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ISSUE 8.19 October 2011
Grassroots will get greener, says Kane
elect seeks renewed member engagement MFAA president-elect and FAST managing director Steve Kane has vowed to focus on renewed grassroots engagement with members as part of the MFAA’s strategy under his leadership. Kane, who was elected in September to replace outgoing president Joe Sirianni at the association’s Annual General Meeting in November, said the first “plank” in his vision for the
peak industry association’s future was increased engagement with its membership. “We need to make sure that the members of the MFAA feel they are getting value for their money, that they feel they belong to an organisation or peak body that is delivering to them a better outcome for their businesses,” he told Australian Broker following his appointment. This commitment comes in addition to a continued push to lift professional standards in the mortgage and finance broking industry through education and training.
“We will continue that drive so mortgage brokers become more recognised in the marketplace as professionals and as a professional industry, where people turn to for a trusted advisor,” Kane said. “If we’ve already achieved 40 per cent penetration in the marketplace today around mortgages, as we lift the professionalism and educational standards of the industry, that should enhance the growth opportunity for the whole industry.” As part of the continued professional standards push, Kane has reiterated Joe Sirianni’s recent call for a degree future for brokers – albeit over “a long period of time”. “It is an aspirational goal but one that is worth pursuing,” he said. “As the industry evolves there is no doubt that for all markets there is going to be a need for higher education over time, and the time frame there is the key question; I don’t want anyone to think that within the next six months I’m going to be coming out with a statement saying it’s time to get a degree. That isn’t the case, even if I believe the industry will evolve towards that over time.” The third aspect of the MFAA’s strategy under Kane’s presidency will be to continue to develop stronger and closer relationships with regulators and with government. “It is very important that as a peak body we continue to Page 16 cont.
ASIC warns brokers to beware titles and business models Page 2
Mystery victory Secret shop a win for broker customer engagement Page 4
Valuation crisis PI shortfall puts downward pressure on valuations Page 6
Inside this issue Analysis Outsourcing for efficiency Investigation Valuations come under fire Viewpoint The power of branding Insight 10 tips from experience Toolkit Getting into SMSFs Market talk Little spring in Spring Caught on camera Vow Financial in Fiji
18 20 22 24 25 26 28
News Beware ‘advisor’ title: ASIC Brokers should be careful before branding themselves as advisors, and ensure the term accurately reflects their business model, ASIC has stated. ASIC has now stated that mortgage brokers who decide to use the term should be “very careful” that the label does not mislead consumers as to the services brokers offer. “There is nothing in the [NCCP] stopping a person who engages in credit assistance (assisting and/ or suggesting a consumer in relation to a particular credit product) calling themselves an advisor, but they would have to be very careful to ensure that they were not holding themselves out to be an advisor in a way that implies they are able to advise on financial products such as investment products (shares and MISs) or insurance,” an ASIC spokesman said.
The decision toto call themselves advisors will be based upon whether it accurately describes their service, Gadens Lawyers senior partner Jon Denovan said. “Whether brokers should call themselves ‘advisors’ depends on their business model. Some do provide advice, whereas others provide assistance to obtain a home loan without really giving much advice along the way,” Denovan commented. Moreover, brokers who offer only a small range of options to consumers should steer clear of the term, Denovan said. “Certainly a broker offering a single funder’s products or a limited range of products should never use the word,” he remarked. Denovan conceded that the term did bring with it a certain amount of risk, and said that courts and EDR schemes could interpret the role as providing a higher duty of
care. However, MFAA CEO Phil Naylor said the association had carefully chosen to brand its members “credit advisors”, and was confident the term fell well within the boundaries of the NCCP. “Uppermost in our mind was the concern of the past that brokers could not give advice as it might be confused as financial advice covered by FSRA,” Naylor said. Naylor said the NCCP has actually cleared the way for the term, so long as the advice brokers offer is strictly credit advice. “It is clear from the MFAA’s use of the term ‘credit advisor’ that the MFAA member is giving credit advice as regulated by the NCCP. It does not imply that the member is giving financial advice,” he said. Rather than creating confusion around the term, Naylor said the NCCP has given brokers certainty around the role brokers play in offering credit advice.
Brokers in dark on Diploma deadline Mortgage brokers and peak industry body the MFAA were caught unawares last month by a looming November 24 deadline for enrolment in the current Diploma of Financial Services. As part of an ongoing upgrade to MFAA membership education standards, the peak industry body’s members are required to have completed – or upgraded to – the Diploma of Financial Services by 30 June 2012, an upgrade from the previous Certificate IV minimum. However, November will see the introduction of new government standards for both the Cert IV and Diploma courses, meaning brokers who do not enrol before November 24 will have to undertake extra work to achieve the Diploma. The MFAA told Australian Broker it had only recently become aware of the incoming standards
and course changes, which were made public to industry in November last year. Subsequently, the MFAA confirmed that it was in negotiations in the hope the deadline for enrolment under the current Diploma structure could be pushed back past November. “We have recently become aware of the new requirements and are in discussions with Innovation & Business Skills Australia who have been made aware of our 1 July 2012 deadline,” Naylor said. He explained that the government body “understands the urgency” of the situation, and was expected to update the MFAA within days in regard to a possible postponement of the new education standard introduction. A postponement would give MFAA members time to enrol under the existing Diploma upgrade arrangements.
“We are confident that the existing requirements for the Diploma will remain in force for a period which is more consistent with our deadline,” Naylor said. The amount of extra work required from brokers to upgrade to the Diploma if the 24 November deadline stands will differ depending on the provider, say training providers. The National Finance Institute’s Peter Heinrich has said that the new Diploma structure will only carry two existing units across from the existing Cert IV course, meaning the upgrade to the Diploma would require the completion of almost a full Diploma course. Other providers – including AAMC Training Institute and TAFE NSW – have argued that at least half (seven or more units) from the old Cert IV will be recognised by the new Diploma.
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Mystery shop a victory for brokers A mystery shopping survey of home lenders has ranked brokers ahead of both banks and credit unions in results that make “a mockery” of Australian Consumers’ Association (ACA) claims that consumers are poorly served by mortgage brokers. Results from the latest Core Data ACQUIRE Index show brokers continue to score ahead of banks and credit unions over a range of seven criteria, in results that show brokers were more engaged with consumers in regard to their home loans than their channel competitors. “This year’s research reveals that mortgage brokers are, at least in the eyes of the consumer, the most efficient and effective mortgage sales engines currently
operating and that credit unions and building societies are the least effective,” the Core Data research findings state. When measured by “understanding” – or the ability to understand customer needs – brokers trumped their competition, scoring an 87.5% approval rating from consumers who have taken out a home loan, compared with 78.5% for banks and 78.1% for credit unions. In terms of ‘assurance’ – or the measure of ‘comprehensive knowledge of loan products’ – brokers also came out on top at 87.6%, ahead of the banks (85.3%) and credit unions (84%). Following the introduction of the National Consumer Credit Protection Act, the Core Data
Index found brokers outranked lending institutions on compliance. Brokers garnered a 61.4% score from consumers, ahead of banks (57.4%) and credit unions (50.3%). Core Data head of mortgage research Andrew Inwood said brokers had been “a consistent favourite of consumers”. “Brokers put extra effort into knowing their customers and performing for them,” Inwood said. “Brokers’ income is linked to completing the loan, so they have the fastest speed-to-market for borrowers while also being the most efficient sales channel for many banks,” he said. Commenting on the research, MFAA CEO Phil Naylor said they made a mockery of ACA claims that consumers were not serviced effectively by the broking channel.
“We are not surprised by the service-related scores from brokers, because 41 per cent of all Australian mortgages are written by brokers and well in excess of half all new loans are brokerwritten,” he said. Brokers also managed to outperform in the measure of ‘intention’ – or the desire for a consumer to go ahead with the loan – with seven out of 10 initial meetings progressing to the offer stage. However, the results showed brokers lagged banks and credit unions on a ‘quality’ measure – which Core Data defines as the quality of information provided, how well the loan offered met the shopper’s needs, and the appropriateness of the loan amount.
Credit upsell now a ‘destroyer of value’ Brokers who attempt to offer consumers a larger amount of credit than they come asking for are being seen as operators exhibiting less quality than banks and credit unions. The latest ACQUIRE Index from Core Data, which measures consumer perceptions of home loan lenders in the Australian mortgage market, found that mortgage brokers trounce banks and credit unions across most categories, except notably on a ‘quality’ measure. Banks came out ahead on ‘quality’ according to Core Data, with a 76.4% approval rating from consumers, followed by credit unions on 72.1%. Brokers
managed only 68.3%. Quality was measured by combining feedback on how well the loan offered matched a shopper’s needs, the quality of information provided, and the appropriateness of the loan amount. Responding to the quality finding, MFAA CEO Phil Naylor said he understood the finding came down to brokers wanting to get the most amount for their clients and perhaps in excess of their needs, at a time when borrowers were more risk averse. Core Data head of mortgage research Andrew Inwood said there is a small number of businesses in the market who are prone to what a consumer may see
as “over-lending”, by offering them more credit than the consumer originally comes asking for. “They may have come asking for $400K, and the broker has said, ‘Well, in your circumstances we can get you $650K’, and they are saying ‘No, I only want 400K,” he said. “That’s now being seen as a destroyer of value,” he said. “Risk aversion has taken over the market, and having access to more credit is not now as valuable a thing for consumers.” Inwood said that although this may be the practice of a small number of businesses, these “one or two dominant brands” reflect a large chunk of the market, impacting the result.
“Brokers are no doubt trying to do the best they can for the client, but the reality in the current environment is one in which people are fearing the chance of capital loss more substantially than the potential of capital gain,” Inwood said. “Every conversation a broker should be having with a consumer needs to be about manufacturing certainty,” he said. Naylor said the situation should be helped by new legislation governing brokers. “It should be assisted by the NCCP which requires the broker to be aware of the client’s circumstances.” He said another key factor is that the lender can be more precise as to how much they will lend.
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PI cover concerns could erode valuer standards
Valuers face an insurance cover shortfall that could cause mounting pressure to deliver more conservative valuations. Australian Property Institute president Philip Western said the valuation industry is facing a crisis in its ability to obtain adequate PI
cover. Western said the situation is forcing some smaller firms out of the market, and could even lead to an erosion of professional standards for the industry. “The cost of PI cover has gone up quite phenomenally over the last 12 months or so. At the same time there’s been a reduced number of insurers in the market, and also there have seemingly been issues around insurers not wanting to cover any firm with revenue not in excess of $1m. That’s impacted heavily on a lot of sole traders. We’re losing a lot of competent, capable valuers out of the industry as companies are folding up,” he commented.
