Australian Broker magazine Issue 8.11

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ISSUE 8.11 June 2011

FBC clawback clause up to the test

Leanne Scott

 Success in first

legal clawback claims to spur wider trend A clawback-related ‘fee-for-service’ may be the first fee structure to ‘hit the deck’ across the mainstream mortgage broking industry, as increasing numbers of businesses successfully recoup fees from clients by enforcing clawback clauses inserted into their Finance Broking Contracts (FBC).

As lender clawbacks become more widespread ahead of a 1 July government ban on exit fees, Australian Broker can detail the circumstances of two cases in which brokers have been successful in enforcing clawback clauses.

In the first, former director of the Australian Institute of

Professional Brokers, Maria Rigoni, received a ruling in her favour in the Victorian Civil and Administrative Tribunal (VCAT), resulting in her successfully recouping $5,000 from a client following a lender clawback.

Likewise, Queensland-based Richard Luke of Oshawa Financial was able to win back almost $9,000 in lost fees, when his strong legal case – based on three separate legal opinions – forced a client to eventually settle the dispute, following his decision to test it before a court.

At a panel of leading mortgage brokers held by Australian BrokerNewsTV, Mortgage Choice broker Leanne Scott argued that of the different fee structures – including pure fee-for-service and a ‘no-go’ fee – a clawback fee is the

Fee model slammed

most likely to become widely utilised. “For instance, you talk about the million-dollar loan being clawed back within 18 months to two years, well that could be a $4,000 turnaround on your bottom line – or more,” Scott said. “We may be forced to put a clause into our own finance contracts, which says, if a client does this in this period of time, please be advised we are going to bill you for the clawback.”

Rigoni said that her successful VCAT decision proves that these FBC clawback provisions are valid and enforceable, despite doubts over their legal strength in the wider market.

“If a broker has a contract with a borrower with a clawback provision, and the borrower has agreed to repay that amount when and if charged by the lender and signed the agreement – and has been given a copy – the legal system will enforce the payment,” Rigoni said.

Success with FBC clawback clauses is also wider than these cases. In a reader response to the expansion of lender clawbacks on the Australian BrokerNews website, a regular reader noted that he had a clause in his FBC for over three years, and had enforced it three times. He said that each time, the client paid within 10 days of being notified by the business. “We spend a lot of time explaining why it is charged and when, and putting it in writing,” the reader said.

Page 18 cont.

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Top brokers weigh in on fee-for-service future Page 2

Non-bank decline Brokers blamed for non-bank fortune failure Page 11

Banks conflicted Channel conflict emerges from face-to-face policies Page 14

Inside this issue Viewpoint 20 Top brokers on fee-for-service Analysis 22 Getting behind the white labels Insight 24 The ultimate success secrets Market talk 26 Price declines bring opportunity The Futurosophist 28 When houses go to the dogs Caught on Camera St.George gathers aggregators

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Insider 2015: A Loan Odyssey

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News Top brokers slam fee-for-service future Four of Sydney’s top mortgage brokers have indicated an industry-wide fee-for-service model is unlikely to take off, at Australian BrokerNewsTV’s first multimedia broker panel session.

Sponsored by St.George, the panel session saw MPA Top 100 brokers Justin Doobov from Intelligent Finance, David Brell from Smartmove, Leanne Scott from Mortgage Choice, and Brett Abikhair from the Selector Group, all suggest a working industry model for fee-for-service – at least in a similar vein to the financial planning industry – was unlikely.

All four brokers also indicated that they were not currently charging fees in their mortgage businesses, despite being among the top brokers in the industry.

David Brell said the business had looked at charging a fee-forservice for clients that required more work, but had so far decided against their introduction.

“What banks are doing by paying commission is outsourcing the distribution cost, so I think

Panel discussion at St.George

from a sales point of view, I don’t see a fee-for-service coming in,” Brell said. He believes fee-forservice “would be too hard for the consumer to comprehend”, and would also take the current ease of doing business away, which he labelled a key selling point for the mortgage broking channel.

Justin Doobov said if a fee-forservice model comes in, banks would be likely to deliver a “see-saw”-like outcome, where they pay less commission. He argued clients were also likely to shop around for the cheapest fees, just as they did for the cheapest rates.

Leanne Scott said a “clawback fee-for-service” – or a fee introduced to recoup clawbacks

– is the most likely fee to emerge, in comparison to a genuine fee, similar to a financial planner, or a ‘no-go’ fee. Mortgage Choice and other franchises have previously considered a ‘no-go’ fee.

“For instance, you talk about the million-dollar loan being clawed back within 18 months to two years; that could be a $4,000 turnaround on your bottom line,” Scott said. “So we may put a clause into our own finance contracts which says if a client does this in this period of time, we are going to bill you for the clawback.”

Brett Abikhair agreed that a fee-for-service model was unlikely and said that the Selector Group charged fees as part of its financial planning business model, and were looking at ways to incorporate it into its mortgage business. “I think the [financial services] industry will move to fee-for-service; I just don’t know how it’s going to work out for the broking side,” he said.  To read more from the panel, see Viewpoint on page 20

ING Direct cuts rate, tips product tweaks In the midst of slow credit growth and intensifying competition amongst lenders, ING Direct has cut rates on its Ray Esho Orange Advantage loan by 10 basis points.

The loan will reduce to 6.99% for customers borrowing between $300,000 and $500,000, and to 6.89% for loans of $500,000 or more.

ING Direct head of broker distribution Mark Woolnough said broker uptake of the product has been good, and commented that the product’s 100% offset facility had been popular with customers and brokers. “We’re keen to encourage more brokers to promote

Orange Advantage as a great option for customers looking for a solution which involves more than just a basic home loan,” he said.

ING Direct head of mortgages Ray Esho said the offset facility had the benefit of encouraging home loan customers to also turn to the lender for their everyday banking needs.

Woolnough has tipped further product announcements to come from the second-tier lender.

“To date, broker and customer feedback has been extremely positive and we see this decision as an opportunity to capitalise on the proposition. So much so that we have some product enhancements in the pipeline which will bolster the offering further,” Woolnough said.

Esho declined to comment further on the developments, saying many of the product enhancements were still subject to IT support.

The announcement comes as fellow branchless bank UBank, the online arm of NAB, announced a promotion reducing its online home loan rate to 6.59%. Though recent ABS figures showed a 10-year low for housing finance figures and the RBA has warned that credit growth is slowing, Esho said he believed that ING Direct is well-positioned to compete, regardless of lagging demand for credit growth. He said the lender’s products, pricing structures, brand strength and lending policies would position it for competitive home loan portfolio growth.

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The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

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News

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

Lenders have mixed reaction to age Finance brokers are seeing diverse approaches and decisions from lenders when it comes to older age borrowers.

In April, credit regulator ASIC was forced to release guidance in the form of RG 209, which set out the responsibilities that lenders have to provide credit to worthy older borrowers, and cautioned against a “unnecessarily restrictive” approach.

However, Stephen Dinte at Australian Mortgage Planners said he has experienced one example of a commercial application declined because applicants aged 61 and 59 could not demonstrate the ability to pay down, via regular principal reductions, $2m in debt over 15 years, despite being in an extremely positive financial position. He said the self-employed clients had $4m

in real estate assets, which included their own home (unencumbered) and six investment properties, and that this property portfolio was neutrally geared. He said their strategy was to sell off some of the assets in future to extinguish any remaining debt in full and to live off the rental income from the retained properties.

In a loan application to NAB, the clients sought to borrow $138,000 to purchase a commercial office priced at $240,000, a 60% LVR, and repayments would have been $17,300 per annum based on a rate of 9.5% principal & interest over 15 years.

Dinte said that including a tax benefit, the loan would have been very close to being neutrally geared.

“This was not good enough for

NAB, who referred back to NCCP as their reason – that is, responsible lending,” he said. “I did explain that NCCP did not cover commercial loans over commercial properties.”

Meanwhile, director of Gianesi Finance, Robert Gianesi, said he had not yet experienced any evidence of ageism under NCCP. “I had two loans that were approved for 25 and 30 years respectively for borrowers aged 54 and 55. Admittedly, they have strong balance sheets and have other assets besides their residences that they could liquidate to repay their debts.”

Gianesi said older borrowers should have access to long-term loans, though each proposal should be judged on its merits and mitigants.

Liberty Financial to build retail network Non-bank lender Liberty Financial announced it will establish a direct retail distribution network, Liberty Network Services, Brendan and claims this O’Donnell will only enhance its broker relationships.

To be spearheaded by former Choice Aggregation Services CEO Brendan O’Donnell, who has shifted across from BEAT Home Loans, the retail network will be launched in Q1 of the next financial year.

O’Donnell said the new proprietary channel would involve “traditional” modes of distribution and would not pursue online

channels initially. He said Liberty would start with a “combination of options” including a branch network.

O’Donnell added that the retail move would be a national push, and that Liberty would continue to expand its range of traditional lending products in addition to investment and insurance offerings as part of its retail push.

A statement from Liberty assured third party brokers and aggregators its relationship with them will not change. “Our success … is largely attributed to the support we have received from our business partners,” said Liberty national sales manager John Mohnacheff. “With this initiative, we intend to make Liberty a

household name, meaning more demand for the services provided by everyone affiliated with it.”

O’Donnell added that having a consumer presence will help mortgage and finance brokers position Liberty as a stronger proposition on their panel.

He also said Liberty was determined to take competition to the major banks. “It is time for someone like Liberty to stand up and be more open and aggressive in the broader market.”

Commenting on his swift move across from BEAT (a separately managed subsidiary of Liberty), O’Donnell said the current Liberty role was “more significant” as he saw more opportunity for growth.

 What you said Bankwest recently knocked back a loan to two clients aged in their 60s. Originally, the loan was conditionally approved until their age was noticed, then was knocked on the head. I was told due to age, the mortgage insurer would not consider it. I have tried with another lender and got the same response from LMI. The client rang the insurer and was told they would not have knocked back the loan due to age, it must have been the lender, while the lender told them it would have been the LMI insurer.

Allan Faint on 25 May 2011 12:58 PM Yes, the lenders are definitely marking against age. I have had to explain how several clients would be able to repay their debts at 65, and they were only 45 and 49. It is pathetic and is causing a lot of pain for clients who want to purchase an investment or a business or just upgrade. Typical of the government interfering in something they don’t think through properly.

Lynne on 26 May 2011 11:40 AM Don’t forget under NCCP you, the broker, are responsible as well. If you push and push and the loan is accepted and then something happens, who do you think will be in the middle? Would/could your PI support your decision? While I have no doubt lenders (or individuals) are having a hard time digesting all the changes, we as brokers must never lose sight that we are all in this together, now more than ever.

If your loan submission notes can’t support the loan (in the lender’s eyes) how do you think ASIC or the courts would view it?

Ozboy on 27 May 2011 09:15 AM

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Connective touts white label leadership Connective has promised service will be at the core of its white label offering, to be launched early in the new financial year in partnership with National Mortgage Company.

The aggregator recently hired former Liberty Financial head of commercial lending Michael Goerner as head of sales and business development to help develop its white label product. It has announced its partnership with NMC, which the company says will provide service delivery.

The product is to be initially funded by ING Direct and Adelaide Bank.

Goerner said the partnership with NMC represented a deliberate move to separate the service strategy for the product from the funder.

“Based on the clear and consistent feedback of our

network, the key consideration in choosing a distribution partner was that the quality of service delivery is paramount. By partnering with NMC, we have achieved our key aim of decoupling the service delivery from the funder,” Goerner said.

The structure of the arrangement will enable the aggregator to add additional or alternative funding sources to its white label offering, Goerner commented.

Connective principal Mark Haron said the product will focus on allowing brokers to control their customers’ service experience.

“From Connective’s perspective, our white label program will enable our brokers to build their customer base more securely and if they want, offer other services and products,” Haron said. He commented that the strength of

white label products is in their ability to create sticky customers for brokers, and enable brokers to offer other services and products to their clients.

