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ISSUE 8.08 April 2011
New lenders ready to join clawback club
Damian Percy
Non-banks and
second-tiers to slap brokers with new clawbacks An increasing number of lenders are instituting clawbacks in light of the ban on DEFs, it has been revealed. Among those who say they are either considering or will institute clawbacks are Bendigo and Adelaide Bank, Homeloans and National Finance Club. Bendigo and Adelaide Bank general manager of third-party mortgages, Damian Percy, said the bank is currently running numbers to find a way around clawing back broker commissions.
Percy, an outspoken critic of clawbacks, said Bendigo and Adelaide wants to remain consistent with its previous philosophy. “We’re looking at it now,” Percy said. “Our philosophy hasn’t changed, which is to the extent the borrower chooses to move, it always is and continues to be appropriate in our view that the borrower should wear that cost. Unfortunately, that’s no longer possible. We’re looking at a number of different approaches, because we have to be cognisant of how it impacts our partners, but we’re hoping we can find a way to maintain our philosophical position without costing ourselves a significant amount of money.”
According to Percy, the bank’s previous position against clawbacks has not yielded it the attention from brokers it had hoped. Percy said many brokers continue to favour major banks, even as the majors extended clawbacks and eroded trails and upfronts. “As clawbacks have been extended and upfronts diminished by the banks, those banks’ market share has historically gone up, which is very strange. Many brokers have been deeply disappointed to the point of genuine anger at the high-handed approach they felt they received from the majors, but in spite of that the majors continue to be supported,” he remarked. Percy said the bank will continue to work on ways to absorb the ban without instituting clawbacks, but could not rule out the possibility. “We’re desperately trying to find a way to remain consistent with our philosophical position, which we think is fair and reasonable,” he said. “We’re still not sure, but we’re forming the view that we might take a punt and invite brokers to express their view through showing us that there’s value in the proposition. Why do something different at your own cost if the market doesn’t value it?” National Finance Club has been among the lenders to announce the definite introduction of clawbacks. NFC revealed in April it will now clawback 100% of Page 20 cont.
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Benchmark confusion Affordability rate moves raise responsibility questions Page 2
Going off-panel Credit rep gets green light from AFG Page 4
Banks berated Flavell applauded for stand against “arrogance” Page 6
Inside this issue Forum 21 Brokers weigh in on clawbacks Viewpoint 22 Pundits analyse lender ageism Opinion 23 ‘Non-conforming’ no dirty word Analysis 24 A ‘positive’ credit reporting future? Market talk 26 The generation gap and you Toolkit 32 Getting your credit policy right Caught on camera 33 FBAA hosts industry panel
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News Benchmark rate revisions spur calls for caution Revisions to bank benchmark or ‘affordability’ rates have resulted in calls for brokers to conduct robust serviceability calculations, rather than rely on the calculators of lenders. In April, St.George reduced its benchmark rate by 0.2%, meaning an effective reduction in the benchmark rate for variable rate home loans from 9.6% to 9.4%. The benchmark rate is used to calculate if a client can afford a loan if rates were to increase. “St.George has completed a review of customer borrowing capacity to ensure we take into account current market conditions,” the bank said in an update to its broker network. “This change will result in a slight increase in some customers’ borrowing capacity.” However, the move followed a shift in the opposite direction from Homeside, which raised its benchmark rate from 8.25% to 9%. NAB says the bank continually reviews all its rates, including its affordability rates, to ensure that it is “lending responsibly”. “We recently increased our affordability rates in response to
several factors including recent moves in the RBA cash rate,” a NAB spokesperson told Australian Broker. “This decision helps to ensure our customers only borrow what they can afford to repay should rates increase, providing an affordability buffer.” Smartline mortgage broker Kevin Lee questions whether the bank moves are driven by customer interests, or the need to gain or trim market share growth. “Even though the reduction in St. George’s test rate is only 20 points, for my money it has been driven by their lack of market share, and not much else.” Ballast general manager Frank Paratore agrees it is difficult to understand a bank’s rationale for adjusting the benchmark up or down, but it could be seen as ‘turning the tap on or off’. He says this makes the affordability situation confusing. “It’s hard to gauge how we all operate in the industry, and yet based on the different lending servicing calculators, different institutions will lend varying amounts – some to quite a
significant degree. So who’s right, and who’s wrong?” he asks. Under NCCP, brokers must ensure that a Kevin Lee product is ‘not unsuitable’ for the client, and conduct a basic investigation into the client’s ability to repay the loan being sought. Lee says that bank moves on benchmark rates demonstrate the underlying need for aggregator software to be 100% accurate at all times, which he says is often made difficult by the banks. Paratore says brokers should probably consider the servicing calculators of one of the mortgage insurers, rather than relying on the changing assumptions of lender calculators. Previously, QED Risk Services director Greg Ashe urged broker licence holders to build their own serviceability calculators to meet their obligations, rather than relying on lenders. He said banks could use lack of exposure to the client as legal means to “hide behind brokers”. Got your credit policy in order? Find out how in Toolkit on Page 28
Non-banks face annihilation: MFAA The non-bank lending sector may disappear when the exit fee ban becomes law on 1 July this year, with non-bank lending going further backwards in February despite the government’s focus on mortgage competition, according to the MFAA. Referring to ABS securitisation figures released in April, the industry association said that smaller lenders are losing ground, while the banks’ 90.2% market share was the highest achieved since September 2010. The MFAA said non-banks managed only 1.9%. This
contrasts with the 13.6% share that non-banks had achieved in competition with the banks prior to the financial crisis. The ABS figures found credit unions and building societies held a 7.9% market share in February. MFAA CEO Phil Naylor said that the February ABS figures support the association’s contention that the upcoming elimination of exit fees will not increase competition. “Most of the major banks have already dropped their exit fees … this has clearly resulted in a churning of loans among the major
banks but to the detriment of non-bank lenders,” he said. “On the basis of this trend, nonbank lenders will disappear when exit fees are totally banned in July,” he said, adding that the MFAA had asked the government to exempt smaller lenders from the ban. “Without deferred establishment fees, competition will reduce and Australians will eventually pay more for their mortgages.” Non-banks and mortgage managers have already begun ditching DEFs and are considering broker commission clawback as part of their revised cost structure.
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Off-panel lending ‘fraught with danger’ Credit reps authorised by their aggregators to do off-panel deals could face extreme legal danger, it has been claimed. Gadens Lawyers has previously predicted that licensees would not authorise credit reps to do off-panel lending. However, Barrie Gaubert, director of mortgage manager Iden, said AFG recently authorised one of its credit reps to write business through Iden. Gaubert said the broker in question had worked extensively with Iden in the past. “The broker concerned did have a long pre-existing relationship with [us], so I suspect that did help our cause in that the broker did drive this from his end,” Gaubert commented. However, Darren Loades of insurance broker Insurance Advisernet, which provides professional indemnity insurance to FBAA members, said doing off-panel deals is “fraught with
danger” for credit reps. “If a credit rep goes out and writes business under another licensee’s banner, we’re not going to indemnify the other licensee. Our position is clear that if you are a credit rep, and you’re placing loans via more than one licensee, you should have your own PI cover,” he remarked. Were a deal to go badly and litigation to take place, Loade said both the lender and credit representative would find themselves as defendants. “I would suggest that the credit rep and lender would share top billing,” Loades said. Loades said credit reps will be able to write business offpanel if authorised to do so by their licensee, but should ensure that they protect themselves from liability. “I think it’s important for a credit rep to realise if they are going to move around and place
business themselves, they are their own entity and should carry their own cover,” he commented. Gaubert said that the broker in question did have his own PI cover, and said while some credit reps may be authorised to do off-panel deals, he does not believe this will be the norm. “[There] is no doubt that as more have gotten used to licensing, the credit reps have a clearer understanding of their obligations and restrictions, and we will see movement,” he said. AFG general manager Mark Hewitt agreed, saying a special,
Non-con loans see revitalisation
“It is encouraging to see such a strong return to health for the non-conforming loan market following the GFC. Pepper has long viewed the sector as an important growth area for the business and the 2010–11 Broker Report has confirmed our assumptions that there is a huge amount of untapped potential here,” Holmes remarked. The survey further found that while most brokers prefer email as a form of communication with lenders, 70% wanted more BDM contact and training seminars from lenders. Holmes commented that Pepper has made moves to better communicate with and
The non-conforming market has seen a post-GFC rebound, Pepper Homeloans has stated. According to the lender’s 2011 Broker Report, non-conforming loans accounted for 9% of all loans written in 2010, and 56% of brokers responding to the survey expect the non-conforming market to continue to grow in 2011. Most brokers listed tighter lending criteria as the reason they believe the market will grow. The survey also indicates that AFG and FAST are outperforming other aggregators in the non-conforming loan market.
A relatively small share of the broker market is writing nonconforming business, Pepper said. According to the company’s survey, 20% of brokers account for 70% of the non-conforming market. Pepper COO David Holmes said non-conforming lenders need to do a better job educating brokers on their products. Holmes remarked that knowledge of a non-conforming lender’s criteria is key in attracting brokers, with 61% of brokers who wrote the deals saying they chose their lender based upon familiarity with the lender’s requirements.
one-off concession was made for the broker in question due to his longstanding relationship with Iden. Hewitt said he did not foresee such concessions becoming a common trend. Gaubert said credit reps looking to do off-panel deals should be prepared for their aggregator to turn them down. He agreed that credit reps authorised to do off-panel deals should ensure they have their own PI cover, and added a word of warning to credit reps looking to do off-panel lending. “If it is just for one application, is it really worth it?”
Rewind: Denovan on off-panel lending Earlier this year, Jon Denovan of Gadens Lawyers suggested smaller lenders may find it harder to use the broker channel, due to the “significant risks” that exist for ACL holders in allowing their credit representatives to recommend off-panel lenders. He said this was because the licensee is obliged to form a view as to whether the loan assessment processes of the off-panel lender are appropriate, which requires checking for prudent servicability and income verification standards. educate brokers on non-conforming deals. “The recent hire of Mario Rehayem as director of sales for Pepper David Holmes will provide greater support to our broker partners. Later this year we will also unveil a new technology platform that will help brokers to more easily research and write specialist loans for their customers, speeding up processing times,” he said. Is ‘non-conforming’ a dirty word? See our Opinion, on page 23
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Lenders show ‘arrogance’ toward brokers: Flavell Some lenders have developed an adversarial outlook toward brokers, a major bank has claimed. NAB Broker general manager of distribution John Flavell has expressed frustration that banks often blame long turnaround times and low conversion rates on broker quality. He commented that many lenders are quick to blame brokers, chastising them on the quality of the deals they submit. “From a lender’s perspective, what I see is a lot of finger pointing, that it’s all down to the brokers. I don’t think that’s the case at all,” he commented. Flavell said many lenders seem unwilling to proactively work with brokers to improve the quality of the deals submitted. According to Flavell, lenders must share responsibility with brokers in this area. “I think it is incumbent on lenders to do the things we can to assist in the process. No broker lodges a loan believing it’s going to be declined. We have to make sure our policies are clearly articulated and well understood. We need a simple, consistent approach to policy, and we need to enable brokers where possible to ascertain where potential challenges with an application may lie before they lodge it,” he commented. One of the factors that can slow down applications as they head to unconditional approval is missing documents, Flavell said. He commented that many lenders’ habit of emailing or text messaging brokers to inform them
John Flavell
of missing information is often inefficient. Rather, Flavell suggests, lenders should be willing to call brokers directly. “One of the quickest immediate opportunities is to pick the telephone up, and we’ve made that a way of doing business. That way we can have a discussion where we think something might be missing in an application, and we can clear that stuff up right at the front with a phone call and stop bouncing back and forth,” he said. A phone call, Flavell believes, could potentially help brokers to better understand what further documentation a lender requires, or clear up situations in which a broker has sent documentation through and a lender cannot locate it. “Lenders make mistakes as much as brokers make mistakes. I would defy any lender to say they get it right 100% of the time,” Flavell remarked. Flavell accused some lenders of developing an adversarial
What you said… industry applauds Flavell’s frankness Well said John, you’ve hit the nail right on the head. I always find it interesting when lenders chastise broker numbers and preach to them on submission quality but when you ring a BDM for advice they don’t answer the phone. So of course it’s the brokers fault! Steve Sampson on 08 Apr 2011 11:06 AM Hear! Hear! Lynne on 08 Apr 2011 11:11 AM At long last a lender is saying the right thing! It is soul-wrenching when an assessment officer talks down at you, which unfortunately many do!! Jennifer Schelbert on 08 Apr 2011 11:16 AM Well said, I wish all lenders think like John Flavell. Shakun Reddy on 08 Apr 2011 12:24 PM It is encouraging to see a lender recognise that they also have a part to play in the quality debate. I hope other lenders take note, particularly one of the Big Four who is constantly and publicly berating brokers about the quality of their applications, yet their own back of house leaves a lot to be desired. rosiej on 08 Apr 2011 07:40 PM
relationship toward the broker channel, and said such attitudes are detrimental to the mortgage industry. “I think there’s a degree of arrogance on the part of some lenders toward their third party partners. I often wonder what customers would think if they could see the back-and-forth that goes on between lenders and brokers. I think they’d be quite distressed. It definitely doesn’t help the professionalism of the industry,” he said. However, not all brokers agree that lenders are being unfair to brokers in their calls for quality. State Custodians principal and MPA Top 100 Broker David Westerman said it is up to brokers to understand banks’
requirements. “Brokers are renowned for ‘throwing mud at the wall’,” Westerman said. “Banks should ensure their systems are streamlined and brokers should ensure that they understand the bank’s policy and oversupply on supporting documentation as opposed to undersupplying.” Property Planning Australia director Will Foster echoed Westerman’s comments, saying that lenders are right to be vocal about a lack of quality from broker submissions. “The broker is wholly responsible for the quality of the submission. It is our job to know the banks’ processes and get it right first time,” Foster remarked.