Western said lenders are also putting pressure on valuers, refusing to assume proportionate liability and effectively putting full liability for soured home loan deals back onto valuers. “A number of financial institutions are trying to get valuers to contract out of proportionate liability,” he commented. According to Western, growing liability combined with a lack of PI cover could see valuers come under pressure to deliver increasingly conservative valuations. While Western said the API would vehemently oppose such actions from valuers, he stated that fear of
liability could lead some valuers to err towards conservatism in their assessments. “Obviously within the API itself we have professional requirements as far as the minimum standards go, but potentially it could mean that valuers could feel pressure to be more conservative. That impacts on the whole market. Yes it reduces the risk associated with providing valuation advice, but it impacts on the public in terms of consumers’ ability to secure finance,” he commented. For more on the state of valuations, turn to our special investigation on page 20
Disclosure changes ‘could be a close call’ ASIC has released guidance on upcoming disclosure regulations, and key changes are yet to be reflected. The regulator’s guidance released in mid-September details the disclosure documents lenders and brokers will need to provide. However, changes lobbied for by the MFAA are yet to be reflected in the guidance. The disclosure regulations are to take effect on 1 October, and Gadens Lawyers senior partner Jon Denovan said the expected changes “could be a close call”. “ASIC’s guidance is based on the law as it is at the moment. Treasury have told me that the regulations will be amended prior to 1 October when all this starts,” Denovan said. The MFAA is lobbying Treasury
to amend a regulation requiring licensees to specify their panel lenders, or, if the licensee has more than six panel lenders, the six with whom the licensee does the most business. The MFAA has argued that disclosing a licensee’s top six lenders could serve to push customers towards these lenders. The association has also contended that the regulation could be difficult to adhere to, as panel lenders change from time to time. Another mooted change is to regulations giving mortgage managers the option not to disclose their margins if the maximum cost and interest rate are published in the credit provider’s website. The MFAA has argued that this could be impractical for lenders, and has
suggested that the information instead be displayed on the mortgage manager’s website. Though the 1 October deadline was fast approaching at the time of going to press, Denovan said he was confident the changes would come into effect before the disclosure regime kicks off. He
commented that brokers and mortgage managers should be safe to prepare for the regime under the assumption that Treasury will make the expected changes. “The MFAA’s current view is that it is reasonable to rely on Treasury’s assurance,” he said.
Documents required for disclosure Credit guide
Credit provider, assignee or lessor
Credit assistance provider
Debt collector (if a licensee or credit rep)
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ING Direct delivering on broker enhancements ING Direct will continue to roll out improvements to its third-party origination processes in response to feedback from mortgage brokers, the lender has said. Following a wave of broker feedback in July regarding the bank’s service proposition, sparked by a call from the second tier
lender for more support from brokers, ING Direct head of broker distribution Mark Woolnough told Australian Broker the lender has focused on key enhancements, and has received “overwhelmingly positive” feedback as a result. Woolnough said one of the major areas the bank has addressed relates to its automated systems. “We have a number of automated projects in the pipeline. One we’re rolling out is loan variation automation for existing customers,” he commented. Previously, online variations were only available for new customers. However, Woolnough said ING Direct will move to allow variations for existing customers as well. “We will move into more automation so brokers can transact online for existing customers just as they do for new
business, and this will increase service levels and efficiencies,” he said. Woolnough said ING Direct was also exploring further areas to improve its origination processes and submission procedures. “We will continue to look at ways where brokers can email supporting documents rather than fax them in, as well as ways to order automated valuations. We’re currently looking at how we can build that into the system,” he said. Another criticism levelled at the bank by brokers was that thirdparty originators did not have direct access to credit assessors. In response, Woolnough said the bank would open access to credit assessors for its entire broker network. Earlier this year, the bank began rolling out credit assessor access to 1,500 key
brokers. Woolnough said this had led to increased efficiencies and pass-through rates, and that providing credit team access to the bank’s entire broker network was a “no-brainer”. “It drives efficiency for the bank and improves the broker experience. So, anyone who submits a loan with ING Direct by the end of the year will have access to the person making the decisions on credit,” he said. Woolnough said the bank was also conducting a “complete scan” of its credit policies, and working to make improvements in its communication to brokers. “We’ve identified areas where we need to be clearer in our communications on what our credit appetite is. We’ve also increased LVRs, and made improvements to policies around employment terms,” he remarked.
Lawler tips YBR product expansion Yellow Brick Road CEO Matt Lawler has tipped that the company will expand its product offering into further investment products. Lawler said YBR will look to launch a new investment product in conjunction with the premiere of Nine’s Celebrity Apprentice, which YBR chairman Mark Bouris will host. Lawler said it would be ripe for investment from self-managed super funds. “This product would definitely be an option for self-managed super funds, particularly for retirees looking to put less money into shares,” he commented. Lawler stated that the company has put a particular focus on developing its product line, and in its ventures into the investment and term deposit space. “We’re seeing a lot of money flowing into the savings area, and
giving people choices in that area is what we’re all about, whether it’s retirees spooked by the share market, people sitting on the sidelines looking for the property market to recover or people trying to build up a deposit for a house. We’re looking to launch alternatives in the savings market and the term deposit cash market. We think there’s an opportunity to give Australians a better deal. Part of what we do is deconstruct the market to see if there’s the opportunity to provide better value,” he said. As part of the cash injection from the company’s deal with Nine Entertainment, Lawler said YBR would continue to diversify its product range over the next six months. “We’re building out our product capabilities. We’re looking to put out YBR insurance products and
YBR investment products,” he commented. Lawler also claimed the company’s aggressive recruitment strategy is paying dividends. Chairman Mark Bouris previously set a goal of opening one new franchise a week. Lawler said enquiries from potential franchisees have been flowing into the company. “We’re seeing enquiries from mortgage brokers looking to upgrade their model from just mortgages. We’re seeing people coming out of the banks who are tired of the corporate world. We’re seeing enquiries from financial planners looking for support from an independent brand,” he said. This aggressive strategy, Lawler said, was imperative for a “young company”. “Overall, we’re a young and aggressively growing business.
We’re building the brand, and we’re doing that through the Channel Nine deal and in the upcoming Celebrity Apprentice. We’ll do that to build brand awareness, because we are a young company and we’re starting from a relatively unknown base,” Lawler remarked.
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SMSFs your “biggest SMSFs opened to opportunity”: Hayek renovations Blue Wealth Property CEO Tony Hayek has told Vow Financial brokers that SMSFs present “the biggest opportunity” for their mortgage broking businesses today. At Vow Financial’s annual conference in Fiji, Hayek said that legislative changes in 2007 allowing super fund borrowing for property investment had appealed to Australians who wanted ultimate control over where their retirement funds are invested. Advantages of SMSFs include property assets being protected from bankruptcy – or limited recourse – as well as capital gains tax exemptions for appreciation on these assets. Hayek said that as a result, SMSFs had attracted an influx of ‘smart money’ that was looking for a boost to retirement income by achieving gains through leverage. Hayek said one-third of Australian superannuation funds are held in SMSFs, that SMSFs include over 850,000 members in total, and that the average SMSF value was $960,636. Hayek urged brokers to think about what they could do to assist their clients to retire better, simultaneously “changing people’s lives” while helping their own business bottom line. Hayek said the retirement nest egg that could be achieved via SMSF borrowing and investing was 112% better than the average managed fund for a 48-year-old client. He also suggested leveraging into property could save Australians from potential retirement poverty, quoting statistics that showed only 4% of the population were set to have an
income over $41,000 in retirement, and 84% would be surviving on under $21,000 per year of their own assets. As part of his presentation to Vow Financial brokers, Hayek claimed that the mortgage broker is the most powerful professional in the wealth creation world today. Hayek said in contrast, financial planners had lost trust following the financial crisis fallout, while he said “conservative” accountants were focused on maintaining existing tax refund business. “Mortgage brokers are the wealth creation managers of the future,” he said.
From the forum: What you said on SMSFs Yes this is a great opportunity. It needs to be approached carefully as there are a number of ‘rules’ that brokers need to ensure are being met by the loan. Lenders are responding, but all of them have their own requirements and rules, (for example fund size, loan size , ‘bare trust’ requirements and so on). It is a broker’s responsibility to understand the rules and what each lender needs (for example, many will not lend on industrial securities). It is best to educate yourself before going into this market. The other advice would be to ensure that you affiliate with a planner and/or an accountant who manages a lot of SMSF, as they can be a great help with clients and understanding the ‘rules’. Be Careful. countrybroker on 12 Sep 2011 11:42 AM
A draft ruling by the ATO will open self-managed super funds for improvements to existing properties. Under the draft plan, the Tax Office will allow members of SMSFs to use their fund to carry out improvements on properties. Previous ATO regulations restricted SMSFs from undertaking renovations on properties with either debt or surplus funds. The new ruling means SMSF members will be able to access their funds for improvements, provided they do not make any fundamental changes to the nature of the property and do not access any borrowings. The ruling has also clarified the use of borrowings for repairs to newly-acquired properties with the ATO ruling that it will allow borrowings for repairs so long as they do not change the fundamental character of the dwelling. Accounting firm Chan & Naylor said the result would provide further flexibility and benefits for selfmanaged super fund members. “Considering SMSFs are trusts run for the sole purpose of providing retirement benefits to fund members. It’s only logical that investors have the right to choose the type of mechanism to invest through without being discriminated against,” Chan & Naylor director Ken Raiss said. Raiss said the ATO’s
previous position had discouraged many SMSF trustees from delving into property investment, as the regulations surrounding property investment were too stringent. “The lesson many astute investors learnt post-GFC is that property is a viable investment alternative to stocks and shares. However, we found many SMSF trustees unwilling to contend with existing policy as it disallowed investors to contribute to asset value without owning the property outright,” he commented. Not only would the new regulations benefit SMSF members, Raiss said, but they could also lead to more rental availability and affordability nationwide as SMSF trustees increasingly put money into investment properties. He said the changes would allow “Mum and Dad” investors to see better returns by purchasing property and adding to its capital value.
‘Heritage Bank’ means more broker business Heritage Building Society is targeting “significantly greater” mortgage lending through John Minz brokers this financial year, according to its CEO John Minz. Having announced plans to change its name to ‘Heritage Bank’, Minz said that the combination of a new discount variable home loan product and an expansion of its broker panel in tandem with the name change would drive higher broker lending. Heritage announced in early
September it intends changing its name by the end of 2011, in a move subject to a vote of members in October this year and the approval of the Australian Prudential Regulation Authority (APRA). The building society is overhauling its name in the market because it expects that a key benefit of the name change will be better “cut-through” in highly competitive conditions, allowing third-party brokers to better sell its offering. “The fact is that a lot of people just don’t understand what the term ‘building society’ means. It doesn’t reflect the role that Heritage plays today and it doesn’t
resonate with potential customers,” Minz said. “That’s particularly true outside our heartland in Queensland. We offer fantastic products and services at very competitive rates, but many people just don’t understand what we are all about. We believe that the new name of Heritage Bank will definitely put us more on the radar of potential mortgage customers and make it easier for brokers to explain our excellent mortgage loan proposition,” he explained. Heritage’s discount variable home loan, which was launched in August, featured an ongoing discounted interest rate of 6.85%
at time of printing and no monthly administration fees. The building society said the stripped back product would suit people looking for a simple loan with more basic features, including first homebuyers or refinancers. Heritage has confirmed its renewed appetite for lending by increasing distribution potential. It was recently added to both Vow Financial and Connective panels. “With a planned name change, very competitive products and wider availability, we aim to generate significantly greater growth through our broker partners,” he said.
News Brokers without degrees see higher profits A franchising survey has found the most highly-profitable franchisees are those without a university degree. Franchise researcher and market intelligence company 10 Thousand Feet found 26% of franchisees who gained a return on equity of more than 25% had achieved only a year 12 education. Those who hold a university degree only accounted for 18% of franchisees with a return on equity of more than 25%. Smartline broker Brian Hocking typifies the result, holding a Year 11 education. However, Hocking said more formal education is beneficial when coupled with good experience. “A university education is good and something to aspire to; however, on its own it doesn’t provide you with life skills, which are equally – if not more – valuable. I think a mixture of both is helpful,” Hocking said. 10 Thousand Feet head of intelligence Ian Krawitz agreed, and said mortgage brokers benefit from the added perception of professionalism afforded by higher educational standards. “You can certainly be highly profitable with a university degree. For mortgage broking, professionalism is hugely important, and I think that where the university degree comes in is to raise the standards and professionalism of the sector,” he commented. Smartline executive director Joe Sirianni previously said a university degree may one day be the minimum requirement for
entry into the mortgage broking industry. In spite of the 10 Thousand Feet research results, Krawitz said higher Brian Hocking educational standards for brokers make sense. “I can see why Joe has been a big advocate of the degree in the mortgage broking space, because it’s providing that added structure,” he said. Krawitz said franchisees may have an edge over independent brokers when it comes to continuing education. Brokers in a franchise system can benefit from more structured continuing education and training opportunities, Krawitz commented. “When you’re independent, you have your industry associations which encourage you to undertake that training and which are a fantastic pathway, but people don’t always take it up. With franchise systems it’s almost mandated that you have to attend these educational opportunities, and if you don’t they’re on the phone asking you why you’re not there,” Krawitz said. Krawitz commented that though the results indicate brokers without a university degree experience higher profitability, brokers who hold a university degree still have great capacity for business success. “It’s not a case of saying you can’t be successful with a university degree. It’s about coupling that degree with some good common sense,” he said.