“Rates are probably not a white label strong suit, it is more about great and consistent service, and more control of the ownership of your client and the ongoing trail commissions. For Connective, it is about allowing our brokers to provide their clients with greater service,” he remarked.

Though Haron has commented that service delivery will be the key proposition of the product, Goerner said the white label’s rates will be competitive. He said the loan will also deliver flexibility, and will provide construction options including a “seamless” progress draw process.

Connective will pilot the product with a select group of brokers during June and July, and is planning a full launch for the beginning of August.

 A scholarship sweetener Aggregator Connective will offer education scholarship packages to five of its national network of 1,200 brokers, as education requirements become increasingly tougher. In partnership with Intellitrain, Connective will offer five scholarships valued at $3,000 each, which will comprise a Diploma in Financial Services, a 12-month CPD webinar program subscription, as well as face-to-face mentoring sessions covering sales, marketing, networking and business growth strategies. The winners will be notified in June.

Resimac bins DEFs, extends clawback horizon

Allan Savins

Wholesale non-bank lender Resimac has outlined changes ahead of the official government ban on exit fees scheduled for 1 July, which include the removal of DEFs and the introduction of commission clawbacks out to four years.

Introduced in early May, Resimac has removed DEFs on all new loans originated via its mortgage originator partners, and has committed to maintaining current fees and interest rates, as well as funding lenders mortgage insurance (LMI) to 80% LVR and up to $1m.

The wholesale lender will also continue to incentivise its mortgage originators with up to 1% upfront commission on its range of products, along with a choice of trail commission structures.

However, Resimac has also introduced a clawback structure that will see it recoup 100% of upfront commission in the first year, 50% in the second year, 30% in the third year, and 10% in the fourth year.

The changes are applicable to all new prime loan applications submitted after 11 May this year, and were communicated with the lender’s mortgage originator partners earlier in the month.

A Resimac spokesperson said its decision to extend clawbacks out to year four was a response to both its high upfront commission component as well as its position as a wholesale funder, which means the business does not manage clients directly after financing through a mortgage manager.

Resimac CEO Allan Savins said he expects the changes will ensure the business is able to continue to

compete with the major banks.

“Removing DEFs without increasing interest rates and continued funding of LMI further enhances our offering, making it easier for our originators to write more loans,” Savins said. “It supports our commitment to our customers and the non-bank sector as together we strive to deliver a viable home loan alternative to the banks.”

Savins said that Resimac is committed to mortgage originators, and has the infrastructure in place to target new business.

“Through improved systems capability to handle increased volumes, surety of funding, and a focus on new loans, we are excited to take on the banks and roll out these changes, which are the first of more exciting developments in the pipeline,” he said.

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News

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Mortgage manager clawbacks passed to brokers Bendigo and Adelaide Bank has announced its clawback structure for mortgage managers, but has not yet decided on the clawbacks it will roll out to brokers directly.

In a communication to mortgage managers at the end of May, the bank outlined a structure consisting of two options. Under one option, mortgage managers will keep their current position of marginisation and upfront payments, while seeing clawbacks extended over four years. Loans discharged in the first year will trigger a 100% clawback, with the clawback falling to 50% from 13–24 months, 25% from 25–36 months and 15% from 37–48 months.

The second clawback structure will see 100% clawbacks on loans discharged within the first 12

months, and no clawbacks thereafter. However, it will require mortgage managers to increase their marginisation rates.

Adelaide Bank head of mortgage management Rob Morrison has commented that mortgage managers seem comfortable with the position, as the move was “well socialised” prior to announcement.

Australian First Mortgage director Iain Forbes has agreed, and said he considers the structure a good compromise.

Forbes said AFM, which is funded by Adelaide Bank, will take the option of reduced margins and a 100% clawback within the first 12 months.

“As far as we’re concerned, it’s an excellent offer. There will be a decrease in our margins; however, we think it’s the perfect

compromise,” Forbes said.

He also said AFM will pass the same clawback structure on to brokers, but will make no other changes to broker commissions.

“There will be no reduction in commissions to brokers. There will be a 100% clawback in the first 12 months. We can’t absorb it at the end of the day. It’s too much for us to carry. Quite frankly, there will have to be clawbacks, but they’re shared by both parties.

We lose some income and the broker loses some income,” Forbes said. “The good thing is that after 12 months, there’s no clawback. It will only be for the

Iain Forbes

first 12 months,” he added.

While the bank has now made public its clawback structure for mortgage managers, Morrison said a decision on broker clawbacks is still several weeks away.

Banks told to expect slow credit growth Banks will have to become accustomed to a low credit growth environment, the RBA has said.

In a speech to stockbrokers in May, RBA deputy governor Ric Battellino said credit growth is likely to remain sluggish as households remain cautious in their spending.

“In the current environment, it is unlikely that households will

have much enthusiasm for increasing indebtedness. The most likely scenario is that household borrowing will continue to grow at a relatively subdued rate for some time yet,” Battellino said.

Battellino commented that the demand for credit has dropped sharply following the GFC. Credit growth averaged 14% per annum in the three years to mid-2008, but has grown by only 4% a year since then. He said while credit demand will most likely pick up in the future, household borrowing is unlikely to reach the levels it did prior to the GFC. “History tells us that periods of weak credit growth such as the present one are relatively short-lived in a growing economy, so some pick-up in credit growth is to be expected. It would

be wrong, however, to think that this means a return to the growth experienced in bank balance sheets in the period since the mid-1990s,” he commented. As a result, Battellino said banks can expect to see slower credit growth, as households shift to higher levels of savings. Battellino explained that this growth in deposits would allow banks to reduce their reliance on wholesale funding.

Ultimately, Battellino commented that banks will not see a return to double-digit growth in the demand for household credit.

According to the RBA, Australian households are also showing resilience in the face of rising interest rates, but are becoming more sensitive to any rate movements.

Battellino said arrears in Australia remain low, but the debt level of households could mean greater levels of mortgage stress if interest rates move upwards.

“While the household sector as a whole continues to show a good deal of resilience in meeting loan repayments, the increase in indebtedness over the past 15 years does mean that households are now significantly more sensitive to changes in interest rates,” he said.

Battellino commented that Australians spend a relatively high proportion of their income servicing their debts. He said buyers who entered the market under the boost to the First Home Owner Grant could be particularly exposed to rate rises.

“The concern is that some of these borrowers may have overcommitted themselves in order to enter the market, and are now vulnerable to rising interest rates.

This group bears close watching but, so far at least, first homeowners do not seem to be disproportionately represented in loan arrears,” said Battellino.

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Mortgage arrears hit new high Delinquencies of 30+ days in the prime RMBS sector hit a record high of 1.79% in the first quarter of 2011, according to ratings house Fitch Ratings.

The latest Dinkum Index report said that a rise in arrears was expected, due to the seasonal negative impact of Christmas spending and holidays, November 2010’s cash rate rise from the RBA and hikes by the banks, as well as the impact of natural disasters.

Fitch Ratings said in the report that the research house had not expected arrears to increase to this extent, but that looking forward, delinquencies may have peaked in the current cycle.

“The agency expects delinquencies to fall slightly in either Q2 2011 or Q3 2011, as the usual seasonal effect dissipates and borrowers affected by flooding

are expected to receive financial support, and business conditions begin to stabilise.”

However, Fitch said that any expected improvement in the arrears situation could be offset by a further interest rate rise, as well as the recent increase in the cost of living.

In comparison with the prime market, Fitch data found that more susceptible borrowers, including low-doc and selfemployed, remain under pressure.

The 30+ days delinquency rates in low-doc mortgage pools increased to 6.74%, a record high above the previous 6.7% recorded in January 2009 during the global financial crisis. This also marked a 104 basis point increase on the arrears recorded in Q4 2010, which was 5.7%. Prime low-doc borrowers performed

worse than other categories of borrowers, with 30+ days arrears increasing to 5.45%, which is up 139 basis points from the previous record high.

Fitch Ratings said natural disasters had played a significant part in the figures. “The natural disasters that have affected some parts of Australia early this year have contributed to the rise in arrears, especially in the 30–59 days bucket,” the report said.

“Borrowers affected by natural disasters may fall behind in their scheduled payments while requesting or receiving financial help. Self-employed borrowers whose business has been affected by the floods may also take longer to cure their delinquency status, depending on how bad their business has been affected and the degree of available financial help.”

Advantedge challenges Credit unions open lenders on clawbacks for business as Choice adds mutuals to panel Advantedge has challenged lenders to adopt its clawback structure, after it removed DEFs from its white label products and introduced clawbacks in a structure it says is fair to brokers.

Advantedge notified the market it had removed DEFs as of 23 May, in advance of the 1 July deadline in order to enable brokers to better adapt to the change.

Advantedge general manager of lending distribution Brett Halliwell said in spite of widespread criticism of the DEF ban, it will come into effect and brokers and lenders will have to adapt accordingly. He commented the company is expecting an increase of consumer interest in non-bank products as a result of the DEF ban, which could bring about positive results for brokers.

“Our job as a funder is to seek ways in which to capitalise on the regulatory change, and our decision to move early on implementing exit fee removal again highlights our leadership position as well as our ability to translate this decision into a positive for brokers,” Halliwell explained.

As a result of the change, however, partial clawbacks will be introduced on the aggregator’s home brand products. The structure will see a 50% clawback for loans discharged within 18 months, and no clawback thereafter. Halliwell said the 50%

Brett Halliwell

clawback will set an industry benchmark, and recognises the work done by brokers in originating loans.

“We understand when a loan discharges within the first 18 months, it is usually due to unexpected circumstances such as a job relocation or a marital breakdown. It delivers a hard knock to the broker when 100% is clawed back, because they understandably feel the reward has been taken away for the time and effort they invested to assist the customer.

“Our clawback has been set at a level that we believe is fair to brokers, sharing the burden 50/50 in recognition of the work they have performed,” he commented.

Halliwell challenged other lenders to follow the example of Advantedge’s clawback structure.

Advantedge has also made DEF-free products available to mortgage manager customers.

Following in the footsteps of PLAN, Choice has announced it will open credit union mortgages to its members.

In February, PLAN Australia added Phoenix Mortgage Management to its panel, opening up access to credit union mortgages from members of credit union association CUSCAL. Choice has now announced it has also added Phoenix to its panel.

“Through adding Phoenix to our lender panel, our members’ customers will now have much greater choice when it comes to mortgage financing,” Choice CEO Stephen Moore said.

Choice has stated the pool of mutuals available to member brokers will grow as more mutuals join CUSCAL. Moore commented that he expects a growing number of credit unions to be attracted to the proposition.

“This is really the first step towards enabling access to a series of credit unions that Phoenix is still working through right now. We’re looking to work with Phoenix in order to grow the panel. I certainly think it will be a very attractive proposition to them. I would strongly suggest there will be an increasing number of them over time as this starts to bear fruit,” Moore said.

Phoenix Mortgage Management

chief executive Allan Willoughby said mutuals are increasingly seeking distribution through brokers Stephen Moore with the advent of licensing and regulation in the industry.

“NCCP legislation plus a coming of age for the industry has attracted the attention of the mutuals and they now view third party distribution as an essential source of business growth,” Willoughby said.

Moore commented that credit unions have common ground with brokers in their community involvement, which may be prompting some mutuals to consider the third party channel.

“One [reason] is the recognition of the role brokers play in the local community. If you look at the local community focus that brokers have and the local community focus that credit unions have, it’s really quite a good marriage,” he commented.

Moreover, as demand for lending finance shrinks, some mutuals may find it difficult to compete through proprietary distribution alone, Moore indicated.

“It’s been pretty tough, and credit unions are looking to grow business,” he said.

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Broker reluctance driving non-bank decline Broker reluctance may be driving a recent drop in non-bank market share, a non-bank lender has claimed.