ASIC won’t stop age discrimination: Iden Age discrimination by lenders will still occur regardless of new ASIC guidance, a mortgage manager has claimed. ASIC recently released guidance updating RG 209 to prevent lenders from discriminating against borrowers over age 55 in order to comply with responsible lending requirements. However, Iden Group Barrie Gaubert has told an FBAA training day in Sydney lenders will continue to shut over-55s out of the market until ASIC releases clearer guidance. “I worry about the implications of the legislation on aged applicants. They’re trying to say there shouldn’t be discrimination, but the issue still has question marks,” Gaubert commented. According to Gaubert, lenders will be hesitant to approve loans for older borrowers as they cannot demonstrate how they would service the loan. Though the recent ASIC guidance dictates that reasonable inquiries into a borrower’s financial situation can reveal other means by which a loan can be serviced, even when there is no continued income stream, Gaubert said these means have yet to be spelled out by ASIC. “They say the borrower has to have a strategy to pay out that loan, but they haven’t defined what that strategy is,” he remarked. With no strategy or guidelines defined as yet, Gaubert claimed banks will be hesitant to lend to older borrowers, for fear of falling foul of ASIC. “Right now the banks are ‘nervous nellies’, and no one wants
to be the guinea pig,” he said. “We need to make sure we have a set of determinations, and we want the senior guys at the Barrie Gaubert banks to say what that set of determinations is.” Gaubert commented that Iden Group recently saw two 61-yearold borrowers turned away by major banks on the basis of age. He went on to claim that several major banks have an “unwritten rule” that precludes lending to anyone who cannot have the loan fully paid off by the age of 70. “ASIC hasn’t given as much guidance as they should,” Gaubert said.
ASIC on ageism “We are concerned by reports of older borrowers whose employment will reduce, or cease, before the end of the loan term, being refused loans because some lenders are adopting an unnecessarily restrictive approach to meeting the responsible lending requirements. Undertaking the range of enquiries required by the legislation will often reveal other ways that they will be able to repay the loan. The new responsible lending requirements in the National Credit Act are an important protection for consumers, but they should not be an inflexible barrier to credit for any segment of the population, and should not prevent consumers obtaining credit that they can reasonably afford.”
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ASIC vows to pursue credit complaints
ASIC is upping its level of surveillance of the mortgage broking industry, as it increases its role as industry watchdog, an ASIC spokesperson has said. ASIC senior manager Dominic Bilbie has said the regulator has
begun to actively conduct surveillance of the industry in order to catch out brokers and businesses not complying with NCCP regulations. “Surveillance will be conducted to provide information either proactively, or reactively where we have reports of non-compliant activity,” Bilbie commented. Bilbie said regulation and licensing have been reasonably well-received by the industry, with ASIC having thus far granted 5,600 ACLs and seeing 22,365 credit reps authorised. He claimed the process of licensing for the mortgage broking industry has run more smoothly than it did for the financial planning industry. “The application process has
Brokers post ‘milestone’ volume reversal Brokers posted a 7% jump in loan volumes to $14.8bn during the December quarter 2010, in what has been labelled a ‘milestone’ reversal following five successive quarters of declines. Data released by the Market Intelligence Strategy Centre (MISC) shows the single quarter recovery of 7% contrasts with the 11% reduction in broker-sourced loans in the September quarter 2010, as well as the 13% decline that was experienced in the last quarter of 2009. “The full [December] quarter was something of a milestone in the broker channel,” a statement from the MISC said in response to its findings. According to MISC, the result for the channel was aided by a period of rate relief at the end of last year – prior to November’s bank rate rises – as well as the acceptance by consumers of less intervention by the government in
stimulating the housing market. “The better result also came on the back of a generally more active and competitive mortgage market in the broker channel,” the MISC report said, citing a range of measures from majors and regionals to keep variable rates low and to offer fixed-rate deals and fee waivers. The MISC data showed that smaller lenders – which include boutiques, building societies, credit unions, originators and mortgage managers – managed to increase their share of loans during the December quarter, from 11.2% in the September quarter to 13.6%. This came at the expense of major and regional banks, which garnered only 86.2% of loans through third party brokers, down from 88.8%. “While the major banks collectively provided marginal growth on the September quarter, smaller lenders found they were
been less onerous than it was for the FSR,” he remarked. While Bilbie indicated the majority of the industry has transitioned well to the NCCP and licensing regime, he said the regulator is beginning to see growing complaints of noncompliant activity. “We’ve had around 1,900 credit-related complaints, and we are actively investigating those. The majority have to do with unlicensed activity,” Bilbie said. Bilbie has urged brokers to report any unlicensed operators they may know of. He confirmed that ASIC will take a measured approach, offering guidance to brokers who are confused by the task of compliance. He commented
that ASIC has granted some brokers and businesses extensions to bring their systems into line with NCCP regulations. “We’ve granted more than 50 applications for modification. Most of those are for relief where people could not comply in time,” he said. However, Bilbie said the regulator will show little patience for operators who are intentionally and knowingly non-compliant. “Our approach to compliance has been that if people are making a genuine effort to be compliant, we will take the appropriate approach. We will be less patient with unlicensed participants, or those who are non-compliant and it is to the consumer’s detriment,” Bilbie said.
better placed to compete more aggressively following on the heels of more than $6bn in new RMBS capital raisings in the previous quarter,” the MISC said. According to the research, these smaller lenders also offered “competitively aggressive variable and fixed-rate positioning”, with many smaller originators and white label broker groups affording 7% variable rate offers. “Macquarie Bank sought to match the major banks’ variable offers, while like Bendigo and Adelaide Bank, Macquarie also
targeted Pro Pak products by eliminating their annual fees,” the MISC report states. “AMP followed the strategy of some regional banks by reducing its fixed rates via its Basic package. HSBC was also an active promoter of its fixed rate.” A greater take-up of white label offerings among the lenders also aided the trend. “Especially active on the take up of these products were the brokers themselves,” the MISC said. MISC’s research pool represents over 80% of broker-sourced home loans.
Lender share of broker-sourced loans 100% 80%
88.8%
86.2%
Boutiques, CU & BS, Originators and Mortgage Managers
60% 40% 20% 0%
Major and regional banks
11.2% September Quarter 2010
13.6% December Quarter 2010
Source: MISC (Market Intelligence Strategy Centre)
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QBE LMI rules out RMBS market heats up 100% loans QBE LMI chief executive Ian Graham has said he has no concerns with current bank lending standards, despite revisions to LVRs that have seen them jump to 95%. Speaking at a media lunch in Sydney in April, Graham said that QBE LMI has always been comfortable with, and has been willing to insure, loans from lenders up to 95%. He said that despite the global financial crisis, the mortgage insurer’s “appetite” for 95% LVRs had not changed, and that any LVR reductions were a result of large and smaller lenders balancing their demand with their available supply of funds, or “rationing credit”. Responding to discussion about the potential comeback of 100% LVR loans, Graham said he does not expect to see these eventuate in Australia, primarily due to new NCCP regulations which he said have made lenders “more measured” in their provision of credit. He said smaller lenders would depend on investors to fund new 100% LVR loans, and this was unlikely as they were as conservative now as they have been since the GFC. Overall, Graham said he expects the
NCCP would have a positive impact on standards. “Misinformation and predatory lending are the primary targets of Ian Graham the NCCP. I’m confident we will see better quality business over the next decade than we saw in the last,” he said. Graham’s comments came at the release of research from CoreData, commissioned by QBE LMI, which suggested 83% of first homebuyers considered house prices to be overvalued. This included 42% of first homebuyers who perceived them to be “significantly overvalued”. This first homebuyer finding compared with the broader sample of those surveyed, with 45% of the total respondents considering houses overvalued, and 18% significantly overvalued. Graham said that this perception, combined with the absence of any upward pressure at the moment on property prices, meant buyers were more likely to put off their decision, and remained comfortable renting. However, he said this depended on individual buyer circumstances.
Investors turned off by disasters The number of property investors considering buying property in the areas that have been affected by natural disasters has more than halved. A new report by insurer QBE has revealed that, before the spate of natural disasters hit at the beginning of the year, property investors made up 71% of respondents considering buying properties in the areas subsequently affected. Post-disaster, the proportion of investors still interested in buying had fallen to 32%. Overall, out of the respondents who would have considered purchasing property in these affected areas, more than half say the disasters have not impacted on their intentions, while 40% are no longer considering buying property there or are considerably less likely to do so.
Citigroup has launched its first Australian RMBS offering since 2008, with an issue of $760m. The bond issue comes after Commonwealth Bank priced a $3bn issue of RMBS, marking the largest issuing of the securities since the GFC. The CBA deal represents the first multi-billion dollar RMBS pricing since Westpac’s $2bn deal in 2009. The top four classes of the deal all received AAA ratings by S&P and Fitch. Non-bank Liberty Financial also priced $250m in RMBS, while Community CPS Credit Union launched its first issue of RMBS, selling $300m in securities. In further signs that the RMBS market is heating up, Treasurer Wayne Swan issued a release announcing that Treasury has authorised the Australian Office of Financial Management (AOFM) to invest a further $4bn in the RMBS market. The amount will bring the federal government’s total RMBS investment to $20bn. “The global financial crisis led to a severe dislocation of international capital markets, dramatically reducing liquidity and funding access for smaller lenders. Without the government’s support, many smaller lenders would have withdrawn from the market, reducing competitive pressure on the big banks,” Swan said. While many industry figures, including Aussie founder John Symond and MFAA CEO Phil Naylor, have criticised the government’s RMBS investment as not going far enough, Swan claimed the AOFM investment to date has revitalised the securitisation market. “Our involvement has fostered a
Broker readies for refinance wave Enquiries from borrowers looking to refinance out of high fixed rate deals entered into before the GFC have caused a 30% spike in refinance enquiries this year, according to Loan Market. The mortgage broking franchise said in a statement to media that more than 100,000 Australians were locked into rates of more than 8% prior to the financial crisis, missing out on the subsequent cash rate reductions undertaken by the RBA following the crisis. Loan Market chief operating officer Dean Rushton said brokers
have an opportunity to capitalise in this market, with many of these homeowners now coming off fixed rate terms and seeking a better deal from the lower interest rates on offer. “Thousands of people who fixed their rates during 2007 and early 2008 when the cash rate reached 7.25% have had to sit back and watch interest rates drop dramatically to combat the GFC,” Rushton said in the statement. “These customers have been waiting for years to get a better deal. Even though the cash rate
has now come back to 4.75%, it is still well below the level the RBA had taken it during 2007/08.” A survey of Loan Market brokers showed that enquiries from refinancers has jumped by 30% this year, and that “they are almost all borrowers stuck on high fixed rates from 2008”. “The good news for these borrowers coming off fixed rates is that they are entering an extremely competitive market where lenders are wooing customers with a range of special offers and rate discounts,” Rushton commented.