ASIC details NCCP relief cases ASIC has issued a report on the nature of the relief and extensions it has both granted and denied credit industry participants under the NCCP. ASIC said the report, which outlines relief industry bodies have sought from the regulator, was published to “improve the level of transparency … about decisions ASIC makes”. “ASIC uses its discretion to vary or set aside certain requirements of the law where the burden of complying with the law significantly detracts from its overall benefit, or where ASIC can facilitate business without harming other stakeholders,” ASIC said. Among several instances detailed in the report, the report reveals ASIC took a no-action stance on a company which improperly authorised credit representatives. The company in question authorised as credit representatives its directors and franchise employees who did not hold membership in an EDR scheme. According to ASIC, the breach was inadvertent, and ASIC chose to take no action after the company rectified the breach. The regulator also took a no-action
position for an NCCP breach by a company which acquired another entity, failing to realise the entity took part in credit activities. ASIC said the company, upon being identified of the breach, registered with an EDR scheme, applied for an ACL and ceased taking part in credit activities until the ACL was issued. However, ASIC has revealed instances where it also refused relief requests from companies. In one instance, the regulator refused licensing relief for a solar power provider which assisted clients in obtaining credit from a third party finance company. Likewise, ASIC refused relief to a company providing commercial finance to insurance companies. The insurance companies then on-sold pay-by-the-month insurance contracts to consumers, with the company in question collecting the payments. ASIC said the company sought relief as it claimed not to be engaging in credit activities, as the insurance companies provided credit to the consumers. However, ASIC refused relief on the grounds that the NCCP clearly did not exempt the company from licensing.
Property appetite hits two-year high Stable rates have proven a boon to consumer confidence, with more households now eyeing the housing market than at any time in the past two years. The Westpac Melbourne Institute Index of Consumer Sentiment has jumped 8.1% in September, a result Westpac chief economist Bill Evans has called “surprisingly strong”. Evans said the index tracking whether consumers believe now is a good time to buy a dwelling jumped 15.1% to its highest level in two years. “We think it
emphasises just how important interest rates are to households,” he said. In addition, due to a “more relaxed outlook for interest rates” among households, the June quarter’s strong economic growth gave a boost to household confidence. The economy grew by 1.2% in the June quarter, following a 0.9% contraction in the March quarter. Lower inflation figures may also boost confidence of prolonged rate stability. The Australian Bureau of Statistics has revised its inflation
figures downward, indicating a core inflation reading of 0.6% for the June quarter rather than the 0.9% it reported in July. In spite of the sharp increase in household confidence, Evans said consumer sentiment remains depressed on last year’s results. “It is 14.8% below the average reading in 2010, 14.4% below its level a year ago, 7.1% below the average for the first half of 2011 and 4.2% below the reading in June,” Evans said. He also warned that consumer sentiment on the property market
may not filter through to consumer action. “There is a risk that this signal may be overstating the prospects for the housing market. With households still being particularly concerned about their own financial position over the next 12 months, there is a risk that, while seeing value, they will not be prepared to act on this,” he commented. Westpac has also stood firm in its predictions of a downward move from the RBA, with Evans tipping a 25 basis point rate cut in December.
Don’t fear bubble, says US property guru A US economic forecaster has claimed that mortgage brokers could actually benefit from a housing bubble. Long-range economic forecaster and author Harry Dent has echoed predictions from economist Steve Keen that Australia’s property market will see significant decline in the years ahead. Dent built a reputation in the US by forecasting the economic downturn in Japan starting in the late 1980s, the economic boom of the 1990s and early 2000s, and the onset of the GFC. He said brokers should not necessarily fear the idea of a housing bubble. “If we’re right and the worldwide economy goes down and interest rates go down, then there will be a whole group of people ready to refinance. Brokers should aggressively go after refis,” Dent commented. Dent has forecast a further global economic downturn spurred
by the European debt crisis. While he said Australia was “the best country in the world to ride out the crisis”, he predicted Australia’s economy will be harder hit by the downturn than it was by the GFC. Part of this downturn, Dent said, will be a significant drop in property prices leading to falling interest rates. Not only would tumbling mortgage rates lead to a wave of refinancing, Dent said, it would also rekindle demand as the housing market approached its bottom. “If the market does go down, it’s going to encourage buying activity by younger households and immigrants to Australia. What’s going to get young people back into the market is to let prices fall back down to reality, and that will rekindle mortgage demand. Otherwise the market stagnates forever with old people not buying anything,” he said.
Age demographics play heavily into Dent’s predictions. According to Dent, Baby Boomers have served to drive housing asset prices up, but are reaching an age where demand tapers off. He contended that demographics indicate most people purchase homes between the ages of 26 and 42, and that property spending drops off after the age of 50. “There was this illusion during the 1970s and 1980s that property prices always go up, but that’s because Baby Boomers were driving them up. Old people don’t buy real estate. A certain percentage downsize, but the Baby Boomers are done,” he commented. Dent argued that Sydney currently held the distinction of being the most overpriced property market in the developed world, and said rising asset prices were forcing most people out of the market. “Real estate can’t keep going up at this rate until it’s priced
everyone out of the market except a couple of billionaires who have to borrow against their yachts for a condo on the Gold Coast,” Dent said. Dent predicted property values in Australia will eventually decline to levels seen in the late 1990s to early 2000s, and said the market would find its floor by 2015. If market collapse is coming, Dent said, it will have happened by 2015 at the latest. He dismissed arguments that Australia’s unique circumstances would prevent any house price collapse from happening. “I’ve been to a lot of bubble areas around the world. They always say ‘it won’t happen here because we’re special and this is a special place’. I’m coming to say ‘learn from the US.’ The US saw Japan’s baby boom and saw their real estate bubble burst and said ‘it won’t happen here’. That’s a dangerous assumption,” he commented.
Loan Market sees business boost, FHB interest Loan Market has seen a 17% year-on-year spike in mortgage commitments for August, the company has stated. Loan Market COO Dean Rushton has said the company’s commitment numbers for August show a 17% improvement on last year. Rushton said the broker also saw a 20% uptick in home loan enquiries, a result he said has been buoyed by a protracted period of interest rate stability. “The RBA’s decision to keep the cash rate on hold at 4.75% for the past 10 months should continue to
restore consumer confidence and activity. The likelihood of the RBA staying on the sidelines for at least the rest of this year should lead to further improvements in the home finance sector,” Rushton said. Rushton referred to recent ABS figures which showed a 5% improvement in home loan commitments for July compared to July 2010. While housing finance was down 8% on an annualised basis, Rushton contended the market was “showing signs of life”. He pointed to housing finance for Queensland, which he said
indicated a slow recovery for the state following natural disasters. “There has been a rise in activity in Queensland, with commitments for July 2011 just 4% down on the corresponding month in 2010,” he said. Rushton said the company had also seen a spike in enquiries from first homebuyers, with a 15% uptick in first-time buyer enquiries nationwide, and a 30% rise in enquiries in NSW alone. Rushton attributed the increase to the NSW government’s move to limit stamp duty concessions to
first homebuyers purchasing a newly-constructed home, and said the move could see many buyers jumping into the market before the changes come into effect. “This concession for first-time buyers not paying stamp duty on established homes will cease from 1 January 2012, and it’s prompted a lot of people to assess their options now. That concession can be worth around $15,000, which is double the amount of the First Home Owner Grant. We are now seeing many people accelerating their plans to buy,” Rushton said.
News AMP to give brokers Cut rates now to stave off joblessness: Westpac deposit control AMP is working with key aggregators to roll out a new initiative that will give broker partners more control over client home loan deposits. AMP head of sales and marketing Stephen Craig said the new plan would enable brokers to arrange on a no-advice basis the full range of AMP ‘basic’ deposit products, including all term deposits and ‘at-call’ accounts. Craig said the broker will arrange for the customer to obtain a deposit product by assisting the customer to complete and submit the application to AMP Bank for fulfilment. “As happens with mortgages, the broker is then linked to the customer and becomes the point of contact we refer back to in all future dealings with the customer. So it helps the broker manage the customer’s entire banking experience,” Craig said. The AMP Bank First Home Saver Account is the only exception to the initiative, as AMP does not class the product as ‘basic’. Craig said the big benefit for brokers is they can assist clients right through their life cycles for deposit and lending needs. “This takes away the hassle for a customer in having their transaction accounts at one institution and their mortgage at
another. It also helps the broker to assist with all the customer’s banking needs – and it becomes more efficient for Stephen Craig everyone.” The initiative will allow brokers to become, in effect, a ‘one-stop shop’ and add value for their customers, according to Craig. “Brokers can help set up a savings account for a customer saving for their first home. When a customer is ready to buy their next home, the broker can help them with the right home loan and also help them set up a deposit account to hold funds from the sale of the first property pending the purchase of the new property,” he said. He added that AMP Bank offers a “very attractive” remuneration package which includes trail commissions. Craig said the slated changes are designed to meet demand from brokers. “Our brokers have been asking for products that make it easy for them to do business with their customers. We believe that this is a logical solution,” he said. “As a customer myself, having all my banking in one place makes my life easy – and it makes sense if my broker can help me with that. The broker is adding real value to the customer experience.”
An RBA rate cut will be essential to avoid spiralling unemployment, an economist has claimed. ABS figures show the jobless rate increased 0.1% to 5.3% in August. The decrease in employment was driven by a fall in full-time employment as the economy shed 9,700 jobs. The fall was partially offset, however, by a 2,900 person increase in parttime employment. In light of the figures, Westpac chief economist Bill Evans has argued the Reserve Bank will need to cut interest rates to stave off a “damaging rise in the unemployment rate”. Evans said the RBA should cut rates quickly to give the labour market time to respond, and prevent “an unnecessarily high unemployment rate”. “The RBA will be aware that the unemployment rate continues to rise long after the first rate cut in the cycle,” Evans commented. While the RBA has pointed to the mining boom as an indicator that Australia will face a tight labour market in the coming years, Evans said unemployment numbers show the demand for labour is not filtering through the economy. He referred to RBA figures showing that construction activities in the mining sector only contributed to a 0.25% rise in employment over the last year.
“Furthermore, the income effect which was so important in the previous mining boom has not been apparent in this cycle as government, households and firms have been saving any income boost,” he said. Westpac economist Justin Smirk said the figures indicate the Reserve Bank’s previous unemployment forecasts may have been too conservative. “Prior to today our forecast was for the unemployment rate to rise to 5.5%. On current trends, that looks conservative and 5.75% is an entirely plausible outcome,” Smirk said. This trend, according to Smirk, will force the RBA to reconsider its outlook for employment. “The RBA can no longer describe jobs as ‘firm’ or the unemployment rate as ‘near 5%’,” he commented. Evans also expressed concern over the RBA’s future moves, and said the RBA’s tone could indicate they were ignoring current economic indicators. “Our biggest concern is that the authorities, as implied in the Governor’s statement, dismiss short-term economic weakness and continue to emphasise medium-term concerns about tight labour markets and a wealth-creating mining bonanza,” Evans said.