Recent ABS figures have indicated non-bank share of the mortgage market more than halved over the March quarter.

The ABS data indicated that the bank market share of home lending rose 1.5% to 91.5% in March, while non-banks’ share of the mortgage market fell from 2.7% to 1.2%. Mutuals also ceded share to the banks, declining from 8.3% to 7.4% of the market.

Homeloans general manager of third party distribution Tony Carn said much of the decline in volumes may be due to broker uncertainty over the impact of the DEF ban.

“Talking to brokers, there’s a reluctance largely due to uncertainty around what the removal of exit fees will mean,” Carn said.

With many non-banks implementing or considering clawbacks, Carn said brokers may be waiting to see how the lenders restructure their third party

propositions before moving forwards.

Carn commented that recent surveys show seven out of 10 consumers would Tony Carn consider a nonbank lender, and a “sizeable proportion” would prefer a nonbank. He commented that nonbanks will have to retain an appealing proposition to brokers, and said Homeloans’ clawback structure would match those commonly accepted in the market.

The lender will introduce 100% clawbacks for the first 12 months, followed by 50% clawbacks from 12–18 months.

Regardless of clawback provisions, a downturn in volumes for the non-bank sector could leave some smaller lenders in a difficult position, Carn conceded.

He said larger non-banks would be better suited to adjust to shrinking non-bank market share.

“I think some are well positioned, but some aren’t. It depends on a few factors, in

particular the size and scale of the operation. There’s definitely been a softer market, particularly in April. Non-banks are obviously off by more than the general market,” he commented. However, Carn contended that Homeloans,

despite a drop in volumes, had not seen the shrinking market share of some other non-bank lenders.

“I believe our sales are off in the last quarter more in line with the market, not with the other non-banks,” Carn said.

Concerns Other 2% Concerns over servicing a mortgage 22% High property prices 49%

The need to save a deposit 26%

Cautious consumers Non-bank loss of market share has come along with a drop in overall home loan volumes as consumers exercise more caution. A recent survey found some of the common reasons consumers are avoiding the housing market.

Source: Homeloans

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Mortgage managers up against white labels Mortgage managers will continue to struggle to compete on broker lender panels due to funding pressures, as well as increasing competition from bank-funded aggregator white label products, according to National Mortgage Brokers’ Gerald Foley.

Following mortgage manager moves to extend clawbacks ahead of a 1 July deadline given by the government, NMB managing director Gerald Foley said in his latest update to brokers that mortgage managers are “clearly feeling the pressure to remain relevant”. He added that the outlook for mortgage managers

was grim, particularly with a subdued RMBS market. “With no short-term likelihood of the residential mortgage backed securities market re-emerging, it is hard to see how those mortgage managers not funded by balance sheet lenders (banks) will be able to provide an ongoing, competitive product into the future.”

Speaking with Australian Broker, Foley said that these mortgage managers were also now pitted against the growing traction among brokers of their own aggregator white label products, which are primarily funded by major banks.

“I think in the past some of the business brokers may have put towards mortgage managers is now finding its way to aggregators’ own branded products,” he said. “A customer that has got an appetite for a major bank brand will stay there, but a customer who has wider horizons and is open to a lesser-known brand, an aggregator product can fill that gap,” he said.

NMB created its white label product – NMB Direct – in partnership with The Rock Building Society, a move Foley said was a deliberate strategy not to source funding from a major bank, and to provide a real alternative.

At present, the product accounts for less than 5% of loans written by NMB brokers.

Foley has called on brokers to Gerald Foley support more lenders, including second tier banks. “Too many brokers default to major banks without thinking about the next tier,” he said.

“I would be happy to see more spread around to other balance sheet lenders.”  For more on white label funding, see Analysis on page 22

Ballast provides HR aid to broking businesses

Aggregator Ballast has launched a human resources service to help broking businesses remain compliant under NCCP and the Fair Work Act. ASIC regulations include requirements for finance broking businesses to put in place human resources management systems.

Ballast has commented that its “tailored” human resources service will provide brokers who manage contractors and employees with “all-encompassing” management

systems and templates. The aggregator’s general manager, Frank Paratore, said the management systems will not only aid in compliance, but will help broking businesses to be more productive.

“In our experience, the best practice firms are underpinned by the way in which their staff and/or contractors work together and interact with clients. Having the right human resources policies, procedures and framework in place is paramount in creating and maintaining a productive, high performing team,” he said.

Paratore said Ballast’s human resources platform would provide broking businesses with templates for commonly-needed HR forms and policies. “The human resources service is designed to provide practical solutions on how to

implement best HR techniques – from job descriptions, KPIs, policies and procedures, performance plans, induction manuals, award and wage information to employee and contractor templates.”

Paratore commented that the aggregator supports NCCP and Fair Work requirements of human resources management systems, and this led to the development of its offering to brokers.

“As a business, Ballast supports any positive reform for an industry that has long been seen as nontransparent and self-serving, so providing ‘tailored’ human resources services for brokers to manage their contractors and employees was seen as a logical progression,” he commented.

Paratore said while some in the industry had seen legislative changes under the NCCP as

“frustrating and onerous”, Ballast welcomed regulation of the industry and believed it would increase consumer choice and service levels.

Cheaper not better, when it comes to loans Aggregator Ballast responded to the recent launch of NAB’s direct online UHomeLoan, priced at 6.59%, by arguing that “cheaper doesn’t necessarily mean being better”. Defending the third party broking proposition, Ballast’s Frank Paratore said there will always be a segment of the market that does not require the assistance of an experienced broker. However, he said such customers were at risk of experiencing “long-term pain”.

Paratore recommended brokers diversify amid the online threat to improve profitability.

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Online sales will see broker channel ‘dwindle’: Cannon Changing consumer behaviour and online sales will see the mortgage broking industry “dwindle” according to FirstMac managing director Kim Cannon.

NAB’s online proprietary arm, UBank, cut its standard variable rate to 6.59% in May, which was available until the end of that month and only through home loans sold online. The move put UBank’s offering more than 100 basis points below the standard variable rate of the other majors.

Cannon commented that consumers will become increasingly comfortable with sourcing their home loan online, in a threat to the third party channel. As this happens, Cannon has predicted brokers may never again see a 40% share of the mortgage market as in past years.

“The way the world is changing with online and the way consumers are changing, I would question whether the broker channel will ever grow again up to where they were dominating. I think it will dwindle off over time,” Cannon said.

Cannon pointed to the investment by major banks in technology platforms, increasingly positioning their online networks to act in competition to third party distribution. “Consumer behaviour is changing quite dramatically, and it’s no

coincidence the majors are spending billions and billions on computer systems. You think they’re spending that money for brokers?” he asked.

In addition to Kim Cannon proprietary online sales, Cannon said consumers are changing in the way they gather information. He explained that borrowers no longer have to seek out a broker to become informed about the home loan market. “If you go back 20 years, the Australian consumer was pretty misinformed. They became reasonably informed by using brokers.

They are super informed now because of Google. There will always be a place for a salesperson or broker to advise what product to buy, but the consumer is really informed now,” Cannon said.

As consumers become more informed and the amount of information available grows, Cannon has questioned the viability of the third party channel. “What does a broker give you? A comparison of products. What do comparison sites do?

The same thing. You can go to comparison sites, and they have lenders that don’t have commissions,” he said.

Banks downplay Moody’s downgrade Australia’s major banks have downplayed the ratings downgrade dealt to them by Moody’s, saying it will not have a material effect on their cost of funding.

Moody’s has downgraded the Big Fours’ credit rating to Aa2, from Aa1. The move has brought the Moody’s rating of the majors into line with that of fellow ratings agencies Standard & Poor’s and Fitch.

The credit ratings agency has blamed the Big Four’s reliance on wholesale offshore funding for the bump from Aa1 to Aa2.

In a statement released to the ASX, Commonwealth Bank has denied the downgrade will have any impact on its cost of funding.

“As noted by Moody’s, since the onset of the global financial crisis in 2007, we have diversified our investor base, and increased our stable funding by increasing customer deposits and long-term

wholesale debt and reducing our use of short-term wholesale funding.

Additionally, we have increased the weighted average tenor of both short-term and long-term wholesale debt and significantly increased our holdings of liquid assets,” CBA group treasurer Lyn Cobley said.

Westpac head of group media relations Paul Marriage agreed, saying the bank would not see any dire funding consequences.

“We don’t expect any change either to access of funds or cost of funding,” Marriage said.

Marriage commented that neither the banks nor the global markets were shocked by the decision.

“It’s been expected, but in terms of funding costs we were tending to raise funds as if we were on that rating in any case,” he said.

An ANZ spokesperson echoed Marriage’s comments, saying that the move had been “well-flagged”, and that the bank’s debt pricing had already been in line with the revised rating.

Likewise, NAB Treasurer Eric Williamson said the market had priced in the ratings move well ahead of time.

“The issues raised by Moody’s are not new and were already priced in by the market. We haven’t seen any real impact on the pricing of our bonds in the secondary market and any go-forward impact on funding costs is expected to be minimal for NAB,” Williamson said.

14 www.brokernews.com.au

News INDUSTRY NEWS IN BRIEF Reverse mortgages hit $3bn The market for reverse mortgages has hit $3bn according to a new report. The Deloitte report, commissioned by SEQUAL, shows that as of 31 December the market was comprised of more than 41,000 loans with total outstanding funding of $3bn. The total represents 11% growth in the market from 31 December 2009. Deloitte partner James Hickey said the reverse mortgage market has recovered from its lows during the GFC, though it has yet to return to its pre-GFC peak.

“Nevertheless, there remains gradual recovery in growth which is encouraging,” Hickey said.

SEQUAL CEO Kevin Conlon said reverse mortgages may continue to grow in popularity as a new generation moves towards retirement.

Housing to fall until year end The current fall in property prices will not bottom until next year according to SQM Research, unless interest rates are cut or there is a new government stimulus program. The group has said that prices are indeed falling, despite reluctance from competing property research companies to label the declines accurately as a “falling” market. “Outside the skirmishes between the various data reporting houses and research firms, the downturn does indeed continue,” managing director Louis Christopher said. Christopher said the geographical extent, magnitude and duration should now be debated. “The geographical extent is significant in that it appears to be now affecting most regions in the country. The magnitude is in the -5% bracket and we think a number of regions will fall by more than this.”

AFM holds off on clawbacks AFM has scrapped early repayment fees on loans funded by Advantedge, following the NABowned group’s own move ahead of the 1 July deadline for the abolition of all exit fees. AFM said all variable rate loan applications and submitted loans in the Complete Option range of products, funded by Advantedge, would not be subject to an early repayment fee. AFM’s director Iain Forbes said the accelerated implementation of ERF removal would ensure its products remained competitive. In addition, AFM has not yet introduced clawbacks, despite Forbes previously indicating that this was almost “inevitable”. The non-bank is currently offering no application fee, no valuation fee, no legal fees, no annual fees and no clawbacks (for a limited time) on the Complete Option Product Range.

Investor spirit an opportunity Property investors could present an opportunity for brokers in an otherwise flat housing market, according to the MFAA. The MFAA Bankwest Home Finance Index shows 60.7% of homeowners were likely to make their next home purchase an investment property, while only 39.3% indicated they would upgrade from their current residence. The poll also found the proportion of homeowners who believe now is the best time to buy investment property increased from 74.8% in March 2010 to 76.5% in 2011. MFAA CEO Phil Naylor said the result shows opportunities exist within the investment market. “It’s good to see confidence alive in the market, but you must have a borrowing strategy when interest rates are volatile.”

Price drops give FHB boost Housing affordability has seen a slight improvement with drops in dwelling prices. The HIACommonwealth Bank Housing Affordability Index has improved 3% in March 2011, but still sits 2.8% below the level registered at the same time last year. The HIA has stated the main contributors to rising affordability were wage growth and a softening of house prices. “The housing market has responded to a higher interest rate environment following the series of rate hikes throughout the course of 2010, which can be seen in some softening in dwelling prices,” HIA senior economist Andrew Harvey said. Perth saw the greatest improvement in housing affordability, jumping 6.1%, while affordability in Canberra continued to worsen, falling by 0.9%.

