Australian Broker 10.20

OCTOBER 2013 ISSUE 10.20

$4.95 POST APPROVED PP255003/06906

+INSIDE + NEWS A look at what’s been making headlines P4

+ SPECIAL REPORT

Ian Rakhit: MOVING

LOW-DOC LENDING

Why specialist lending is easier than you think.

The how, what and why behind a growing sector P16

+ MARKET TALK

TOWARDS EFFICIENCY

THE GREATER OF TWO EVILS

Are online valuation sites leading borrowers astray?

P20

+ OPINION INNOVATION OVER SERVICES

Bankwest’s Ian Rakhit believes lenders have a large role to play in improving productivity

Michael McAlary says Australia needs an innovation revolution P22

+ SPOTLIGHT PROTECT YOURSELF

S

ome lenders have been quite vocal about the need for increased productivity and efficiency in the third-party channel. Often, the onus for this gets placed on brokers to be more attentive to the information they’re providing. But Bankwest head of specialist banking Ian Rakhit believes lenders have more than their fair share of work to do.

FULL STORY PAGE 14

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How brokers can guard their businesses from scammers P26

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8/10/2013 10:46:56 AM

NEWS 2

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WHAT THEY SAID...

NUMBER CRUNCHING

JOHN SYMOND

CLEARING THE HURDLES

“The Sydney Opera House Trust presides over a vibrant arts calendar and an iconic building which is the envy of the world. It is an honour to be appointed the Trust chairman” P10

Auction clearance rates are on the rise 0

20

40

60

80

100

Sydney

Melbourne

FAST FACT

$418,000

Adelaide

The average new home loan as of September

Brisbane

Source: AFG

Week ending 5 October Same week last year Source: AFG

JOHN MOHNACHEFF

“As long as brokers are mindful of their responsible lending obligations and approach customer deals with integrity, [low-doc loans] present a fantastic opportunity to diversify their offering and grow their business” P17

MARIO REHAYEM

BOUNCING BACK

“We have seen exponential growth in the number of customers who require a specialist mortgage solution” P18

House price growth since the market low-point in May 2012 0

3

6

9

Sydney

2.8%

Adelaide

2.9%

Perth

1-2 years

10.9%

The amount of time the average first home buyer says they will spend saving a deposit

1.6%

Darwin

Capitals

DID YOU KNOW?

9.6%

Brisbane

Canberra

15

12.2%

Melbourne

Hobart

12

10.9%

Source: Mortgage Choice

3.1%

TIM LAWLESS

“Any debate about unsustainable growth in housing markets should be very much focused on Sydney and Melbourne” P21

8.7% Source: RP Data

NEWS 4

brokernews.com.au brokernews.com.au EDITOR Adam Smith

MFAA launches ad campaign to rebrand brokers

PUBLISHER Simon Kerslake COPY & FEATURES JOURNALIST Mackenzie McCarty PRODUCTION EDITOR Roslyn Meredith

■ The MFAA has launched a major spring

campaign with the aim of driving consumers and businesses to its members – and is also in the midst of a rebrand of its membership, who will now be referred to as ‘MFAA approved credit advisers’.

MFAA CEO Phil Naylor said feedback from members had been ‘overwhelmingly positive’ and that the association was already seeing many embrace the new credit adviser terminology in branding.

“We started the MFAA approved credit adviser accreditation to run in tandem with this campaign and we’re really enthusiastic about the results so far from our members. We’re seeing more and more members using the logo and terminology, and that really helps to leverage the whole campaign, because the way this campaign will work best is not only from our level but from the level of each broker – each MFAA approved credit adviser – using the terminology to ensure consumers see it at all levels, and that’s trending really well.”

IMF calls for LVR caps ■ The IMF has released a paper calling for

stricter lending rules to be introduced globally in order to stop banks from fuelling housing bubbles.

In its report, Key Aspects of Macroprudential Policy, the IMF argues for heightened use of “macro-prudential policies” – including LVR caps and caps on debt-to-income ratios – in order to rein in “excessive” mortgage borrowing, and it questions whether record-low interest rates are sparking potentially risky property price growth.

According to the Australian Financial Review, the IMF paper “underscores” a growing global movement towards more activist approaches to rising property markets, including in the UK, Canada and New Zealand, where official interest rates are at record lows and lending controls on banks are in place.

The report follows that of global bank Citigroup, which warned that rising house prices could potentially limit the RBA’s ability to use rate cuts as a way of combating a rise in unemployment and other economic factors.

“The scope to cut would be compromised if house prices continue to accelerate and precipitate a surge in leverage,” said Citigroup economists Paul Brennan and Josh Williamson.

ART & PRODUCTION DESIGNER Loiza Caguiat

ASIC monitoring financial services company following concerns over SMSF advice ■ ASIC has imposed an additional licence

condition on Moneywise Securities Pty Ltd (Moneywise) after an investigation identified concerns about advice provided to clients regarding margin lending and the establishment of SMSFs. “When providing advice on more complex financial products such as margin loans or SMSFs, the advice provider must be particularly diligent in ensuring the financial product is suitable to the specific needs of the client,” said ASIC senior executive leader Louise Macaulay.

An independent expert will be appointed to review, assess and make recommendations regarding various concerns and will report to ASIC and Moneywise over the next 18 months to ensure the regulator’s concerns are addressed.

ASIC acknowledged Moneywise’s cooperation during the surveillance, and its commitment to improving compliance with their licence obligations.

THE REGULATOR’S SURVEILLANCE FOUND CONCERNS RELATING TO: • advice that did not adequately consider the specific needs of the client but recommended the client establish a margin loan or SMSF • compliance with the disclosure requirements when the advice provided to clients included the replacement of one financial product with another. The concerns related to inadequate cost and feature comparisons between the clients’ existing superannuation and the recommended SMSF • the management of conflicts of interest where the advice provided to clients resulted in transactions with a related entity of Moneywise

SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Anna Farah TRAFFIC MANAGER Abby Cayanan CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – BUSINESS MEDIA Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Adam Smith tel: +61 2 8437 4792 adam.smith@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Subscriptions tel: +61 2 8437 4731 fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, New Zealand, Manila, Toronto, Denver brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss.

Australian Broker is the most-often read industry publication, according to independent research carried out by the EhrenbergBass Institute for Marketing Science at the University of South Australia in December 2008.

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

NEWS 6

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WORLD NEWS UNITED STATES OF AMERICA

Westpac: Gen Y women trump men when it comes to home loans ■ More Gen Y women prioritise owning a home and paying it off than their male counterparts, with 87% of 18–34-year-old females (versus 79% of men) listing these property-related ambitions as a top lifetime goal, according to the Westpac Home Ownership Report.

Gai McGrath, general manager of retail banking at Westpac, applauds young women’s ambitions to get into real estate.

“It is positive to see Gen Y women prioritising home ownership at a young age.”

GEN Y WOMEN VS GEN Y MEN

81% NEARLY A THIRD OF AMERICANS WOULDN’T GET A MORTGAGE

Even with the housing market on the mend and rates dropping, three out of 10 Americans are unlikely to qualify for a mortgage, according to an analysis released last month.

A study by Zillow Mortgage Marketplace analysed 13 million loan quotes and more than 225,000 purchase loan requests in September and compared the results to a previous study done in September 2010. The study showed that borrowers with credit scores under 620 who requested purchase loan quotes were unlikely to receive even one quote, even if they could offer a down payment of 15–25%. That’s unchanged from September 2010, according to Zillow. Almost three out of 10 Americans have credit scores below 620.

“Despite all-time high levels of affordability in the housing market, tightened lending standards mean that nearly one third of Americans are unlikely to be able to achieve the American dream of homeownership because they can’t qualify for a mortgage due to a low credit score,” said Erin Lantz, director of mortgages at Zillow. “Your credit score is the single most important factor in determining your mortgage interest rate and monthly payment.”