Affordability improvement short-lived An improvement in housing affordability in the March quarter has proven to be short-lived. The REIA-Deposit Power Housing Affordability Report has indicated affordability once again suffered in the June quarter, with a 0.4% increase in the proportion of average family income going towards home loan repayments. Families now spend an average of 34.6% of their income meeting their mortgage payment, and this proportion has now tracked above 30% since September 2009. NSW saw the largest deterioration of housing affordability. The proportion of family income needed to meet repayments in the state is 38.7%, well above the national average. The Northern Territory, Western Australia and Victoria all saw improvements in affordability for the quarter, though Victoria experienced the largest year-on-
year decline in affordability of any state. The ACT remained the most affordable area in Australia, with only 18.8% of average household income devoted to mortgage repayments. In spite of the decline in affordability, borrowers appear to be re-emerging. The study indicated a 10.6% rise in the number of new finance commitments for the quarter. The increase was the largest of any quarter since June 2009. However, REIA acting president Pamela Bennett said that the uptick in finance commitments had to be put in the context of an overall downward trend in consumer sentiment. “Consumer confidence is continuing to fall and uncertainty about the global economy will affect expectations about household finances. For this reason, the increase of 10.6% in
the total number of housing loans and 13.4% in the number of loans to first homebuyers in the June quarter must be read with caution,” she said. Deposit Power national manager Keith Levy argued that the property market remained weak. “Confidence in the sector is subdued; the government needs to provide homebuyers, particularly first homebuyers, with a sign that the property market is strong,” Levy said. Subdued confidence aside, first homebuyers appeared to re-enter
the market in the June quarter. The number of new finance commitments for first-time buyers jumped 13.4%. While first homebuyers were more active over the quarter, they accounted for only 15.5% of new finance commitments compared to the long-term trend of 20%. Rental affordability, meanwhile, has seen improvement. The proportion of income devoted to rent fell to 24.8% in the June quarter, down from 25.1% in the March quarter and 25% in the June quarter of 2010.
Housing cost impact on household income June quarter 2011
March quarter 2011
June quarter 2010
Home loan repayments
INDUSTRY NEWS IN BRIEF Consumer group blasts brokers Consumer group Choice has reportedly taken a swipe at brokers and financial advisors, calling the quality of financial advice in Australia “crap”. According to the Australian Financial Review, the non-profit organisation is considering plans to start a financial advice business. Choice CEO Nick Stace told the AFR he wanted to compete with the financial advice industry. “I sit on the board of an international consumer organisation that represents 250 consumer organisations in 120 countries and I can tell you financial advice in this country in among the worst,” Stace commented. Stace accused professionals of giving consumers “crap financial advice”, and said consumers wanted “an organisation they can trust”. Global woes weigh on market Global concerns outweigh domestic economic factors in the minds of Australian consumers, a new poll has found. The consumer survey by mortgage broker Loan Market found 56% of respondents tipped global economic uncertainty as the biggest factor influencing their confidence in making financial decisions. Loan Market COO Dean Rushton said domestic stability is being outweighed in consumers’ minds by the global economy. “Uncertain global economic factors are obviously of concern to people despite assurances that Australia is faring much better than other western economies. This lack of confidence in the global environment, particularly the debt crisis in Europe and the US, is hurting our domestic economy,” he said. Location, location beats land A detached house on a large block of land may not be as important to Australians as previously thought. A new survey from the Grattan Institute has shown that Australians rank “whether the house is detached” fifth in their priorities when choosing a property, and place having a big back garden 20th on the list of importance. The survey cuts against research from PRDnationwide which indicated the most desirable type of property for potential homebuyers was a detached house on a 600sqm block, situated within 15km of a CBD. The Grattan Institute study found the number of bedrooms a house has was the most important factor, but the list of deciding factors was dominated by concerns over a property’s location. Stamp duty move no silver bullet A push to drop stamp duties will not serve as the ‘silver bullet’ to Australia’s lack of affordable housing, an industry group has claimed. Treasury head Martin Parkinson has publicly supported a move to wind back or do away with state stamp duties, recently stating that state housing taxes are the biggest impediment to productivity. However, lobby group
Australians for Affordable Housing has claimed the removal of stamp duties is not the “whole answer” to housing affordability concerns. “While it is not a popular tax with purchasers, cutting stamp duty alone is not the answer to the housing affordability crisis,” the group’s spokesperson said, adding the problem was a tax structure encouraging speculation. Banks risk profits with discounts Banks are dangerously close to damaging profits through home loan discounting. The Australian Financial Review recently reported that JPMorgan advised clients in a letter that bank discounting of standard variable rates ran the risk of eroding profitability. JPMorgan’s Scott Manning told investors that the average discounted variable rate offered by banks had climbed from 0.7% to 0.9% over the past 12 months. “We estimate that current pricing is about as competitive as it can get prior to diluting group returns,” he told investors. Manning claimed the 0.9% discounts were “uneconomic” if sold through mortgage brokers, while discounts offered through branches could extend to 1.2%. Carbon tax to hamstring building Master Builders has called for a forum to assess the impact of the carbon tax on home building after Prime Minister Julia Gillard introduced the legislation to Parliament. Master Builders CEO Wilhelm Harnisch has argued for the establishment of a panel of government and industry stakeholders to examine the impact the proposed tax will have on the building and construction industry. Harnisch has claimed building will take a hit under the tax plan. “The proposed carbon tax will have a substantial adverse impact on the building and construction sector. According to the Treasury’s own forecasts, the carbon tax will reduce output in the construction sector by some 5.6% by 2050, much more than the 4.3% predicted for mining and the 2.8% expected for manufacturing,” Harnisch said. Housing stock shock for August Housing stock on the market fell in August, a result one property analyst has said is surprising. New figures from SQM Research show total housing stock fell 3.8% from July to August, and all capital cities except Hobart saw month-on-month declines. Listings remain elevated on last year’s August levels, with a 23.6% yearon-year increase nationally. Perth saw the largest monthly decline in listings, with stock down 7.1% for the month. The city also experienced the most modest yearon-year increase at 17.8%. Melbourne saw the largest yearly increase in listings, up 56.8% on the same period last year. As the Spring selling season kicks off, SQM managing director Louis Christopher said the decline was unexpected.
News represent the industry when there are going to be significant changes brought by government and then implemented by the regulators, so they get a firsthand view of what is really happening on the ground in relation to the operation of the industry,” Kane said. While the MFAA’s lobbying work has been “excellent”, according to Kane, he admits this may not have been communicated effectively with its membership base. “In terms of the transparency of what has actually been achieved in some of the negotiations, discussions and work groups with both the regulator and government, it probably isn’t as obvious as it should be to our
membership,” he said. “That is a key for member engagement, letting the membership know what it is we are doing and what our achievements are.” And the achievements under Joe Sirianni’s presidency have been many, he argues. “He [Sirianni] is a person that has driven the change in the marketplace towards an understanding of NCCP and how it could be used as an advantage, and has made sure the MFAA is at the forefront in terms of the regulator and the government. He also helped drive the whole change in direction of the MFAA: the strategic planning process, but also the fact that the market was changing and how the MFAA should change with that. His are
big shoes to fill; Joe is an experienced and highly professional person, and I’ve seen how Joe’s presidency has enabled the board to function very effectively.” Kane has also moved to assure brokers his position as the CEO of a NAB-owned aggregator would have no bearing on the MFAA duties he has been charged with carrying out. “The MFAA presidency role is independent of any role that I might play at FAST, or because of FAST’s ultimate ownership by NAB,” he said. “It was very important to me individually that that was recognised, otherwise I would not have taken on the role,” he continued. “So whilst I am part of an organisation that is
ultimately owned by NAB that is not really a factor in this, nor would I seek to use that in any way, shape or form in terms of the MFAA.
Brokers prompted to leverage ad campaign
Value data forms ‘complete picture’ overall
The MFAA has called upon brokers and industry members to push its MFAA-approved broker campaign as a benchmark for consumers. MFAA CEO Phil Naylor has previously said the campaign sought to position MFAA-approved brokers as an industry benchmark, and that consumers should naturally seek out MFAA members. Naylor has now called on brokers to push the campaign to consumers, saying its success is dependent upon uptake from brokers and industry players. “We’ve encouraged all members to promote the campaign. We can do our bit by using our resources to some extent, but the key to success is that all players in the industry leverage off it,” he commented. Naylor said the initial phase of the campaign focused on press advertising and online ads in 40 metropolitan and regional newspapers. He said the association is currently planning a further advertising push. “The upcoming stage will have a much more online and regional focus,” he said. The eventual goal of the campaign, Naylor said, is for consumers to ask whether brokers are MFAA-approved. While Naylor said the MFAA had yet to assess consumer reaction in the early stages of the campaign, he said MFAA members had indicated that consumers were starting to catch onto the messaging. “A recent survey of members indicated that this is starting to happen but at a fairly low level at
Vast discrepancies in median property value data are all down to methodology, and consumers must form a view based on all the data available, the Real Estate Institute of Australia has said. The REIA recently broke with other data providers in reporting growth in Australian property values for the June quarter. The group’s Real Estate Market Facts report indicates a rise of 1.2% for detached house values and 0.5% for “other dwelling” media values. The REIA said the increase is the largest since the September quarter of 2010. The REIA data shows the Melbourne market performing strongest among capital cities, with a 5.4% increase. REIA acting president Pamela Bennet said the result indicated “a very stable and strong market for the city. However, the data runs in direct contrast to figures released
this stage but the green shoots are starting to appear. Encouragingly a large number of members are actively telling potential clients that they are an MFAA Approved Broker and this is an important leveraging off our media campaign,” he remarked. Mortgage Choice has been one of the MFAA members leveraging off the campaign, a development Naylor said he was pleased to see. In its advertising to consumers, the company has promoted its franchisees as MFAA-approved brokers. Company spokesperson Kristy Sheppard said Mortgage Choice believes in the goals of the MFAA campaign. “Mortgage Choice has a close relationship with the MFAA, as do many other brokers, and have had a little input into the campaign. We strongly believe in the need for our industry to develop and promote its professionalism so more and more Australians are aware of the great value brokers provide,” she said.
by RP Data, the ABS and Australian Property Monitors. All three organisations indicated declines in median values for the June quarter. RP Data claimed a 2.4% decline in median values for the quarter, while the ABS and APM showed more modest falls of 0.1% and 0.6%, respectively. While the REIA reported strong growth in the Melbourne market, RP Data reported a 3.6% decline in Melbourne values, ranking the city as the worst performer. The REIA said the organisation uses a raw median of home sales prices, while the other bodies take into account compositional changes in the transaction samples, with RP Data taking into account information on the characteristics of the homes sold. The REIA said consumers should take into account assessments from all the data providers.
A complete picture? An example of price discrepancies between data providers House Price Movements – December Quarter 2010
Optimising through outsourcing Outsourcing can be a boon for brokers looking to reduce costs and focus on their highest value work, argue some of Australia’s top mortgage brokers
rokers should consider outsourcing aspects of their business processes to enable them to focus on high-value tasks, according to top brokers who have achieved the feat. Speaking with Australian BrokerNews, Sarah Wells of redconcierge, Ian Jordan at The Selector Group and Nicole Cannon of Pink Finance have all urged brokers to consider outsourcing low-value tasks to improve their productivity and their bottom line. Wells said the biggest mistake she had ever made in her business was attempting to be a “one woman band”, where she tried to do everything herself and ended up getting bogged down in tasks that she said she really didn’t have to be doing. “When I first started in lending I found there was a value in processing. I found I needed to do it to stay up to speed with lenders’ policies and procedures, but after I had been in the industry for a while, I needed to let go of those low value tasks,” she said. Likewise, Rodny Ghalie from Citywide Lending said his biggest mistake had been “not letting go” of lesser tasks. “I used to try and do everything, especially for key clients who just wanted to see me. I was working in the business, not on the business,” he said. Wells argues all brokers can outsource. “Whether it’s loan processing, marketing, or bookkeeping, I think every broker has the opportunity to outsource.”