Sydney improved 2.5%, while Melbourne’s affordability increased 1.6%.

Consumers get more satisfaction Major banks have seen a slight rise in satisfaction levels as the satisfaction gap between the Big Four closes. Roy Morgan’s Bank Customer Satisfaction Report has indicated a 0.1% improvement in customer satisfaction with the Big Four, which has risen to 72.9%. Commonwealth Bank was the only one of the majors to show a decline in customer satisfaction, dropping 0.2% to 71.5%. ANZ has retained its top spot in the rankings with 75.2% satisfaction, followed by Westpac at 73.9% and NAB at 72.3%. CBA also rated lowest with home loan customers, with only 64.1% indicating they were satisfied. The gap between the majors is shrinking, and only 3.7% now separates the top ranked from the bottom ranked.

Sintex to accredit brokers Wholesale commercial funder Sintex will open itself to direct accreditation for brokers holding an ACL. The funder currently provides white label commercial loans to mortgage managers. Sintex general manager Cathy Dimarchos said that the move to directly accredit brokers will help brokers diversify their product offering. Dimarchos said the company’s commercial product is well-suited to small, family-run businesses due to the simplicity of its structure. She commented that this would also make the product an easier sell for residential brokers. “Our product has always been focused on the customer. It was written with them in mind. Many of our product features are that of a home loan, ensuring that customers are given as many options as possible for their commercial loans.”

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Bank conflict: face-to-face rule Banks’ insistence that brokers must conduct face-to-face client interviews in person rather than online creates an IT channel conflict that could put some brokers out of business.

Andrew Hunter, owner and operator of mortgage industry IT consultancy KeyChange and a practising broker, told Australian BrokerNews the current stance enforced by some banks was at odds with bank proprietary offers to clients, as well as guidance from regulators.

Hunter’s consultancy and mortgage brokerage relies heavily on the use of virtual technology to liaise with and process loans for clients, as he is based in a remote location near Dorrigo in northern NSW. Hunter said that, due to the virtual focus of his business, a significant part of the leads he converts now come from offshore.

“Over the last 12–18 months, I have spoken to both ASIC and Austrac [Australia’s anti-money laundering and counter-terrorism financing regulator] regarding the need for face-to-face interviews in compliance with AML and NCCP, and neither regulator have it as a requirement,” Hunter said.

Hunter recently requested a face-to-face interview exemption for a client in Hong Kong from ANZ, but was denied by the bank. This is despite ANZ’s own ongoing offer to expatriate clients that it will make loan transactions “over the phone, email, or face-to-face”.

“I offered to record the video interview, but it was rejected,” Hunter explained. “Now, if maintaining quality is the issue then you can’t have a better audit than a fully recorded interview, can you?”

NAB also recently launched a form of virtual loan processing through its new UHomeLoan product, a mode of client discovery not available to NAB Broker partners.

Hunter said the policies of both banks created a channel conflict with third party brokers.

“In regards to face-to-face, it does concern me that with tightening compliance it may suit some lenders to enforce additional policy constraints on brokers that could restrain their ability to adopt innovative and more efficient procedures,” he said. “This may ultimately force more brokers out of the industry.”

Hunter said, as a contract broker, he conducts all initial interviews, provides mortgage planning and structural advice to clients, and then passes on the application process to his staff. “I manage a small team of staff and contract brokers – most of them for over 8 years – and I have never met even one of them,” Hunter said. “We have never had a COSL action or any formal consumer complaint.”

In a recent update from Vow Financial, the aggregator said both NAB Broker and ANZ require brokers to conduct face-to-face interviews. “NAB Broker and ANZ require you to meet your clients in person (not via Skype) and sight original documents,” Vow Financial said. “Declarations confirming the same must be made as part of your loan application. ANZ will however consider exceptions to this rule that are requested via a BDM. On the other hand, CBA does not require you to meet your clients if geographical restrictions are a factor.

They will allow telephone or Skype as a meeting substitute,” the update said.

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RP Data buy-out will lead to better services

RP Data’s acquisition by US-based CoreLogic will see better services delivered to the mortgage industry, the company has stated.

CoreLogic recently completed its acquisition of the research firm.

The company, which previously owned a 40% stake in RP Data, bought the outstanding shares of the research firm in mid-May. CoreLogic CEO Anand Nallathambi said the acquisition

would see CoreLogic gain the ability to expand its services into the Australian and New Zealand market.

“We are pleased to have closed the RP Data transaction on schedule and consistent with the terms previously announced,” Nallathambi said.

“We look forward to the extension of CoreLogic products and intellectual property into

the Australian and New Zealand markets, and further business expansion into the Asia-Pacific region.”

RP Data CEO Graham Mirabito stated that while the company’s day-to-day operations will be largely unaffected, it will be able to deliver new services to the industry.

“CoreLogic is an expert in collaborative industry databases.

Just as we have introduced the CoreLogic LoanSafe Fraud Manager product for mortgage fraud detection, other analytical services are planned to be launched in Australia, leveraging the solutions CoreLogic has implemented with the finance and real estate industry in the US,” Mirabito said.

The injection of capital will allow RP Data access to CoreLogic intellectual property and enable it to offer more services and solutions to the mortgage finance, real estate and banking sectors, Mirabito said.

He commented that RP Data will also export some of its developments in social media to CoreLogic users. Mirabito said that the collaboration between the companies will be a boon to the Australian housing and lending industries, particularly in the areas of risk management and real estate valuations.

CoreLogic currently employs more than 10,000 people globally, and brought in revenues of $1.6bn last year.

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News

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St.George expands Flame services St.George has launched an initiative to expand its Flame Broker offering to broker businesses.

The new initiative, dubbed Flame Office, will allow the staff of St.George Flame brokers access to Flame Broker benefits such as upfront valuations, document

 Flame perks Some of the services on offer through the initiative are: • a dedicated Flame Office processing team • improved access to credit assessors • upfront valuations • document printing • a dedicated BDM and regional manager • improved priority call routing through the bank’s Mortgage Central service

printing, personal BDM services, improved priority call routing through Mortgage Central, improved access to credit assessors, and a dedicated Flame Office processing team.

St.George general manager of intermediary distribution Steven Heavey said the expanded access to Flame Broker services will help Flame Brokers’ businesses see improved turnaround times.

“At St.George, we want to make it easy for brokers to do business with us, and we believe that this new initiative will not only make it easy for all of your accredited brokers/loan writers to do business with us, but will give them a service point of difference with their customers, and will help to grow your business by being able to provide best in market turnaround times,” Heavey said in a release to Flame Brokers.

Pepper to become ‘one-stop shop’ after $5bn GE deal Pepper’s move into prime lending will make it a “one-stop shop”, but the lender will not position itself to directly compete with the majors, CEO Patrick Tuttle has said.

Pepper acquired GE Capital’s $5bn loan book in May, in a deal to be finalised in late June to mid-July. The acquisition was one of the largest whole loan transactions in Australian history with the backing of a consortium including Commonwealth Bank, NAB, Westpac and several mezzanine investors.

Pepper executive chairman Mike Culhane said the acquisition of the loan book would be “transformational” for the company. “[It] enables us to grow assets under management quickly at a time when non-bank lenders are seeking to grow their market share, rebuild a competitive marketplace and broaden the choice of home lending options for Australian consumers,” Culhane said.

Pepper chief executive Patrick Tuttle has commented the acquisition will allow the specialist lender to move into prime lending, but will not necessarily mean a direct competitive move against the majors.

“Pepper has no intention in going head-to-head with the majors in order to offer the cheapest product. What we’ll look

Patrick Tuttle

to do is try to create products that perhaps banks were writing as short as two years ago but are no longer writing because of a tightening of credit criteria,” Tuttle said.

Tuttle commented that this could include borrowers who would have been considered prime business for banks two years ago.

He said some of Pepper’s products will focus on lending to SME owners or the self-employed.

“These are probably segments the banks aren’t interested in, in terms of scale anyway,” Tuttle commented.

The growth of the lender’s product suite will also present an opportunity to brokers, Tuttle remarked. He said he hoped the move would cause brokers to see Pepper as a “one-stop shop” rather than as a specialist lender.

“We solely distribute through brokers, so brokers are our lifeblood in terms of origination.

Hopefully, this is a win-win for brokers and aggregators by building our product offering,” Tuttle said.

Heavey commented that the initiative will also form a valuable proposition to broking businesses looking to recruit new staff. By offering access to Flame Broker services, Heavey said businesses will be better able to attract and retain staff.

“We are mindful that one of your key issues as you grow your business is the acquisition and retention of staff. We think being able to offer this proposition to your existing and potential staff will assist you in that growth as most of these high achiever programs are restricted to the Principal. This initiative has been born out of the feedback we have received from you. I hope that the introduction of Flame Office will further demonstrate our commitment to the broker channel and to you as our key partners,” he told brokers.

Steven Heavey

Borrowers get better at paying down debts Most Australians have taken “Thankfully, the RBA has advantage of the Reserve Bank stayed on the sidelines since of Australia (RBA) staying on November last year and borrowers the interest rate sidelines so have generally made the most of far this year, a national survey the reprieve.” has revealed.

Rushton said that considering The survey by mortgage broker how strong both wages and the job Loan Market found almost 60% market are at the moment, it’s of respondents used the interest encouraging to see people use the rate reprieve to pay off credit opportunity to pay off short-term cards or make extra payments on credit in particular. their mortgage.

“With homeowners paying off The Loan Market poll, which some of their debts, they are going asked: “What have you been doing to be more comfortable in their while interest rates were on hold?” mortgage and ultimately be in a found 57% of respondents made better financial position – all the most of the RBA leaving the thanks to the RBA keeping cash rate at 4.75% and reduced the interest rates on hold.” amount of debt in their lives.

The survey found 36% of Loan Market chief operating respondents did not change their officer Dean Rushton said 29% of budgetary schedule during the the 430 respondents said they had time that rates stayed on hold, tried to pay more off their credit while 7% said they had increased cards, while 28% made extra their spending. mortgage payments.

Rushton said 62% of borrowers aged 40 and over opted to make the most of interest rate stability to reduce debt.

“After seven interest rate rises since October 2009, mortgage holders have lived in expectation of the RBA increasing the cash rate,” Rushton Dean Rushton said.

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18 www.brokernews.com.au

News Luke said brokers would be “stupid” not to make use of a clawback clause to protect their income stream from unforeseen client decisions. “If you have a big clawback come through, and you are a small broker, it really hits your bottom line – it hurts your cash flow. Two large ones like mine back-to-back could result in some brokers being wiped right out. You have to protect your business, and your assets,” he said.

Rigoni agreed. “I can understand why brokers do want to put it [a clawback clause] in their contracts,” she said. “You’ve got to protect yourself. Why is it that the broker is expected to take on the commercial risk of the lender?”

Case in point

Rigoni said it was doubt over the intentions of the one particular client which led her to insert a clawback clause into her FBC, which resulted in the VCAT case three years ago.

“It wasn’t certain that the client was going to keep the loan for a particular length of time, but it wasn’t certain that they wouldn’t either – there was a bit of a black cloud about when and what they were going to do. I wasn’t going to do all that work without being paid,” she said.

Rigoni gave the client an option of a finance broking fee upfront, or a fee tied into any future lender clawback. Rigoni inserted the clause into the FBC after the client agreed. However, when the loan paid out early, the client said they had no obligation to pay under law.

Rigoni stressed that in the VCAT decision that was made in

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her favour, the VCAT member indicated that the clause could not simply be a vague and general statement – for example, just referring to the repayment of a clawback should it be recouped from a broker. Rigoni said that a broker must have discussed in detail the amount and terms of the clawback structure.

