Australian Broker magazine Issue 7.17

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ISSUE 7.17 September 2010

CBA will ‘lend money safely’:Cummings

Credit reform laws

Industry stands united against small business impost

 Brokers urged

Page 6

to concentrate on quality business Commonwealth Bank’s head of third party banking has called on mortgage brokers to focus on delivering quality business over the next 12 months.

Kathy Cummings said that CBA’s key driver in the third party channel is greater efficiency, in order to drive down its cost-toincome ratio in the face of strong economic headwinds. She emphasised that brokers should place greater emphasis on submitting error-free applications which are likely to be funded in order to assist this drive.

“When brokers submit error-free applications with all the supporting documentation there is no re-work for the bank and no time lost for the broker,” said Cummings. “Brokers also need to be confident the deals they submit will be funded. Applications which are withdrawn or refused absorb valuable resources and deliver no result to the bank. These inefficiencies need to be overcome.”

She added that, while the bank understands there are certain reasons why customers withdraw an application, it expects that 75% of the applications that are submitted by a broker should be converted to funding.

Cummings also suggested that the new responsible lending guidelines could offer opportunities

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Courting credit reps

Firstfolio targets growth with new broker offer Page 10

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Cloud computing

How your business can benefit from the cloud

Page 28

Inside this issue

Kathy Cummings

for brokers in the current economic environment. “Brokers need to assess a customer’s current financial needs and future needs, and they have the opportunity to look after their customers’ total financial needs.” Cummings said.

“Through the bank’s cross-sell initiative, our CONNECT Referral

Program, brokers are in a position to help customers manage their financial needs with solutions from Commonwealth Bank, and maximise [their] share of wallet for the broker and the bank.”

Opinion Small business credit is fine Viewpoint Where is property heading?

Forum Doomsayers debated Insight Five drivers of revenue growth Market talk V for Victoria?

People

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22 20 21 24 26 32

Smartline’s community $100k Caught on camera

Page 16 cont.

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Lunch with AFG

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News Obtain full licence and keep control of referrers, says Haron  Referral

agreements should not be overlooked Connective principal Mark Haron has advised brokers to obtain their own ACL if they are considering according any of their referral partners credit representative status. Haron suggested that it may be worthwhile in some situations to appoint some referral partners as credit representatives – and that a broker could run into problems if he or she only holds credit representative status under his or her aggregator’s licence.

“If you’re a credit rep and you want or need to make a referral partner a credit rep too, it’s much better for you to be able to register them yourself,” said Haron. “If you have to go to your aggregator to have your referral partners registered under its licence, you not only risk being charged but you’re also giving away your referral data.”

However, Vicki Grey, a partner of Gadens’ banking and finance practice, warned brokers to think carefully before appointing referral partners as credit representatives.

“In most situations, you would not want to make simple referral partners credit reps,” she commented. “At the very least, it puts an absolute responsibility on the licensee to ensure the credit rep is following the law, as well as obligations on the credit rep.

Grey added that registering a referrer as a credit representative means the licensee is authorising the referrer to offer credit advice.

“This may be appropriate in some situations, but what a true referrer advises on is much narrower,” she added. “It’s down to the licensee making a call on the scope of the

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EDITOR Ben Abbott COPY & FEATURES

work done by the referrer: only if it goes further than simply passing on a name and a number should you consider registering a referrer as a credit rep.”

Both Haron and Grey are united in encouraging brokers to put referral agreements in place with key partners, before rules regulating referrals come into force on 1 October. “The National Consumer Credit Protection Act impacts on referrers, as ASIC’s view is that they are an intermediary,” said Haron.

“However ASIC have allowed exemptions to referrers so that they do not have to obtain an ACL or become a credit representative to continue referring.”

If referrers do not have an ACL, brokers and lenders must, by 1 October, have an agreement with the referrer which specifies the conduct in which the referrer can engage (see box). One key area of concern is that referrers must not

conduct business by contacting people from non-standard business premises. This has caused some confusion around what happens with situations such as open houses: Grey comments that it depends on the exact situation.