Biting the bullet
For more on outsourcing, see the full story on Australian BrokerNews TV
Jordan said making the decision to outsource can be one of the most challenging things about the process. “The hardest thing for us was to bite the bullet and confirm that we really needed to change the way we did business, and how we were going to scale ourselves into a new environment and increase our revenue,” he said. Wells said that most brokers – including herself – could rightly be labelled as “control freaks”, because they like to be in control of everything they do. “I believed that no one could process a loan as well as I could – which is not true – but I found that once I was able to let go and develop a process and get to know the person I was working with, it became easier,” Wells said. “But letting go and trusting that someone can do just as good a job as I can was definitely something that I found I had to start to do.” Cannon said although outsourcing is an extra cost, “there comes a time when you are aware that there’s the cost but there’s also the time factor”. However, Cannon admits that letting go of low-value tasks can be challenging. “You are used to taking control of the process from the very beginning and then right to the end, and you take pride in the job that you do, so trying to trust someone that they will do the job as well as you know you can is a bit nerve racking,” she said.
Reaping the benefits
The Selector Group made the decision to outsource its loan processing activities to India, as part of a drive to increase efficiency and concentrate on high-value work. “The mortgage processing they are doing for us, in fact, is data entry into the CRM,” Jordan explained. “We have a very, very comprehensive CRM. Our filing system is electronic, so they name and label all of the files – they effectively get the loan ready for submission. They let us know what else they need to get the submission ready, they do the submission, and then they follow that through all the way to settlement,” he said. Jordan said offshoring of these low-value tasks meant significant cost savings. “Well, the ratio is one to four. So effectively, you get one Australian for four Indians, just to give you an idea.” Jordan said the more time brokers are able to spend in front of their clients, the more likely they are to get more business, and grow their business. “If they are chained to the desk for three hours out of every hour they are with a client, it’s probably not a great ratio,” he said. “If you are able to increase that to, say, three hours with clients and one hour at the desk, that’s when you are really going to start increasing your profitability.” Wells said savings could be gained from making use of virtual assistant services. She also said she had purchased an entire client education video campaign for the inexpensive price of $150, which she said had the added benefit of increasing the value she provided to her clients. For those brokers that do manage to “bite the bullet” and let go of some of their business tasks, Cannon argued that there are benefits that go beyond the pure cost advantages. “It also makes the business look bigger, because there is another person contacting our clients and our solicitors and updating everybody on the process,” Cannon said. “It makes the company seem a bit more professional and enhances the whole experience for everybody.” However, Jordan said outsourcing – especially across geographical and legal jurisdictional boundaries – can have as many challenges as it has benefits. “The amount of effort and work that goes into training and setting it up; the amount of effort that goes into ensuring you are compliant with Privacy and those sorts of things are really, really critical,” Jordan said. “So things that you consider normal here in Australia – from the point of view of being able to shove your USB into your computer – they are all disabled.”
WORLD Brokers told to resist marketing cuts
Canadian brokers have been urged not to slash their marketing spend in the current slower market, or risk losing out on the potential opportunities that still exist. Mortgage Brokers Ottawa president and CEO, Mike Hapke – whose business is on track to realise a total funded volume of just under a billion dollars this year – said advertising, even in the slower conditions, had played a big part in the group’s success. “The success of marketing and advertising is hard to determine,” Hapke told Key Media sister publication Canadian Mortgage Professional. “But, generally, good advertising is really evident in slow times, not necessarily good times. What brokers need to be focused on now is maintaining advertising and marketing efforts in this environment.” In this kind of market, the temptation is to cut back on advertising and marketing budgets, said Hapke, suggesting brokers do have an alternative. “You have to be cautious with what you’re spending your marketing dollar on. It needs to be strategic as well as consistent. You can’t just put up a bus bench and think that the money is going to roll in. For people who are prepared to be consistent and focused, that should help them maintain business.” Hapke said that increasingly the internet is part of Mortgage Brokers Ottawa’s marketing formula, including the tracking of the origins of leads coming to the firm.
HSBC offers 20-minute mortgage
HSBC has launched an online mortgage service for UK customers that will provide them with a decision on their loan within 20 minutes. According to the UK’s Mortgage Introducer magazine, HSBC has said that current customers can transfer their mortgage to any of the bank’s latest deals in under 20 minutes. The service is completely automated and paperless, and offers HSBC’s existing internet banking registered mortgage customers the ability to fully switch their mortgage online, including paying any product fee. Once the process is completed, documentation including the Offer Document and Mortgage Loan Terms and Conditions will be easily accessible via the HSBC website, according to the Mortgage Introducer report. The facility is also a finalist for an Institute of Financial Services Innovation Award due to be announced in December. HSBC head of lending Martijn van der Heijden said customers wanted to make more financial decisions online and that mortgages should be no exception. “The Mortgage Product Switcher service is ideal for the majority of borrowers who at the end of their current deal just want a new great rate, not more borrowing or a
different term,” he said. “It’s simple and provides our current mortgage customers with a paperless way of effectively remortgaging in just minutes.”
Protect our property, say elders
The UK’s aged borrowers are reticent at dipping into their property equity to fund their retirement, with 68% of borrowers aged between 65–75 averse to the sale of their home for this purpose. As the UK faces a future where the current elderly care system is unsustainable, 70% of over-55s surveyed as part of Aviva’s latest Real Retirement Report have said they don’t believe they should pay for care in retirement. Of those who do, they state that just £3,610 is a fair cost for a lifetime of care. While the majority of over-55s indicated that they would prefer not to pay for aged care, they do concede that it is unlikely that the State will be able to pay for everyone’s care. The most popular funding options were for better-off people to contribute to the cost of their own care but for the government to pick up the tab for everyone else (51%) or for those who can afford to, to contribute to the cost of care (36%).
NZ should stop hiking rates
A New Zealand economist has called on the Reserve Bank of New Zealand to stop hiking interest rates, due to doubts around the nation’s economic recovery. In September, the RBNZ left rates on hold at 2.5%. Its Governor Alan Bollard said that if global developments have only a mild impact, it is likely it will need to increase further. However, New Zealand Institute of Economic Research Quarterly Survey of Business Opinion chief economist Shamubeel Eaqub released a report revealing a drop in business confidence, from 36% in the March quarter, to 28% in the June quarter. “It’s not quite double-dip recession, more a stumbling recovery,” Eaqub said. “But the very weak growth evident showed a far weaker economy than would normally be expected a year into the recovery.” Eaqub said a weakness in manufacturing, construction and investment intentions was of particular concern. “The domestic economy is very weak; the international situation remains particularly volatile. The Reserve Bank should have waited [in July] and the numbers we are seeing show that. It’s a mistake to be raising interest rates when the economy is not growing.” Bollard said that “given the recent intensification in global economic and financial risks, it is prudent to continue to hold the cash rate at 2.5%.” He said the New Zealand economy has been performing “relatively well” with headline inflation “increased somewhat” since the June RBNZ board meeting. “At the same time, however, global economic and financial risks have increased.”
Valuation frustration A volatile housing market can mean volatile valuations, but some industry figures claim valuers are being far too conservative
Valuers are equally liable for high and low valuations
ouble-digit discrepancies in valuations on the same property may not be out of the ordinary due to the volatility of the housing market, RP Data has claimed. With some brokers complaining of 10-15% variations in valuations on properties, which can often scuttle deals or put borrowers into LMI territory, RP Data chief executive Graham Mirabito has said these kinds of discrepancies are indicative of an increasingly volatile housing market. Mirabito said following the GFC, property values can fluctuate significantly, even within the same geographic area. As proof of this growing volatility, he pointed to an RP Data equities report that indicates Australian housing as a whole lost 3.7% in value over the past five years, but that 45% of properties bought in the last five years have doubled in value. “What we’re showing is that post-GFC and up to the current time we’ve seen the most volatility we’ve ever seen. Price and value vary significantly. When you have a look at what the situation is today we have declined in value over 3%, which means at a local level you can have variations of up to minus 10%. That can be very difficult to swallow,” Mirabito said. This kind of volatile market means values are no longer as straightforward, Mirabito said. By way of example, Mirabito said, a property may have sold for $800,000 three months prior, but at the time of valuation several comparable properties may have been put on the market for $750,000. “It’s a different market. The market is volatile, especially at the top end. The top end is extremely volatile, so we’re getting 10%, 15%, [even] up to 20% variations. Five to 10% can make a big difference in deals, but everyone is trying to make their best risk management decisions,” he said.
Erring on the side of caution
Some brokers and industry figures, however, have accused valuers of a bias towards overly-conservative assessments. Former MPA Top 100 Broker Xavier Quenon of Go Mortgage Corporation said valuers tend to be biased towards low figures, and that the fear of liability can keep them from reevaluating their initial assessments. “If I was a valuer and happy to put a higher figure for a property compared to the first guy that valued the place, then I would have to think twice about doing so in case of a claim against me. It would be an easy argument for the bank or mortgage insurer to see that the other valuer was more conservative, so I was probably out of line. I think you tend to find valuers are aligning their vals to the lower figure to stay safe,” Quenon said. Kent Lardner, COO of online valuation tool PriceFinder, agreed that many valuers may feel pressure to bring in a lower valuation. “Valuers have long been pressured from both sides. Brokers and lender BDMs want deals to be done and often put forward strong cases for approvals. Risk managers and underwriters often see the valuation as
the last line of defence in a risky market, and have maintained strict guidelines with regards to valuations. If the bank is taking the risk, creating the guidelines and paying the valuation fee, they ultimately influence what happens in the industry,” he commented. The liability arising from a deal gone South serves to put further pressure on valuers, Lardner said. While most lenders have a proportionate liability agreement with valuation firms, meaning liability for claims arising from bad loans would be shared between the bank and the valuer, Commonwealth Bank recently insisted its valuers sign a clause putting more liability back on them. This kind of pressure, Lardner said, could see some valuers erring on the side of caution. “In recent years valuer firms have come under increased pressure from PI claims, which can have a rather significant financial impact on their business, especially if this has a knock-on effect to the lender panels they are invited to work on. Some valuer firms do have more of a conservative reputation than others, which lenders take into consideration. In light of recent market pressures many valuers I speak to are being careful, and do understand the critical role they play in the mortgage process,” Lardner commented. However, MPA Top 100 Broker Gerard Tiffen of Tiffen & Co does not believe valuers actually have a bias towards conservative estimates. He commented that a conservative value could present just as much trouble for a valuer as an overly-generous value. “Valuers are equally liable for high and low valuations. Low valuations actually create additional work as the lower figure has to be justified to more people,” Tiffen said. The problem arises, Tiffen said, when borrowers have unrealistic expectations of a property’s value. “Property buyers will generally pay as much as they can afford, and can disregard market facts because they are emotionally attached to the property,” he commented.