Wayne Swan
The GFC led to a severe dislocation of international capital markets, reducing liquidity and funding access for smaller lenders recovery of investor confidence in the RMBS market with the proportion of private investment in AOFM-supported deals rising to 72% on average from 32% in January 2010. In addition to the $29bn worth of deals AOFM has supported, we’ve seen some $12bn worth of issuance that has occurred without direct support from the AOFM,” Swan said. Swan further stated that he has directed the AOFM to prioritise the development of a bullet RMBS market as a way of building “a sustainable and innovative RMBS market”. Rushton said 25% of the 253 brokers who responded to its latest survey said that their customers were Dean Rushton refinancing to consolidate debts, 15% were doing so to access more equity, and 10% wanted to top up their mortgage through their transaction. Loan Market said brokers are well placed to pick up on these trends. “A mortgage broker can assess a borrower’s personal circumstances and provide the best advice on what is on offer out there,” he said.
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Government may support reverse mortgages Reverse mortgages may see government support as Australia’s population ages, a reverse mortgage Darren Moffatt broker predicts. Darren Moffatt, managing director of Seniors First, has claimed that equity release will be crucial to fund aged care in the future. “The Productivity Commission has stated that there is not enough money in the budget to fund aged care without some sort of equity release program,” Moffatt said. Moffatt believes this budget shortfall may lead to government
involvement in the reverse mortgage market. According to Moffatt, the products will become increasingly important as more Australians head towards retirement age and find themselves being cash-poor, and the government finds itself increasingly unable to meet the growing demand for aged care. “It is possible that the government may step in to actively support the reverse mortgage sector,” Moffatt commented. The reverse mortgage market has seen many lenders exit following the GFC. However, Moffatt believes lenders will begin to re-enter the market as
Lifebroker launches income-generating comparison app
Insurance broker Lifebroker has launched an online comparison widget which brokers will be able to integrate into their websites in order to cross-sell insurance products. The app, iQuote, will provide comparison data for life insurance products. Lifebroker spokesman Kyle Heinrich says brokers will be able to place the widget on their websites in order to diversify their revenue by receiving a commission split on customers referred to Lifebroker. The application can also be customised to fit the design of brokers’ websites. “For brokers, the unique value it provides is a passive or proactive income. Brokers can simply refer their clients to use it on their site, or, by having the right training, will be able to work more with clients to explain what is available and what options are best for them,” Heinrich remarked. Brokers who use the app on their sites will be provided with
tools to track the quote submissions and status of referrals generated by the widget, as well as reports on leads, volumes, conversion rates and commission generated. Lifebroker will also provide branded banners for brokers’ websites to promote the widget, and will handle all compliance requirements for brokers who use the application. Heinrich says the application will provide comparison results and enable clients to purchase approved cover quickly. “This app will provide insurance for those who believe it is too time consuming and brings about too much paperwork. The quotes are instant, the application process is quick and cover can be given within 24 hours.” Heinrich recommends brokers who wish to integrate the comparison engine into their business’ website attend training sessions. These are taking place throughout April and May across Australia. “This will better inform [them of] the uses of the tool and how to make it work for them,” he said.
the government becomes more involved with equity release and reverse mortgage products become more regulated. “At one time, there were around 22 lenders in the reverse mortgage space. We’re now down to three lenders. “I expect to see a proliferation of new lenders and products entering the market [next year],” he remarked. Moffatt says reverse mortgage products are set to be included in phase two of the NCCP regulation. But he does not believe this regulation will see drastic changes to the rules governing reverse mortgages. “It is likely that ASIC will
accept all of SEQUAL’s recommendations,” he said. As ASIC regulation lends a sense of legitimacy to the products in the minds of consumers, Moffatt has predicted a strong upswing in demand for reverse mortgages. “About 42% of all reverse mortgages are originated through the broker channel,” Moffatt said, “and the products represent an opportunity for brokers”. He added that the products represent the opportunity for brokers to help ageing Australians pay for aged care, or increase their quality of life through the release of equity in their home.
Fitch deals good news to Big Four Fitch Ratings has affirmed the ratings of Australia’s Big Four, dealing a ‘Stable’ outlook to CBA, Westpac and NAB and a ‘Positive’ outlook to ANZ. ANZ and NAB retained their individual B ratings while Westpac and CBA held onto their individual A/B ratings. The ratings agency has commented that the ratings it dealt the banks were reflective of the majors’ dominant position in their home markets, strong profitability, low levels of impaired assets and improving liquidity and capital positions. Fitch said it also factored in the banks’ reliance on wholesale funding, and the risk of asset quality deterioration. Fitch director Tim Roche said this reliance on wholesale funding remains an issue for Australia’s major banks. “The banks have reduced their dependence through deposit growth and increased long-term wholesale issuance, while slower credit growth is also reducing the need for wholesale funding. Nonetheless, overall shifts in the mix are modest to date and material change is likely to take some time,” Roche said. Roche commented that Fitch expects the Big Four to continue to reduce their reliance on
short-term wholesale funding, and that the introduction of covered bonds will aid the process. The ratings agency has said there is limited potential for a ratings upgrade for CBA, Westpac and NAB, while ANZ’s Asian expansion could lead to an upgrade for the bank. Roche commented, however, that a global economic downturn could see ratings downgrades for the banks. “Prolonged dislocation of global wholesale funding markets may lead to ratings downgrades. In addition, high leverage leaves Australian households susceptible to negative economic shocks, such as a significant downturn in China. Asset quality may deteriorate materially should this occur, placing negative pressure on ratings,” he remarked.
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Variable rate appetite returns The demand for fixed rate loans has continued to wane, falling to 10% of all home loan approvals. According to new data from Mortgage Choice, fixed rates fell again in March, after being on the rise since July of 2010. Meanwhile, variable rates saw an increase in popularity amid consumer sentiment that the RBA will leave rates untouched for much of the year. Mortgage Choice spokesperson Kristy Sheppard says in spite of good offers available on fixed rates, consumer confidence in variable rates is returning. “Despite a number of lenders adjusting their fixed rates downwards to better align themselves with peers, variable rate home loans are attracting more interest from new borrowers than they have since October last year,” Sheppard commented. “People are either more confident of cash rate stability, more confident of their ability to ride predicted interest rate hikes or they have weighed up the pros and
cons of going with variable over fixed and decided the benefits are worth any risks.” In addition to growing interest rate confidence, Sheppard says increased competition among lenders has bolstered the uptake of variable rates. “A widening array of special lender offers such as variable interest rate and loyalty discounts, higher maximum LVRs and payments of various switching and establishment costs are deterring a growing proportion of new borrowers from taking up fixed interest rate home loans,” she commented. Sheppard said the upcoming ban on DEFs, as well as some lenders’ decision to remove the fees before the ban takes effect, may have influenced consumers. “They may also be encouraged by a number of lenders removing their exit fees, which means many borrowers will find it easier to switch loans if they get into strife or find a better deal later,” Sheppard said.
The Mortgage Choice data indicate that ongoing discount and introductory rates saw the biggest increase in popularity over the month, representing 25.02%
and 4.35% of approvals respectively. The standard variable rate remains the most popular, accounting for 30.41% of all loans settled.
Fixed rate home loan demand 18% 16%
15.22%
15.31%
14% 12%
11.24%
10.65%
10%
10.01%
8% 6% 4% 2% 0% November December Source: Mortgage Choice
January
February
March
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News AMAs back with new Pressure mounts for RBA rate rise award categories Online nominations have opened for the 10th annual Australian Mortgage Awards (AMAs), which showcase the mortgage industry’s professionalism. The AMAs attract thousands of nominations every year, as the industry comes together to recognise the achievements of star performers over the preceding 12 months. More than 700 brokers and industry leaders will celebrate the Awards’ 10th year as they gather for a memorable night of fine dining and live entertainment. This year, the event will be held at a new (soon-to-be-disclosed) venue. The evening will include a fundraiser for the Sydney Children’s Hospital, with prizes on offer. Organiser Key Media has announced that the 2011 AMAs will see some new award categories, as the event grows and adapts to the changing face of the industry. New awards will include
Past AMA winner, Debbie Neale, Westpac
‘Brokerage of the Year – Diversification’, ‘Best New Office on the Block’, ‘Franchise Brokerage of the Year’ and the national ‘Australian Brokerage of the Year’. The AMAs continue to thrive on the support of leading industry names, who continue to value the awards and the examples of professionalism they represent. “The awards epitomise excellence and leadership throughout the industry,” said award sponsor Vow Financial’s marketing manager Matt Mitchener. “This year is the 10th anniversary of the awards and we are thrilled to be on board as a sponsor.” Winning an AMA can be a career-defining moment for mortgage and finance professionals. Past winner and 2011 award sponsor Australian First Mortgage (AFM) director Iain Forbes said that for AFM, this is certainly the case. “Over the past 10 years, the Australian Mortgage Awards have assisted Australian First Mortgage to establish its business and achieve its position as the best non-bank lender in 2010. “Leadership and integrity are at the forefront of the awards, and AFM continues to support and sponsor the AMAs for this reason,” Forbes added. Brokers are invited to find out more about the 2011 AMA award categories at www.australian mortgageawards.com.au, where they can also submit their nominations. Nominations for the event close on Friday, 17 June.
Inflationary pressures are mounting on the RBA, as unemployment drops and business conditions improve. In what is typically seen as a signifier of inflationary pressures, the unemployment rate fell below 5% in March, according to ABS figures. Unemployment dropped to 4.9% in March, its lowest level since February 2009. According to NAB senior economist David de Garis, the result could put pressure on the RBA. “From an inflationary point of view, we want to keep our eyes firmly focused on the unemployment rate. We’re getting to that level where we were in 2005–06, where a year to 18 months later we saw inflationary pressures. I think the RBA has acted quite quickly and are a bit ahead of the game, but this number keeps them in play,” he said. De Garis said while NAB still does not predict the RBA will move on rates within the next month or so, the bank is still predicting a 50 basis point hike by the end of the
year. The bank has tipped a 25 basis point rise in August and another in November. “That remains our forecast based upon where the economy will be by the end of the year,” he remarked. According to de Garis, the forward indicators of labour demand have fallen slightly, but are expected to pick up as the resources boom escalates. Unemployment is expected to continue its drop, hitting 4.5% by 2012. Meanwhile, business conditions have also improved. In NAB’s most recent Monthly Business Survey, the bank indicated business conditions in March reached their highest level since March 2010. While business confidence fell slightly for the month, the report stated that confidence is still above trend, and is now more in line with business conditions. According to the bank, these improving conditions will put more pressure on the RBA to tighten the cash rate. NAB has stated that any easing of monetary policy is unlikely before the end of 2012.
Housing downturn imminent as finance sees another setback Housing prices are due to drop on the heels of ABS data, a property research firm has claimed. SQM Research has predicted a significant drop in home values across capital cities, as recent ABS figures show a declining demand for finance. According to the ABS data, housing finance fell 5.6% in February, with finance for the purchase of new homes dropping 12%. “The market is falling and is likely to fall at least 5% this year as an average for the capital cities,” SQM managing director Louis Christopher said. “We are most bearish on the Gold Coast and Sunshine Coast markets. Brisbane, Darwin and Perth also appear to
be in significant downturn.” Christopher indicated there is a growing amount of unsold stock on the market. SQM Research figures show a 3.8% increase in stock on the market for March, and a 47.5% increase since the same time last year. Christopher said it is yet to be seen how long the market will slump before it turns toward recovery. “At this stage it is difficult to determine when the market will bottom. Most likely it will occur shortly after any announced interest rate cut or significant federal government stimulus in the marketplace, similar to the First Home Owner Grant boost released in late 2008. There is an outside
possibility that the market could bottom without an interest rate cut or government stimulus if there is a large acceleration in inflation. At this point in time, consensus estimates suggest only a modest to moderate rise in inflation,” he commented. Though the property firm has predicted a decline across capital cities, it has stopped short of predicting any drops significant enough to constitute the much-debated existence of a housing bubble. “It is important to note that in our opinion it is unlikely this downturn will materialise into a nationwide housing crash for the
capital cities; rather a moderate fall in house prices is expected at this stage,” Christopher said.