“Our view is that if the situation is a display or exhibition village, then it can be classed as a standard business premise – especially if there is an office on site,” she says. “If it is just an open house, then it is not a standard business premise.

“There is a workaround, though: if the referrer gets in touch with clients who have given their consent to be contacted once they get back to the office after the open house, and seeks their consent at that point, that would satisfy the law,” say Grey. “That would not constitute extra work, either, as the real estate agent would probably be contacting the client anyway.”

Referral agreeements: what you need to know • The broker/lender must have an agreement with the referrer which specifies the conduct in which the referrer can engage • Referrers must obtain clients’ consent if they intend to pass contact details onto a broker or lender • The referrer must give contact information to the broker/lender within five business days after advising the customer of the intent to refer • The broker or lender must contact the consumer within 10 business days of receiving the referral • The referrer must not conduct business by contacting people from nonstandard business premises • The licensee must keep a register of referrers including date and the means by which the agreement the referrer was entered into and the date of the first referral.

• The referrer and the broker or lender must advise the consumer if the referrer will receive a commission for the referral, and how much.

• While the onus is on the licensee to ensure a referrer is operating within the terms of the agreement, in practice the licensee should only need to take action if he or she is made aware that the referrer is in breach. If a referrer is in breach, he or she could be viewed as giving credit advice without a licence, and as such could be prosecuted by ASIC.

JOURNALIST Kevin Eddy EDITORIAL INTERN Laura Carew PRODUCTION EDITORS Jennifer Cross, Moira Daniels, Carolin Wun ART & PRODUCTION DESIGN MANAGER Jacqui Alexander DESIGNER Lucila Lamas SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Kerry Buckley MARKETING COORDINATOR Anna Keane TRAFFIC MANAGER Stacey Rudd CORPORATE DIRECTORS Mike Shipley, Claire Preen MANAGING EDITOR George Walmsley PUBLISHING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil

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High LVR makes a comeback Adelaide Bank has announced the details of a new high LVR loan for owner-occupiers.

Bendigo & Adelaide Bank’s general manager of third party lending, Damian Percy, confirmed that the bank will be introducing a 95% LVR product for owneroccupiers. He said that the decision is in response to ongoing demand from the intermediary market for alternatives to the majors.

“We’re keen to support increased competition in the market and to

 Adelaide’s 95% loan: product highlights • Available to owner-occupiers only • LMI fee can be capitalised over and above the 95% LVR • Line of credit facility with up to $20,000 secured Visa credit facility available • Unsecured Visa facility of $10,000 available to all borrowers

provide a practical solution for those borrowers denied a real choice of lender in the higher LVR space,” said Percy. “Given the very real challenges facing (particularly) first homebuyers, we’ve decided to throw our support behind owneroccupiers only at this stage.”

The 95% LVR product will be available direct through Adelaide Bank and through the bank’s panel of mortgage managers, including National Mortgage Company, Iden Group, Homeloans and Provident.

Also in the pipeline is a new low-doc product, which will approach that niche ‘in a different manner’, according to Percy.

“There is obvious demand around the low-doc business, and we are trying to find prudent ways to fulfill this demand,” he commented.

“This will mean approaching that niche in a different manner.”

Percy added the bank is working on refreshing its lending platform, as well as a rebranding of Adelaide Bank to emphasise its position as

an intermediary-only brand.

His comments come after B&A announced after-tax profits of $242.6m in August – a 190% increase on last year’s figures – and CEO Mike Hirst spoke bullishly about expansion. Yet Percy emphasised that the bank’s expansion plans would not come at the expense of its reputation for customer service.

He was positive about B&A’s prospects in the current environment. “The market is certainly improving. I think there’s certainly more capacity for competition than is being utilised by consumers at the moment,” he explained.

Percy added that the third party channel is “core” to the bank’s business model, and this was being reflected in the funding and resource commitment that B&A was making in this area.

He admitted that the bank had something of a sales pitch to make to intermediaries, too. “We do need

Damian Percy

to push our agenda more, and increase the visibility of our products with brokers,” he said.