The fallout from low valuations
Overly-conservative valuations, when and if they do occur, could have a tremendous impact on borrowers. Geoff Wilson of mortgage manager Urbanmoney said a stingy valuation could result in borrowers paying higher mortgage insurance premiums, or unable to refinance their home. Wilson also contended that double-digit discrepancies between valuations were unacceptable. “Normal variations should be no more than 3%. We have had variances of more than $100,000 on a number of occasions which is about 20%. Quite often we will check val, and most times the check val will be substantially more,” he commented. Moreover, borrowers may find themselves with few
INVESTIGATION options should a valuation come in low. Credit Ombudsman Raj Venga said borrowers would be unlikely to have any legal recourse should a low valuation scuttle a deal. “Generally speaking, the valuation commissioned by a lender expressly disclaims liability to third parties so there’s little scope to suggest that the consumer was entitled to rely on the valuation. A lender’s decision not to lend based on a valuation that undervalues the proposed security property is a matter for its commercial judgment and the consumer would generally have no recourse against the lender,” he said. Ultimately, the only recourse brokers and borrowers may have is to challenge the original valuation and hope for the best. While only 1-2% of challenged valuations actually result in a change, Mirabito said it is entirely appropriate for brokers to challenge a low valuation that they feel has overlooked vital information. “I think it is absolutely appropriate to ask questions and to challenge. It is obviously on all of us to explain ourselves if we deviate. Transparency is very important,” Mirabito said.
More science, less art
Though there are stringent guidelines governing the way valuations are performed, Lardner conceded that valuing a property was “part science and part art”. “Qualitative factors that impact the value of a house are a big issue, impacting not just individual valuations but other market index measures as well. This can include anything from construction quality, fittings, street appeal and other factors such as views. Whilst we can measure variables such as lot size, house size and number of car spaces, there are many factors that are not readily measured that often cause the variations between valuers,” he said. However, some of the “art” involved in valuations should be increasingly replaced by science as valuers are equipped with better information, Mirabito said. “If you look strictly at the Australian Property Institute standards, they only use government sales. Can you imagine how hard it would be to only use government sales which are three months late in a market that was moving around in that three months? RP Data provides valuers with data we collect directly from real estate agents who give us the right data, and we benchmark them against the [Valuer General’s report] when it does
come in. We run 99% accuracy on value and 98% accuracy on date of sale. We’re creating a valuers’ database so that when they search for comparables, they can know that another valuer has been there and gotten comparables. We’re able to amass a large capacity, and we’re seeing a lot of data collected by professionals we can trust,” he said. It is incumbent upon brokers, Mirabito said, to do their own due diligence as well. He pointed to a variety of valuation tools available for brokers, including RP Data automated valuation reports and the Commonwealth Bank iPhone valuation app, and said brokers should use the tools to “manage expectations” of their clients. “For brokers, when you start a deal, do your own due diligence and research. The tools are available for brokers,” he commented.
Readers rail against valuers One of the most commented issues on our website in September was the state of housing valuations – and if brokers should question them The problem with valuations is much deeper than simply a broker or consumer not accepting one. Many valuers are not playing by the rules of simply assessing sales – they are also taking into account who has sold the property, in some cases if investors out of state have purchased, and such issues – as well as the whole professional indemnity debacle the valuation and finance industry has got itself into. Brokers should and must question valuers. Tim Wright on 15 Sep 2011 10:20 AM
One has to question valuers; do they believe they are beyond question? Some of the reports we have seen are nothing short of ridiculous, and of course they won’t change even with supporting sales evidence because that would mean admitting to an oversight. What I find most disturbing is that through this whole process whether a deal gets written or not they get paid for services rendered, even if such services are questionable. Maybe if they were only paid on a successful outcome, we might see a change of this non-negotiable attitude. Keith Bridges on 15 Sep 2011 10:33 AM
When it comes to choosing a brand, is it better to go it on your own, or leverage off some of the industry’s biggest brands? We asked brokers and lenders for their take.
Finance Made Easy
1st Street Home Loans
Should brokers align with a franchise or consumer brand? If the broker is confident in their own business, and they have put a lot of time and effort into their own business, I don’t think there is a broker in the country that wouldn’t want to continue to grow their own brand. By aligning yourself to a recognised brand you are actually leveraging off all the marketing spend that they undertake, but of course that comes at a cost; you have to give up some of the percentage on every deal that you write. If you are unsuccessful in generating more leads, then you may not have any other option. Would you ever look to align yourself with a larger brand? There is a lot of brokers out there who are very passionate about their businesses – I’m one of them. There’s no way in the world I’d align myself to a brand after the time and effort I’ve put in to growing my business, and I ‘m sure there are a lot of other brokers out there exactly the same. There is a lot of successful brokers out there in the market that allocate spend in marketing above and below the line advertising etc, and they do very well out of it. They’d be mad to give up their businesses. If you get the balance right, it can be very, very rewarding. If you struggle in many areas, and you find it’s not working for you, then the obvious alternative would be to align yourself with a recognised brand.
Do brokers need to align themselves with a franchise or consumer brand? I don’t think independent brokers really have the need to go over to branding. Independent brokers I think are out there building their business based on referral sources and the likes and not relying on that lead generation type of business. Who do such brands suit? I think obviously when you start up and you are coming into the industry a brand may be more beneficial to some people, in terms of the leads coming through generated on their behalf; then it’s not so much them being thrown in the deep end and having nothing to survive on. It’s not that I don’t agree with branding, but I think that it is probably for the generation of brokers who are just coming into the industry. Under the franchise or branded model, you have always got your head office taking a chunk – the aggregator taking a chunk – and then filtering down via the principal to the broker, so there is a few different channels that it gets passed by before it gets to the actual mortgage writer. But do independents have a voice? The independents get heard via the relationships that we have directly to the lenders – getting our names out via those channels – as well as being referred via our existing client base who hopefully wouldn’t be referring their customers or friends if they weren’t satisfied with how we do our work.
Are brands popular among brokers? We’ve noticed a high level of enquiry; I think brokers are also trying to find their mark. Some are fairly confident in the model they have and operate within, and others are more adventurous or more curious as to what the next move looks like. Why are brands popular for brokers? Australians move around, we are not born in a suburb and stay there all our lives. We move around and travel – there’s holiday, there’s interstate migration. The brand is absolutely critical if it becomes familiar, if it becomes a household name, because 90% of the objections are almost ruled out instantly, and you can get down to business. What about consumers – are brands important to them? A wholesale brand is usually an industry-centric brand, that is, most brokers would know who the lenders are. But most consumers wouldn’t know half those lenders because they would only assume there is four or five. So, to that end a brand is not just a footprint but, I think, is an anchor for survival. What else do brands offer? The internet is fantastic at the moment, with social networking. I think the next big thing is mobile applications, and those type of projects can only come together when they are centralised.
Manage your leads correctly, or learn ignorance is not bliss Are you capturing and using the leads within your business to greatest effect? If not, you could be losing out, argues Value-Ad’s Joanne Church When faced with the challenge of growing your business, it goes without saying that acquiring new customers is the best and most obvious way to achieve this. In order to do this, however, you need to ensure that a constant source of leads is being fed into your business, leads that can be converted into new loans for new customers. That poses the question of what could be considered a lead. The answer is that any piece of information entering your business may actually be a lead. Phone call enquires, website enquires, referrals and there may even be an untapped source of leads in your current client database. More leads equals more revenue, but the flip side to this coin is that lost leads equate directly to lost revenue. In a recent study released by the Aberdeen Group called “Crossing the Chasm with Automated Lead Management” it stated that “without proper tools marketing will lose 40% of the leads they generate.” That’s nearly half of the leads actually generated. Imagine the potential
difference it could make to your bottom line if you could increase the amount of leads you receive by 40% – all of this without spending an additional penny on marketing! Often in the quest to improve sales within any business, time is spent focusing on the information at hand, the immediate sale – the urgent enquiry. The reality is that the tendency is to lose sight of what else is going on simultaneously. Phones ring, people walk into offices, they reply to advertisements, prospects send email enquiries, sales people promise to return calls, to supply information, to set up appointments, the list of functions is endless and continuous! So are you sure that you are harnessing every opportunity to grow your business by tracking every lead? Give some thought to the information that falls through the cracks. What would that lost information, if it could be harnessed, be worth? Assume for a minute that there are leads coming into your business that you simply do not know about. We know, though don’t often openly admit, that not every broker captures every lead that they receive into the CRM or other prescribed system. Little pieces of paper with names and numbers scribbled onto them
often disappear before sales managers even get wind of them, resulting in damaging effects on company reputation and revenue. This is particularly true if you are not adequately tracking every lead from your referral sources. To foster a strong relationship with those referral sources, they need to be confident that every prospect is being given due attention. If there is a risk of information falling through the cracks, how do you know that you are measuring sales activity and performance based on the whole picture and not just a portion of it? What if there is a way of generating more leads without spending more on marketing efforts? Confucius said: “Real knowledge is to know the extent of one’s ignorance.” There is a lesson in that for companies of all sizes. By all means do the best that you can do with the Information you know about, but never assume that you will always know about everything. The danger is that it could be costing you up to 40% of your potential earnings. Joanne Church is sales and business analyst at Value-Ad, which specialises in automating sales processes to better convert leads into sales
FORUM Consumer group Choice waded into hot waters, when it took a swipe at Australian advisors by labelling their financial advice “crap” (Consumer group blasts brokers, 16/09/2011).
It’s outrageously hypocritical of Choice to make that claim. The “group buying” organisation that they align themselves with has been established for one month, has no history of demonstrated competency, and relies on a no-advice model in distributing a promised service that has yet to deliver even an offer. Staggering. SteveMc on 16 Sep 2011 11:19 AM Obviously a huge conflict there. It’s no different than us bagging all our competitors and saying how wonderful we are. Perhaps Choice needs to look at where it is getting its advice if it thinks that all advice in Australia is crap. Adam on 16 Sep 2011 11:54 AM I used to have some respect for Choice, but following One Big Switch and other comments coming from that group I now rate them up there with the current affairs programs. They are simply doing and saying anything to gain publicity without being aware of the facts. positivebroker on 16 Sep 2011 12:20 PM I remember buying Choice recommendations a few years back and guess what, their recommendations were crap too. I have very little faith in Choice. QUAL on 16 Sep 2011 12:59 PM This is an organisation that was meant to be an independent arbiter of the marketplace but is now a vested party in direct competition with brokers. No research cited here just a spray. This has no credibility, and has vested interests (One Big Switch) A disgrace. Wes on 19 Sep 2011 01:19 PM So does anyone think that this is something for the MFAA or FBAA to pursue? Vested interest, inflammatory and negative comments in the press; surely there is something one of our associations could do to lift the lid on what is being said? Ozboy on 19 Sep 2011 02:42 PM
Brokers continued to weigh in on the value derived from industry associations, and whether one body may in fact be better than two (Poll: Is one peak broker body enough?)
I am proud to be one of the founding members of the FBAA, and one of the reasons we set up the association was because the MFAA were not representing finance brokers – they were only interested in mortgage brokers. I recall the time when we had 62 members and the MFAA came to us and said that they would
incorporate our members into their ‘club’ because we wouldn’t succeed. We didn’t believe that then, because there was a major difference between them and us. All you have to do is look at the membership figures today and see how successful the FBAA has become. I finance vehicles and machinery – what does that have to do with a mortgage? So to be fair, the question should be, do you prefer one body to represent all finance brokers not just mortgage brokers? The Mortgage Brokers Association of Australia [MFAA] only represents the ‘M’ word .... Mortgage. The choice is simple. Phillip Ford on 15 Sep 2011 01:32 PM To only have one association would be like “only” having one supermarket or one fuel supplier, there would be no competition. How then do we know that the “association” would be doing right for its members? Both associations have different outlooks on the industry. The FBAA has my vote on this one; I would rather stand by an association where the decision makers are still working as active brokers in this industry and understand what brokers go through every day in our businesses. Annonymous on 14 Sep 2011 10:25 AM
One of our regular readers was appreciative of Sarah Wells’ approach to outsourcing (‘Letting go’ the way to boost business, 13/09/11)
Totally agree with Sarah. We restructured our broking business 18 months ago and have been able to grow the business from one broker being myself to a national network of 30 brokers today. We couldn’t have done this so quickly and effectively without outsourcing and it continues to pave the way for more growth. Letting go is definitely the key. All brokers go through a “separation anxiety” when handing over files to a third party but once they see the benefits kick in and their productivity increase, there’s no turning back. George Nori on 20 Sep 2011 10:34 AM
Poll: Is one peak broker body enough? Recent debate over industry representation through associations has raised the questions over whether one body might be better than two. We asked our readers what they thought.