Rigoni said she did not regret the pursuit, with the client eventually paying the $5,000.

“It is the only time I have ever done it. It was a matter of principal for me. They were saying they don’t have to pay; other brokers were saying I had no right to put a claim in. I believed I had, so I said let’s see what the tribunal says,” she said.

Luke’s dispute involved a more complex financial situation, where different members of one family were assisted with five different applications and loan facilities.

The value of the eventual clawback for three of these loans was almost to the tune of $11,000.

“When we arrange finance, before making the applications, we walk clients through the FBC, and run through and explain all the provisions,” Luke said. “Clients agree to reimburse us to cover us back for the work if we are clawed back,” he said.

Luke said that he pursued the case due to the significant value of the combined clawbacks, as well as to test the agreement in a legal setting to see if it was enforceable.

When threatened with court action, the clients settled in order to avoid any black marks on their credit history.

Luke said that he continues to use a clawback clause, and that he has an extremely small “knock-

back” rate – clients who refuse to accept this risk – of about 3%.

Ray of sunshine?

However, Jon Denovan of Gadens Lawyers has said that brokers who do write clawback provisions into their Finance Broking Contracts may face difficulty enforcing them.

While admitting that nothing in the NCCP regulations precludes such provisions, he has suggested that actually collecting from clients could be an uphill battle.

“Good luck, sunshine,” Denovan commented. “You’d need a credit card number or direct debit and get a friendly direct debit provider to authorise it. Even then, when people refinance, often that old bank account isn’t there anymore.”

In spite of the difficulty brokers may experience in collecting from clients, Denovan has affirmed that clawback provisions are legal

under current law.

This is despite the government’s ban on exit fees, and concerns that clawbacks could be considered such Maria Rigoni a fee.

Denovan said the government was unlikely to introduce new laws to cover clawback provisions, should they become more widespread. “Swan’s already introduced one silly bit of law.

I don’t think he’s silly enough to introduce another silly bit,” he said.

However, such regulations may be more difficult to properly craft under the NCCP disclosure regime, Denovan said.

“It’s legal, but the way you’re going to have to do it will become more regulated when disclosure commences.”

Australian BrokerNews Forum: What you said When Gadens Lawyers’ Jon Denovan argued that Finance Broking Contract clawback clauses may be difficult to enforce, he got this response from our online readers: Clawback provisions in a Finance Broking Contract is the death of the broker market. Why would I use a broker and potentially fork out thousands of dollars because circumstances force me to sell my house after a few months (family illness, job changes, etc)? I can go to a bank with no such provisions. oldBroker on 18 May 2011 12:22 PM We have had this clause in our contracts for over three years; we have enforced it three times and each time the client paid within 10 days of being notified. We spend a lot of time explaining why it is charged and when, as well as putting it in writing. It is all very clear and transparent right from the start and in each circumstance the client admitted it was in their control. If we had a situation where it was due to a family tragedy, etc, we would not enforce it. A little common sense will go a long way.

Ozboy on 19 May 2011 07:46 AM To join the debate, go to http://www.brokernews.com.au/forum/

Fee-for-service fears unfounded

James Veigli

Fee-for-service can be positioned to appeal to clients, and brokers should fight any moves by banks to market against it, an industry consultant has claimed.

James Veigli of The Orange Advantage has responded to claims by financial services consultant Max Franchitto that fee-for-service

is not viable for mortgage brokers.

Franchitto previously claimed “the psychology of the customer” would prevent borrowers from accepting broker fees when they can seek loans from banks without paying fees. However, Veigli said the fee-for-service model can work, and its success is dependent on how it is marketed to clients.

“If you suddenly started charging, say, a first homebuyer client $1,500 for basic loan work, then yes, you most likely will drive them away. But when you understand the strategies that go into developing a fee-for-service model, and the psychology of the marketing behind it, you’ll realise that fee-for-service can be flexible enough to accommodate all client types and demographics.”

Veigli commented that brokers only fear the fee-for-service model because many do not understand the marketing strategies behind it.

He remarked that any negative marketing by lenders around fee-for-service should be combatted by the mortgage broking industry.

“We need to collectively play the marketing game with them,” Veigli commented. If they come out promoting a fee-free alternative, we come back promoting ‘No-fees, No-clue!’ There are some deep pockets in the industry that could be doing a lot more with their marketing messages in my view.”

Veigli believes brokers need to prepare to supplement their income in the event of the further erosion of commissions either by lenders or more onerous regulation.

“Anything is possible when the government gets involved, which is why I’d be starting to position my business away from sole income commission from lenders and towards a more diversified income stream now so that one touch from the lenders or regulators won’t bring down my entire business,” he explained.

Should commissions come under further attack, Veigli said many brokers would have to “dramatically up-skill” in order to just survive.

“I think in that case, the days of the part-time broker helping out friends and family – with limited other skills or value to offer relying solely on finding a cheap loan in exchange for commission – will be all but gone,” he said.

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FORUM Australian BrokerNews online has witnessed a raging debate on fee-forservice in recent weeks, following claims that such a move could be the “death” of the industry We have started a fee-for-service model, because the banks are currently driving our business model, and in this environment it is simply unprofitable to rely solely on commission paid by the lender.

Keith Bridges on 17 May 2011 12:11 PM The way to adopt ‘fee-for-service’ is to complete a Diploma Financial Planning and broaden the services you provide. This sees a model where you continue to receive commission for the sale you make on mortgages and life insurance. Charge a fee for financial planning – including budgets, debt reduction, insurance, superannuation and retirement planning.

Kevin Breen on 17 May 2011 12:41 PM I agree. Charging for service will be the last straw and that will be the end of the broking channel. Brokers are needed for competition. sidbroker on 17 May 2011 01:07 PM Until a broker really understands their business model and the costs associated with their business model overall, then to set a value for fee-for-service will be a difficult proposition.

Once the broker places a value on themselves then the selling proposition to the clients will be a simpler process. Finance brokers are very skilled and are high quality credit advisors, so understand your costs, look at your service offerings and sing your professionalism from the roof tops. Only then the journey to fee-for-service will be appreciated and accepted by clients. Many other professions are already charging fee-for-service, and advice via other professionals is also a tax deduction, so in the end what is the real cost to the clients?

Jeff Mazzini AAMC Training Group on 17 May 2011 01:23 PM I agree entirely. Any move to a fee-for-service basis plays exactly into the hands of the four majors who would love to cut commissions completely and see the broker supply channel fade away. That way they would have greater control of the flow of information regarding their products, via their marketing efforts.

WayneBroker on 17 May 2011 03:49 PM No kidding… we are within 200 metres of all majors, and the branches in Cronulla are on the ball in securing loans for clients.

Todd Hunter on 18 May 2011 09:24 AM Our company implemented ‘fee-for-advice’ four years ago. Seventy per cent of our clients are repeat customers or come from word of mouth. Clearly it is not an issue if you are providing superior service. In addition to this, one of my staff members advised me yesterday that a “high net worth” client of ours who obtained a CBA loan six months ago with in excess of $1m in borrowings, is on an interest rate of 7.81%. It doesn’t take a rocket scientist to work out how much interest we will save him over the next 12 months. In fact, he will be so pleased he will more than likely tell three of his friends or colleagues about us.

Renee Kiley on 18 May 2011 02:15 PM This fee-for-service debate is getting ridiculous; it’s like the ‘who owns the customer’ debate. The bottom line is the customer/client will decide; as a business owner, it’s up to you and no one else. Do what you think is right and stop denigrating others because they do it differently. Move on.

Ozboy on 19 May 2011 07:52 AM If you don’t see yourself as adding value to the consumer experience, don’t charge a fee. We’ve been charging for years and are busier than ever because of the QUALITY of service. Clients are more than happy to part with a few hundred dollars for quality service and advice. Those that aren’t are not the clients we want. osbroker on 20 May 2011 03:27 PM

Poll: Are lenders and aggregators behind the times in adapting to new technology?

The use of Skype for client interviews sparked fierce debate over whether the industry was failing to adapt policies fast enough to a fast-changing world. Here’s what you answered:

Yes 67%

No 13%

To vote in our latest online poll or comment on our forum, visit our home page at www.brokernews.com.au

Undecided 18%

Source: Australian BrokerNews Poll date: 20/0511

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Comment VIEWPOINT

Australian BrokerNews TV recently hosted some of the nation’s top brokers at its first broker panel session. Find out what they think on issues affecting your business

David Brell Smartmove

On the market: I think generally speaking, most consumers got a little bit freaked out by the rate rise last year, so I think they are just waiting to see and assess where the market is headed. I think professionals – which we mainly work with – are seeing this as an opportunity. So I think there is a market, in which we can grow our market share and deliver what we need to deliver. They are time poor, so it is a great opportunity for brokers to provide a solution, while they are looking to purchase. For us as individuals, I think there is a great opportunity, but for the market overall it’s quite slow with not as many transactions.

On diversification: I have a strong opinion on this. We are in the business of providing mortgage solutions, and not anything else, so we will stay doing what we are doing to be the best in the business. I don’t understand how others can be perfect at what they do, when they think about other industries. We have a whole office, and all we do is mortgages, and we just talk mortgages and breathe mortgages, so we have become, I think, among the very best at doing that. Of course, we make sure they cover the risks, but I just can’t see how I could be doing the best thing by my client, if I am doing something else.

On the market: The type of client is key – we have a diverse client range, and if I had to categorise them, I’d probably say the higherearning clients aren’t blinking. They are either taking on debt in their own name, or doing it via SMSFs or whatever, but the mum and dad-type clients are probably struggling at the moment I think. And the thought of a new rate rise coming up, as we are being told, is really putting a slow-down in that area I think, big time. But we are seeing volumes increasing, not declining, while the average loan size is going up too, which indicates there are higher levels of clients.

On diversification: We started with a mortgage broking operation and built it into a multi-faceted financial services business. We look for different areas to drive lead generation into the business, but at the end of the day, we have client revenue expectations that we can’t get off a mortgage – full stop. And we’ve run with the bank’s philosophy, that if you have a client with two or three or four products with you, they don’t leave, or are highly unlikely to leave, and you can’t cop a clawback on a mortgage if they phone you about five other different matters. So we believe we have proven the fact that diversification works. The question is, do you specialise as a broker inside a diversified financial services business, or do you set up a diversified financial services business and put a broker in it? I really don’t think there is any other argument.

about insurance, and all of a sudden, when the client is really happy about the loan, and really want to go ahead, you try and bundle in a whole lot of other products to sell them at the same time, and then they want to think about it and come back to you. Then if you upset them on one of those other products, you upset them on the loan side. We do all other diversification points, such as car finance, equipment finance, any sort of lending, and some of the insurances where you make decent money. But with the amount of knowledge we need to know – especially with NCCP – it’s really hard to be a top broker and also try and flog insurance and everything else as well.

Leanne Scott Mortgage Choice

Justin Doobov Intelligent Finance

Brett Abikhair The Selector Group

On the market: From the housing market side, we’ve found the market has actually slowed down. There are buyers out there looking to buy, but the vendors have to get a bit more realistic with their pricing. On the broking side, from everything I’ve read, the amount of loans written are declining, but from a company side, the amount of loans we are writing has increased. So it looks like we are taking a bit of market share, but there is definitely more loans out there to be written – things are looking up for certain areas of business in the broking market.

On diversification: We’ve started on diversification. But one of the things I have seen other brokers try and do, is in the meeting – when signing up the loan documents – is talk

On the market: I think there is a unique opportunity for brokers just at the moment.

I think because the market itself is down, the banks are becoming more aggressive with what they are willing to do, and what they are willing to offer, but the general public doesn’t know that. So we are actually in the box-seat to be able to provide something to a client that they just don’t even know is available, as there is this aggressive competition from the lenders at the moment because the market is slow. So I am seeing fantastic opportunities at the moment for my clients with what we are doing.