CANADA BROKERS CALL FOR HIGHER EDUCATION

While some brokers in Australia have chafed at higher educational barriers, their Canadian brethren are asking for more.

“Untrained individuals are concerning,” David O’Gorman, president and principal broker at MortgageLand, said. “The five-day wonders, I call them, who do a course and think they know everything. I’ve had to clean up [some of their] dirt in the past; deals that have been messed up.”

The problem, according to some brokers, is the lack of formal education required to become a mortgage broker.

“They need to implement mandatory, continuous education at a high level,” O’Gorman said. “A six- to eight-week mortgage education that includes appraisals, underwriting, understanding building titles, understanding reports; it needs to be more formalised.”

Understand what a variable rate is

60% Understand what a variable rate is

56%

73% List paying off their loan sooner as the most important factor when taking out a home loan

List paying off their loan sooner as the most important factor when taking out a home loan

REAL ESTATE GROUP HUNTS FOR BROKERS: TOP COMMISSIONS AND OKTOBERFEST TOUR ■ LJ Hooker is opening new offices across the country and has launched a

campaign to recruit broker franchisees for its growing home loan business.

Paul O’Regan, head of LJ Hooker Home Loans, said this was a ‘prime opportunity’ for finance specialists to join the network and be part of a global real estate brand.

O’Regan claimed the LJ Hooker Home Loans model offered ‘competitive’ commissions, proven marketing strategies and the latest in digital innovations.

“We also provide extensive business coaching, support structure, industry-best marketing and brand support to include online, TV, print collateral and targeted campaigns. There is also full compliance support for credit representatives and ACL holders.”

Furthermore, he said LJ Hooker Home Loans offered incentives for some of the best-performing LJ Hooker home loans writers.

“Next month, for example, some of the top-performing home loans specialists will tour Oktoberfest as part of a rolling awards and recognition program.”

Lender to donate $500 per loan towards broker career path scheme ■ One of Australia’s premier short-term business lenders has

partnered with the FBAA to assist in the development of a broker career path and apprenticeship scheme.

The organisation said its new partnership with Nationwide Capital provided benefits for everyone – and FBAA CEO Peter White has revealed that for every FBAA member loan placed with Nationwide the lender will donate $500 to the career path initiative.

“Our career path initiative will bring huge results to the entire industry, and our regular and consistent discussions with the new Federal Government when they were in opposition will ensure the apprenticeship program is not affected by the change in Canberra,” White said.

Nationwide Capital CEO Domenic Morello said the sponsorship was a natural fit for his company.

“The future of this industry is important and we want to ensure that the finance broking sector remains strong for many years to come,” he said.

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NEWS 8

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Bank offers $500 credit assessment guarantee

Scam victim broker slams ASIC response

■ Suncorp Bank is promising their broking partners initial credit

artists has slammed ASIC’s response to the matter and urged brokers in similar situations to go over the regulator’s head.

Early last month, Australian Broker reported on fraudulent home loan group Mike Morgan Loans, which was sending unsolicited emails to consumers. Australian Broker can now reveal that the website used by the scam artists – including photos, logos and even parts of broker bios – was stolen from a legitimate Australian brokerage, which wishes to remain anonymous.

The brokerage brought the Mike Morgan site to ASIC’s attention, and its director said the regulator’s response was less than impressive. “[ASIC handled it] poorly. They were extremely slow to reply and you would assume they would have been able to give better direction in relation to how the website can be closed down,” he said.

After bringing the fraudulent site to the watchdog’s attention in May, ASIC did not issue a warning until late August.

Even after the ASIC warning, the fraudulent site remained active, still using the logo, staff names and photos of the legitimate brokerage.

The director said the company eventually had to move beyond ASIC to involve the Australian Federal Police, and eventually the FBI in the US. “There was a subsequent follow-up phone call to the FBI, who were able to shut the website down within 24 hours.”

He advised brokers who find themselves the target of overseas scammers to seek help outside of ASIC.

assessment within 48 hours, otherwise they will refund the broker’s customer $500 as part of a new offering.

Steven Heavy, Suncorp head of intermediaries, said the guarantee gave brokers the confidence to set expectations with their customers and meet, if not exceed, those expectations.

“Quick turnaround times at Suncorp Bank are not new – we’ve been consistently delivering initial credit decisions within 48 hours for over 12 months. What is bold is to guarantee our service and back it up with $500.”

ASIC ACCEPTS ENFORCEABLE UNDERTAKING FROM SYDNEY FINANCE GROUP ■ ASIC has accepted an enforceable undertaking (EU) from a Sydney-

based financial group that provides direct property investment advice, among other services.

Following an investigation, ASIC became concerned about the level of monitoring and supervision of the representatives that the company, Spring Financial Group Pty Ltd (Spring Financial), appointed.

Under the EU, Spring Financial must appoint an independent consultant to review its business and develop a plan to rectify the deficiencies. The independent expert will report regularly to ASIC over the next year on the company’s implementation of the plan.

ASIC’s investigation into Spring Financial found deficiencies in the group’s compliance measures, including: • monitoring and supervision of authorised representatives’ activities to ensure compliance with the financial services law, and • insufficient training processes and education of authorised representatives.

“ASIC is continuing to closely scrutinise licensees’ obligations to demonstrate adequate monitoring and supervision and will not hesitate to take action where we find those practices deficient,” said ASIC acting chairman Greg Tanzer.

■ A broker whose company fell victim to con

THEY WERE EXTREMELY SLOW TO REPLY AND YOU WOULD ASSUME THEY WOULD HAVE BEEN ABLE TO GIVE BETTER DIRECTION IN RELATION TO HOW THE WEBSITE CAN BE CLOSED DOWN – SCAM VICTIM

NEWS 10

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ING mortgage director nominated for Telstra Business Women’s Awards

South Australian broker charged over false information

■ ING director, mortgages, Lisa Claes has been nominated for the 2013 Telstra

■ A South Australian mortgage broker has appeared in the Adelaide Magistrates Court charged with five counts of providing false or misleading information to secure home loans totalling more than $500,000.

ASIC alleged that Daniel DuyAnh Nguyen, of Woodville North, provided the information – related to a sale contract and rental appraisal letters in support of a home loan application – to Westpac on behalf of five clients.

The regulator claimed the conduct had occurred between October 2011 and February 2012 when Nguyen operated a finance broking business called Arndale Finance at Woodville North.

If convicted, each offence carries a maximum penalty of two years’ imprisonment or a fine of $11,000, or both.

DID YOU KNOW?

Business Women’s Awards due her development of the country’s first straight-through online application process embedding electronic verification, as well as her successful leadership of ING DIRECT’s business units through times of change.

Claes, a finalist in both the Corporate and Public Sector award categories, will vie for the NSW award before becoming eligible for the national award in November.

“The achievements of these women is nothing short of amazing. I feel privileged to be surrounded by such inspiring people,” said Claes.

A career achievement that also put Claes in the Business Innovation category was her work to create an electronic customer verification process that negated the need for paper forms and face-to-face ID checks, thus improving the customer experience and creating a benchmark for the entire banking industry.

Her entry also highlighted her role as a leader within the mortgage and financial planning industry, as well as her work with ING DIRECT’s various community initiatives focusing on improving education and career prospects for young Australians.

$500,000

Total value of home loans for which Daniel DuyAnh Nguyen allegedly supplied false information

THE ACHIEVEMENTS OF THESE WOMEN IS NOTHING SHORT OF AMAZING. I FEEL PRIVILEGED TO BE SURROUNDED BY SUCH INSPIRING PEOPLE Lisa Claes

– LISA CLAES

Aussie John takes on Aussie icon ■ Aussie Home Loans founder John Symond

succeeded Kim Williams as chairman of the Sydney Opera House Trust on October 4.

Symond joined the Trust in January 2012, and Williams predicted that his succession would be an easy one, due to his previous involvement.