No 11% Undecided 3%
Source: Australian BrokerNews, Votes: 378, Poll date: 12/09 – 20/09/2011 To vote in our latest online poll or get involved in our forum, visit our home page at www.brokernews.com.au
Ten tips for survival and growth Founding director of Port Group, Andrew Baker, has developed a successful broking group and aggregator through tough times. He shares his secrets for business success
rom what he terms ‘humble beginnings’ back in 2001, Andrew Baker has assisted in developing and reshaping Port Finance into Port Group, a Victoria-based aggregator now supporting 30 brokers. Surviving tumultuous times through the financial crisis, Baker shares his tips for surviving and thriving in the “cutthroat” mortgage industry.
again in this industry with rogue brokers. And the reverse also applies. If you actually over-service clients, be truthful and do the right thing by people, it comes back 10-fold.
1) Staff up as soon as you can
6) Think long-term
In the early days of Port Finance I made the mistake of trying to do everything myself. I thought I could save a few bucks if I processed all the paperwork that brokering entails. Once I wised up and employed people to handle that side of the business it freed me up to make more deals and develop more relationships. In doing so I was bringing in additional revenue, which more than covered the extra admin costs, not to mention increasing the enjoyment of my job! Doing everything myself to save money was a false economy.
2) Find a business partner
About a year after I started Port Finance, Anthony McDonald (former Melbourne Footballer) joined me. We had our own clients but shared an office and some of the costs of running the business. But more important than saving money, we motivated each other to get out there and get more business. Our natural competitive streaks wouldn’t want the other person to be writing more or larger deals! Of course the value of having someone around to bounce ideas off, or share a problem with, is priceless. Not to mention the benefit of someone to have a beer with after a busy week. A business partner halves the stress and doubles the fun!
3) View quiet times as a blessing
How many times have you wished you had more time to get things done? Often when a quiet time comes around people freak out and become really unproductive. It’s actually a great time to look at some of the bigger picture issues and work on your business, not in it. Can your processes be improved? Do you need to employ staff? Should you consider expanding into other territories or other markets? Are you giving your clients enough service? During the last GFC we decided to launch Port Group as an aggregator for other brokers. If we’d not had that quiet time we probably wouldn’t have got around to making that change.
4) Get out there and meet everyone
It sounds like a cliché, but don’t underestimate the value of networking. This business relies heavily on relationships. And the six degrees of separation theory is alive and well. You never know, the person sitting next to you at the footy might have a friend or relative who could be your next big client.
5) Apply the rules of karma Andrew Baker
Be aware that if you do the wrong thing by someone it will come back to bite you. I’ve seen it time and time
If you’re in the broking business to make a quick buck it might not be the best industry for you. Often we’re working on relationships and deals that are not going to bring in any coin for a couple of years. You have to be prepared to be patient and put in the groundwork, even if that means spending precious weekend time at a client’s display home office.
7) Don’t put all your eggs in one basket
A couple of years ago most brokers were focused on securing first home loan deals. Today of course that’s not such a big market. It pays to be flexible and to diversify. Can you service the investment property industry? Should you look at car or equipment leasing? Take a step back and take an objective view of your business. Decide where the long-term growth is likely to come from and start working to secure your share.
8) Look after your health
Don’t forget to invest in your health. The broking business can involve a lot of long lunches and late night meetings. Often people in this business burn out at quite a young age. You might think you’re superhuman but eventually it will catch up with you. Build in some time to exercise regularly, cut back on the booze when you can, even go and see a naturopath every now and then. Make your health a priority before it’s too late.
9) Look after your clients and they will look after you
Your existing clients and referrers are the best source of new leads. Look after them. Something as simple as a bottle of wine and card at Christmas sent to your existing clients can generate enormous goodwill and additional referrals. It can make you top of mind. We always give our home loan clients a department store gift voucher. It’s the first thing they find in their new letterbox and is very much appreciated. Small gestures can have a huge impact.
10) Consider joining a strong and supportive aggregator
Before you do, ask yourself what you would expect to get from an aggregator. What kind of commission structure would you be happy with? What sort of people do you want to work with? How important are the extras such as paperwork processing facility? Shop around before you sign up. Speak to other brokers within the group and ask what their experience has been like. Find out if they are happy with the business model before you commit.
Specialising in SMSFs SMSFs have been termed the biggest growth opportunity available to brokers today, but how can you get involved in this bourgeoning lending market?
elf-managed super funds – or SMSFs – are being marketed to brokers as the next big thing for businesses looking to grow in a slower credit market. So how can you get involved? We asked Chris Webley from SMSF lender Mortgage Ezy and iFinancial’s Craig Morgan – an SMSF broker – for their advice on getting into the market.
1) Are there opportunities for brokers in SMSFs?
The broker: The SMSF sector is a large sector of the superannuation market, and there has been a number of reasons for that – the onset of the GFC, and now the average Australian can borrow through their super fund to invest in property. Growth has been huge, and it will continue to grow. My gut tells me this will become a strong niche. For brokers that are thinking of developing this specialty, especially those with close relationships with accounting and financial planning practices, rolling the ball forward they may see it start to become a part of more mainstream lending, so it is lending they should be across. The lender: Clearly the ongoing instability in global markets is having a detrimental impact on superannuation funds. Most clients have no idea whether their fund is performing well or not and what that may well mean to their hopes and ambitions for wealth creation when they retire. SMSF lending is also no longer a mysterious “voodoo ritual”, nor is it exclusive to the very rich. It’s a legitimate option for traditional borrowers as well. Which means that today – more so than ever – brokers who have the capabilities and a willingness to get education should be looking hard to expand their traditional markets into this area.
2) How can brokers look to enter the market?
The lender: Start by looking back over existing client databases. Most brokers I know are regularly in contact with their clients and begin the process of pushing out informative correspondence which may be beneficial to clients. The reality is that many clients are open to reviewing their current situations to ascertain best fit options. Like many new-ish programs being considered for use in any business, it’s a matter of getting informed, getting comfortable with the additional requirements, and then making a decision.
The broker: We got into it just before the legal change in September 2007; we had identified it as something that was likely to be a pretty interesting niche. We created SMSF Loans, which is a specialised entity, where all our people only do SMSF lending transactions. For any broker looking to enter the market, they don’t have to offer the full range of advice, but they do need to be able to have advice-style conversations with clients and other advisors.
3) What are the advantages in doing so?
The lender: Expansion of a broker’s area of influence in their market. Not just with a broader client base – think about the extended relationships that are definitely out there to be created with financial planners and accountants. This is about incremental referrals as well. And let’s face it, the way the banks are trolling web-based offers directly to the mass market, a little return fire aimed at high-value clients could be a very opportunistic and sensible tactic. The broker: For the right brokers, it is a brilliant strategy to go and engage other professional groups. If they find a broker that can actually get these loans done for them it puts them up many notches in the eyes of professional partners. For us, we engaged businesses we would never have engaged around conventional lending, by demonstrating an understanding about this area. Deals such as standard residential may then be on the table which might not have been before – it’s great as a door opener.
4) What are the pitfalls they need to watch?
The lender: Well, the first thing is if a client doesn’t already have an SMSF Trust established then that will take up to two months to get finalised. Another item to keep in mind is that independent financial and legal advice may be requested although that is not necessary if the client has been referred by a financial planner. So establishing relationships with qualified advisors is a very good idea. The broker: One of the things causing ASIC concern is property groups and brokers coming to people and saying they should set up an SMSF fund to invest, when neither of these is qualified to say what they should be doing with their super. This is outside the scope of a credit licence. While brokers should have ‘advice-style’ conversations with accountants and financial planners, they can’t have those conversations with clients – that is sometimes the trap, where they tend to have them with actual borrowers.
Little spring for Spring selling The traditional Spring selling season has kicked off, but progress thus far has been uninspiring
he Spring selling season has started with perhaps more of a whimper than a bang this year, with auction clearance rates holding steady at best and little more than a marginal rise in listings. Clearance rates have stayed around the high 50s for Sydney and Melbourne, while Brisbane and Adelaide have seen wild variations. Though clearance rates in the upper 50s are well off last year’s pace for Australia’s two largest capitals, Australian Property Monitors general manager Anthony Ishac said the cities are showing encouraging stability. “Auction clearance rates have remained steady for Sydney and Melbourne, which is a sign things are stable. It doesn’t indicate that the market is rebounding, but for Sydney we hope to see improvement in activity, particularly from first homebuyers due to the local government’s decision to remove the stamp duty concession. We should see some improvement in late September to early October,” Ishac said. Ishac predicted Melbourne to remain relatively stable throughout the rest of the selling season, while he said property sales in the other capital cities could continue to fluctuate significantly. “The market in the other capitals is very volatile because the number of properties for auction is quite low. The other capitals are not statistically reliable. We do have numbers for them, but it’s not something we would publish,” he commented. This volatility can be seen in the Brisbane and Adelaide markets. Brisbane kicked off the selling season with a 30% clearance rate, jumping to 42% the next weekend. Meanwhile, Adelaide’s clearance rate languished at 24%.
Vendors yet to adjust
While buyers continue to show a degree of reticence, Ishac said sellers had yet to adjust their expectations. Though some marginal discounting had taken place, he said, most vendors had yet to move to meet the market.
“From anecdotal evidence and some of the discussions we’ve had with real estate agents, there are some vendors who are [discounting], but that’s generally not the case. We’re not seeing a significant increase in discounting even though through the winter we did see discounting go up slightly. It’s not enough to say vendors are meeting buyer expectations. Discounting is typically between 6.5–7%,” he remarked. Vendors are often slow in catching up to market realities, Ishac suggested, but the months ahead may see vendors make moves towards buyer expectations. “For Sydney I think it might happen sooner rather than later because of the expected increase in activity from first homebuyers. We’ve got a situation where income is rising, and we do have a stable interest rate environment, but it’s going to take at least towards the end of the year before we see that gap starting to close up,” he said.
All is not lost
Though the selling season seems to be stumbling along slowly, Ishac said APM still sees hope for the months ahead. Stagnating and falling prices have not left the market irreparably damaged, and growth should return. “Prospects still look sound. Prices are correcting, not crashing. We’ve got to put it in the context that Sydney and Melbourne have experienced significant price rises in the last 18 months,” he commented. These significant rises saw houses in Sydney shoot up 19% from January 2009 to June 2010, and unit prices grow 18.3% in the same time period. Likewise, Melbourne house prices rose 28% and units rose 22.7% during the period. By contrast, houses in Sydney are only down 0.6% in the 12 months to July 2011, while unit values have risen 0.4%. Houses in Melbourne have declined 2.9% and units have fallen 3.4% during the period, but the result is a long way from erasing the growth of the 18 months prior. Growth is unlikely to return to the market during the selling season, however, and Ishac said when growth does return it will not be at the lightning pace seen in the past. “Even if we did see an interest rate cut it would take some time to see the market start to grow and perform as well as it did. We still see the market returning to growth, but more subdued growth in line with CPI expectations anywhere up to 3%,” he commented. Regardless, while the Spring selling season lasts, Ishac said brokers would be well-served by understanding the fundamentals of their local markets, and managing client expectations accordingly.