“However, the chances of any second-tier lender offering equivalent products to the Big Four, only 50 basis points under their rates and with better service, are pretty slim – you need to be looking at the whole package.”

“That’s why our priorities are to maintain our service reputation, improve the customer and partner facing experience, and bring back products in niches which are currently lacking.”

Brokers not ready for compliance Mortgage brokers may not be ready to meet ongoing compliance requirements under NCCP legislation, with responsible lending, documentation and ongoing costs of complying with the new laws set to affect businesses.

Kate Keating, a director at legal, compliance and training provider CreditWise, said brokers do not appreciate what is required to manage their obligations.

“Nothing like this has been required before, even under the WA licensing regime,” Keating said.

Though finance industry participants have in the past relied on technology to deliver their services to consumers, Keating said “curiously” the NCCP ignores this, requiring significant documentation on how they are meeting their obligations to be supplied. “They are not realising

they need to have their own (not the lender’s) criteria in place about what questions to ask the customer to determine their requirements and objectives, what information to ask for and how to verify it, much less provide a written assessment.”

Club Financial Services director David Garner said the costs of ongoing auditing as well as the submission of an annual compliance certificate to ASIC

would prove challenging for sole traders, who would need to employ an external provider to audit their business. “They [brokers] should come to terms with it now,” he said.

“They have six months to apply for a license, so they should understand what’s involved.”

However, Keating from CreditWise said it did not matter if brokers went for their own ACL or became credit representatives.

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News Industry rallies to stop small business impost  United we stand: arguments against further reform Westpac: “The small business lending chapter of the Green Paper presents a limited view of the potential issues facing small business borrowers. Based on this evidence, a demonstrable argument has not been made to extend the consumer credit regime to small business lending.”

MFAA: “The MFAA considers that there is no need for further regulatory intervention in the credit and intermediary markets.”

Liberty Financial: “Liberty believes that improving credit access and lowering interest costs for small businesses is better achieved through initiatives that directly target these objectives rather than extending incompatible reforms in personal lending.”

The finance industry has united in objecting to an extension of credit reform legislation to include small business borrowing, as part of the National Credit Reform Phase 2.

Finance Solutions director Raymond Weir, in concert with an informal group of brokers involved in the small business and private mortgage market in WA, said that small businesses are adequately protected. Weir argues the Trade

Practices Act 1974, the ASIC Act 2001 and state fair trading laws have protected small business borrowers in the past, and the incidence of complaints from this type of borrower – as opposed to consumers – has been negligible.

Small business borrowers can also avail themselves of remedies including industry codes, such as the Banking Code of Practice.

“Any further regulation of credit for small business should be

limited to requiring the credit provider or intermediary to hold adequate PI insurance and be a member of an EDR,” Weir said.

In his submission to Treasury in response to its Green Paper on further credit reform, Weir argues further regulation could have negative effects on the sector. “If the government was to place a further layer of regulation upon credit for small business, similar to those applicable to personal borrowers, it is likely to restrict the availability of small business credit,” Weir said.

The MFAA’s submission also said there is no evidence further legislative reform is required, and that any regulation is likely to hurt the sector by restricting available funds.

The MFAA argued that there is no evidence of poor lending practices at the margin in the small business sector, as was the case in the residential sector.

“Unlike residential mortgages, lending to small businesses

requires greater scrutiny by lenders and brokers,” MFAA chief executive Phil Naylor said. “We are concerned regulation would restrict the availability of credit to small businesses which will be of significant detriment”.

The MFAA’s submission states the industry has already undergone major changes as part of the first phase of NCR, and “the combination of these reforms will have a significant affect on the credit market, even in respect of credit which is not regulated by the NCCP Act”.

The industry body said time should be allowed to see how these already-legislated initiatives work in practice, and that sufficient regulatory tools are now available to protect consumers and small business and drive out predatory lenders. For Ray Weir’s full argument against small business credit legislation, see Opinion on p22

AFG invests $1m in IT infrastructure

Malcolm Watkins

AFG has invested in a new IT platform that will help it pay commissions three times faster.