“John Symond’s time on the trust [will] ensure a smooth transition. He is already familiar with the challenges and opportunities and will provide excellent leadership in securing the future of one of the world’s leading cultural institutions.”

The Sydney Opera House is currently celebrating its 40th anniversary, something Williams believes provides an important moment for reflection. “[However,] I am eager that it should be about the future of this magnificent building which has done so much to secure Australia’s modern cultural positioning, and it is therefore an opportune time for the new Chair to assume office.”

Symond is thrilled with the new role, calling it an honour.

“The Sydney Opera House Trust presides over a vibrant arts calendar and an iconic building which is the envy of the world. It is an honour to be appointed the Trust chairman – made even more so, considering that I take over from Kim Williams after eight highly successful years of service, dedication and leadership by him.

“Kim was made for the job of Opera House chairman. He is a passionate and generous supporter of the performing arts, a talented composer, musician and arts administrator and a distinguished businessman – big shoes to fill!”

[SYMOND] IS ALREADY FAMILIAR WITH THE CHALLENGES AND OPPORTUNITIES AND WILL PROVIDE EXCELLENT LEADERSHIP IN SECURING THE FUTURE OF ONE OF THE WORLD’S LEADING CULTURAL INSTITUTIONS – KIM WILLIAMS

ANALYSIS 12

Con error?

A scam victim broker believes ASIC poorly handled his case

A

few months ago, if you went to the site of Mike Morgan Loans you would have found a photo of the company’s founder, a distinguished-looking broker who touted his membership of the Mortgage and Finance Association of South Africa and the Professional Lender’s Association of South Africa. His staff had received accolades such as rankings in the MPA Top 100 Brokers in South Africa, and several were upstanding MFAA members in Australia.

There’s one problem, though. Mike Morgan isn’t a real person. Neither is there a Mortgage and Finance Association of South Africa, a Professional Lender’s Association of South Africa

brokernews.com.au

or an MPA Top 100 South African Brokers list. It was a scam, perpetrated by an unknown South African group and capitalising on the good names of several innocent brokers in Australia.

In point of fact, the website for Mike Morgan Loans was merely a copy-paste job, stealing imagery and text from the site of a legitimate brokerage, which asked Australian Broker to remain anonymous. The brokers, the company blog, and even the client testimonials were all taken nearly verbatim from their site.

In reality, the brokerage in question and its brokers are members in good standing of the MFAA. They have no affiliation with Mike Morgan Home Loans, and became aware that someone was using their names, accreditations and logo to send unsolicited emails to Australian clients selling loans from $10,000 to $10m. And yet, after immediately making ASIC aware of the issue, the regulator did not release a warning to consumers for nearly three months. Even then, the regulator’s warning failed to shut down the Mike Morgan website. Mike Morgan Loans continued to send out unsolicited emails to consumers, linking the brokerage and its brokers’ names and images to a shady lending proposition.

But ASIC defended its timeframe, saying it needed to thoroughly examine the claims put forward before proceeding.

“ASIC acted in a timely manner in response to the claims made ... Prior to issuing a public warning notice, ASIC must take steps to investigate the claims made and to ensure it has sufficient information about which to warn the public,” a spokesperson told Australian Broker.

But the brokerage’s director begged to differ.

He told Australian Broker the regulator’s response was less than impressive. “[ASIC handled it] poorly. They were extremely slow to reply, and you would assume they would have been able to give better direction in relation

brokernews.com.au

ASIC MUST TAKE STEPS TO INVESTIGATE THE CLAIMS MADE AND TO ENSURE IT HAS SUFFICIENT INFORMATION ABOUT WHICH TO WARN THE PUBLIC – ASIC SPOKESPERSON

to how the website can be closed down,” he said.

In fact, to get any kind of action, the director said he had to approach the Australian Federal Police, and eventually the FBI in the US. “There was a subsequent follow-up phone call to the FBI, who were able to shut the website down within 24 hours.”

So how can brokers protect themselves from having their identities stolen? According to ASIC, if the scammer is overseas, it may be difficult. ASIC senior executive leader Brett Bassett conceded that the regulator’s hands were tied in certain instances.

“A lot of these scams do arise overseas in other jurisdictions, and as a result it makes it difficult for ASIC to take action overseas in those jurisdictions. When a scam does arise or does take place within Australia, we have a range of regulatory tools, including public warning notices and consumer alerts that we do use from time to time.”

As for the targeted brokerage’s director, he urged brokers in similar situations to go over ASIC’s head.

“If it’s an international company that has established the sham website, go straight to the Federal Police as ASIC only have power within Australia.”

13

13

NEWS 14

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CONTINUED FROM PAGE 1

Ian Rakhit: Moving towards efficiency Bankwest’s Ian Rakhit believes lenders have a large role to play in improving productivity

IAN RAKHIT

R

akhit says he sees increasing productivity as the biggest growth opportunity for the industry, but concedes that it’s a two-way street.

“The big opportunity for the entire industry is how do we spend less time on reworking deals and asking for more information, and therefore speed up the time to approval and the time to settlement. I mean this for both bankers and brokers. By no means am I saying that we don’t have a lot to do to make sure we don’t have to rework deals,” Rakhit says.

One difficulty in achieving better productivity, Rakhit says, is the disparity between lenders. With each lender having its own distinct requirements, he says it’s easy to see why brokers can end up frustrated.

“The reason why I think it’s so difficult is because every lender has slightly different criteria of what is required from the customer. Lender A may ask for a two-page list, lender B a one-page list, lender C may ask for the end-of-year income statement.”

But industry figures pushing for a uniform application across all Australian lenders may be in for a long wait, Rakhit predicts. Instead, Rakhit says the industry should focus on developing technology that does a better job of communicating each lender’s particular requirements.

NEWS 15

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“I don’t believe that we’re going to get uniformity across the lenders, so my solution would be to try to build technology that says the broker has chosen lender A; this is exactly what this lender requires for specific deal,” he says.

RESPONSIBILITY LIES WITH LENDERS

Therefore, Rakhit argues, much of the onus for improving productivity and efficiency lies with lenders. Lenders have the opportunity to build technology that will make straight-through processing easier for both lender and broker.

“Given the progress we made over a decade ago when we moved from pen and paper to electronic trading, the next stage of evolution should be using the new technological capability coming into the industry the first time, and submit an application that is acceptable to the lender, and the lender turns that into an offer and a settlement in much quicker time than they do today.”

Rakhit says he can foresee a day when dynamic checklists communicate to brokers each lender’s criteria for each unique deal, taking the guesswork out of submitting applications and supporting documents and helping brokers supply all the information a lender needs at the point of sale.

“My goal would be that the broker chooses a lender based upon the client’s criteria, and it’s the lender’s duty to say exactly what they want, and to make sure not only that the list of documents goes out to the broker, but that it is the exact same that goes to the back office,” he said.

The end result of such improvements will be better returns for lenders and brokers alike, Rakhit says.

“For the lender it’s a reduced cost to process, and increased revenue because you put the deal onto the books quicker. For the broker, it’s an improvement to customer satisfaction, as well as less time spent on each file and more time for value-adding activities.”

DOING THEIR PART

For its part, Rakhit says Bankwest is investing in technology to make processing more efficient, and to make the application process more straightforward for brokers.

“We’re looking at a dynamic checklist that says on deal A we want these five documents, but on deal B we may want five entirely different documents.

The second thing we’re looking at is optical

THE REASON WHY I THINK IT’S SO DIFFICULT IS BECAUSE EVERY LENDER HAS SLIGHTLY DIFFERENT CRITERIA OF WHAT IS REQUIRED FROM THE CUSTOMER – IAN RAKHIT

character recognition. That means the system will be able to read an application, read that the driver’s licence is in the same name, the contract of sale is in the same name, be able to go ‘tick, tick, tick’ on those documents. It will give us the ability to process more volume quicker without putting more cost into the business.”

For brokers’ part, Rakhit says the key to getting applications right the first time is communication.