On diversification: I’ve looked at the whole diversification piece, especially from Mortgage Choice’s perspective, and really and truly, with the offers that are on the table as far as we are concerned, mortgage broking is the main game. And truly, do I really need the $23.76 that I get for writing a general insurance policy, or referring it for a life insurance policy for a $3.72 trail? These are the only ones we are able to write unless we are licensed as financial planners. Then if we get licensed as financial planners, are we going to give the time and dedication to the broking side of it that a really professional broker needs to do? I cannot get my head around being able to do both those things at an expert level.  View the wide-ranging panel discussion online at www.brokernews.com.au/tv

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What a difference a year makes… or not. Australian Broker reflects on the punditry, breaking news and trends that made headlines in the magazine 12 months ago Issue: Australian Broker 7.11 Headline: Lenders continue to tighten criteria (page 6) What we reported:

What’s happened since:

May 2010 saw lenders further tightening their credit criteria, with LVRs dropping. It was estimated by RateCity in May 2010 that there were 31 fewer 95% LVR loans than in February of 2010. The trend was even more apparent for very high LVR loans of 98% or more. RateCity recorded only one loan in May with an LVR of 98% – Teachers Credit Union’s My First Home Loan – compared to 20 mortgages with a 98% LVR in February. RateCity CEO Damian Smith said at the time, tightening lending criteria was making it difficult for first-time buyers to enter the market.

First homebuyers have been relatively silent in the housing market in the midst of high median house prices and rising interest rates.

RP Data indicated in April that February saw the lowest proportion of first homebuyers since 2004. Lenders have ramped up their competitive offerings to lure borrowers, with lenders such as St.George, Commonwealth Bank and ING Direct returning to 95% LVRs. However, demand for credit seems to be waning, with AFG indicating a 10% drop in home loan demand from April 2010 to April 2011, and a 15.6% month-on-month decline.

Headline: Mortgage rates set to soar (page 8) What we reported:

What’s happened since:

An OECD forecast last year predicted interest rates to increase five times in 12 months, with the cash rate settling at 5.7% and the average standard variable rate rising from 7.4% to 8.6%. The rate rises would have placed Australia near the top of the table in terms of interest rates, behind only Iceland, Mexico, Poland and Turkey. The report also predicted GDP growth in Australia to track at 3.2% for 2010 and 3.6% for 2011, giving Australia one of the strongest growth forecasts of all OECD economies.

The OECD may have missed the mark slightly in tipping five interest rate rises in 12 months. During the period prescribed by the report, the RBA lifted the official cash rate only once. While banks followed the move with an out-of-cycle hike, they’ve come nowhere near the prediction of 8.6% rates. The highest among the majors, Westpac, currently sits at 7.86%. Many analysts expect the RBA to hike the cash rate to 5.25% by the end of 2011, but a move on the scale predicted by the OECD’s report doesn’t appear to be on the cards.

Headline: Aussie house prices not overvalued (page 18) What we reported:

What’s happened since:

With median home values reaching their highest level in six years during 2010, ANZ analyst Paul Braddick argued against claims that Australian housing was overvalued. Braddick claimed such arguments were flawed because house price to income ratios, on which the statements were based, do not take into account interest rate moves.

Braddick argued that lowering interest rates from their peak in the 1980s, had driven the price of property up.

The debate over the true value of Australian housing has continued unabated since Braddick’s claim, with property advocates arguing that tight vacancy rates, population growth and a culture of home ownership justifies high median prices, while property bulls claim demand for credit is dying and first-time buyers will no longer prop up the upgrade market. However, both sides seem to agree that property prices at the moment seem to be going nowhere fast. Home loan numbers for March saw a 1.5% seasonally adjusted decline, and the RP Data-Rismark Home Value Index showed a 2.1% in median capital city home values for the March quarter.

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Analysis

Under the white label White label products are increasingly common and are proving popular among brokers and their clients.

But, could they be eroding competition?

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he ubiquity of white label products in the mortgage market is gathering pace with more aggregators and broking franchises introducing their own branded home loans. Though the variety of products is on the rise, what do white labels really mean for the market? With non-banks seeing their market share eroded by the majors, white labels could represent another attack on non-bank viability, resulting in a less competitive market for the consumer.

An easy sell

Without question, the majority of brokers seem to like white label products. A recent MPA survey found 80% of mortgage brokers would welcome the introduction of white labels by their aggregator. Part of brokers’ positive outlook on the products could be their saleability to clients. White labels offer a clear sales strategy of spruiking an exclusive product with the backing of a major bank. Advantedge’s general manager – lending distribution Brett Halliwell commented that, for this reason, brokers may find it easier to sell a white label product than a non-bank product. He said white labels can offer consumers security, as well as give brokers the ability to market products that clients cannot obtain direct from a bank.

“The consumer gets access to a good, solid competitive rate with the benefits of service and delivery, and on top of that the security of it being offered by a major bank. It comes down to having something available to brokers that consumers can’t get anywhere else,” Halliwell said.

Connective principal Mark Haron agrees that the exclusivity of white label products offers a strong selling point for brokers. Connective has tipped the introduction of a white label product in the coming months, and Haron commented that the best proposition behind the products is better service for the customer and stickier customers for the broker. “Rates are probably not a white label strong suit. It is more about great and consistent service, and more control of the ownership of your client and the ongoing trail commissions. For Connective, it is about allowing our brokers to provide their clients with greater service,” Haron said.

The definition of competition

It comes down to having something available to brokers that consumers can’t get anywhere else

Service proposition aside, most white label products are funded by majors. As a result, white label sales ultimately represent more money headed towards big banks.

Regardless of the variety of brands and features carried by white labels, can products with the same funding source really represent greater competition in the industry?

Halliwell believes they can. He said that all loans rely on wholesale funding, and whether this is sourced from a major bank or direct from the securitisation market, the true definition of competition is offering a better product to a client. Moreover, Halliwell does not believe white label products represent a threat to non-banks.

“Home brands just offer an alternative that sits alongside non-banks,” he remarked.

Mortgage Choice spokesperson Kristy Sheppard echoed Halliwell’s remarks. Mortgage Choice launched its own white label product, Bluegum, late last year. Sheppard said uptake of the Advantedge-funded product has been strong, particularly considering Mortgage Choice does not incentivise its brokers to recommend the white label over

other products. She said white labels offer a greater range of features and pricing options, and thus represent competition. “[Competition] is really a means to an end, with the desired end being the mortgage market offering a wide range of well priced, innovative products backed by excellent service… If a new product features one or more positive points of difference to other products, that’s a welcome development for the industry,” she said.

Funding matters

FirstMac managing director Kim Cannon does not share such a positive outlook on home brands, and believes white label products, along with mortgage managers, are merely camouflage for the growing dominance of large banks.

“Let’s not confuse funders and lenders like mortgage managers with the non-bank sector. They’re selling ING, Adelaide and NAB through Advantedge, so where’s the competition? All we’re seeing is bank, bank, bank through these white label programs,” he commented.

Cannon said many brokers have fed this dominance by consistently sending business to the majors, and that white labels and mortgage manager products are merely another route through which brokers are funnelling business back to the Big Four.

“Brokers couldn’t sell a non-bank brand for many years, but now can sell their aggregator’s white label product. I’ve tried to get access to promote our products on aggregator groups and keep getting told that our model is flawed and we won’t survive. I find that quite amusing when the guys running Advantedge are forced to sell to NAB for next to nothing. They’re gone and I’m still standing,” Cannon said.

Haron agrees that the source of funding, rather than product features or branding, is the true measure of competition in the market.

“If all the funding came from major banks, there is reduced competition and no diversification. The banks ultimately control the interest rates at a funding level and they could increase their rates to mortgage managers or through the third party channel if they operate under a different brand. So we need as much diversification in funders as we do in lenders,” he commented.

Haron added one caveat: whether the diversification of funders exists through the growth of non-banks or a broad base of banks, the ultimate goal should be delivering products with which customers are satisfied. So long as this diversification is present, Haron indicated, it makes little difference whether or not the wholesale funding sitting behind a white label is from an ADI. “At the end of the day it should not be a debate of bank versus non-bank, but what is more appropriate for the customer,” he said.

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Comment

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OPINION

The end is near for ‘bulk-billing’ brokers Select Finance director Bruce Gibbons argues that the days of mortgage ‘bulk-billing’ are gone, and brokers should adopt fee-for-service for independence, and true value

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he days of brokers ‘bulk-billing’ for their loan services are drawing to a close. Some time ago, medical practitioners worked out that the amount the government pays them for consultations is simply not enough for them to offer a professional service.

Then came the dawning of a payment by the patient of a ‘Gap’ fee to ensure they remained viable. Sound familiar? Indeed, it’s scary the similarities that exist in the evolution of different service industries. But rest assured, the ‘free service’ gimmick is destined to become extinct.

This has been brought on now by three factors.

Big bank behaviour

Make no mistake about it, the major banks embraced the brave new world of third party distribution. They rapidly increased upfront commissions (the first lenders in the 90s paid $375 flat per settlement), then introduced trailer commissions and volume bonuses. They also steered brokers to aggregators on the promise it would eradicate the need for individual/company volumes as all member/broker volumes would be ‘aggregated’, and encouraged brokers to lodge online, purportedly to improve approval to settlement times. However, with market share and AA credit rating strength advantage now firmly in place, the broker alliance has become superfluous, and a ‘take it or leave it’ approach predominates. Instead, banks will energise ‘direct’ business activities, like the NAB’s UBank product at 6.59% promotion, and hence elevate their margin spreads to in excess of 80s levels.

Further, brokers simply took the easy way out, complacency set in, and there was no forward planning. They had the option of diversifying their selected lenders; supporting the Citibanks, ING Directs and others of the financial world. But we chose to enrich the lending volumes of the Big Four.

It was easier for our production line approach – it was faster (online), no volume requirements (via aggregators), honeymoon products, household names, familiarity with forms/process, self-approve LMI, you name it.

Legislative change

New NCCP legislation spells the extinction of the traditional ‘production line broker’. No longer can you have a predetermined mindset on where you will domicile a client’s loan, gloss through it, and leave it with the lender to manage the process to end. Far from it. Legislation now sets new obligations in stone; educational and performance parameters which will serve to lift the benchmark of the industry – albeit at increased cost to the consumer.

Commission viability

With lenders having substantially reduced broker remuneration, and legislation having extended the interview time three-fold, and paperwork five-fold, it is not viable to run a broker business based on the ‘free service/

lender pays’ model. For example, Suncorp currently pays 0.33% remuneration for their fixed home loans originated. You tell me if a consultant could manage two home visits, a mountain of paperwork, and administration of the process for, say, a paltry $150–200 (after aggregator cut and GST, but before tax and operational costs).

In the light of euphoric lending and ridiculously slim margin spreads of the 80s, the head of credit with BankSA once proclaimed – “clearly not all business is worth writing”. A wise decision with 20/20 hindsight. Brokers need to assess the merits, time to be expended, and likelihood of the proposal before them, and quote prices accordingly. Brokers have prostituted the industry for long enough. The era of reckoning has arrived. Fair pay for fair work performed.

Financial planners recently have been forced to move to a fully disclosed fee for service model, and not before time. Now the client can compare apples with apples, and be extremely clear when balancing the costs charged versus the returns received. Now it’s our turn.

At Select Finance, our business model has always been ‘fee for service’.

From the outset, we have developed relationships and accreditations with many lenders, exploring the depths of financial alternatives out there, to reach a suitable solution for our clients. At the time of writing, we have 89 lender accreditations, and have used 109 different lenders in our pursuit of successful outcomes for our customers.

If you have a long career in the army or navy for example, why wouldn’t you want to have the option put forward of the Australian Defence Credit Union? Oh that’s right, they’re not on the ‘approved panel’, because they don’t pay brokers. I’m sure ASIC would like them considered as a suitable lender option for that client.