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INDUSTRY NEWS IN BRIEF Squeeze to hit manager margins Mortgage managers will need to adjust to reduced margins if they are to keep their rates and broker commissions steady under the exit fee ban, a mortgage manager has claimed. Carrington National CEO Gino Marra said from a mortgage manager’s perspective, to keep rates at their current levels following the ban will require them to reduce their margins, and that that would be “OK for some, but for others it won’t be”. Marra said that as a result, mortgage managers will be under pressure to either hike rates or to introduce broker clawbacks. ING pushes REF waiver promotion ING Direct has announced a promotion to waive the reduced equity fee on loans with LVRs up to 85%. According to a release from the lender, the reduced equity fee will be available for loans up to $800,000, which will remove the need for LMI on these loans. “We’ve launched this promotion to get REF back on the radar,” ING Direct executive director of delivery Lisa Claes said. Claes commented that the waiver of the fee could help brokers and mortgage managers to draw potential buyers to ING. Frugal Easter for stressed homeowners New homeowners were more frugal this Easter in the wake of rising cost-of-living pressures. Research from Mortgage Choice published prior to the Easter break indicated that 32% of homeowners who bought their home within the last two years intended to spend less on Easter this year than last, due to mounting interest rate pressures. Mortgage Choice spokesperson Kristy Sheppard said borrower caution is prevailing in spite of recent interest rate stability. Westpac tips September rise Westpac has predicted a 25 basis point rate rise in September. Westpac CEO Gail Kelly, while speaking at a meeting of the Australia-Israel Chamber of Commerce in April, said that she believes the RBA will leave rates on hold until the latter half of the year. Kelly tipped September as the most likely month for the next cash rate hike. “Possibly around September-time I would see the potential for another interest rate change, but I think that will be 25 basis points up,” she remarked. FHBs pushed to sidelines First homebuyers continue to remain on the sidelines, while those entering the market are borrowing less, says RP Data. The company indicated that first homebuyers accounted for only 14.9% of the market in February. The result is the lowest participation by first homebuyers since June 2004. Those entering the market borrowed an average of $277,000, a 1.6% decrease over the past year. Meanwhile, RP Data has indicated that new listings were 17% above the 12-month average at time of publication, though they remain slightly below their level at the same time last year. Banks may slash rates A cut to the standard variable rate may be on the way, according to News Limited. After sparking public outrage due to out-of-cycle rate hikes, banks may be looking to make an out-of-cycle downward move in the coming months, an unnamed senior bank executive told the media group. “The yield curve has certainly flattened out at the wholesale market, so now it is just a matter of how long, and will it be sustainable? In order for them to make that decision, they will need to see a couple of months at this level. And if banks determine it will be sustainable at these levels, you will see an aggressive bank like NAB lower their interest rates. Then watch the others follow,” he commented.
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News
For all the latest mortgage industry news, visit www.brokernews.com.au
Giving financial advice gets harder Financial advisers will soon have to pass a competency certification exam before entering the financial advice industry, and will then need to be supervised by an experienced practitioner for at least one year. Existing advisers may also have to undertake a ‘knowledge update review’ every three years on changes to the law, the market and new products, in addition to their already existing Continuing Professional Development requirements. Outlined in a consultation paper released by ASIC in April, the regulator is seeking views on a new training and assessment framework for financial advisers, which would update the current requirements under its RG 146 training guide. The consultation paper follows a review conducted by ASIC which identified issues with the current framework, and seeks to improve advice by enforcing a minimum standard in line with development locally and abroad.
ASIC Commissioner Greg Medcraft said: “Our review identified concerns about current training standards and highlighted that change is required to increase consumer confidence in the financial advice industry and to encourage professionalism.” Feedback on the three recommendations of the consultation paper has been requested by 1 July. The changes come as part of the Future of Financial Advice reforms, which are also banning the payment of commissions on investment products. At present, the Financial Planning Association is in the process of updating its minimum education to degree status for its members by 2013. ASIC did not recommend
financial advisers needed a degree, but noted this could be considered in future. The requirements imposed on the financial planning industry by regulators and industry bodies are
widely seen as forerunners to those the mortgage industry will face in future. Trainers have suggested the industry may face increased training requirements in the future.
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Builders gloomy on market conditions The majority of builders are pessimistic when it comes to housing affordability, a new survey has found. The latest Master Builders of Victoria Building Trends survey has found 69% of builders expect housing affordability to deteriorate over the next three years. Thirty-six per cent said the rate of supply of available land for development purposes was bad to very bad, while 25% said the cost of land was the biggest impediment to affordability. Master Builders Victoria executive director Brian Welch said the results indicate builders do not expect worsening affordability to be rectified any time soon. “Our survey results show that [builders] do not believe the planning
A look at the numbers … How builders see the industry shaping up
22%
say the largest barrier to affordability is planning
3%
say the level of developable land is good
0%
say housing affordability will improve over the next three years
and land supply issues will improve unless some drastic measures are taken,” Welch commented. A second Master Builders survey gauging business sentiment in the industry has indicated that 30% of builders are concerned about the availability of finance, and that the majority expect interest rates to rise in the next 12 months, causing a decline in forward orders. “Builders’ expectations regarding their own business activity and profitability noticeably weakened in the March quarter with indicators tracking these measures remaining well below the peak achieved before the global financial crisis-induced downturn,” Master Builders chief economist Peter Jones said. Jones remarked that builders are facing significant financial difficulties with the withdrawal of government stimulus programs. “Despite reports of improved conditions elsewhere, financial constraints still bedevil the building and construction industry, with very little evidence of any easing in the latest figures.” Jones indicated that further rate rises would see confidence in the sector further eroded. “With the impact of higher interest rates still hanging over the industry, the risk of heavy-handed interest rate policy is a real threat to all sectors of building and construction,” he said.
Financial wellbeing takes a plunge Homeowners face rising bills, with the cost of living having climbed more than double the rate of inflation over the past 12 months. According to ING Direct’s latest Financial Wellbeing Index, Australian households say their bills have risen by 7.5% in the past year, outstripping the official 2.7% CPI figure. ING has stated that the financial wellbeing of Australian households fell to its lowest level since the survey began in March 2010. ING CEO Don Koch said the survey indicates households are facing pressures not accurately measured by the CPI. “Governments need to realise households are under more pressure than official figures are showing. That pressure extends across the entire household budget from consistent costs like mortgage repayments to everyday essentials like food and fuel,” he remarked. The survey found that Queensland households, many of which have been ravaged by flooding and cyclones, are experiencing the greatest hikes in living costs, which were measured at 8.3% over the last 12 months compared to 6.3% in NSW. According to ING, households are reporting “significant” increases in the cost of everyday essentials like medicine, schooling, utilities and fuel. As a result of trying to meet these costs, credit card
debt has risen from a median of $1,773 per household in Q4 2010 to $2,205 in Q1 2011. In the housing market, the proportion of households with no mortgage has dropped to 18% from 25% last quarter. Renters account for 30% of the respondents, while mortgage holders represent 48%. In the midst of financial stress, 46% of mortgage holders are paying down their home loan ahead of schedule, up from 45% last quarter. Fifty-one per cent are paying as due, while 3% say they are getting behind on their mortgage.
Wellbeing Index: The key findings • The Financial Wellbeing Index dropped to 104.8 – down from 106.5 – the lowest level since the inception of the Index in March 2010. • Australian households say that their cost of living has gone up 7.5% over the last 12 months – more than double the CPI figure of 2.7%. • Median savings per household have declined from $9,238 in Q4 2010 to $7,215 in Q1 2011. • One in three households are “uncomfortable” with their level of personal savings. • More than one in four households are “uncomfortable “with their investments. Close to half (48%) have no investments outside the family home. Source: ING Direct
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News upfront commission if a loan is discharged within 12 months, or 50% if discharged between 12 and 24 months. In an update to brokers outlining the changes, NFC said it expected the introduction of commission clawbacks would not be “overwhelmingly popular” among its broker network, but that they were necessary to protect against the risk of short-term loan discharge. “We also believe the clawbacks will only come into effect on a very small percentage of loans, as the average term of loans usually exceeds two years,” the statement to brokers read. NFC general manager Andrew Clouston said the structure was the best option possible following the government’s DEF ban, as it enabled flexibility for the client, and shared responsibility for client retention between NFC and the broker.
Andrew Clouston
Clouston said he expects the changes to impact less than 1% of loans that are submitted through brokers. “Our average loan term is well in excess of two years, and we find that the small percentage leaving us in the first two years only do so as a result of unexpected property sale, not refinance,” Clouston said. “This usually creates an opportunity for the broker to write a replacement loan resulting in minimal impact where a commission clawback is involved. Our discharge rate in the first 12 months is less than 0.5%, so we expect only a very small amount of commissions to be clawed back by 100%,” he said. Clouston is upbeat about the impact of the changes, arguing that combined with its abolition of early repayment fees, it would actually make the business more competitive in the market. “We are one of the first nonbanks to move in this direction, so it gives us an edge over our competitors. We expect business to increase, not decrease, as a result of these changes.” Homeloans general manager of third-party distribution Tony Carn has also confirmed the necessity of clawbacks. He said the lender has not yet decided on a structure, but that clawbacks would be introduced “in some format”. Carn commented, however, that Homeloans intends to introduce commission alternatives where no clawback is applicable. “We operate in a market where lenders tell brokers how they will be paid. To be a sustainable broker
Tony Carn
partner you need to provide greater flexibility and work with brokers as a partner as opposed to a dictator of payment terms,” he remarked. Carn said he is confident any clawbacks introduced will have no effect on “99.5% of brokers”. In coming more in line with major banks on clawback provisions, Carn said he does not believe Homeloans will suffer significant broker backlash. He said he believes high DEFs have kept some brokers away from non-bank lenders, and the removal of these fees may signal a return for brokers. “I don’t expect that the introduction of a reasonable clawback will have any adverse impact on our business, in fact I expect the opposite,” he commented. “During the GFC some notable players withdrew from being active participants in the market, and raised their
consumer rates at the same time. This saw many borrowers feeling trapped by DEFs on their facilities. This has left a huge psychological scar with many brokers and as a result they have been uneasy offering home loan solutions where a DEF was applicable.” Not all lenders, however, see increases in clawbacks as an inevitability under the DEF ban. ING Direct head of mortgage products Ray Esho said an extension of the lender’s clawback policy is not on the table for the lender. “We don’t have it on our radar at the moment. We abolished DEFs late last year, and we didn’t change our clawback structure. It’s not on our radar,” Esho said. Since abolishing DEFs in November, Esho said, the bank has not noticed an increase in early discharges. “Over the last few months we haven’t seen a kick-up in discharges that would warrant clawbacks. We think it’s more of a perceived problem, and it seems as though there’s some sort of expectation that brokers would drive that behaviour, but we don’t think that will happen,” he commented. Esho said the lender will instead rely on customer loyalty by providing a strong product and service offering. “We rely on our customers being happy with our products and service,” he said. “We’re comfortable that we can attract sticky customers.”
St.George puts accreditations online St.George Bank has launched an online accreditation and training system for its third party intermediaries, designed to make it easier for brokers to do business with the bank. The system, which went live last Friday, will require brokers who wish to become accredited with St.George or BankSA to complete an online training module, followed by a revised online assessment. St.George general manager of intermediary distribution, Steven Heavey, said the online system will ensure all accredited
brokers are well trained in product and policy, which he said is of vital importance to the bank itself, as well as brokers and customers. “We want to make it easier for brokers to do business with us by continuing to invest in the broker channel with initiatives such as online broker accreditation,” Heavey said in a statement. Under the system, a broker will be required to complete a training module and will have 30 days in which to pass the assessment, in which they must score at least 75% and pass
Flashback: Online accreditation Macquarie Bank rolled out is online accreditation for brokers late last year, and claimed in March that being accredited on the internet was being received well by its broker network. The bank said this was particularly the case among regional brokers, who would no longer have to take time out of their business for traditional face-to-face accreditations.
within three attempts. The bank claims its system is “interesting, informative and market leading” and can be used by existing accredited brokers as a product and procedure refresher course if required. St. George has also assured brokers it will not charge for accreditations, like its parent bank Westpac. St.George’s old process was a single multiple choice exam with some static training material available on the broker website which the broker was required to navigate. A spokesperson told Australian Broker the new solution had been months in development and – being a “fully integrated training module and accreditation exam” – was a “more comprehensive approach”. A statement from the bank said its intermediary partners
continued to be “very important”, due to the significant percentage of loans sourced through mortgage brokers.