NUMBER CRUNCHING Housing affordability: How the states stack up Proportion of income required to pay mortgage
7% 3% 4%
Pay off extra on mortgage
Save more in some other way
At a glance…
How would consumers adjust to a rate cut?
The proportion of Australians who tip their dream home as a detached house on a large block of land *
Spend and save more in some other way Spend more and save the same amount Spend more without saving Pay extra on mortgage and save more
Source: REIA – Deposit Power
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 Australian Broker Issue 7.19 Headline: St.George to shake up commissions (page 2) What we reported:
What’s happened since:
Headline: MFAA to name preferred educators (page 4) What we reported:
What’s happened since:
Headline: LoanKit opens up third licensing choice (page 8) What we reported:
What’s happened since:
St.George last year undertook a wholesale shakeup of its commission structure, abolishing year-one trail and increasing the maximum trail available from 0.2% to 0.25%. The bank also revamped its upfront payments to reward high conversion rates. St.George’s thengeneral manager for intermediary distribution Steven Heavey said that rewarding conversion rates would improve efficiencies for the bank, which he said was “an important aspect of the profitability of this channel”.
Last year, the MFAA launched a tender process to name its preferred educators following the association’s decision to raise minimum educational requirements for its membership to Diploma status. The MFAA had previously delivered Certificate IV training through TAFE NSW, but said a wholesale tender process could see other educators brought onboard. MFAA CEO Phil Naylor said brokers who chose to undergo training through non-preferred providers could be required to undertake additional training to ensure.
In 2011, aggregator LoanKit opened a new licensing option for its brokers apart from a traditional ACL or credit representative status. Then-CEO Kym Rampal announced that the new model would allow brokers to hold an ACL while the aggregator managed compliance. The model would enable brokers to place deals off-panel, while removing the task of managing compliance duties. The option would deliver brokers their own branded websites, provide compliance audit services and offer a COSL liaison for any client disputes.
St.George’s commission shakeup didn’t last long. In July, the bank resurrected year-one trail, but at 15bps instead of the previous 20bps. The bank kept its standard of rewarding conversion rates, offering an additional 15bps upfront to brokers who convert 80% or more of their loans. Heavey said the change was made due to broker feedback emphasising the importance of trail commissions in year one. He commented that St.George had been given a “mandate for growth”, and wanted more brokers to consider the bank as an option.
The MFAA tender process resulted in a list of six preferred education providers, including AAMC Training Group, Institute of Strategic Management, Intellitrain, Kaplan Professional, TAFE NSW and The National Finance Institute. More recently, debate has emerged about future educational requirements for mortgage brokers. Industry figures such as outgoing MFAA president Joe Sirianni and Liberty Financial national sales manager John Mohnacheff have predicted a university degree will be a minimum requirement for brokers in the future, while FBAA president Peter White has criticised placing further educational impost on brokers.
Rampal, the founder of the Mortgage Choice-owned company, announced in June that he would depart LoanKit. Former Mortgage Choice head of diversified products Simon Dehne took the helm as CEO, and said he planned to double the aggregator’s broker numbers. Denhe said he wanted the aggregator “on the menu” for brokers looking for a home. Denhe vowed that the aggregator would continue to “tweak” its software offerings in response to broker feedback.
Headline: Basel cash requirements raise credit supply fears (page 18) What we reported: What’s happened since: Following the the GFC, international capital requirements for banks increased to require banks to hold a minimum of 4.5% of common equity by 2015, as well as a 2.5% “conservation buffer” by 2019. Commonwealth Bank chairman David Turner warned that the move could see the cost of credit increase, and its availability reduce. Treasurer Wayne Swan took urged banks not to “gouge” customers by raising rates above the Reserve Bank.
Swan’s admonition apparently fell on deaf ears, as all the major lenders moved out-of-cycle with the Reserve Bank following a cash rate hike in November. More recently, APRA released a consultation paper proposing moving forward the Basel III liquidity requirements to January 2013. APRA chairman John Laker said the move would have “positive benefits for depositors, other stakeholders and the stability of the banking system as a whole”.
Caught on camera Vow Financial’s High Achievers Conference in Fiji combined top motivational and business speakers with technical know-how designed to help delegates pursue new ‘Blue Oceans’. Brokers also had time for some sun, sand and much-needed relaxation.
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Wendy Hoang and Trieu Thai with local entertainers
Vow Financial CEO Tim Brown
Tony Carn (Homeloans Ltd), Richard Socratous (Genworth) and Mario Rehayem (Pepper Homeloans)
The Selector Group’s Ian Jordan accepts some local ‘Kava’ brew at Vow’s Kava ceremony
John Curry, Tony Newcombe and Peter Solohub from Vow Financial, and John Buchelin from Allianz
David Flanagan from Vow Leasing with Vow director Bob Collins
Motivational speaker Paul De Gelder
The Australian Property Finance team
Gary Fowler, Renae Fowler, Tony Newcombe, David Hodgkinson, Peter Solohub, Benita Newcombe and Elena Hodgkinson
Aaron Giles, Shayne Rumbell and Steve May Andrew Parry (Macquarie Bank) with Justin Delanty Vow brokers enjoy some ‘adrenalin’ water sports Broker partners enjoy networking and drinks Vow Financial Broker Partner of the Year – Citywide Lending (Jason Mikhail, Rodny Ghalie and Daniel Said) Katrina Parrington with Matt Mitchener (Vow Financial) Australian Mortgage Awards nominee Muzi Dandachli Max Bardella and partner Leading innovation presenter Gary Bertwistle Greg Cave, Darren Goodman and Wendy Hoang Murray Jones (NAB Broker) and John Doolan
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You’re never too old ...
Swan song I
nsider would like to extend a big congrats to Australia’s dear Treasurer Wayne Swan (always a fave among brokers for his keen understanding of the mortgage industry), who took home the global Finance Minister of the Year Award. That’s right! The coveted ‘Finny’! No doubt the paparazzi were out in force to catch a glimpse of the latest red carpet fashions sported by the world’s jet-setting finance ministers. Maybe not. Anyway, the award, handed out by Euromoney magazine, was given to Swan for successfully guiding Australia through the GFC (or, depending upon how the next few months shape up, successfully kicking the can down the road a bit). Shadow Treasurer Joe Hockey was incredulous at the honour bestowed upon Swanny, saying the award rightly belonged to Peter Costello for laying the groundwork for Swan. Well Joe, Pocahontas laid the groundwork for Avatar, but James Cameron is still sitting on a pile of Oscars.
Yes to fees, and to fraud as well The conviction of a Birminghambased former mortgage broker has brought a new meaning to
OK, so Insider has commented many times on the cut-throat foreclosure market in the US, and by now everyone is probably aware of the eagerness with which banks are turfing out delinquent borrowers in the Land of the Free. This story, however, takes the trend to a new level. A 101-yearold Detroit woman has been evicted from the home she’s lived in for nearly 60 years after her 65-year-old son failed to pay the mortgage for several years. Fair enough. Banks aren’t in the habit of giving away free rent. But she’s 101! Evidently her senior citizen son let eviction notices pile up for years with the hope that the problem would just go away if he waited long enough. Kids these days. So, to be fair to whatever lender finally decided to give her the boot, the mortgage was in pretty deep arrears and they did try to give her fair warning. But 101? Is it really necessary to evict a centenarian? After all, if they had waited around a few months, nature probably would have ‘evicted’ her for them.
A fair whack, but not quite enough “Next, I’m going to go after an Oscar….”
the ‘fee-for-service’ model, after he pocketed a fee – but replaced service with fraud. The former broker was convicted of fraud when he pocketed an arrangement fee of £5,000, after convincing his victim that he was a broker while he was unemployed, by using a fake business card from Brunel Mortgages which was downloaded from its website. The rather industrious former broker purported to arrange a mortgage for a property in Pakistan, and asked for the payee name on the cheque for the £5,000 arrangement fee to be left blank. He then proceeded to pay the fee into his own bank account. According to reports, the judge told the perpetrator Mohammed Aslam that he considered him “very dishonest”. “At your trial you advanced a completely dishonest account that this £5,000 was an advance for property in Pakistan. That was a lie, and the jury knew it was a lie,” the judge said. Aslam was ordered to compensate his victim for the £5,000 (so much for that fee!) and to pay an extra £1,200 in legal costs. Aslam was also sentenced to 12 months in prison suspended for two years and 250 hours of unpaid work.
Insider has learned the UK’s FSA recently issued its second largest fine ever for a mortgage broker, for misleading the regulator and submitting false mortgage applications. The broker – Selvavinayakam Vigneswaran, who was the sole director of Future Finance Limited – was fined £250,000 for what the UK’s Mortgage Strategy publication labelled a “catalogue of misdemeanors”. Such misdemeanors included submitting applications that contained erroneous information – including submitting three mortgage applications in his parents’ names containing false information about their income and employment.
Other transgressions included submitting four applications in his own name with fake information about his earnings, and regularly doing similar things for clients. While perhaps the only saving grace for his dire situation could have been that he would go down as having had the largest fine ever from the FSA, unfortunately Vigneswaran was pipped by John Charalambous, who in June 2010 was fined £294,500 for mortgage and life insurance fraud. Perhaps Vigneswaran could consider an appeal, and get the amount raised?
I’ve got hair, yeah yeah
Canadian mortgage broker Jessi Johnson, based in Vancouver, is copping some flack from the local community after he was selected to appear on a new reality TV series about finances. Not known for being shy of self-promotion, an online blogger poked fun at Johnson, who sports a rather trendy earring, as well as a head of hair most brokers would kill for. “Maybe it’s the hair. Or the fact that he can talk intelligently about interest rates. Or that he’ll make himself available at a moment’s notice for an interview,” the blog speculated. The principal of his own self-titled mortgage business, Johnson tweeted the good news to his clients, saying that he was set to become a “reality TV star”. However, he was unable to give away any details, only saying that it will hit the airwaves in 2012. The online blogger – which received an online link from Johnson’s website – may not be Johnson’s biggest fan, however. “Here’s one thing you can bet on: Jessi won’t be appearing on Celebrity Rehab With Dr. Drew. Gary Busey and Dennis Rodman can relax – they don’t have to worry about being upstaged by a local mortgage broker,” the blogger wrote.
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AGGREGATOR / WHOLESALE BROKER LoanKit 1800 466 085 www.loankit.com.au Page 13 PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 7
PLAN Lending Phone: 1300 787 874 Web: www.planlending.com.au Page 5
Bransgroves Lawyers (02) 9221 9522 email@example.com www.bransgroves.com.au Page 4
SHORT TERM LENDER Mango Media 02 9555 7073 www.mangomedia.com.au Page 1
LENDER Citibank Mortgages 1300 652 059 www.mortgagebroker.citibank.com.au Page 32
BANK Commonwealth Bank 13 20 15 www.commbank.com.au Page 9
Homeloans Ltd (08) 9261 7000 www.homeloans.com.au Page 15
Liberty Financial 13 23 88 www.liberty.com.au Page 3
TAFE NSW -Southern Western Sydney Institute 13 SWSi (13 7974) www.SWSi.tafensw.edu.au Page 6
FINANCE Semper Capital Pty Ltd 1 800 SEMPER (1 800 736737) firstname.lastname@example.org www.semper.com.au Page 21
Resimac 1300 764 447 www.resimac.com.au Page 17
MKM Capital 1300 762 151 www.mkmcapital.com.au Page 2 NCF Financial Services Pty Ltd. 1300 550 707 www.ncf1.com.au Page 8
www.residex.com.au The House Price Information People
Residex 1300 139 775 www.residex.com.au Page 31 RP Data 1300 734 318 Page 19 Trailerhomes 0417 392 132 Page 25
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