting in touch with people, especially in the age of the internet when it’s sometimes easier to send an e-mail rather than pick up the phone. “It’s also useful for staying in touch with people I may not speak to that often: for example, I’ve got a couple of lenders that offer niche products, who I may only speak to once or twice a year. “Rather than having to search through my address book, it’s easier to pick up my iPhone, go to LinkedIn and pick up their contact details from there,” he says.
One year on
Headline: Regional banks fight back (page 2)
What a difference a year makes... or not. Australian Broker reflects on the top stories from issue 6.14 and finds out whether things have changed
Issue: Australian Broker issue 6.14 Headline: Lack of lending competition a big worry (page 1) What we reported: The growing dominance of the major banks in mortgage lending is raising alarm bells at aggregation giant AFG. As part of its June Mortgage Index report, Mark Hewitt, the aggregator’s general manager for sales and operations, noted the encouraging signs that the mortgage market is normalising. First homebuying, investor activity and LVRs are all reverting towards the long-term trend after a period of turmoil, but he said the “real concern is that over 90% of all home loans are controlled by just four institutions”. Hewitt said the dominance of these lenders had allowed them to exert more influence over brokers. “You’re seeing in their accreditation [requirements], policy and pricing. It has allowed them to flex their muscle, whereas in the past there had been competition from a strong second- and third-tier,” he said. Hewitt said there were concerns the banks would lift rates outside of the RBA cycle due to the fact that second- and third-tier lenders were unable to access funding to compete. He added that from a consumer point of view the lack of competition was also a worry. “Our industry has been based on competition and it’s been a great thing for consumers.” What has happened since? The economic situation has improved significantly from this time last year in a number of ways, and that has meant that nonbanks lenders have been able to return to the market. When AB caught up with Mark Hewitt to see how he felt about the state of the market now, he was certain it had changed. “Around 12 to 15 months ago we had about 90% of our business going to brands owned by the Big Four,” says Hewitt. “Today, it’s 80%. That means the brands outside the Big Four have doubled their market share,
mainly due to innovative products and being able to compete with the majors – both on price and credit terms.” Hewitt adds that the changing appetite of the Big Four will influence how the market progresses. He points out that some of the larger lenders have taken on a lot of business over the last couple of years, and may not be as hungry for new business as smaller lenders, who he believes can step in to fill that gap. The real shift is still to come, though. “What we haven’t really seen yet is the big paradigm shift amongst consumers. At the moment they’re not ready to move away from the ‘safe’ major brands,” adds Hewitt. “We expect that to change, and for consumers to start coming back to non-bank brands in the near future: we’ve been running sessions with brokers on how to reassure consumers about non-major lenders.”
Headline: Fewer Australians falling behind on mortgage (page 23) What we reported: Borrowers have been keeping up with their mortgage payments thanks to successive interest rate cuts and government stimulus actions. Ratings agency Standard & Poor’s reported that the arrears fell from 1.66% in March to 1.62% in April. There’s been a general trend downward after arrears peaked in January at 1.84%. But missed payments on sub-prime loans remain substantially higher at 16.3%. Many borrowers in this segment of the loans market took out their mortgages in 2005 and 2006. Many are unable to refinance because of tightened credit policy. What has happened since? Standard & Poor’s has just released its latest figures for both prime and sub-prime arrears on mortgage loans for the first quarter of 2010 – and the signs aren’t good. While still lower than this time last year, arrears on residential mortgage loans rose by 0.19% to 1.44%. During the same period, arrears for sub-prime mortgages also increased by 0.67%, to 12.24%. Standard & Poor’s believes that while the six consecutive rate rises may have contributed to higher overall arrears levels, the sound performance of the broader economy and the strong fundamentals of the housing industry will continue. However, the firm cautions that if interest rates continue to rise, some first homebuyers who entered the property market when interest rates were historically low, and self-employed borrowers whose cash flows are more sensitive to economic conditions and borrowing costs, may be affected further.
What we reported: Australia’s regional banks have had enough and are fighting back against the government’s threetier wholesale funding guarantee pricing structure by petitioning the Senate to do away with it. Arguing that it has given the Big Four banks enough of an unfair leg up, the second- and third-tier lenders are concerned that continued support from the government will see their ability to provide credit diminish and lead to an “anticompetitive” lending environment. “The tier system has created an unlevel playing field that gives the major banks a considerable advantage,” said Damian Percy, general manager for third party mortgages at Bendigo and Adelaide Bank. While Bendigo and Adelaide Bank supported the government’s economic steadying initiatives 12 months ago, they believe it is time to free up competition again now that stability had returned to the market. Percy said the tiered policy had already altered Bendigo and Adelaide’s broker relationships, since the lack of access to wholesale funding had meant the banks were hamstrung by a lack of choice for mortgage clients. So it’s no surprise that Percy welcomed the petition. “We are looking to government to level the playing field so that all authorised deposit taking institutions can access funding without penalty.” What has happened since? Federal Treasurer Wayne Swan announced on 8 February this year that the Federal Government Guarantee would be removed as of 31 March. The managing director of Bendigo and Adelaide Bank welcomed the move at the time, saying that the bank’s customers “can once again experience the market leading-service from Bendigo and Adelaide Bank without temporary market forces distorting the price they can receive.” He added that the removal of the guarantee was “further evidence that the Australian financial services sector has emerged from the global financial crisis in good shape”.