The aggregator’s $1m purchase of Oracle’s Exadata technology will

allow it to process commission payments in less than six hours – as opposed to the 19 hours it took before. The purchase also improves performance speed by three times for brokers using the web, and AFG said some processes are now six to eight times faster.

AFG said it also significantly reduces the risk of system outage, and provides a comprehensive sales reporting tool for larger member groups via a new business intelligence system. Brokers will also see performance improvement in the product qualification area, particularly when there are a lot of products returned.

“Performance is key for the future,” said AFG director Malcolm

Watkins. “Testing shows that combined transaction time will be reduced from an average of 97 hours per day to less than 12 hours. As there is an average 500 concurrent users transacting in any given day, brokers will save around 17 minutes per day – or one-and-a-half hours a week.”

Watkins said that could equate to a saving of $75 per week for every broker in AFG’s network, using a labour cost of $50 an hour.

He also commented that it opens the door for mobile apps to help brokers assist clients.

“The deployment provides the underlying infrastructure to carry us through the next five years of web and smartphone-enabled

services and systems,” he added.

“AFG is reaping the benefits of having a close relationship with Oracle, which gives us a seat at the table in the US from development through to fulfilment and postimplementation support.”

According to Oracle, Exadata “combines database and storage in one box”, which acts as a one-stop shop and negates the need for applications to be spread across several servers. The Commonwealth Bank was the first local Exadata customer.

For more on AFG’s tech upgrade and cloud computing, see p28

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St.George pushes broker service to new levels St.George’s Sydney-based broker support centre, Mortgage Central, is pushing third party support in the banking sector to new levels with innovations in loan scenario and post-settlement support as well as staff training.

The support centre, which has been in operation for two years and fields all third party queries, requires staff to hold a minimum Certificate IV, to ensure they can respond and escalate broker enquiries and deals. One arm of the team – loan scenarios – also requires education to a Diploma level, and fully-qualified credit personnel are able to advise on deal structuring and deal viability to help brokers get deals across the line.

St.George general manager for intermediary distribution, Steven Heavey, said the result of this investment in training was a fully qualified team that could “go in to bat” for brokers. “What we used to do, as do a lot of banks even today, is use a portion of the call centre to provide a service to brokers, and they were traditionally called

Steven Heavey

the broker support area,” Heavey said. “They would sit in the call centre, and they would traditionally read what was on the screen back to brokers.”

However, Heavey said brokers could simply log on and find out the same information being read back to them, and feedback indicated the support was not adding any value, as contact staff could not influence outcomes. “We thought we could do it a little bit better,” Heavey said.

The current structure includes a loan scenarios team, where brokers can run deals by the bank, a relationship management team that manages and pushes deals through from application to settlement, and an additional post-settlement team – an added service and new innovation in the broker market.

“What we were finding is that once the deal had settled, invariably there were some mix-ups,” Heavey said. He gives examples of customers who had not been sent their internet banking details, where accounts had not been linked, where credit cards had not been received, or where statement details were incorrect. “Our post-settlement team handle all of that,” he said.

“Customers don’t have to walk into branches, customers don’t have to ring call centres, they just talk to their broker, the broker lets us know and we will resolve any issues that they may have after the deal is settled.”

The group’s current structure stratifies brokers according to

 Mortgage Central • Loan scenario support, to assist

with structuring and applications • Relationship management staff,

to manage applications through to settlement • Post-settlement support, so brokers can assist clients with incidental problems • Highly qualified staff, up to Diploma level in mortgage broking • Tailored ‘flame’, ‘gold’ and ‘silver’ service based on volumes loan volumes, with three levels – ‘flame’, ‘gold’ and ‘silver’, with all receiving similar service, though some levels are prioritised.

PFS Financial Services mortgage broker Daniel O’Brien, who is a St.George ‘flame’ broker and was Australian Mortgage Awards Broker of the Year in 2008, said St.George’s service via Mortgage Central is currently “second to none” in the market.