Our client deals are priced at a level commensurate with the task; a respectable return for the time involved, the extensive lender panel alternatives on offer, as well as the expertise and professionalism required.

By charging a professional fee for service, there is no uncertainty about who the broker in fact is working for – a point of ongoing contention for ASIC where decisions may or may not be influenced by lender kickbacks.

In cases where the loan goes to a lender ‘who pays’ for the custom, our agreement generally provides that we rebate this back to the client. If we know which lender we will need to use from the outset (and they are a panel lender), then the ‘fee for service’ will be priced on the understanding that the lender will be covering a certain amount – sort of like the Medicare ‘gap’.

While this model still leaves brokers at the whim of clawbacks, it does at least ensure the broker receives some remuneration.

Our clients are required to appoint us exclusively – no appointing three brokers simultaneously (real estate agents did away with ‘general agency agreements’ decades ago)! Our clients are required to give us 30 days’ notice if they wish to rescind our appointment, which gives the broker adequate time to finalise any applications in process.

As a result, there are no time wasters – if the client is serious, and they are ready to make a move: here’s what we do, here’s what we will achieve, here’s what you pay (charging on ‘success only’). Isn’t that what NCCP is enforcing – clarity and openness?

We have been operating for 14 years, with a satisfied and loyal team of long-term consultants/staff, and client base. We will survive. The question is, have the Australian ‘bulk bill brokers’ factored in adaptability to change into their business models? My tip is – start now.

Bruce Gibbons is the director of Select Finance Brokers, and is a former president of the FBAA and a previous manager with three leading Australian banks

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Insight

The secrets of success Former Loan Market executive director John Kolenda is no stranger to success. He gives you his advice on how to cut it in an increasingly difficult mortgage industry

D

uring my 17 years in the mortgage broking industry I have often been asked, “What’s your secret to success?”

Looking back, I would say my early success was driven by a raw survival instinct. I desperately wanted to succeed, to earn enough money to support my family and this motivated me to gain knowledge and master the mortgage broking business.

During this period, I was lucky enough to be exposed to some of the best minds in this industry globally.

In the 1990s, I worked closely with John Symonds of Aussie Home Loans as general manager of sales and distribution and more recently as an executive director of Loan Market.

This knowledge empowered me and elevated my business and my life. My results improved dramatically as did my confidence simply because a deeper understanding of success factors helped me to shape positive outcomes.

Much of my success was, and still is, underpinned by the following lessons I now live by:

Vision and goals

To reach your long-term goal, you must remain focused and motivated along the way. Never let failure provide you with an excuse to opt out or affect your state of mind.

Treat each failure as a lesson learnt. Adversity should be expected so be prepared to persevere, remain focused and be diligent in your day-to-day practice.

Knowledge

To succeed, you must be equipped with the right tools and knowledge to be resourceful. Mortgage broking involves the ability to understand products and policies to advise clients correctly. The industry is constantly evolving so be active, stay up to date, ask questions to fill knowledge gaps and ensure you stay one step ahead.

Brokers should visualise what success looks like for them.

They should ask and answer the following questions: What does my broking career look like? What volume am I writing? What is the level of support staff and/or brokers required? Am I in an office and where?

To execute this effectively you must set and plan both short- and long-term goals. Set your goals high but also be realistic so you will always be inspired to reach your limits or exceed them.

Process improvement

Positive attitude

Develop the foresight to be innovative in your approach in order to identify new sources of income for your business.

New initiatives to increase business will diversify your income, reduce downside risk during lean times and keep you a step ahead of your competition. For example, 1300 Home Loan is my newly launched initiative which aims to turbo charge mortgage brokers, by assisting in lead generation via one easy to remember phone number.

A positive state of mind is the single biggest contributor to success. It controls will, determination, work ethic, knowledge and every aspect of your work and personal life. It influences all outcomes and should not be underestimated.

Gaining the power to ‘self-motivate’ would be one of life’s best learnings. If you get one thing from this article it would be to truly master this. It is certainly an attribute that everyone wants, yet many fail to conquer.

Work ethic

John Kolenda

Determination

A strong work ethic is more than just working hard; it is both a standard and a habit, followed by actions to benefit yourself, and influence others. Aspire to lead, display initiative, maintain a positive attitude and demand high quality work.

Review current practices and identify potential areas for improvement. If you can improve accuracy or efficiency through streamlining two or more processes together, it will make a significant financial impact. Once you’re at this level you are truly running an effective, streamlined business and maximising your dollar return on an hourly basis.

New initiatives to increase business

Follow up

Make a habit of always following up on potential leads or business opportunities. Whether it’s following up customer visits, updating a loan application or chasing documents expected from clients, actively pursue these opportunities. Sometimes it only takes one phone call or an email to make the deal happen.

So many opportunities are lost due to a lack of follow

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up. Whether it’s a lack of process, structure, time allocation or fear, this is an area that, when addressed, will lead to extra revenue.

Ask for referrals

Extend your customer reach by sourcing referrals, which are the warmest and easiest leads to manage. Whether it is your existing clients or current business partners, family or friends, you should encourage referrals from all of them.

To be successful in mortgage broking, you must focus on increasing your volume by building deeper relationships with existing customers so they come back for repeat business and speak to others. If you have made a positive difference to your customers by adding more value than anyone else could, then expect referrals from them.

Exit plans

Many successful brokers establish, grow and maintain operations but often

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neglect to develop an exit plan. Your business is the result of years of hard work and relationships which took time and effort for you to cultivate and has a market value.

A typical sale involves a broker selling their trail book at an income multiple and sometimes a small multiple for customers. It is difficult to get a higher price as customer ownership is difficult to transfer. It is also very difficult to value your brand without a national presence.

With 1300 Home Loan, we are seeking to address this through a process where our broker partners enhance their brand via association with us, which guarantees customer ownership. This should result in an increase in current exit multiples as a broker can now provide quantifiable lead numbers as well as evidence and estimates of future leads.

John Kolenda is the managing director of 1300 Home Loan, a lead generation business for mortgage and finance brokers

EXECUTIVE COUNSEL Industry stalwart John Rolfe spent many years managing Bankwest’s mortgage products, before finding a new home at South Australia’s government-sponsored Homestart. Australian Broker asks him why affordability has become his passion, and how he’s achieved success John Rolfe

Name a business leader you admire.

Why? I don’t really have one but I do admire Richard Branson. I live his belief that “A business has to be involving, it has to be fun, and it has to exercise your creative instincts”.

What main goal/s got you to where you are?

Along with my passion for helping people into home ownership, a desire to constantly learn and do new things. As Michael Gerber once said: “My experience has shown me that the people who are exceptionally good in business aren’t so because of what they know but because of their insatiable need to know more.”

Is success due to talent, hard work, or luck?

A mixture, but I believe in this industry, working smart to the talents that you have will enable you to go a long way.

What character trait has helped you the most in business?

Persistence and a good sense of humour, with the ability to laugh at yourself the loudest.

What is the key to great business relationships?

Honesty and trust. Without these you cannot have a relationship of any kind.

What’s the first thing to look at when growing a business?

What are the key objectives you are trying to achieve and are they relevant to the target market? There have been many great ideas and concepts that have failed because they were ‘unwanted’ at the time.

What’s the best piece of advice you’ve ever received?

Never eat yellow snow. There have been many, but a very wise person once said: “If you fail to plan, you plan to fail.” I have practised both sides and it is true!

What trend are you currently watching?

Rolfey and trend are not usually words used in the same sentence. In an industry context, the level of government appetite to address the housing affordability issue.

What is your next big ambition?

To help achieve an environment that will boost housing affordability by at least 20%.

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Market talk

Opportunity knocks: Investors eyeing up the market

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Falling demand plus rising rental yields could equal an opportunity for property investors, and brokers have to be ready

hese days, most news surrounding the property market seems to be bad. Falling median prices, rising levels of unsold stock, dwindling demand for credit and spikes in arrears dominate the headlines, and seem to have many potential buyers spooked. However, could this market sluggishness have a fringe benefit? For those looking for investment property, it just might.

The jury seems to be out on whether house prices will continue to fall or have bottomed out and will remain flat. However, rental yields are seeing some healthy growth. According to Mortgage Choice, this might be enough to entice investors back to the market. The company says a 2.1% rise in demand for investment lending in March – the first increase this year – could be a sign investors are eyeing the market. Mortgage Choice spokesperson Kristy Sheppard said waning demand and climbing levels of stock on the market could present an opportunity for savvy property investors.

“There are many more properties on the market than usual and less buyers to purchase them. Australians who are ready financially and keen to crack the market or build on their portfolio may find that some solid hard work sees them snap up opportune purchases while demand is low,” she said.

Sheppard says population and wage growth, as well as low rental vacancy rates, should be encouraging factors for potential investors.

“Rents are rising at a faster pace this year while property values have steadied or dropped in many areas, so rental yields are on the increase. This all bodes well for people who research the market thoroughly, have a long-term strategy and are informed about their finance options,” Sheppard commented.

Rents are rising at a faster pace this year while property values have steadied

Likewise, Blue Wealth Property research analyst Charbel Azar believes the stagnation of the market may cause a move among investors.

“The astute investor will generally buy in periods where markets are subdued. Sentiment is down, and there is a larger number of sellers looking to exit the market, offering a wider range of properties. It is essentially a classic example of a buyer’s market,” he said.

While many analysts have forecasted a protracted period of flat property prices, Azar believes increasing rental yields will serve as a catalyst for higher investor demand, which could kickstart capital gains in 2012.

However, he commented that these rising yields do not mean investors should count on robust rental returns, rather than buying and holding property.

“Any smart investor will be in the market looking for capital growth, not rental income. Significant wealth is created by a large asset growing, not by chasing rental income,” he commented.

With first homebuyers sitting on the sidelines and many upgraders apparently content to stay put, property investors may be one of the primary opportunities for mortgage brokers. Azar said brokers can particularly capitalise on the weakness of the market as a selling point, and cut through the pessimism prevalent among consumers by pointing out the opportunity to take advantage of a low point in the property cycle.

“A mortgage broker’s role can be key in this market.

There is a real need to educate clients as there are many people talking down the market at the moment. People often get caught up in markets where sentiment is strong, buyer demand is strong, and end up buying at higher points in the cycle,” Azar remarked.

NUMBER CRUNCHING Prospective buyers’ outlook on the market

Bank customer satisfaction

76%

Absolutely not

Source: Homeloans

ANZ

Westpac

72.9%

72.8%

73.2%

73.9%

73.8%

73.9%

72.3%

72.2%

NAB

Total Big Four

Source: Roy Morgan Research

At a glance…

Housing affordability by quarter Median dwelling price

Interest rate

Monthly repayment

Average weekly earnings

Qualifying income

Affordability index

Sep quarter 2010

$483,400

6.75%

$3,006

$65,447

$120,235

54.4

Dec quarter 2010

$481,600

7.02%

$3,069

$66,362

$122,760

54.1

March quarter 2011

$467,800

7.12%

$3,008

$67,018

$120,320

55.7

Source: HIA-Commonwealth Bank

Commonwealth

72.2%

69%

71.5%

70%

71.7%

71%

72.5%

Yes, the time is ripe

72% 75.2%

32%

April

73%

74.4%

Don't know, as too much uncertainty exists in the market

48%

March

74%

75.1%

20%

February

75%

$34

*

42

* The average fee charged for missing a mortgage payment

basis * points

* The rise in home loan arrears in the March quarter

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Column OPINION

Could brokers benefit if house prices go to the dogs?

What do salivating dogs and overpriced Irish potatoes have in common with house prices and mortgage broking? Crystal ball gazer Kym Dalton draws the connections

A drop in house prices may be good for some – and may just be good for brokers

Kym Dalton kym.d@futurology.com.au

Now, we’ve all heard of Pavlov’s dogs. They were a key part of the landmark experiment in classical conditioning conducted in the 1920s by Ivan Pavlov. In this experiment, a number of dogs were conditioned over time to secrete saliva when they heard the sound of a bell ringing in the anticipation of being fed. This ground-breaking work has led to significant advances in psychology, behavioural therapy and pharmacology – so, everyone’s a winner, right?