OFF THE CUFF Glen Jones
Chief executive officer, Nationwide Lending What was the last book you read? For crying out loud by Jeremy Clarkson. Being a huge fan of Top Gear, I really enjoy Clarkson’s very dry and subtle humour. If you did not live in Australia, where would you like to live? Tough question. I’ve travelled quite extensively throughout the US, Canada, Western Europe and some of Eastern Europe, too. My stay in Malta was probably the best. You can’t really beat a Mediterranean island with an English-speaking population that has a laidback lifestyle. Australia will always be my choice of where to live though. If you could sit down to lunch with anyone you like, who would it be? I’m a huge Formula 1 fan and to have lunch with Mark Webber would be awesome. He is an Aussie legend and I was privileged to see him win the F1 Grand Prix in Germany last year. To get inside his head and explore the focus and determination he has in order to win would be great. What was the first job you ever had? I’m not embarrassed to say it was at McDonald’s. It was a great grounding straight out of school and understanding their ‘systems for systems’ mentality; I believe it attributed to where I am today. What do you do to unwind? Business keeps me fairly occupied and I always tend to be creating products and improvements at all hours. Outside of this, an action or comedy movie usually unwinds me, with a nice red wine. What’s the most extravagant gift you ever bought yourself? A few years ago when I was living in Melbourne, I purchased a Bayliner Sports Cruiser to use around Port Phillip Bay. This was a very nice powerful toy which I miss dearly. What CD is currently playing in your car stereo? I have a very nice car which is rarely used as I walk to the office. On the odd occasion that I do drive, I actually choose not to have the car stereo on at all. The exhaust note is more than enough for me and allows for some thinking time too, without any music being played. If you could give anyone starting out in business one piece of advice, what would it be? Starting out in business is difficult no matter the industry. A comprehensive business plan with a detailed SWOT analysis would be
my advice. This will greatly ensure success and the old saying, “if you fail to plan then you plan to fail” comes to mind. If I was not working in the mortgage industry, I would like to be… I love our industry. There’s always a challenge and rarely any two days that are the same. If I weren’t in the industry I must have retired and be out sailing a boat somewhere. Where was the last place you went on holiday? My last holiday was travelling Europe for 3½ months last year. A real life history tour, especially throughout Rome and Pompeii. It was sensational.
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Two plus two equals – erm...
Let them eat rice
n a recent sojourn to the exquisite French capital, Paris, Insider managed to pull himself away from the pleasures of French wine and foie gras to pay a brief visit to the infamous Palace of Versaille. Suitably stunned by its immense gardens and overt opulence, he imagined with envy that King Louis XIV must have had just about everything one could wish for in life. It was a shame, then, that the peasants did not have any bread. And so it was with curiosity that Insider returned to read a recent report from the University of Western Sydney, which uncovered increasing evidence of severe mortgage stress across Sydney, causing families to make drastic cuts in their living expenses, to the point where one such diligent mortgage-paying family was forced to sate their hunger on a diet of… well, rice. While Insider is not averse to the odd bowl of fresh, steaming rice (usually accompanied with a
strong curry), the findings were disturbing. It was only that evening, while reading a 2010 JP Morgan/Fujitsu report on Australia’s mortgage industry, that the two pieces seemed to align. The report said, should interest rates rise to the 15-year average of 7.7%, 42% of first homeowner post-tax income would be committed wholly towards “debt service”. The terminology more than the figures was the most alarming thing. Debt service, after all, seemed a trifle too Machievellian for comfort. Insider was forced to ask: had the French cast off the shackles of oppression – for want of bread – only for it to be replaced a few hundred years later with a different staple – rice? Had we sleepwalked into a neo-feudal nightmare where families happily pay hefty tithes for the right to live on the land? At this point, Insider decided he’d had one too many glasses of red wine and turned in. However, he did dream – briefly – that night of just what it might be like to live on cake.