Steven Heavey
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Comment FORUM National Finance Club (NFC) elicited the highest volume of responses from Broker News online readers, following NFC’s decision to introduce clawbacks to pre-empt the DEF ban.
Don’t worry about DEF, just include it in your FBC (if you value your profession and time and service that you provide to your clients that is). Broker on 11 Apr 2011 03:13 PM
If NFC’s discharge rate in the first 12 months is less than 0.5% of all loans, why don’t they share some of the clawback burden for their brokers? Rory Cowman on 11 Apr 2011 12:18 PM
Likewise, Bendigo and Adelaide Bank’s consideration of a similar move was met with chagrin.
If this move is designed to “enable shared responsibility for client retention between NFC and the broker”, then NFC have a responsibility to inform the broker of any payout requests or other interaction which may lead to a discharge so the broker has an opportunity to work to save the business. Share the information – not just the burden. rebeccajarrett on 11 Apr 2011 12:27 PM I would like to see Wayne Swan explain how this increases competition? This will just drive more brokers to the wall, which gives the majors even more power. Talk about dumb policy. positivebroker on 11 Apr 2011 01:25 PM This is an irrational action by NFC. If there is only 0.5% discharge of loans why introduce such a punitive and draconian measure. Wayne Smith on 11 Apr 2011 01:45 PM
There is a really simple way around all of this, which Bankwest had with its old rate tracker product. Charge say an application ‘processing’ fee of a certain amount, and then have in the loan conditions that it is credited to the loan account after four or five years. If the client refinances before that then it is forfeited. It worked a treat then and should work now. Also, if the broker churns the loan anytime in the first five years, have clawback. If it is a refinance outside of that particular broker, do not charge. It is really that simple. countrybroker on 13 Apr 2011 11:29 AM Trail in Year 1 and no clawback is admirable, but Adelaide Bank’s 50bps upfront is what does not “yield it the attention from brokers it hoped”. Chris on 13 Apr 2011 11:48 AM
Elsewhere, brokers lamented revelations that mortgage manager margins were under further pressure, in the lead-up to the DEF ban.
Yep, this industry is baked. The attractive aspects to this industry and ‘mortgage management’ have evaporated. It’s ‘game
over’. Mark The Mortgage Manager on 11 Apr 2011 12:21 PM
Agree Mark. How could Wayne Swan have got it so wrong? How did we let it happen? There are no winners here except the majors, less income for mortgage managers and brokers, higher rates for consumers. It’s a lose, lose, lose. positivebroker on 11 Apr 2011 01:29 PM
Poll: the future of ASIC ASIC has been labelled both a ‘friendly giant’ and an ‘Uncle Scrooge’. Looking ahead, how do you think the regulator will be described in two years?
Friendly giant
37%
To vote in our latest online poll, visit our online home page at www.brokernews.com.au
Uncle Scrooge
43%
Somewhere in the middle 18% Poll date: 6–18/04/11
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Comment VIEWPOINT
The denial of credit for older borrowers under NCCP by banks has elicited a reprimand and guidance from credit watchdog ASIC, but what do our industry pundits think?
Tim Brown
Darryl Benn
Kim Cannon
Vow Financial
The Mortgage Planner Group
FirstMac
It’s not a real issue. Generally there are a couple of banks who have become very conservative, and they have probably gone ultra-conservative because they are not sure where ASIC is going to go on this – and that is a natural thing to do from a lender’s perspective. But I think there are still a number of lenders out there for the right borrower with the right asset on the right income, and there will be more than enough lenders out there to lend to those sort of borrowers. On marginal borrowers: If a borrower is a first homebuyer, applying for their first loan at 55, you’d have to have some concerns [especially] if they didn’t have enough in superannuation.
ASIC has come out with a variation to the RG209 ruling, saying that we shouldn’t be discriminating based on age, that we should use the entire responsible lending laws and regulations and look at the client more holistically. I’ve spoken to a number of brokers recently and they have given me experience after experience, of where banks – since the introduction of the NCCP – have started declining loans based on the fact of age. On solutions to the problem: There is one, and that would be by providing life insurance protection for older borrowers. The problem is that when you turn 65, life insurance becomes prohibitive, so that makes it very, very difficult. But that could be a solution.
There’s a problem if the broker or the person dealing with the customer isn’t questioning them about what they are fully going to do. That’s the whole idea of NCCP – to know your customer, to know what their financial position is, what their plans are. That is why a lot of broker/aggregator groups now hold the licences that control a lot of these brokers – you’ve got to make sure you ask all the right questions. On matureage borrowing: We’ve had an 87-year-old customer that bought an investment property a number of years ago, and whilst their age was a factor, we had a look at their whole financial position, and we had a look at whether they had a will, and who the executor was, and I think the estate was being left to the son, so it was whether the son had the capacity to carry on afterwards. So, age shouldn’t be a barrier – you just don’t give up your ability to do financial things because you turn 55.
Bernie Kelly, Trigon Financial “One would view decisions regarding age being subject to longevity risk. Various mortality simulation models exist to quantify risk, and most lenders apply this longevity risk model to loans relating to older borrowers, as lenders are not particularly interested in providing credit where ultimately they would end up the owner of a physical asset.”
First homebuyers have shrunk as a percentage of new customers, but what are they thinking right now? Our industry insiders give you the inside track on the FHB mindset.
Ian Jordan
Mardee Crane
Andrew Russell
The Selector Group
1st Street Home Loans
Mortgage Choice
On first homebuyer confidence: What we are seeing here is two separate camps. We see people that are confident about property pricing – they actually believe there are good bargains to be had in the current market. There is another group who are quite nervous about future price growth, and potential falls in the market. The similarity that we are seeing between both of the groups is that people are taking their time to buy their properties. That’s very different to the situation in 2007, where people were just piling into the market. People now can take as long as 12 months to find a property. On 95% LVRs: People are coming to us and they have already done their own serviceability. So they are saying this is how much we can afford per week or per month, this is how much can we borrow. And that is what they are using to work out how much they should be getting, irrespective of the actual LVR.
On 95% LVRs: There’s definitely an increased level of confidence, in terms of being able to now get that higher lending ratio, and not having to have as much saved. But definitely the time of year takes a big impact too, there’s a bit more on stock – a lot more property available – and people are getting out and being able to find some nice stuff out there. There’s definitely been a lot more enquiries since last year, with the lending ratios that we had at 80%, or 90%, at the absolute maximum last year. Coming back to 95% just gives buyers that little bit extra room to move. Obviously you have to have the right type of client, but from a first homebuyer’s perspective, there is definitely a willingness to take these loans on. Not having to involve parents or family members to get them across the line and into the market is also a plus – they are happy to get in there off their own bat.
On market confidence: I think right across the board from the FHB segment to the investment segment, people see blue sky, basically driven by the economic environment. I think people feel a lot more confident about their jobs at the moment, they see that there is potential upside in the property market considering prices have been relatively flat, so they want to get in now and make sure that they can ride the potential upswing. On bank LVRs: Particularly in the high-LVR space, they see a way to attract new customers, particularly first homebuyers, who see that as a quicker way to get into the market, by having to save less. But studious FHBs do their sums. If they are looking for a 95-plus LVR product, they have really run their numbers. That said, they should always be looking to assume that in the downside case, if interest rates go up by 1% or 1.5%, can they still afford to make my monthly repayment?
Ian Graham, QBE LMI “All first homebuyers surveyed stated that they are intending to make their purchase in the next five years. Compared to other segments, first homebuyers are significantly more eager to enter the market, with some 22% looking at buying within the next six months, and 50% planning to purchase within the next 12 months.”
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OPINION
Non-conforming is not a dirty word Never before have brokers faced so many issues in the conduct of their business – whether it’s the legislative requirements of the NCCP, shrinking commissions or the ongoing problem of finding new business. And there is frequently talk in the industry about brokers taking on other products such as insurance or even involving themselves in financial planning. Well, before you do any of that, consider expanding your product portfolio to include non-conforming lending solutions, as you could be turning away many thousands of dollars in business right now. Nonconforming has been long shunned by brokers because of its perceived complexity and because some brokers feel that they simply don’t have the skill set to manage the application process or the client’s expectation. Non-conforming by its very name implies that it doesn’t conform to the ‘normal’ lending requirements of a mainstream lender and that can be caused by many things including the type of security being offered, the type and amount of income verification available and credit issues. Here are some key points for both isolating and managing a non-conforming application. Credit issues 1) In every case conduct a Veda Advantage credit check on all applicants. Be sure to supply each applicant with a copy and don’t share or discuss reports without the applicant’s consent. For the purposes of this article let’s assume that the applicant has an adverse report sufficiently severe that a mainstream funder wouldn’t consider it. 2) Lenders view the listings of credit reports very differently and respond accordingly. For example, if the applicant has large credit-related defaults or judgements it is difficult but not impossible to find a co-operative lender. On the other hand most non-conforming lenders will ignore paid minor defaults regardless of when they occurred. 3) Other issues that may arise are ‘clear outs’. This is where the credit provider has tried unsuccessfully over a period of time to locate the debtor. These are seen by all lenders as being very serious. Then there are bankruptcy and Part 9 and 10 arrangements which are about as serious as you can get. Income verification 1) If income source or verification is the issue you need to be aware a low-doc loan to a natural person for a residential
Graham Reibelt property will more than likely fall under the NCCP umbrella, so a higher degree of income verification is required than one that falls outside. The selected lender can identify their income verification requirements. 2) Remember there is no such thing as a no-doc loan under the NCCP. 3) Even if the loan falls outside the NCCP, you should make sufficient enquiries to be sure the applicants can afford the loan. Security type 1) This can be the most difficult issue to overcome. For example, a solid applicant financing a rural lifestyle property in NSW will have great difficulty if a mainstream lender won’t do the loan. Summary Now you’ve identified that you have a non-conforming enquiry, you can run the scenario through a service like www.brokerscenarios.com.au where you’ll know immediately what options may be available for your client. Another key factor in non-conforming is full disclosure of all matters to the lender. Experienced non-conforming lenders understand all the approval pitfalls, so don’t hold back anything. Put it all on the table warts and all. The last tip is to keep an open and positive mind; it will provide reassurance to your client that you are a professional who cares.
consider expanding your product portfolio to include nonconforming lending solutions
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Analysis
Credit where credit is due
A new ‘positive’ credit reporting regimen is designed to protect vulnerable consumers from obtaining credit, but will it potentially lock worthy borrowers out? Ben Abbott reports.
I
n mid-2008, the Federal Court dismissed an attempt to mount a class action against credit reporting agency Veda Advantage. Represented by Sydney-based law firm Gerard Malouf & Partners, nine applicants had filed the claim a year earlier alleging their credit files contained listings of default or bankruptcy, and that they did not satisfy criteria for these listings. While the case may at first seem unrelated to the incoming ‘positive’ or ‘comprehensive’ credit reporting regimen – which is currently at draft legislation stage and promises to make available a wider selection of credit information to lenders to aid them in assessing applications for credit – legal experts argue it is very much so. While the Federal Court found Veda Advantage had no case to answer on the basis of the claims, the move toward the new regimen has brought concerns over data accuracy – as well as others – to the surface, with brokers and lawyers voicing fears that consumers may suffer credit injustice. Joseph Trimarchi, of Joseph Trimarchi & Associates in Parramatta, said the concept of a comprehensive credit reporting system is “valid and should be encouraged”, as it protects the integrity of the lending system. However, he said this should be balanced with the “cost” of inheriting the problems of the current system. He said in particular, as the volume of data collected increases, the number of mistakes recorded by lenders and then used for assessing applicants will increase. “Until fundamental and systemic change occurs, credit reporting in Australia continues to short-change the consumer,” Trimarchi said. “Such change is broader than the new system; it must embrace understanding that consumer rights cannot be subrogated to those of credit providers or credit reporters.” So what is the future of Australia’s credit reporting system when the comprehensive system becomes reality, and will it benefit – or harm – the clients of mortgage brokers?