“The first thing I’d say is to make sure that you’ve got whatever is unusual about a deal agreed upon beforehand. The second is to ensure that what the lender has asked for is exactly what is provided.”

But Rakhit argues that brokers are largely already ticking these boxes. He says the majority of brokers do a good job of providing everything that’s asked of them.

“I’d say brokers are very good at those things.

I think there’s more that Bankwest needs to do than there is for brokers. If brokers have to move two steps forward, Bankwest needs to move five or six. That in no way means that we have terrible service. It just means we have to be more responsive to make our service that much sharper.”

SPECIAL REPORT: SPECIALIST LENDING 16

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The lowdown on

LOW-DOC The advent of the NCCP has made many brokers wary of specialist lending, but industry leaders say the opportunity is bigger than ever

SPECIAL REPORT: SPECIALIST LENDING

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17

BUSTING LOW-DOC MYTHS Before making a case for specialist lending, industry leaders say it’s important to cut through the misconceptions that brokers harbour. Here are some of the common myths they say many brokers believe:

L

ow-doc lending is a dirty word to many brokers.

Since the GFC, and with the advent of the NCCP, many in the industry seem to have been spooked by the idea of dealing with low-doc clients. But specialist lending leaders say brokers have the wrong idea about low-doc. They argue that brokers have the wrong perception of the sector, and that the opportunities it presents can’t be ignored.

LOW-DOC AND SPECIALIST LOANS ARE LOANS OF LAST RESORT “[Low-doc loans] are generally for borrowers with a clean credit history. However, low-doc borrowers don’t have the ability to provide the same documentation that a traditional home loan applicant would, such as regular and consistent payslips and PAYG summaries.

“Low-doc loans do not mean that the lender takes less care when considering applicants. The reality is that these types of loans are subject to the same or more scrutiny than full-doc loans.”

– GREG MITCHELL, HOMELOANS

SPECIALIST LENDING IS RISKY

THE EXPERTS

GREG MITCHELL, GENERAL MANAGER, HOMELOANS

“A loan that fails an automated credit decision tool is not necessarily a high-risk loan; it may be that it just does not pass predetermined risk credit criteria designed to approve large numbers of ‘plain vanilla’ loan applications without need for human interaction. While automated scoring systems have been in place on credit cards since the mid-eighties in Australia and are great for large institutions processing massive volumes, they often overlook consumers who may have experienced an unforeseen life event that has temporarily impacted their ability to service their existing obligations.”

– CHRIS ANDREWS, LA TROBE

SPECIALIST LENDING IS TOO COMPLEX JOHN MOHNACHEFF, NATIONAL SALES MANAGER, LIBERTY

MARIO REHAYEM, DIRECTOR OF SALES AND DISTRIBUTION, PEPPER

CHRIS ANDREWS, VICE PRESIDENT, LA TROBE

“From a practical point of view there is little to no difference between writing a specialist loan and writing a prime loan. A broker will need to conduct the same preliminary assessment and make the usual enquiries to uncover a client’s needs. One of the material differences between specialist lending and prime lending is in the way we assess each application on its own merits.”

– MARIO REHAYEM, PEPPER

SPECIALIST LOANS ARE NOT SUITABLE FOR CLIENTS “But the fact is these clients are a lot like many others.

As long as brokers are mindful of their responsible lending obligations and approach customer deals with integrity, they present a fantastic opportunity to diversify their offering and grow their business. On top of that there is often the added satisfaction of helping customers in need.”

– JOHN MOHNACHEFF, LIBERTY

SPECIALIST LENDING CAUSED THE MORTGAGE MELTDOWN “While it was widely documented that the subprime loan market was the cause of the financial crisis, low-doc loans were to an extent tainted with the same brush. However, low-doc loans are completely different to the subprime loans. The loans that are said to have triggered the financial crisis were loans that were made to people who had poor credit positions. Thus they were of a substantially higher risk to a lender than a low-doc borrower, as their ability to repay the loan was far less certain.”

– GREG MITCHELL, HOMELOANS

SPECIAL REPORT: SPECIALIST LENDING

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WHY SHOULD BROKERS CARE? How big an opportunity does specialist lending really present, and is it worth brokers looking into?

MARIO REHAYEM, PEPPER “We have seen exponential growth in the number of customers who require a specialist mortgage solution. Only a small percentage of these customers are credit impaired, and in many cases are customers who no longer meet the credit policies of mainstream lenders or they are self-employed customers who require an alternative method to verify their income. It’s a large market with a lot of opportunities that many brokers are missing out on.”

JOHN MOHNACHEFF, LIBERTY “Post the GFC, there has been a shift in the Australian financial landscape from a debt-fuelled environment to one that is more modest in credit usage and relatively more savings focused. This is a necessary and positive change, and this in itself provides great specialist opportunities. For example, supporting small businesses with alternative-verification loans, partnering with financial planners to assist families in owning a property via an SMSF, or assisting first home buyers who have non-genuine savings are just a few great opportunities.”

CHRIS ANDREWS, LA TROBE

“The overall market size for residential mortgages in Australia is roughly $1.2trn, with annual volume of circa $240bn, or approximately $20bn per month.

This includes all residential mortgages, and specialist lending would represent annual volume of around $1.5bn to $2bn per year or $125m per month.”

DID YOU KNOW?

5.26%

The proportion of low-doc loans 30 days or more in arrears. This represents a nine-month low Source: Moody’s

WHAT’S THE DIFFERENCE? Specialist, non-conforming, low-doc, alt-doc: these terms get thrown around a lot, but is there any difference? Mario Rehayem explains:

“Specialist lending and non-conforming lending are terms often used interchangeably and essentially mean the same thing, ie lending that services borrowers who are unable to meet the requirements of mainstream lenders.”

“Low-doc lending, which has evolved into ‘alt-doc’ lending, is a form of lending that has been designed to fulfil the needs of the self-employed who are often unable to provide traditional forms of income documentation, such as up-to-date tax returns, to substantiate their income.”

SPECIAL REPORT: SPECIALIST LENDING

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KEEP THIS IN MIND… For brokers dealing with clients who need a specialist solution, experts say to keep a few key factors in mind:

GREG MITCHELL, HOMELOANS “Have all the facts, cover everything, and walk through it with your BDM. Don’t just close the door if you learn they have a tax bill or a writ or similar against them; there are reasons why people have been in these situations.

Nine times out of 10 you can provide a solution that addresses the client’s individual circumstances.”

JOHN MOHNACHEFF, LIBERTY “Establish trust and encourage clients to disclose all liabilities from the outset. Set your client’s expectations as early as possible.

Your responsible lending assessment can be a great way to help your clients understand their likely repayments rather than having them focus only on interest rates.”

CHRIS ANDREWS, LA TROBE

“There is very little difference between selling a prime loan and selling a specialist loan. The process is the same, and by following responsible lending guidelines – making reasonable enquiries as to the borrower’s financial situation, requirements and objectives – brokers are well equipped to complete a specialist loan application. The key is to understand the borrower’s situation and to be able to communicate that clearly to the lender.”

THE CHANGING FACE OF SPECIALIST LENDING Many of brokers’ perceptions about specialist lending were shaped before the GFC, our experts say. Since the GFC, however, the market has changed, and many of these perceptions may now be outdated.

MARIO REHAYEM, PEPPER

CHRIS ANDREWS, LA TROBE

“The GFC undoubtedly played a major role in the drop-off of low-doc loans from 2007–2010. However, they emerged from these difficult economic times as a completely new and enhanced form of lending – the alternative income documentation loan (alt-doc).

Alt-doc are fully complaint under the NCCP Act and there is no difference in the responsible lending obligations a broker is obliged to meet, whether offering a customer a specialist loan or a prime loan.”

“I don’t think specialist lending has changed per se; rather, the demand is increasing due to APRA guidelines for banks’ lending and consequential constriction of credit criteria following the GFC.”