n what must be the least reassuring statistic seen so far this financial year, a recent survey of chief executives by IBM has revealed about half don’t really understand what they’re doing. The survey, for which IBM interviewed 1,500 executives across the world, posits that the increasing complexity of the business environment is going to be a growing challenge over the next few years, but 54% of respondents have no idea how to handle that complexity successfully. Not very reassuringly, bosses from Australia and New Zealand were even worse off than the rest of the world, with just two-fifths saying they felt prepared. So, what these CEOs – of publicly-traded global companies, no less – are saying is that they might just have to wing it slightly over the next few years, a prospect leaving Insider even more concerned. If a sole trader with a simple business has to have a detailed five-year plan in order to get a bank manager to approve a business loan, one would hope the same rigour could be extended to the caretakers of multi-million dollar companies. Of course, senior level bankers have recently built up track records for not quite understanding what’s going on: it was the chairman of Deutsche Bank who couldn’t describe to the UK Parliament how a CDOsquared worked after the use of said instruments nearly brought down the global banking system. And the doubletalk continues:
“The study also showed that banking and finance CEOs are adept at dealing with ambiguity, with 64% using iterative strategic planning processes rather than formal annual strategy reviews.” Iterative strategic planning processes? Insider reckons they’re making it up as they go along.
Vowing to be a broker
nsider has watched with interest recent offers made by lenders or aggregators to pay brokers cash – yes, cash – for tardy responses or snail’s pace loan approvals. The favoured amount for any indiscretion appears to be $100 – nothing to turn your nose up at, one supposes. Vow Financial was the first cab off the rank, promising brokers $100 if they do not receive a callback within four business hours. The newly-formed group said the offer was a “powerful statement that gives Vow a point of difference by assuring our broker partners of our commitment to quality of service”. The emphasis here, is Insider’s own. Provident Capital joined Vow, offering to pay $100 in cash if conditional approval responses on Premium Range products are not sent within 48 hours of an application being made during July. Steve Sampson rationalised the move as “putting our money where our mouth is”. Well it would be, Insider thinks, if it applied to everyone. In July, Insider decided to make a call (partially due to a need for some quick finance for dinner and a night out) to see if he might chance by $100. He left a message with Vow at about midday (granted, not with the group’s broker relationship team), asking for a callback on an editorial matter. The next day, Insider was still waiting (much to his delight). In fact, Insider had already decided what he was going to order from the menu at dinner. However, finally getting in touch with Vow (who were extremely helpful in regard to his enquiry), Insider happily broached the subject of the $100. Was the cheque in the mail? Apparently not. As Vow politely informed Insider, the offer only applied to the group’s broker partners – journalists, then, did not appear to qualify for the cash. Despondent, Insider has been reconsidering his career: there might be a few more perks available as a broker. Insider wants some of that money where his mouth is.
Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au AGGREGATOR / WHOLESALE BROKER Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 19
LENDER Citibank Mortgages 1300 651 059 www.mortgagebroker.citibank.com.au page 9
LoanKit 1800 466 085 www.loankit.com.au page 18
Eurofinance 02 9252 8311 www.eurofinance.com.au page 15
Mortgage House 133 144 www.mortgagehouse.com.au email@example.com pages 16 & 17
Homeloans Ltd 1300 787 866 www.homeloans.com.au page 14
PLAN Australia 1300 78 78 14 www.planaustralia.com.au firstname.lastname@example.org page 5 Vow Financial Pty Ltd 1300 730 050 www.vow.com.au page 20 BUSINESS FINANCE Bibby Financial 1300 850 322 www.bibby.com.au email@example.com page 27 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 7 Think Tank Property Finance 1300 781 043 www.thinktank.net.au firstname.lastname@example.org page 31
NON-BANK LENDER Mortgage Ezy 1800 TOO EZY (866 399) www.mezy.com.au email@example.com page 32 NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au page 13
Liberty Financial 13 11 80 www.liberty.com.au page 3 MAS Funder 02 9283 7566 www.masonline.com.au firstname.lastname@example.org MKM Capital 1300 762 151 www.mkmcapital.com.au page 8 Provident Capital 1800 668 008 www.providentcapital.com.au email@example.com page 4 MORTGAGE MANAGER / NON-BANK Mango Media 02 9555 7073 www.mangomedia.com.au page 1
The House Price Information People
OTHER SERVICES Residex 1300 139 775 www.residex.com.au page 22 Trailerhomes 0417 392 132 page 24 SHORT TERM LENDER Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2 Interim Finance 02 9971 6650 www.interimfinance.com.au page 12 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 10 Rapid Capital 07 5562 2485 www.rapidcapital.com.au page 6
Royal Guardian Home Loans 133 455 www.royalguardian.com.au firstname.lastname@example.org
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