Getting comprehensive
Credit reporting in Australia is governed by the Privacy Act 1988 (and its amendments), and is supplemented by the Credit Reporting Code of Conduct, which took effect in 1995. Under current law, the likes of credit defaults are recorded on a client’s credit file for five years. However industry – and particularly credit reporting agencies such as Dun & Bradstreet and Veda Advantage – has argued the current system gives limited visibility into a client’s credit profile, resulting in a predictive ability
of default for lenders of only around 10%. Following years of consultation, the incoming credit reporting regimen will make a wider range of information available to lenders, including past account open and close dates, the type of credit issued, borrower credit limits and payment performance history. It is payment performance data that has caused the most controversy. Consumer groups have voiced concerns that lenders being able to access repayment data would show them if a customer has been late on any repayments in the past – by periods as short as one day. Likewise, non-conforming mortgage specialist Graham Reibelt from Oasis Mortgage Group argues the legislation was a “draconian big brother step” that would empower lenders enormously, and would impact the majority of clients’ credit worthiness negatively. He said this was likely to push more brokers into the realm of nonconforming lending. However, Veda Advantage has strongly defended the new comprehensive credit reporting regime, which it says will protect those borrowers who are already overextended from obtaining new credit, in a similar way to the intention of the newly-enacted NCCP legislation. Veda also says that the new regimen will embody, despite criticism, “the most highly regulated personal information in the country, with tougher consumer protections”.
‘Positive’ means positive
Veda Advantage head of external relations Chris Gration said that positive credit reporting is “vital” to help those on the financial fringe avoid a situation where they are unable to pay their debts, and to stop them from falling into a potential “debt spiral”. “Responsible lending laws, which came into effect on January 1 this year, are a huge step forwards in consumer protection,” Gration said. “Yet the system remains flawed, as lenders don’t have access to all the information required to allow financial institutions to make a complete and accurate assessment of a person’s capacity to repay a loan.” Gration told Australian Broker that a comprehensive system will “very significantly” improve the capacity of the lender to work out if a consumer can afford the loan. “National Parliament has passed laws that basically say we don’t want consumers who are overcommitted financially being likely to be able to get loans,” he says. “In doing so, there is an understanding that when a bank or credit union says no to an overcommitted consumer, that consumer may be disappointed, but it is still nonetheless the right decision,” he said. Veda’s position is backed by a debt study conducted for the group by Galaxy Research, which found that despite a generally “sober” approach to taking on new credit, almost three in every ten Australians who are looking to take on more debt are already in a position of financial hardship – a situation that Gration labelled “concerning”. Trimarchi has predicted the rollout of the new regimen would hit those borrowers at the margins, with clients likely to be refused based on repayment data if they are “borderline”. Likewise, Reibelt feels it will hurt non-conforming borrowers hardest, with lenders having the ability to view late payments, including delving into historical data sets.
Facing the critics
Responding to the most controversial of the credit regimen’s powers – the provision of payment histories to lenders – Gration has clarified that late payments will only be recorded by banks and mutuals in terms of payment cycles missed, which would usually be measured first when a client is a month late, and then every month after that. He said claims water and phone bills would be
Chris Gration
lenders don’t have access to all the information required to make a complete and accurate assessment of a person’s capacity to repay
From the Forum: What you said Q: In reality, the
new positive credit reporting is only going to impact two groups of applicants: the marginal applicants (those either slightly above or slightly below a lender’s risk cut-off) and those applicants providing false information in their application (commonly called soft frauds). Lenders will be looking to use this information to identify a swap set, their current marginal approves with poor repayment history that they’ll now decline and their current marginal declines with good repayment history that they’ll now approve. Any applicant with serious credit information is already being identified through the current reporting regime. Jason on 31 Mar 2011 12:27 PM
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included as part of the available data are erroneous. “Utilities like water and telcos will not be able to report or access the system – only NCCP regulated credit providers can report or use repayment history,” he said. While Veda Advantage’s Gration acknowledges that fringe borrowers will be affected, he said the new system will actually have positive impacts for others. “Some consumers who are in hardship won’t get credit – there’s no doubt about that,” he says. “But some people who are in good financial circumstances, but can’t prove it at the moment, will benefit from the new system,” he said. He gives the example of a married couple breaking up and enduring a period of separation, where there are some months of financial instability where “bills go astray”, after which they return to being good payers. He said this ‘positive’ information would now be available. Gration also said that borrowers with good repayment histories will now have more power in making demands of lenders – including rate discounts – should they require credit. With competition now a focus of the government, Gration argues the incoming system is actually “pro-competition”. “The biggest advantage big banks have is information about their customers – it’s hard for new entrants to enter the market, as they don’t have enough credit risk information to make good decisions,” Gration says. He argues that with the potential for new entrants to access this data, the net economic effect of new competition will be positive.
Five data sets soon available to lenders • Identifying if an application for credit is accepted or declined, together with the type of loan applied for • Identifying the amount of an account limit • Identifying the date the account commenced • Identifying the date the account closed • Identifying payment performance history
Desirable data
While the volume of monthly data being reported by lenders will vastly increase – subsequently increasing
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the risk of errors being recorded – Gration said that credit reporting agencies will meet the heavier load with increased resources. He said Veda Advantage is “putting a lot of energy” into building new processes and recruiting people to do the data matching to be ready for the comprehensive system. “There will be a greater volume coming in, but we will have increased capacity to handle that information and have workflows in place to deal with any disputes,” he said. At present, credit reporters rely on an ‘honour system’ in regard to the accuracy of credit data supplied by lenders, with the onus falling on borrowers to prove the inaccuracy of that data should they fall afoul of a credit file mistake. Trimarchi argues that this gives power beyond the realms of courts, where innocence is assumed before guilt is proven. However, Gration said that the agencies have a number of channels for consumers to correct any inaccuracies, and that many of these are free of charge. He said these include calling Veda’s own 1300 number, which will prompt a Veda investigation of the consumer query for that particular borrower, or consulting a free community financial councillor. Gration said other remedies include the use of an External Resolution Scheme (EDR) such as the Financial Ombudsman’s Service (FOS) or Telecommunications Industry Ombudsman (TIO), or if a customer is not satisfied, they can appeal to the Privacy Commissioner. For Trimarchi, the future impacts of the system remain in doubt. “How it will pan out is hard to say, as we are running in blind, but the next few years will tell us,” he said.
The predictive ability of lenders (%), using different customer data sets Percentage contribution
Total
Today
10%
10%
Utilising type of account, date opened and closed, and account limits (the proposed ALRC model)
23%
33%
ALRC + account payment status
22%
55%
ALRC + account payment status + repayment history
19%
74%
Full
26%
100%
Source: Australian Law Reform Commission, modelling conducted by Veda Advantage
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Market talk
Generation gap Gen Ys see the housing market differently than their predecessors, and it will take a different breed of broker to connect with them
F
or generations, the Great Aussie Dream has been the idea of home ownership. However, as a new generation enters the housing market, this dream could be changing. With housing affordability decreasing, entrance into the market seeming more daunting and proximity to CBDs being increasingly prioritised, Gen Y borrowers are seeking something very different out of property ownership than their parents. Mark McCrindle, director of McCrindle Research and Gen Y expert, said the way Gen Y view the property market is far different from previous generations, with many likely to see themselves as lifetime renters rather than owner-occupiers. And, with one in five Australians belonging to the generation, McCrindle said brokers and lenders need to take notice of these differences. “This generation is more likely to have a rental rather than owning mentality. They don’t want to have a whole lot of possessions sitting in a house, because they might work for a few years and then head overseas for a few years,” he commented. The idea of a cosy suburban life of landscaping and home improvement may be lost on Gen Ys, but the potential of capital gains is not. Property Planning Australia director Will Foster says that Gen Y is less motivated to enter the property market than previous generations, but will do so if the investment value is made clear to them. “There is definitely less urgency for late Gen Xs and Gen Ys to buy property; however, they really respond to incentives such as the increased First Home Owner Grant available in 2010, as well as lower interest rates. Gen Y seems to be more educated and responsive to buying at a good time. They don’t have to buy a home, but will do so if they see the value in it,” he commented. “The Gen Ys I have seen are mostly thinking of the long-term financial benefit of owning the property, rather than as a home.” McCrindle affirmed Foster’s remarks, and said Gen Y’s tendency to move between jobs and geographical areas will see many of them unwilling to tie themselves to a family home, but nonetheless eager to add property to their financial portfolio. “We will not see as many owner-occupiers,” he said. “Gen Ys value flexibility and have a global outlook. They’re more geographically and vocationally mobile than
“If we are seen as educators, Gen Ys will place their trust in us and in turn come to us to organize their property finance” – Will Foster, Property Planning Australia
previous generations. That’s not to say they won’t own. They’re just less likely to be owner-occupiers. They are certainly into investment property. We’ve seen that firsthand. They’re a very sophisticated and financially aspirational generation, and investment property may work for them” As a result, Foster said marketing should be geared around investment potential. “Marketing of properties should be more geared to potential investment returns, and move away from traditional explanations of property, such as ‘renovator’s delight’. Gen Ys see straight through this sort of marketing and immediately turn off,” Foster said. Brokers and vendors need to be seen as genuine and forthright in order to engage with Gen Y, Foster believes. “Take the spin out of property and finance marketing. Be upfront about potential flaws in the property, and don’t try to market with gimmicks,” he said. “These guys are savvy enough and have enough access to information that they will find out the truth, and once they do you will have lost their trust.” For brokers in particular to connect with Gen Y, Foster said, they need to position themselves as financial educators. This, Foster commented, is a role with which Gen Y is more likely to connect. “We need to deliver fast turnaround times, and always set and meet expectations on service delivery. We need to educate Gen Ys on finance structures and how to obtain finance, particularly with their first purchase, so they can then do their own research and verify our recommendations. We have found that if we are seen as educators, Gen Ys will place their trust in us and in turn come to us to organise their property finance,” he said. As for lenders, McCrindle believes delivering flexible products will be the key to connecting with an increasingly mobile generation. “We have financial products set up on a 20th century model. That structured approach is not the way people are living anymore,” McCrindle commented. “Gen Ys have recongnised they are going to have 20 years in retirement, or even more. They tend to be taking retirement and sprinkling it throughout their lives. New products need to have that repayment flexibility built in. They’re going to need flexible options for when they study, when they’re between jobs, when they’re overseas. Their transience of life is such that flexibility is required.”
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Services
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NUMBER CRUNCHING Mortgage settlements for March
Changes in dwelling commitments (January to February)
5.27%
4.35%
25.02%
10.01%
NSW
QLD
VIC
WA
SA
NT
ACT
0.00%
-0.00%
-0.30%
25.02%
-0.50%
30.41%
TAS
-0.50% -0.70%
-0.60%
-0.70%
-1.00% n Basic variable n Standard variable n Ongoing discount n Line of credit n Introductory rate n Fixed rate Source: Mortgage Choice
-1.30%
-1.50%
At a glance…
7% 24% *
*
Australian banks’ foreign liabilities in 1990
-2.00%
-2.30%
-2.50% Australian banks’ foreign liabilities in 2010 Source: NAB
Source: Australian Bureau of Statistics
MARKET NEWS IN BRIEF Lending on the decline February has seen lending finance drop across the board, new Australian Bureau of Statistics data has shown. The ABS figures showed a 4.8% seasonally adjusted decline in home loan lending for February. Likewise, lending for personal, commercial and lease finance have all declined over the month. Commercial finance saw a 6.6% decline during the month, seasonally-adjusted, with finance for investment properties dropping a seasonallyadjusted 1.4%.
has confirmed pre-election promises to abolish a housing levy and extend a stamp-duty exemption. In its 100 Day Action Plan, the NSW Government confirmed it will offer a two-year stamp duty exemption to over 55s who move into a new home between 1 July 2011 and 30 June 2012. According to advice from Gadens Lawyers, the exemption will apply to new home purchases and off-the-plan purchases made in connection with a relocation of residence by people over 55.
Banks may slash variable rates After sparking public outrage due to out-ofcycle rate hikes, banks may be looking to make an out-of-cycle downward move in the coming months, an unnamed senior bank executive told News Ltd. “The yield curve has certainly flattened out at the wholesale market, so now it is just a matter of how long, and will it be sustainable? In order for them to make that decision, they will need to see a couple of months at this level. And if banks determine it will be sustainable at these levels, you will see an aggressive bank like NAB lower their interest rates. Then watch the others follow,” he commented.