MARKET TALK

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Online property valuations: the greater of two evils?

Real estate pundits have called into question the use of online valuation sites that it’s on the dark southwestern corner of the block, or the top floor northeast. That doesn’t get taken into account with an online valuation. So the smaller idiosyncrasies that make up value aren’t being considered.”

Furthermore, REINSW claims the data provided by the sites is highly complex and the fact that many online valuation tools are backed by well-known brands – including the major banks and commercial property data providers – means that consumers are putting their faith in them.

“Armed with these online valuations and without an understanding of the nuances of the valuation process, consumers are questioning the accuracy of asking prices being quoted by agents,” says McKibbin.

“REINSW believes that these online valuations can be very misleading. At the very least, they need to be the subject of a detailed information campaign so consumers understand what they are getting.”

Brokers continue valuer feud

T

he availability and use of online valuation sites needs to be investigated, according to the Real Estate Institute of New South Wales (REINSW), which believes the online tools offer inaccurate and overly complex information for borrowers.

The group’s CEO, Tim McKibbin, has met with NSW Fair Trading commissioner Rod Stowe to discuss the problems online valuation sites are creating in the Australian property market.

“REINSW is calling for the practice of online ‘valuations’ to be investigated by the regulator to protect consumers who may not understand the complexities and therefore the significant differences between a valuation prepared by a licensed valuer and what is provided online,” says McKibbin.

“Correctly valuing a property is difficult and requires consideration of many factors … The skill and experience of the valuer are essential to getting it right. It’s not simply a number-crunching exercise that can be completed in a few seconds using an algorithm.”

REINSW president Christian Payne tells Australian Broker the problems are essentially two-fold.

“They use median prices and … median prices are subject to being skewed easily, particularly if there’s a small sample set.”

The other issue, he believes, is a practical one – with an online valuation there’s no way for the property’s unique characteristics to be taken into account.

“Topography can make a huge difference to a value. If it’s just a block of land and it’s easy to build on, it will cost less to build; if it’s a very steep lot, it will cost more. [If it’s a unit], no one’s saying

If there’s one issue that gets people talking on the Australian Broker Online forums, it’s valuations. Brokers were characteristically vocal on the issue of online valuations.

Ian Graham on 23/09/2013 11:25AM “Could it be that the REI is finding it a bit harder to get inflated prices for vendors when buyers have done a bit of research before they talk to the vendor’s agent? To my knowledge the online sites don’t profess to take the place of a valuation; they merely provide an estimate of value. Methinks the REI protest too much.”

PeterT on 23/09/2013 10:31AM “Online valuations obviously aren’t going to be 100% accurate, but honestly, what valuations are? In many cases for lending purposes, it doesn’t actually need the level of accuracy suggested by the REINSW. Most lenders are using online valuations as a way to get the valuation completed quickly and cheaply when the deal stacks up fairly well, in most cases with an LVR of 80% or less.

If the valuation falls within a suitable margin of error to the purchase price, they’ll proceed on that knowing that they don’t need it to be 100% accurate for the lending purpose.”

Regional Broker on 23/09/2013 10:16AM “This article is so true. The online property valuations are not ‘sworn’

valuations and should be renamed online market estimates, as that is what they are. It will be interesting to see developments here as RP Data own Valex who the majority of the lenders use (much to my concern) as their valuers.”

Allan Faint on 23/09/2013 10:22AM “I am sure online valuations can be confusing, but no more confusing than have two valuations done on the same property within days of one another and having one give risk ratings of 3, 4 and 5s while the other is just 1s and 2s.

In addition to the $30,000 difference in valuation.”

Brad on 24/09/2013 3:50PM “Allan Faint is being a bit precious. A $30,000 difference between valuers on a $600,000 val is within the accepted margin for error in a valuation! I can only assume he has a 0% margin in his chosen profession.”

Allan Faint on 25/09/2013 11:06AM “Brad, the $30,000 is neither here nor there, though I would prefer less variation as this in some instances can be the difference between paying LMI or not. The main concern is the personal opinion expressed within the risk rating, 1 and 2’s compared to 4 and 5’s. That can kill a deal for no reason other than personal opinion. It often means a valuer has to be paid again to redo what was already done.”

MARKET TALK brokernews.com.au

21

Chinese investors – where the money’s coming from A real estate group says Chinese investment in the Australian property market is coming from four major sources

4. HIGH NET WORTH INDIVIDUALS (HNWIS )

“Overseas property investments are not only attracting capital from Chinese institutional investors. A growing number of wealthy Chinese HNWIs are snapping up overseas residential properties too. Like Chinese corporate and institutional investors, they are seeking such investments in view of the slowdown of domestic growth and, more importantly, the fact that China still offers them very few channels through which they can invest their wealth.

“While the increase in Chinese investment in the Australian residential property market has been widely reported, statistics show that Chinese investors are putting their money into a wide range of commercial property assets.”

C

hinese commercial property investment in Australia is reaching new record highs, according real estate group Colliers International – and the majority of the money is coming from four sources.

China’s share of foreign direct investment in Australia has tripled between 2007 and 2012, and preliminary figures suggest that number could stretch once more in 2013.

“In 2012, Chinese outbound property investments around the world set a new record of around US$4bn, a trend that is continuing into 2013,” says Malcom Tyson, state chief executive, NSW, for Colliers International.

“Their appetite for Australian real estate assets has grown significantly due to the relatively sound Australian economy, close proximity to China and regulatory changes from both the Chinese and Australian governments, which have made it easier for them to invest their wealth in Australia.”

According to Tyson, Chinese investment in the Australian commercial property market is largely coming from the following four major sources:

1. BANKS AND FINANCIAL INSTITUTIONS

“Major Chinese insurance companies have been seeking offshore investment opportunities since the Insurance Regulatory Commission (CIRC) lifted its restriction on them investing in overseas property last October.

Developed countries have been of particular interest to them.”

2. DEVELOPERS WITH GLOBAL AMBITIONS

“In recent years, Chinese real estate developers have extended their investment footprint into major gateway cities, such as London, New York, San Francisco and Sydney. Besides diversifying from the domestic Chinese market, which is considered to be more volatile and highly regulated by the government, they can gain prominence as national brands that are becoming international, thereby adding to their domestic credibility.”

3. LARGE STATE-OWNED ENTERPRISES (SOES ) AND CHINA SOVEREIGN WEALTH FUNDS (SWFS )

“China’s large SOEs and SWFs are also joining the foray by investing in global real estate markets.

With limited opportunities at home, and their increasing purchase power with the strengthening Chinese renminbi, overseas property assets are highly attractive.”

FAST FACT

370,000 The housing shortfall by 2015 predicted

by ANZ Source: ANZ

‘Technical’ recovery in capital city housing figures

C

apital city housing values reached record highs in September, with an average dwelling value increase of 1.6% across Australia, according to RP Data and Rismark International. But the trend was heavily centred around just two urban centres.

The latest data release marks what RP Data research director and analyst Tim Lawless has described as a ‘technical’ recovery in the housing market, with the RP Data–Rismark Combined Capital City Index moving 0.7% higher than the previous record high, recorded in October 2010.

Based on the combined capitals index, capital city dwelling values fell by 7.4% from the October 2010 market peak to the May 2012 trough. However, since the beginning of June 2012, capital city dwelling values have increased by 8.7% through to the end of September 2013.

According to Lawless, the September gains were primarily fuelled by Australia’s two largest housing markets, Sydney and Melbourne, where residential property values in each city were up by more than 2% over the month.

“Sydney home values were 2.5% higher over the month and are up 5.2% over the September quarter, while Melbourne values have seen a similar 2.4% month-on-month gain and a 5% quarterly lift. We haven’t seen market conditions this strong since April 2009 for Sydney and May 2010 for Melbourne,” he says.