Wrong. The dogs never actually got fed; all they got was a mouth full of slobber and a severe case of tinnitus.

Back when I was a high school economics student, there were a couple of concepts that really intrigued me… Giffen goods and Veblen goods.

A Giffen good is a staple good which, paradoxically, people consume more of when the price rises. Some economists would hold that a classic example of a Giffen good were potatoes during the Irish potato famine. Being such a significant part of their diet, as the price of potatoes rose, people had to forgo other types of food in order to buy more potatoes to get the same calorific input. A Veblen good is one where people’s preference for buying increases with price. Increased price confers greater status. Very high end items, such as Rolls Royce cars, are such examples.

The housing connection So what have Rollers, blighted potatoes and undernourished dogs got to do with mortgage brokers and housing? Well, houses aren’t Giffen goods. You really can’t forgo food for too long to pay for the increased cost of shelter. Houses as a Veblen good? Maybe some rare snob purchases, but not really relevant to brokers.

The ‘science’ of microeconomics has much to say about the impact of price on supply and demand (though, as any decent economist would say ‘on the one hand’, considerations of price and supply and demand are really simple, and ‘on the other hand’ they’re blighted by a whole crop of complexities and qualifications). One of the elemental rules is that if you reduce the price of something, people often buy more of them.

Two critical factors when it comes to houses are: 1. People have to live somewhere – houses are not a discretionary good; and 2. About two-thirds of Australians already own one.

Roughly, about 33% of people have a dwelling without a mortgage, 33% have a dwelling with a mortgage and 33% of people rent or have some other form of accommodation.

The reason why there’s a raucous, Pavlovian cheer when we see or hear that house prices have gone up is that a substantial majority of people already have a house and this cheer drowns out the moans of the people that don’t.

The impact of the ‘wealth effect’ of increasing house prices is well documented. People tend to increase consumption and generally ‘feel better’ when house prices are rising.

The broking connection Now, all brokers care about their clients and would feel better that their clients ‘feel better’ when their dwellings increase in value.

But brokers cannot live by feelings alone. They need clients to transact. They need turnover. An issue for brokers is that people with houses without mortgages probably aren’t highly motivated to go grab a mortgage any time soon – gearing your home for ‘investment’ is a little on the nose right now and reverse mortgages aren’t setting the world ablaze.

Those clients who have houses with mortgages generally aren’t generating significant turnover as refinances and upgrading aren’t happening a great deal either.

So, in the medium term, who out there could be most motivated to transact? Those people without houses and therefore without mortgages.

These people want house prices to fall. Let’s call these people ‘current renters’. Renters are generally in the younger cohorts of the population. Many in these cohorts are not as classically conditioned to forgo consumption alternatives to fulfil the dream of ‘home ownership’ as those of us of a more mature vintage. They have choices in alternate consumption – such as education, lifestyle and travel.

It seems clear that potential younger buyers have reached a resistance point in the cost of acquiring a dwelling – first homebuyer loans are reaching new lows and we even have such things as a ‘Don’t buy now – Home Buyers Strike’. A recent MFAA/Bankwest Home Finance Index survey indicated that 73% of Gen Ys are worried about their level of debt when purchasing a property and 36% believe they won’t ever be able to buy a property.

Going to the dogs To overcome this anxiety and to encourage those currently renting to acquire a house and transact on a mortgage, there needs to be a positive stimulus. There’s little prospect of genuinely lower rates, and longer-term loans and FHB grants are no longer the solution. These stimuli were temporary and have exhausted themselves.

Lower house prices would be a major stimulus as less available income would be devoted to shelter – and there would be a substitution effect. Ergo: More transactions for brokers and more turnover.

Before the economists out there start yelping at me – I know this is a narrow view. My point is that many of us have been classically conditioned to perceive that everincreasing house prices are ‘good for all and always’.

They’re not. Shelter is not a Giffen good nor a Veblen good.

It’s a fundamental human need.

A drop in house prices may be good for some – and may just be good for brokers. So next time you hear someone ringing the bell on house price falls, don’t foam at the mouth. Listen, it may be ringing for thee.

Remember: The Future isn’t what it used to be.

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Caught on camera St.George invited its aggregator partners to an exclusive gathering at The Ivy in central Sydney in May. Backed by the bank’s renewed appetite for lending, St.George’s Steven Heavey urged aggregators to put it ‘on the shopping list’ Photography by: Simon Kerslake

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Image 1

Roselle Payuran (St.George) with Rosina Tombs (Vow)

Image 2

Steven Heavey (St.George)

Image 3

Michael Daniels (Smartline), George Srbinovski (AFG), Robbie De Bari (Choice Aggregation Services)

Image 4

Michael Daniels (Smartline), Clint Hawthorne (PLAN Australia)

Image 5

Robbie De Bari and Glenn Williams (Choice Aggregation Services) with Daniela Tagliano and Frank Cusack (St.George)

Image 6

Steven Heavey (St.George)

Image 7

Paul Mullens (St.George) with David O’Toole (FAST)

Image 8

Paul Mullens (St.George), Reuben Lomas (Destiny) with Steven Heavey (St.George)

Image 9

Fiona Brown and Mark Haron (Connective)

Image 10 Dan Heylbut, Joel Wyld, George Srbinovski (AFG) Image 11 George Srbinovski (AFG) with Romney Ferguson (St.George) Image 12 Leanne Evans (St.George) with Rosina Tombs (Vow) Image 13 Justin Kennedy (Key Media), Steph Kay (St.George) with Ben Abbott (Australian Broker)

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Insider

Got any juicy gossip, or a funny story that you’d like to share with Insider?

Drop us a line at insider@ausbroker.com

not be all yours in... hmm, let’s see, June 2015. An Odyssey with a capital ‘O’ for any loan, bank, non-bank, client, broker, mortgage manager or ape, Insider speculates.

So think carefully about that loan you write today; some of it could be clawed back after an obelisk is discovered on the moon.

Flavell enters the unknown

“Damn, I just got clawed back…”

2015: A Loan Odyssey

A

t the dawn of time, man picked up a bone and learned to use it as a club, under the shadow of a mysterious black obelisk. It’s been quite a journey since, Insider thinks you’ll agree.

Now Insider would like to ask you readers a question. What were you doing four years ago? It may seem almost like the dawn of time to you now, but Insider challenges you to think back through the fog of years, months and days, meetings attended, business written and settled (and perhaps re-written), birthdays had and candles blown out, until you are, in your mind’s eye, sitting in front of that client you wrote a loan for exactly four years ago today. Can you picture them, remember their situation, and the details of the loan you wrote? Well, you may remember soon, particularly if you are clawed back… today. Yes, some clawback horizons have extended to four years – albeit on a wholesale level – so the commission you are paid today, if your friendly mortgage manager passes on the cost, may

In an unfortunate and somewhat confusing appropriation of an infamous Donald Rumsfeldian press conference gaffe, the MFAA hosted NAB head of broker distribution John Flavell in June at its Brisbane conference, promising that he would expound on the “Known, unknowns” of the changing regulatory and financial environment. Known unknowns?

While being in itself a pleasant grammatical juxtaposition of words (of which Insider is more than fond), Insider hopes the MFAA organisers are aware that words do themselves hold meaning (aside from having nice sounds when strung together), and they were therefore positioning Flavell – presumably one of the leaders in our industry – as someone who was going to get up in front of a room full of brokers, and effectively tell us what he knew he did not know.

The phrase itself harks back to an epic ramble made by former US defence secretary Donald Rumsfeld – who has himself been termed the master of obfuscation.

In 2002, Rumsfeld fronted a press conference and took the press – and English scholars – on this journey into the surprising world of the known, and the unknown: “Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know”.

For this 62-word quote, Rumsfeld

was later awarded the premier ‘Foot in Mouth’ trophy by the UKbased ‘Plain English Campaign’ organisation, an independent group fighting for the use of plain English in public communication.

In awarding Rumsfeld the trophy, a spokesperson said: “We think we know what he means, but we don’t know if we really know.” Getting back to Flavell, perhaps the MFAA assumes that in this brave post-GFC era, no one knows – or everyone knows they don’t know – what to tell people is actually going on in the struggling global financial system? However, being kind to Flavell, Insider thinks that if one had to use Rumsfeld, “Known knowns” may have been appropriate.

Big Brother watching, but not as closely

riled the Finance Sector Union, which harshly criticised the policy as both unfair and unrealistic. As a result, Commonwealth Bank has since backed down and revised its policy. Employees can now engage with union colleagues online with any CBA-related complaints, and will no longer suffer consequences for any bank-bashing undertaken by one of their Facebook friends.

While CBA employees are still asked to report any antiCommonwealth material they see in cyberspace, they can no longer be punished for failing to report it.

So, the official CBA policy is ‘We will not reprimand you if you fail to dob in your mates who insult us, but please dob in your mates who insult us.’ Much more forward thinking. However, the bank still stands by its assertion that Oceania has always been at war with Eastasia.

This industry has gone to pot

It takes a big bank to admit when they’re wrong, and Insider has to doff his cap to Commonwealth Bank. Back in February, it was reported in this very column that the CBA had adopted a rather Orwellian stance on the use of social media by its salaried employees. The bank was admirably playing the role of Thought Police by not only forbidding its employees to post anything negative about the company on social networking sites, but actually requiring them to report any negative posts they saw from anyone else, even nonCBA employees. CBA also required employees to help remove offensive posts. Well, this understandably

There are dodgy brokers and then there are brokers so dodgy you almost have to take your hat off to them. Insider recently came across the story of one such broker.

A Victorian broker pleaded guilty in the Supreme Court to securing finance for an organised crime syndicate that used its mortgaged properties to grow cannabis plants.

The broker admitted to obtaining financial advantage by deception in brokering 58 home loans worth $14.7m for a gang which grew 3,337 cannabis plants at 20 properties.

While the broker copped the blame for doing the dodgy loan deals, he insisted he wasn’t involved in the drug operation. For his trouble, he received around $137,000 in commissions, which seems like a fairly miserly sum when you’re talking about what had to have been a billion dollar drug ring. It seems to Insider like our hapless broker got the raw end of the deal from this gang. What is this world coming to when you can’t even trust drug-pushing mobsters anymore?

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Services

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au AGGREGATOR/WHOLESALE BROKER LoanKit 1800 466 085 www.loankit.com.au Page 12 PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 5 BUSINESS STRATEGIST CONSULTANCY Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au Page 13 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au Page 7 Think Tank Property Finance 1300 781 043 www.thinktank.net.au deal@thinktank.net.au Page 9 LENDER Liberty Financial 13 23 88 www.liberty.com.au Page 3 MKM Capital 1300 762 151 www.mkmcapital.com.au Page 2

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OTHER SERVICES Financial Services online www.leads.financialservicesonline. com.au Page 17

Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 11 Provident Capital 1800 668 008 www.providentcapital.com.au Page 4 SHORT TERM LENDER Interim Finance 02 9982 2222 www.interimfinance.com.au Page 30 Mango Media 02 9555 7073 www.mangomedia.com.au Page 1 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au Page 8

www.residex.com.au The House Price Information People

Residex 1300 139 775 www.residex.com.au Page 31 RP Data 1300 734 318 www.rpdata.com Page 19 Trailerhomes 0417 392 132 Page 23 WHOLESALE Resimac 1300 764 447 www.resimac.com.au Page 32

Quantum Credit 08 9325 6255 www.quantumcredit.com.au Page 15 FINANCE AVOW PTY LTD NSW & VIC 0415 210 434 QLD, WA & SA 0434 254 798 assistme@avow.com.au Page 6

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