Rental rates on the rise Amid a largely stagnant property market, rental rates are showing signs of life, RP Data says. According to new figures released by the company, weekly rental rates increased by 1.4% nationally over the past 12 months, and by 2.7% in capital cities. House rents increased across every capital city for the March quarter, except for in Melbourne, Sydney and Darwin. Canberra saw the largest increase, with rental rates jumping 2%. Rental prices for units have outperformed those for houses.
N S W com es t h r ough w it h st a mp dut y exemptions, levy cuts The newly-elected NSW O’Farrell government
Owner occupiers drive demand According to the latest NAB Residential Property Index, owner-occupiers are expected to remain the biggest segment of residential demand over the next year, with 43% of respondents nominating them as the key
drivers of residential development. Australian resident property investors are expected to account for the second-largest share of the market, at 33%. This is an increase on December’s forecast of 24%. The highest demand for property is expected to be for inner city detached and semi-detached housing. Survey respondents have continued to cite the tightening of credit conditions as the main constraint on new residential development. Rising interest rates and housing affordability were also cited as areas of concern. RP Data shows flat February Sydney was the only city in Australia to show capital growth in February as the overall capital city median price showed no improvement, according to the latest figures from RP Data and Rismark. The firms’ latest Home Value Index has revealed that the market is ‘treading water’, with overall growth subdued. The average city dwelling value showed zero growth in February, although regional properties showed a minimal increase of 0.5% (seasonallyadjusted). However, Sydney was the only city to show overall growth in February (0.3%). The average dwelling price fell in every other capital, with Darwin showing the biggest fall (9%).
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Toolkit
Getting your credit policy right Brokers must have a policy that details how they will approach the myriad of product offered by lenders, and as Australian Broker finds, lender calculations are not enough
E
arlier this year, Gadens Lawyers senior partner Jon Denovan issued a dire warning to mortgage broking businesses of all sizes, that they should not delay in putting together a watertight credit policy, to ensure they met responsible lending obligations. A credit policy? If any readers are asking this question, they are the reason for Denovan’s urgings. “I think a lot of brokers are proceeding exactly like they did before 1 July,” he said. “Just because a loan fits a lender’s credit criteria does not mean it is not unsuitable.” Denovan was detailing a key responsibility brokers have had since 1 July 2010, that has the potential to catch many off guard. Under the new National Consumer Credit Protection (NCCP) regime, credit intermediaries are required to ensure the loan that they provide to a consumer is ‘not unsuitable’. However, the obligation is separate from that of a lender, which could – by its own calculations – approve a loan deemed ‘not suitable’ by a broker. Confused? If so, you are not alone, according to QED Risk Services director Greg Ashe. “A lot of the broking community hasn’t fully grasped that they now have a quasi-underwriting role. It used to be the broker and client versus the lender, where it was all about how much money they could get out of them, or how they can make sure the loan is approved,” he explains. “Where this needs to shift – and where it is shifting – is where the broker is the middle man between the client and the lender, and the broker has to make his or her own decision in their own shop as to whether or not the loan should proceed.”
What are my options? Phil Naylor
Brokers can no longer assume that if a loan meets a lender’s credit criteria, that they have satisfied their responsible lending obligations. The MFAA recently
released guidance to its membership that suggested brokers have two options in setting up a credit policy. 1) Establish your own credit criteria; or 2) Adopt credit criteria from ‘approved’ lenders after reviewing those criteria “Brokers really have to have their own credit policy,” Phil Naylor of the MFAA told Australian Broker. “In summary, they can establish their own criteria – which may well come from their aggregator or broker group – or they can adopt credit criteria from approved lenders. The point is, they can’t just automatically rubber stamp a lender’s criteria, as this doesn’t satisfy requirements.” Naylor said in essence, the MFAA guidance is consistent with the requirement that a broker carries out a preliminary assessment, and the lender carries out the final assessment. “If you accept they are two separate operations – which we wanted them to be – then you have to accept there should be some rules around what you do in the preliminary assessment,” he said. “In the past, a lot of brokers probably looked at the lender’s credit policy and thought, ‘Well, I’ve done my job’, but that won’t be sufficient for ASIC under our new guidelines.” Establishing your own criteria Ashe “strongly” recommends that brokers go down the path of establishing their own approach to responsible lending and documentation. While Naylor is less adamant, he suggests that “once you’ve set up your policy, you’ve got it, and you don’t have to re-embed it each week”. The key areas that need to be addressed by a credit policy are: • Collecting information: Brokers must make clear in their policy documentation that in their interactions with a client they will take ‘reasonable’ efforts to establish a borrower’s requirements and objectives – such as what the loan is for, and how much is required – as well as their financial situation, and that they will match these requirements and objectives to a range of product that is ‘not unsuitable’ for the customer. Ashe said that after implementing a robust ‘fact find’, any broker “would have to work pretty hard not to be good at their job to mess this part up”. • Serviceability calculations: Part of the collection of information – and therefore part of the credit policy – is the need for brokers to effectively calculate serviceability, to ensure a borrower can repay the loan without substantial hardship. Brokers who choose to establish their own credit criteria will as a result need to develop their own serviceability ratios and LVR for a client. Ashe said this means ACL holders should not rely on lender calculators. “If a broker is using a lender’s serviceability calculator without understanding the mathematics and assumptions behind it – and they have not
Keeping it simple: An example policy QED Risk Services – which supplies more detailed legal policy documents for use by its ACL holder clients – suggests that a policy document, which details a broker’s approach to responsible lending obligations, can be as simple as the following: “We have an obligation to ensure we go through the following process when assessing a consumer for credit: 1. Make reasonable enquiries about the consumer’s requirements and objectives and about their financial situation; 2. Take reasonable steps to verify their financial situation; and 3. Based on the above two activities, ensure that any credit with which we assist the consumer is not unsuitable for them. ‘Unsuitable’ simply means that the credit contract did not meet the consumer’s requirements and objectives or that the consumer could not reasonably be expected to meet the obligations of the credit contract without substantial hardship. To help us meet this obligation, we have the following tools in place: 1. A consistent and thorough fact find that helps us to ascertain (and demonstrate that we ascertained) the client’s needs and their financial situation; 2. A list, which we review six-monthly, of the types of income verification that we will require from every client, regardless of what an individual lender will request; 3. The recorded utilisation of a serviceability calculator, whether our own or the lender’s, that clearly shows the consumer’s financial position versus the credit contract obligations and, if necessary, accompanied by file notes that explain other facts pertinent to the client’s financials that may not have been included in the calculation itself; 4. A checklist that appears on every file ensuring that all the above tools have been fully utilised in the assessment process. These procedures and samples of our credit assessment activities are reviewed at least quarterly as a part of our compliance testing programme.” Source: QED Risk Services
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Toolkit be an amalgamation of lender policies. Credit representatives will have this review undertaken by their licence holder. The MFAA detailed in guidance to members (Credit Assessment by Intermediaries) that this review would result in the adoption of an ‘approved’ list of credit providers, though a broker would still have an underlying obligation to ensure there are no special circumstances applying to a credit application which would make it unsuitable. The MFAA also said just because an application fits the criteria of just one lender does not mean it is unsuitable.
Which one is for me?
accounted for lifestyle expenditure – how can they truly stand up and say they conducted reasonable enquiries [into a client’s situation]?” he says. • Lifestyle expenditure: Forming part of a credit policy’s commitment to calculating client serviceability for a loan, brokers should at the “very, very least”, according to Ashe, take detailed notes on client lifestyle expenditure. This will ensure that there is evidence these lifestyle expenses and expectations are taken into account. • Evidence of income: Another key decision brokers need to make in establishing a policy is the criteria they will consider as ample evidence of income. Again, this needs to be separate from the requirements given by individual lending institutions.
Adopting lender policies
The second option suggested by the MFAA is that brokers can adopt lenders’ policies, after reviewing those policies. This will mean that when brokers sign up with a credit provider, or an existing provider changes their credit policy, brokers will need to review that policy, and approve it. Rather than adopting their own policy, it will
The MFAA’s Naylor said individual brokers or businesses are best to decide which option works best for their business. Likewise, QED Risk Services director Greg Ashe argues that the approach to responsible lending is always “horses for courses” for each different business, and there is no one approach or template that will cover all situations. However, Ashe said the obligation of a broker – and therefore their credit policy framework – is all tied up in one word: ‘reasonable’. “Brokers need to make reasonable enquiries into the clients’ circumstances, and reasonable efforts to verify their finances.” Ashe argues that to ensure this ‘reasonable’ approach, establishing your own criteria will provide the best process and protection. He said that if brokers do not develop their own fact find and serviceability calculators, lenders should use legal means to “hide behind brokers”. “The lender can use their lack of exposure to the client as a defence,” he said. Commenting on the adoption of lender policies option, Ashe said that good brokers are keeping abreast of all policies of all lenders, helping them match clients to a given lender. However, he warned that policies change all the time, as lending and credit is not a “static world”, and as a result adopting and reviewing credit policies may prove cumbersome and ineffective for the broker. “Lenders’ exposure to the consumer world changes frequently, so I can’t ever really see one lender’s policies suiting one broker all the time,” he said. “They might find a set of policies that suit them at a snapshot in time, but in three months time that may change.” The MFAA’s guidance, entitled Credit Assessment by Intermediaries, is available to members upon request.
I can’t ever really see one lender’s policies suiting one broker all the time
Credit policy ‘must-haves’ • Consumer’s requirements and objectives • Consumer’s financial position – enquiries and verification • Serviceability • Loan to value ratio (LVR) Source: MFAA (Credit Assessment by Intermediaries)
Greg Ashe
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Review OFF THE CUFF What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and trends that made headlines in the magazine 12 months ago
Issue: Australian Broker issue 7.8 Headline: RBA not far away from target rate (page 4) What we reported:
RBA deputy governor Guy Debelle told a senate inquiry into lending in the SME space that the central bank’s cash rate is close to where it ought to be after being at historic lows during the depths of the financial crisis. “We are deciding that the situation where we needed historically low interest rates is no longer necessary,” Debelle said. “So we’re moving back to something around about average levels, which is not far away from where we are at the moment, given our expectation for where the economy is going forward.”
What’s happened since:
Since Debelle’s statement that the cash rate was close to its target, the RBA has twice lifted rates. The central bank has now left the official interest rate untouched since its shock move on Melbourne Cup Day. Reserve Bank governor Glenn Stevens has expressed satisfaction with the state of the Australian economy, saying the RBA expects inflation to remain within its 2–3% target band throughout much of the year. However, economists are still predicting the RBA to move before the end of 2011, with most tipping two rate rises to bring the official cash rate to 5.25%.
Headline: First homebuyers to drop 40% with removal of boost (page 12) What we reported:
First home buyer activity in the property market is expected to drop 40% from 2009 levels to 110,000 as a result of the removal of the First Home Buyers Grant. Research commissioned by QBE LMI and conducted by BIS Shrapnel found that 180,000 people bought homes for the first time in 2009. While this number is set to plummet this year, QBE LMI CEO Ian Graham said last year’s number was artificially inflated as buyers that would have bought this year moved their purchase forward.
What’s happened since:
First home buyers continue to remain on the sidelines, while those entering the market are borrowing less. RP Data’s most recent Property Pulse has indicated first home buyers accounted for only 14.9% of the market in February. The result is the lowest participation by first home buyers since June 2004. Those entering the market borrowed an average of $277,000, a 1.6% decrease over the past year. Meanwhile, population growth is slowing. Net overseas migration, generally seen as a strong factor underpinning housing demand in Australia, has seen a drop-off. In total, population growth in the 12 months to September 2010 was at its lowest level since the 12 months to December 2006.
Headline: Home lending falls (page 15) What we reported:
Home lending for both new and existing dwellings continued to fall in February 2010, according to statistics released by the ABS. “While the fall in the number of housing finance approvals of 1.5% in February was less dramatic than the 7.9% fall in January, the momentum of slowing finance approvals (down almost 21% since October 2009) is a concern for the undersupply issue facing the housing market,” ANZ economist David Cannington said. Housing Industry Association chief economist, Harley Dale, said that the February update for housing finance was very weak and highlighted the risk that the recovery in residential construction activity could begin waning by as early as the middle of this year.