However, while Sydney and Melbourne dwelling values powered higher in September, most other capital cities are recording much more subdued housing market conditions. Dwelling values moved lower in Brisbane (-0.3%), Perth (-0.1%), Hobart (-2.0%), Darwin (-2.5%) and Canberra (-0.7%), while Adelaide values posted a 1.1% capital gain over the month.

Lawless believes the latest housing market data is likely to be closely scrutinised by policymakers.

“Any debate about unsustainable growth in housing markets should be very much focused on Sydney and Melbourne. Most other capital city housing markets are in fact showing only a modest growth trend. Perth’s housing market, which was previously the standout for capital gains, has seen dwelling values rise by just 1.3% over the September quarter, while Brisbane’s housing market remains sluggish, with values up only 1.1% over the past 12 months.”

OPINION

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22

INNOVATION not financial services WealthMaker’s Michael McAlary argues that Australia needs to embrace a culture of innovation

I

n laying out its vision for Australia, the Coalition Government should draw on the US experience. While Australia has embarked on important macro- and micro-economic reforms over the last 30 years, the US has been commercialising its innovations. They have widened and restructured their economic base by leading the world in technology and biotech, while we have become obsessed with financial services. This has proved to be a major mistake.

In July 2012, the Bank for International Settlements published a study on the banking systems of 22 countries over a 30-year period. Its findings were that if a financial services sector was too small in terms of size of GDP, then it was an inhibitor to economic growth; whereas if it was too large, it became a drag on economic growth. All indicators point to Australia’s financial services sector as being too large.

Financial institutions are mobilisers and astute allocators of capital, and are enablers of sustainable economic growth. They are not in their own right producers of real economic growth. How can bank profitability continue to rise while many other companies in the last reporting season announced earnings falls?

Michael McAlary is the CEO and founder of WealthMaker Financial Services

Of the top 30 companies listed on the Australian Securities Exchange, approximately 10, or 33% (including Wesfarmers’ insurance arm), can be considered financial institutions. Combined they contribute approximately 27% to Earnings Before Income Tax (EBIT). The size of this metric for Australia is not sustainable.

CBA, Westpac, NAB and ANZ are ranked in the top five by market capitalisation. By comparison, only three of the top 30 companies in a combined Dow/Nasdaq are financial institutions, these being Bank of America, JPMorgan and American Express, who rank 14th, 19th and 30th, respectively. They contribute 12% of EBIT. In the past 30 years, the materials sector (comprising a wide range of commodity-related industries), for example BHP, has declined and the industrials sector has all but disappeared.

The financial services sector has doubled its share of the economy, yet no other industries have grown alongside these financial institutions.

An examination of the progression of the US economy in the past three decades shows a very different picture. In the 1980s the largest American companies were in the materials and industrial sectors. Just as it happened in Australia, these sectors are now significantly smaller because of lower cost of production economies. However, unlike Australia, these sectors have not been replaced by financial services.

The US has produced global IT corporations, such as Microsoft, Apple, Oracle, Google, Yahoo, Amazon, and Cisco Systems, and pharmaceutical and biotech companies like Merck, Gilead Sciences and Pfizer, which, through innovation, are helping to transform the US economy. Unfortunately, we have not followed suit as there is only one health technology company (CSL) and no IT companies in our top 30.

Australia has failed to embrace an innovation culture, which is reflected in its ranking of 23rd in the Global Innovation Index. This is lower than other countries with similar GDP per capita. For instance, Sweden and the Netherlands rank 2nd and 6th, respectively. Moreover, Australia’s measure of innovation efficiency compared to income ranks our nation 107th on the list.

Many Australian entrepreneurs have moved overseas and successfully raised capital and taken their products to market. This trend will continue unless there is a better approach to commercialising Australian innovations.

If Australia is to remain internationally competitive and experience continued economic growth in the future, the Australian government should begin implementing strategies to encourage and allow innovative and sustainable industries to flourish. Real innovation comes from new players not constrained by existing models, as has been seen in the US where 30 years ago Facebook, Twitter, PayPal, etc., did not exist and Apple and Microsoft were not yet household names.

THE COALFACE brokernews.com.au

Doing the Wright thing Broking in a regional city means Matt Wright has added motivation to treat his clients well

W

hen we asked a Choice Home Loans spokesperson to describe Dubbo, NSW, broker Matt Wright, she told us he was “very active in local sports clubs and MATT WRIGHT charities”. She wasn’t kidding. While Wright himself is too modest to say so, one could be forgiven for suspecting he’s keeping the town’s entire sporting scene alive.

“It’s nothing too huge. It’s just helping out when you can, I guess … I’ve got three children and two are in primary school, so it’s stuff like helping out with setting up their school plays. Choice has had a pretty good relationship with the Make a Wish Foundation over the last five or 10 years and we’ve helped the guys on some of their fundraising days.

I sponsor a couple of touch football teams – I’ve got one that I play in and a couple of other junior ones – and I do a bit of officiating at touch football as well.

I’ve also been involved in our hockey club for three or four years. So it’s just helping out where you can, I suppose.”

Wright moved from banking to broking a little over 10 years ago and hasn’t looked back, though he admits there are a few things that are more difficult for regional brokers than for their urban counterparts.

“I suppose, in a lot of cases we find it hard to [generate new business]. Our original loan amounts are a lot lower than in some of those metropolitan areas, so there’s a bit more work required to try and earn a dollar,” he says.

Heightened compliance regulation has also hit regional brokers harder than those working in cities, according to Wright.

“It’s a shame the industry’s had to force the compliance issue quite a bit. They had to do something, I guess, but back when I first started 10 years ago, you were able to go see a client and have a nice, simple transaction with minimal fuss and still achieve the same goals and objectives that we do now with all this compliance. I’d love to go back to when it was nice and easy and simple… The amount of work that’s required now from a compliance perspective, it sometimes makes those smaller loans non-viable.”

Still, Wright isn’t interested in moving to the city.

“There are some challenges out here, but from a lifestyle perspective I believe we’re pretty relaxed, and there are pros and cons [with every location]…

You don’t get that anonymity like you might in Sydney. We pass our clients in the street every day and our kids go to school with their kids. There’s no hiding, so you’ve got to do the right thing by people.

And I think that’s a good thing.”

23

FINANCIAL SERVICES 24

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How costly is your car?

FAST FACT

Aussies should retire later – Deloitte

T

he Australian superannuation system has evolved in such a way that risk has been shifted onto individual members.

That is according to Deloitte Actuaries & Consultants partner Wayne Walker, who was a key author of Deloitte’s report, The Dynamics of the Australian Superannuation System – the next 20 years: 2013–2033.

As a result of individuals bearing the investment risk and the longevity risk, Walker says there will be pockets of members to whom the super system has not delivered what they legitimately expected it to deliver.

“The major pocket over the past few years have been those approaching and entering retirement,” says Walker.

He says the GFC caused more than a ripple for the aggregate system, bringing lasting adversity to those on the verge of retiring as well as to many currently retired Australians.

“Many Australians now approaching retirement have only received super for a limited portion of their working lives as our system is still maturing.

“The concern is that current policy settings, including changes to caps and drawdowns, and the SG 12% increase, will not deliver the lifestyle that the majority of those retiring in the next 20 years are seeking. The reality is that many Australians will need to work longer and where possible contribute more.”

The report shows that deferring retirement would have significant results. By deferring the retirement age by two years to age 67, Australia’s asset pool would increase by $400bn. If it were possible to defer retirement age by five years to age 70, another $1trn would be added to the system.

This would bring the total pool of superannuation assets to $8.6trn.

However, Walker points out that not everyone would be able to spend extra time in the workforce, and the jobs would also need to be available.

Another tool to combat the risks is contributing more. The Actuaries Institute says that 15–16% is the preferred super contribution. For a comfortable retirement, current 30-year-olds would need to make an additional contribution of 5.4% as a male and 7.5% as a woman on top of their current SG rate, says Deloitte Actuaries & Consultants partner Russell Mason.