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Firstfolio to boost broker numbers

Angelo Malizis

Firstfolio has revealed it is aiming to grow its credit representative pool from 700 to 1,000 in coming months, by recruiting new credit representatives during the transition period to the NCCP regime.

Firstfolio management consultant Angelo Malizis said the group’s aggregation arm, Firstfolio One, would offer compliance assistance, dispute resolution support, and special offers on PI insurance, while taking away the requirement for brokers to apply for a credit licence and manage ongoing maintenance and administration.

In addition, Firstfolio is hoping to draw its credit representatives closer to the group and boost its brand among both brokers and consumers, by rolling out Firstfolio branding on business cards, credit guides, credit quotes and credit assessments.

Malizis said the established compliance program would involve ongoing auditing of between 5% and 10% of loans written by its credit representatives, which would provide “comfort they are doing the right thing”, rather than the

group “acting as a policeman”, Malizis said.

Firstfolio recently reported record growth in revenues to $65.6m for the financial year ending 30 June 2010, after reaping the benefits of several acquisitions during the period.

The result included a $37.5m contribution flowing from the acquisition of $5.9bn in mortgage assets. Net profit before tax was $4.8m, a 47% increase.

With all acquisitions during the 2010 financial year having become “earnings accretive”, Firstfolio chief executive Mark Forsyth said the group’s ambitions continued to demand more acquisitions. “Our acquisition strategy remains clear and simple; we will continue to pursue opportunities that add economic leverage, expand distribution and diversify revenues,” he said.

The launch of the company’s BLOOM model has enhanced its organic growth prospects heading into FY2011, according to the group’s profit announcement.

Firstfolio successfully notified the Australian Securities & Investments Commission of the individuals and companies it would appoint as credit representatives before the official 22 July deadline, while it says other aggregators had to apply for extensions.

Forsyth claims Firstfolio “chose to move early and front-foot the changes” so that it could create a new business stream and growth path for the group. According to Malizis, the group expects the current pool of over 14,000 brokers to go down to approximately 9,000 over the next 2–5 years, due to the impact of incoming compliance requirements on the profession.

Election no slowdown for property sales The Federal election campaign did not deter Australians from property purchasing decisions, with only 12% of buyers deciding to sit on the sidelines to await the election outcome.

A survey from mortgage broker Loan Market found 68% of 424 respondents to an online survey did not let the election interfere with their decision to buy real estate.

Loan Market chief operating officer Dean Rushton said this finding came despite the conventional wisdom that election periods were often a barrier to property sales.

However, 13% of respondents to the survey did say they would wait until after the election unless they spotted a bargain, while a further 7% decided to hold back in the hope that election contenders might throw some buying incentives on the table.

These came in addition to the 12% of respondendents who would definitely wait until after the election result was finalised.

According to property research firm SQM Research, the election and the property market have no genuine correlation. “There is no

logical reason as to why an election should have any direct effect on property sales, or why the property market should return to strength after an election is over,” the group said in a statement during the election campaign.

This was more certain due to the fact neither party had any policy on the housing market and that it was unlikely that a new government would immediately impact the economy.

SQM Research argued decisions to hold off on purchases and investments were financially motivated, due to elements such as higher interest rates and uncertainty over prices.

However, Rushton said with the Reserve Bank of Australia maintaining the official cash rate at 4.5% since May, conditions remained ideal for homebuyers.

“The RBA is expected to keep the cash rate on hold for the rest of the year which will be comforting for mortgage holders and people considering applying for a home loan,” he said.

SQM Research played down the likelihood of a purely postelection-related spring boom.

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Aussie slashes fixed rates

Appetite for RMBS market reignites The Bank of Queensland and Macquarie Bank have launched significant RMBS issues – with Bank of Queensland’s being the second-largest seen in Australian history.

BoQ’s $1.6bn issue, which was bumped up from $750m following significant interest from buyers, is the biggest this year and is only dwarfed by Westpac’s mammoth $2bn issue last December.