What’s happened since:
Housing finance has continued to see major setbacks on 2011, with the latest ABS figures showing a 5.6% drop in February. The result follows a 13.5% decline in January. HIA economist Matthew King blamed the sluggish result on the RBA’s restrictive monetary policy throughout 2010. “The ongoing deterioration in new home lending supports the Reserve Bank’s decision yesterday to hold the official cash rate steady, and it also highlights the need for execution of the widely-held expectation for an extended pause for interest rates,” King said. King pointed out that while flooding may have had some effect on housing finance numbers in February, the market was on a downward trend before the recent natural disasters.
Tim Carroll
National partnership manager ANZ What was the last book you read? The Girl Who Kicked the Hornets’ Nest – Stieg Larsson If you did not live in Australia, where would you live and why? Ireland. I have family there and the Irish are possibly even more laid back than Australians. If you could sit down to lunch with anyone you like, who would it be? My family. We are spread far and wide across various countries and continents so to be able to get together at one time would be fantastic. What was the first job you ever had? Working in a bulk food warehouse which supplied hotels and other large places. So needless to say, I never went hungry! What do you do to unwind? I read anything and everything, or mow my 40 acre property. What’s the most extravagant gift you ever bought yourself? A tractor – it’s surprisingly very hard to mow 40 acres by hand. What CD is currently playing in your car stereo? ‘Sixteen Stone’ – Bush If you could give anyone starting out in business one piece of advice, what would it be? You have to invest money to make money and remember you are starting a business, not a job. If I was not working in the mortgage industry, I would like to be...? Chairman of Liverpool Football Club. Where was the last place you went on holiday? Fiji this year. I had to spend one night sleeping on top of a mountain due to a tsunami warning.
VISION
The ability to visualise and articulate aspirational descripti ons of the desired future Greg Wells, Wells Partners AMA winner 2010
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People
ANZ names national partnership manager ANZ has formally appointed Tim Carroll as its new national partnership manager for broker distribution. In a career spanning over 23 years with ANZ in areas including retail distribution, business banking and private banking, Carroll was most recently engaged as ANZ’s regional manager for broker distribution in Queensland, NSW and the ACT. He has been promoted to the national role, where he will now be responsible for managing relationships across Australia
with the bank’s key broker partners. Carroll replaces ANZ’s former national partnership manager, Michael Trencher, who recently joined NAB Broker in a newlycreated role of national manager of partnerships and distribution. ANZ head of broker distribution, Andrew Everington, said Carroll has been involved with brokers for many years, and had witnessed the growth and development of the industry during his tenure at ANZ. “The broker market is an important and integral part of
ANZ’s business and we are committed to further developing the strong relationship that ANZ has with its broker partners,” Everington said. “Tim Carroll will be a great addition to our ANZ broker leadership team, and his role will be heavily focused on building a sustainable relationship model that allows brokers and ANZ to work together to continue to delivering industry-leading products, consistent service and highquality support to the broker community,” he said.
Rebuilding community post-flood Ipswich-based mortgage broker Nick Cook held a dinner for his flood-affected customers and their families at the newly rebuilt Hogs Breath Café in Ipswich in early April, following months of hard work supporting his clients. Attended by 70 adults and children, the town’s Mayor, Paul Pisasale, local Councillor Andrew Antoniolli and senior staff from the Commonwealth Bank, ANZ and Mortgage Choice, the event was designed to help customers forget their struggles.
Pictured here are Nick Cook, and staff member Helen Trembath. “The dinner and drinks night was a family-friendly event organised to help lift the spirits of our numerous flood-affected customers and a thank you to those who lent us a hand,” Cook said. “It also provided some income to Hogs Breath, which has been out of action since the floods occurred and has only recently reopened.” Following the event, Ipswich Councillor Andrew Antoniolli wrote a moving letter on the www. brokernews.com.au forum, in which he praised Nick and his team and nominated them as local heroes.
Vow’s Mitchener goes ‘extreme’ Vow Financial marketing manager Matt Mitchener has teamed up with three colleagues to enter Oxfam Australia’s gruelling Oxfam Trailwalker Sydney 2011. Calling themselves ‘VowXtreme’, the four colleagues – who include Alan Gibbons, Tara Davoren and Michael Osborne – will take part in the 100km walk from Parsley Bay on the Hawkesbury River to Sydney Harbour. “Some would say I stupidly do things. I think that this may be another one of those!” Mitchener said in jest in an email seeking help in raising vital funds for the charity. Teams of four enter the event and have 48 hours to walk or run the 100km trail, although Mitchener said his team is hoping to finish in 30 hours. “It’s very likely that we’ll walk through the night – with little or no sleep – until the end,” he said. VowXtreme hopes to raise over $6,000 to help some of the world’s poorest people. “Our fundraising enables Oxfam to continue its work delivering projects that support orphans and people affected by HIV and AIDS in southern Africa, that educate people in Laos on efficient farming techniques and that improve Indigenous health and wellbeing in regional Australia,” he said. The walk takes place on 26-28 August and the team is already in training. “Putting ourselves through months of intense training to walk 100km is worth it for the impact our fundraising has on others through Oxfam Australia’s programs,” Mitchener said.
MOVERS & SHAKERS Provident attracts Liberty’s Roach Provident has recruited Liberty Financial’s former state sales manager for NSW and Queensland, Kent Roach. Roach, who will join Provident’s NSW sales force, was targeted for his experience in the market, which Provident said in a statement fits with
its strategy of recruiting experienced sales people to the business. Provident Capital head of distribution Steve Sampson said Roach will be charged with expanding Provident’s market share across the broker community, with a particular focus on growing market share with its aggregator distributors. “After the lull of the global financial
crisis we are determined to become the pre-eminent non-bank lender in the marketplace and we need the right people in place to get there,” Sampson commented. In the statement, Roach said Provident was an organisation that has a “true low-doc to prime loan offering” and praised the wide portfolio of product that the group offered to the market. Kent Roach
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Caught on camera Following last year’s transition to licensing under the NCCP regime, the FBAA invited its NSW membership to a halfday training session that included a wide-ranging panel discussion, where brokers were even able to ask ASIC the tough questions.
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Maree Harwood and Lorraine Lyford (Iden Group)
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Dominic Bilbie (ASIC)
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Jeff Mazzini (AAMC Training Group)
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Bae Bastian (Financial Ombudsman Service)
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Arthur Sterling (Tiana Holdings) and Bruce Smith (Westlink Finance)
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Nelda Turnbull and Kellie Hornsby (Vow Financial)
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Darren Loades (IAN), Brian Rowe (Iden Group), Tanya Sale (Outsource Financial), Barrie Gaubert (Iden Group)
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Nee Tanner and Kiem Dinh (NT Financial Services)
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Matthew Hollier (I Need Finance Now), Wilfredo Cavinta (Oxford Mortgage Company)
Image 10 John Sheathers (Sheathers Lawyers) with Robyn Nori (Synergy Finance & Property) Image 11 Irene Hamam (KPPP Services) and Ben Seale (Stratton Finance) Image 12 Steven Cleary and David Cleary (Cleary Business Services)
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Insider
Got any juicy gossip, or a funny story that you’d like to share with Insider? Drop us a line at insider@ausbroker.com
Mad Glenn: Y Beyond Thunderdome
There’s always a catch
I
f there’s one time of the month Insider loves, it’s RBA rate decision time. It’s not so much the actual decision he looks forward to. Rather, it’s the flurry of media release activity in the moments that follow the announcement. Lenders, broking franchises, mortgage managers and peak bodies trip over themselves to be the first to comment on the latest statement from Governor Stevens. Since that dark November day last year, it’s all been good news from the RBA. Lately, though, Insider has noticed a particularly threatening tone to all the media releases. With economists tipping at least two rate rises before the end of the year, the industry can evidently smell the blood in the water and wants
Two men enter, one man leaves...
to offer their own warning to the RBA that a rate hike any time in the next decade will immediately cause society to implode into a smouldering ash heap. From the tone some of the media releases take in warning the central bank of the knock-on effects of a cash rate increase, one would imagine lifting the rate 25 basis points would turn Australia into a post-apocalyptic wasteland where former prospective homebuyers huddle together in desert compounds hoarding petrol, cannibalising the weak to survive and dressing like Eighties heavy metal bands. Now, Insider is as wary of another rate increase as the next person, but if what these media releases imply is true, he’d kind of like to see how it all plays out.
ou know how Insider loves to bring you news from the vibrant US foreclosure market. Well, he came across an interesting tidbit recently. Apparently, a property investor in Florida – one of the hardest hit states in the subprime debacle – has had his mortgage written off by his lender after paying less than $1,000 in principal. The lender started foreclosure proceedings, won the judgment, delayed the sale several times and then asked the court to discharge the mortgage, saying it was satisfied that the outstanding balance had been paid. What could have prompted this bighearted gesture? Did the lender have pangs of conscience after having booted so many people out onto the streets? Did the borrower win some kind of secret subprime lottery? Well, a little research revealed the loan was significantly underwater. In fact, it was so far underwater that all those damp conditions must have led to the house developing toxic mould. That’s right. The lucky homeowner is now saddled with a property more inhospitable to humans than the house from Amityville Horror. Not to mention the cost of cleaning up all of that mould actually outweighs the value of the home. It gets even better for our hapless homeowner. In all likelihood, he’ll be on the hook for a hefty tax bill for the lender’s ‘gift’. Yes, when it comes to generosity, this lender broke the mould.
Shame about the residue…
P
roperty investors have a lot to worry about. Be it capital growth, interest rates, rental yields –or the behaviour of those pesky renters – the list is certainly a long one. Which is why Insider is sure concerned investors will appreciate a new, thought-leading initiative from the government, which obviously either has a lot of public sector workers with a lot
of time on their hands, or a department that is looking for any excuse to use up its budget this financial year. You see, new national guidelines have recently been released, that will help landlords clean up health hazards left behind by… clandestine drug labs. That’s right. The step-by-step guide offers advice and guidance on cleaning up the residues that can be left behind by illicit drug manufacture, which can be highly toxic, according to the government. While police dismantle and remove chemicals and equipment, apparently it is the property owner’s responsibility to clean up residues. Announcing the new guide, federal justice minister Brendan O’Connor said that, while each state and territory had their own procedures, it was time for a national framework. “I don’t believe that has been done as well as it could have been done and I think this step-by-step guide is critical,” he proclaimed. The guidance gives advice on limiting access and help for home owners who might have to engage industrial cleaners to make their properties safe again. Insider wonders, is this really the problem it is being made out to be? How many secret dark corners are there out there in the midst of suburbia, where he had previously only noticed hard-working Aussies? Apparently, 70% of illegal labs are found in residential areas, and the number of drug labs dismantled by police has increased by 50% over the last two years across the nation. There’s obviously a booming market there. Perhaps there’s an investment opportunity?
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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 AGGREGATOR/WHOLESALE BROKER Mortgage House 133 144 www.mortgaehouse.com.au save@mortgagehouse.com.au pages 18 & 19 PLAN Australia 1300 78 78 14 www.planaustralia.com.au page 17 BANK Commonwealth Bank 13 20 15 www.commbank.com.au page 11 BUSINESS STRATEGIST CONSULTANCY Choice Aggregation 1300 135 389 www.choiceaggregationservices.com. au page 5 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 7 Think Tank Property Finance 1300 781 043 www.thinktank.net.au deal@thinktank.net.au page 16
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FINANCIAL PLANNING SOLUTIONS Wealth Today Pty Ltd 08 9207 1433 www.wealthtoday.com.au page 9
SHORT TERM LENDER Interim Finance 02 9971 6650 www.interimfinance.com.au page 34
LENDER Eurofinance Group 02 9252 8311 www.eurofinance.com.au page 15
Mango Media 02 9555 7073 www.mangomedia.com.au page 1 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 8
Citibank Mortgages 1300 652 059 www.mortgagebroker.citibank.com.au page 36
Quantum Credit 08 9325 6255 www.quantumcredit.com.au page 13
Homeloans Ltd 1300 787 866 www.homeloans.com.au page 23 Liberty Financial 13 23 88 www.liberty.com.au page 3
MORTGAGE MANAGER / NON-BANK Premium Capital Finance 1800 25 11 11 www.pcapfinance.com.au page 21
MKM Capital 1300 762 151 www.mkmcapital.com.au page 2
OTHER SERVICES Trailerhomes 0417 392 132 page 29
Provident Capital 1800 668 008 www.providentcapital.com.au page 4
www.residex.com.au The House Price Information People
Residex 1300 139 775 www.residex.com.au page 35
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