The report concludes that there are a number of ways in which the government and the industry could act to address the issues.

“Specifically, encouraging people to work longer is part of the answer; Encouraging people to contribute more to their retirement is part of the answer; Facilitating the access to quality and independent advice through your working lifetime is part of the answer. And pooling of long risk is part of the answer,” says Walker.

5.8

million

The number of Australians who will be over 65 by 2033 – a 75% increase Source: Deloitte

If you’re looking for a car you can run on the cheap, you had better consider a Mitsubishi Mirage. Valued at less than $20,000, the three-cylinder Mitsubishi Mirage costs just $93.29 a week to run.

This is a far cry from the $1,155 per week it costs to operate the most expensive car, the Mercedes Benz, according to NRMA. The insurance company has launched a 2013 Running Costs Calculator, which determines how much it costs to keep a car on the road, taking into account the negotiated vehicle price, depreciation, opportunity interest, registration, comprehensive insurance, NRMA membership, maintenance and repairs, and fuels.

It also lists the top 10 cheapest cars to operate according to category, based on value and type. It found that the second cheapest car to run was the Holden Barina Spark CD 4cyl 1.2L 5sp manual fwd hatchback at $96.95 per week, followed by the Suzuki Alto GL 3cyl 1L 5sp manual fwd 5d hatchback, also at $95.96.

Of the top 10 cheapest cars, all the vehicles were different versions of Suzuki, Mitsubishi and Holden Barina models, and all under $20,000.

However, NRMA Motoring & Services motoring research engineer David Carr said that looks could be deceiving when comparing models in the same class.

“The gaps between the cheapest and most expensive vehicles widen even further in some classes, so it is important that families do their homework before buying a new vehicle,” he says.

HOTEL EXEC’S NEXT STAY WILL BE IN PRISON

The former chief executive of WA hotel chain Compass Hotel Group Ltd, Bryan Northcote, has been sentenced to prison after being convicted of breaching directors’ duties and submitting false and misleading documents to ASIC. Northcote was the chief executive and executive director of the hotel group, which operated a chain of 12 hotels and taverns in WA. The company was floated on the Australian Securities Exchange in January 2008 and went into receivership in March 2011. Between October 2007 and April 2008, Northcote withheld information from the hotel board in relation to a conflict of interest.

A company he owned and controlled, Yard House Australia and New Zealand (YANZ) Pty Ltd, which traded as NovaPrime, had entered into a conjunctional agreement with a hotel broker whereby it would receive 50% of all sales commissions paid by Compass Hotel Group and vendors to the hotel broker for hotels purchased by the hotel group.

YANZ subsequently received $1,566,730 in commissions, of which Northcote received more than $1m either directly or via companies owned or controlled by him. He failed to declare his conflict of interest at 10 board meetings held between December 2007 and August 2008, and also failed to declare it at two meetings of the hotel group’s risk management committee, where the issue of conflicts of interest was the first item on the agenda.

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ONE YEAR ON 26

ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and trends that made headlines 12 months ago Australian Broker Online, Oct 2012

ASIC slaps broker with first criminal charge ASIC last year brought the first criminal charges against a broker under the NCCP. The regulator accused NSW broker Daniel Nguyen of providing false and misleading information to banks. Nguyen pleaded guilty to 10 charges brought against him by the watchdog.

What’s happened since?

Last year may have been the first instance of ASIC bringing criminal charges under the NCCP, but it was far from the last. The regulator has cracked down on non-compliant behaviour, with two other brokers pleading guilty to NCCP-related charges over the past 12 months.

ANZ the least popular with customers ANZ led the way last year in a five-month decline in overall satisfaction with major banks. Roy Morgan Research found that the big four’s reluctance to pass on full RBA rate cuts had drawn consumer ire.

What’s happened since?

The majors seem to have turned it around with consumers in recent months.

As the big four have begun to pass on full rate cuts, and rates have fallen to historic lows, the majors have seen a reversal of fortune in their consumer satisfaction ratings. The latest Roy Morgan poll saw satisfaction with the majors rise to an 18-year high of 79.7%.

brokernews.com.au

Protect your business from scammers

H

eadlines in the broker space are increasingly filled with tales of scammers, spruikers and fraudsters.

But how can brokers protect themselves, and what can ASIC do to help them?

ASIC senior executive leader Brett Bassett says the biggest problem for them is the sophistication in the way fraudsters create an air of legitimacy.

“The sophistication of some of these fraudsters… they, for all intents and purposes, have the legitimacy of Australian credit licences, an Australian financial services licensee, or an Australian credit representative.”

Bassett says the con artists often use scripts, and that their websites can be highly sophisticated – as can the terminology they use, leading unsuspecting borrowers to believe they’re the real deal.

“The ability for them to pose as somebody that they actually aren’t really does limit our ability take action in some instances,” says Bassett.

He cites a recent example in which ASIC issued a public warning notice that there was a legitimate Australian credit licensee who had had their website, and even the identities and personal details of their staff, stolen and put on a false website.

“That’s a clear example where you’ve got mortgage brokers who are really the target to some extent of some scams.”

Bassett’s advice to brokers, aside from watching out for overspruiking or unsolicited cold calling, is to be vigilant about their own online presence and to encourage clients to always verify their brokers’ qualifications and licences.

“For a broker, the first thing I would do is I would make sure I keep across the internet to see whether or not my identity’s been stolen…

Always be careful with your identity; check the internet on a regular basis to see if your name appears on anybody else’s websites, for example.

Another tip which comes into the way [brokers] engage with their clients is be up front with your clients. Talk to them about the fact that [you] are an authorised credit representative. Point clients to the avenues that are available to check – ASIC Connect, for example, is a classic example.”

However, Bassett does admit that ASIC’s powers to protect the Australian mortgage industry are very limited by areas of jurisdiction.

Despite the many threats to foreign soil, he says there’s not a lot ASIC can do if the scammers are working from outside Australia.

“Depending on where the scam arises will depend on how we take action, if any.”

FORUM 27

brokernews.com.au

Reverse mortgage market a missed opportunity?

Is equity release a vital part of the aged-care puzzle, or just not worth the bother for brokers?

Flawed approach could hurt borrowers

Brokers are rarely at a loss for words when it comes to their relationship with valuers. So, when REINSW CEO Tim McKibbin and president Christian Payne argued that the availability and use of online valuation sites needed to be investigated, because they believed the online tools offered inaccurate and overly complex information to borrowers, brokers were quick to chime in.

Here’s what Steve had to say:

What do you think?

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“I have had many run-ins with valuers over the years with terrible valuations, however I can say at the end of the day this is only amplified by a computer doing it. At least in many cases valuers if it is onsite valuation can take into account features. A computer will not at any time and only the basic data sitting in RP Data files.

All these people saying ‘oh finally it will help the buyer against the terrible evil agents’ – not so. In fact in some cases this flawed approach has given much higher estimates than what the property would be worth just because one big sale went through with massively different features, therefore helping an inflated price. Also, everyone seems to say no buyer would rely on this, yet in same comment say it is going to help a expose a true price instead of the agent, therefore they are now believing this. It is a completely useless system and is rarely close to any real value.”

Steve on 23/09/2013 12:54PM

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recent Deloitte report claimed that the reverse mortgage market risks becoming a missed opportunity.

While the $3.5bn market has clocked up more than 7% growth since 2012, the Deloitte report claims that, with the “tailwinds” of the baby boomers retiring, and an increasing focus on post-retirement funding, the opportunities in the equity release market are in danger of being missed by banks and other financial services organisations.

But brokers still seem sceptical about equity release products.

SteveL used the example of his own parents – who took out a reverse mortgage – as a caveat to those looking into the products.

“Over time it became a real worry to them to the point they started regretting the move.

Being ‘old-school’, they accepted their responsibility in taking the loan out, but had regrets nonetheless. Only when the property was sold seven years later did they receive peace of mind. I see this as a huge trap for people because regardless of how compliant you may be, regardless of how much independent legal and financial advice they receive, they will still grow old, their memories fade, they become more scared of the future and insecure. Add to this their families will see and

HOUSING EXUBERANCE A WORRY

APRA has expressed concern about the surging housing market, and has warned banks not to relax lending standards. ?? on 18/09/2013 9:23AM “Relax lending standards? Nothing has got easier with regard to rules of banks, and we’re still using affordability rates in the 7–8% range. Plus the lack of building activity is holding back the economy.”

Garry on 18/09/2013 9:26AM “How about these government departments mind their own business?

Banks have been around a lot longer than these so called ‘experts’ at APRA and the

feel their worry, and also understand what they stand to lose as the interest adds up.

From this point of view there are so many better options for folks other than this. Wouldn’t touch it with a barge pole.”

On top of the potential problems for borrowers, JB argued that the products were not worth the headache for brokers.

“When you look at the compliance, low loan sizes and paltry commission payable, hassle factor in managing them to approval, media negativity and uninformed comment from the legal fraternity, you’d come to the conclusion that it is not a viable business for a broker to be involved in.”

But Paul said reverse mortgages were an important piece of the aged-care puzzle.

“Reverse mortgages are a specialised field, just like SMSF. Once you have developed the skill set, have an understanding of seniors and their needs, plus an understanding of aged care, they are no different to any other lending product.

“If you read the direction of government in terms of meeting the cost of aged care, it is seen equity release is forming part of that policy, and we all have an understanding of the ageing population problems of the future.”

like. I’m positive they know what they are doing as the banks have survived though all manner of financial storms. At the moment as I see it is that it’s the bank’s money so it should be the bank’s rules – and not APRA.” not so old broker on 18/09/2013 10:11AM “Actually, Garry, it’s not the bank’s money. It belongs to the depositors or investors who lend to the banks.

Someone who the least knowledge of the GFC and global economics would know that ‘banks have been around a lot longer than these so called experts’ and have still gone belly up.”

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IN FOCUS

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ortgage Choice recently held its national conference in Alice Springs, where the company unveiled its top performers for the year. The company also inducted its second Hall of Fame member, Tony Schelling, who joins industry stalwart Wendy Higgins.

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brokernews.com.au

IN FOCUS

I

n the coming weeks, expect the industry to begin kicking off its Spring Racing Carnival celebrations in earnest. As this year’s Spring Racing Carnival gets into swing, Melbourne photographer Richard Shaw’s series of images, Courses for Horses, presents a wonderful portrayal of the racetrack and the sport of kings. Journeying to racing carnivals across the globe, from Mongolia to Royal Ascot, and countless racetracks in between, Richard’s beautiful and evocative photographs artfully capture the global appeal of racing and the intoxicating charm of the racetrack. It’s just the thing to get brokers geared up for the racing season.

Courses for Horses is on show at the Yering Station Winery (38 Melba Highway) in Melbourne’s Yarra Valley until 24 November. www.richardshawphotography.com

CAUGHT ON CAMERA 29

INSIDER 30

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What your mobile phone says about you

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or some people, owning the latest gadget trumps everything else in life – just ask the teenager who is queuing up outside a Central London Apple store to be first in line to buy the latest iPhone.

Reading a hardback on the bus is likely to afford you strange looks from Kindle owners. iPhone acquaintances may turn their backs on you when you whip out your Nokia 1200 to check your high score on Snakes.

Research commissioned by UK telecoms company TalkTalk Mobile and studies by Roy Morgan have found your smartphone says a lot more about you (and your disposable income) than you might think.

they will approve of – they are regularly late. You can find BlackBerry owners working hard in finance, property and health.

ANDROID

Yes, Android isn’t a mobile phone device, rather an operating system, but there’s some interesting research on Android users too. If you own an Android, get out the acrylic paints and the blank canvas because you guys are the creative types. Don’t tell BlackBerry users (because they’ll want a dinner invite), but Android owners are the best cooks. They also drink the most alcohol (no judgment) and watch the most TV (again, no judgment). On a lighter note, they are the most polite and quite shy and calm. These cool callers are putting their artistic flare into action working in culture, sports and the arts.

IPHONE

These smartphone fans are confident, daring, bright and flirty.

They’re the hardest workers, the most ambitious, and the most well travelled. The touchscreen supporters tend to believe they are the most attractive; suffice to say they spend a lot of money on clothes and grooming. While they rate themselves rather highly, they think their bosses do too. Oh, and they tend to work in the media…

What about other handsets, you ask?

SAMSUNG

These users tend to be over the age of 50, averse to risk, and have something against air travel. They also tend to dress conservatively.

BLACKBERRY

SONY ERICSSON

These guys earn big bucks. They’re loud and bubbly – maybe that explains why they have the most long-term relationships and send the most calls and texts. The BlackBerry user is a big foodie – eating out is more like a religious exercise for them than a treat only to be enjoyed once a year on an anniversary (at the same restaurant they’ve been taking their partner to for the past 20 years). Wherever they go to get their culinary fix, it’s likely to be followed by a hot beverage as they also drink the most tea and coffee.

But getting these guys to be punctual for an appointment is harder than choosing a restaurant

Much like their BlackBerry brethren, they are food fans, but unlike their friends they prefer junk food over gourmet dishes.

Having a social life is a top priority.

LG

Roy Morgan research found these users are predominantly female and not mechanically minded.

But remember, most importantly, it’s not about the phone you own – it’s about the apps.

WHY IS THIS HOUSE BEING MADE INTO A PROTECTED SITE? Apple co-founder Steve Jobs’ childhood home could soon become a protected historical site, according to Apple Insider and CNN, but first it needs to undergo a rigorous application process.

“Jobs’ family home, the location where he took part in the construction of the first Apple computer, may soon become a protected historical site,” writes Apple Insider writer Kevin Bostic.

“The Lost Altos Historical Commission is looking to conduct a ‘historic property evaluation’ on the property, with a decision to follow soon after.”

Located at 2066 Crist Drive, Los Altos, California, the home will see permanent preservation if the commission decides it’s worthy of a historical site designation.

Jobs moved to the house with his adoptive parents as a child and lived there through high school. He and Apple co-founder Steve Wozniak built the first 50 Apple 1 computers in its garage before selling them to Paul Terrell’s Byte Shop in Mountain View, California, for $500.

The house was also used in the filming of Jobs, released earlier this year, starring Ashton Kutcher.

The three-bedroom, two-bathroom ranch-style house was built in 1952 and has a current estimated value of $1.5m. However, the valuation is reportedly not due to its history but rather its location – the average price of homes in Los Altos is $2.1m.

DIRECTORY 31

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SHORT TERM LENDER

AGGREGATOR / WHOLESALE BROKER

Trail Book Buyers 1300 742 306 or 0434 742 306 info@trailbookbuyers.com.au www.trailbookbuyers.com.au Page 4

Interim Finance 02 9982 2222 www.interimfinance.com.au Page 2

Mango Credit 02 9555 7073 www.mangocredit.com.au Page 1

Quantum Credit 1300 135 212 www.quantumcredit.com.au Page 8

Choice Home Loans 1800 188 288 www.choicehomeloans.com.au Page 7

LENDER

Homeloans Ltd 13 38 39 www.homeloans.com.au Page 13

La Trobe Financial Services 1800 707 707 latrobefinancial.com.au Page 9

Liberty Financial 13 11 33 www.liberty.com.au Page 3

National Australia Bank www.nabbroker.com.au Page 5

Trailerhomes 0417 392 132 Page 26

WHOLESALE Resimac 1300 764 447 www.resimac.com.au Page 32

OTHER SERVICES

Deposit Power 1800 678 979 www.depositpower.com.au Page 15

RP Data 1300 734 318 Page 23

Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 11

To advertise in Australian Broker, call Simon Kerslake on 02 8437 4786

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8/10/2013 2:38:23 PM