“Strong investor demand for BoQ’s Series 2010-2 REDS Trust RMBS resulted in the transaction being upsized,” said BoQ managing director David Liddy. “The transaction gained good momentum from the outset.”

Liddy also revealed that 14 investors, including the Australian Office of Financial Management, participated in the deal. The AOFM invested $497.6m in class A2 notes.

Legal final maturity is in May 2041 with settlement scheduled for 27 August. The borrower can call the notes when less than 10% of the initial notes remain outstanding.

Macquarie’s issue, meanwhile, totalled $500m and will also be supported by the government through the Australian Office of Financial Management. It is the bank’s first mortgage-related securitisation since it restarted originating loans last October on a trial basis via intermediaries Vow and AFG. It announced, however, that it would be rolling out its packaged Mortgage Solutions product across further channels in July, with the aim of financing $5bn worth of mortgages in the next 12 months.

Both issues were backed by fully verified loans, and are fully insured. Bank of Queensland’s loans had a weighted average loan-to-value ratio (LVR) of 56%, and an average period since the loans have been issued of 22 months. The pool was to include 23% of interest-only loans. In Macquarie’s case, the weighted average LVR was 67%, and the average seasoning was 62 months.

Investment loans comprise 35% of the pool, while 36% were interest-only loans.

Aussie Home Loans has dropped its fixed-rate loan to under 7%.

The 6.99% three-year fixed rate loan is considerably lower than the Big Four’s average standard variable rate of 7.38%, and is the first time that a fixed rate loan has been cheaper than all variable rates in the industry since February 2009.

Aussie CEO Stephen Porges told Australian Broker that the move is an attempt to inject some competition into the marketplace.

“There wasn’t a lot of competition in the marketplace, and the top rates we were seeing weren’t particularly attractive,” he commented. “We thought we’d bring some competition back in, as competition is hardwired into Aussie’s DNA, and we calculated that we’d be able to sustain this rate with a reasonable profit margin.”

He added that the rationale behind the timing was influenced by the foreshadowing of an independent rate rise by some of the major banks.

“The major banks have already indicated they will raise rates outside of any RBA meetings,” he said. “The RBA has indicated that it will only leave rates on hold for the moment. That could change quickly. ““There is set to be a lot of turbulence in the mortgage market over the next few months. If people are likely to fix, they’re likely to do it now,” he continued. “Obviously, we’re not suggesting individuals should or should not fix their rate – but if they do wish to, we’ve got an attractive rate.”

Porges was philosophical

about the potential appetite for fixed loans, however, given Australian borrowers’ history of shunning fixed rates in favour of variable mortgages. Indeed, a recent survey from Mortgage Choice revealed that just 2% of loans approved through its brokers were fixed-rate mortgages.

“We’re not expecting a significant rise in the proportion of borrowers going for a fixedrate loan,” said Porges.

“Australians have historically been more willing to accept the risks of variable rates. Even so, we’re expecting a lot of the interest to be from those who wish to transfer from a variable rate, both from those already with an Aussie mortgage and from those borrowing from other lenders.”

Porges also poured cold water on recent takeover rumours: he stressed that 2010 is “a year of consolidation” for the company, and that it had no plans to make any acquisitions.

Stephen Porges

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Bankwest a good buy: CBA CBA was forced to defend its acquisition of Bankwest, after revelations the value of the transaction was hit by $212m worth of poor quality loans written by the second-tier lender.

Ralph Norris, speaking in conjunction with CBA’s profit announcement, said there were a raft of problems with loans extended prior to the financial crisisinduced acquisition in 2008.

East coast residential property, particularly in Queensland and NSW, as well as commercial property loans, emerged as particular problems in the Bankwest portfolio, with indications credit quality was inflated when the bank was owned by British-based HBOS. Norris told national media that CBA had taken steps to reduce the problem, and that people had paid with their jobs.

Bankwest recently took a renewed focus on credit quality, with the appointment of new heads of broker sales and origination and quality within its business division.

As part of the organisation’s reshuffle, Bankwest’s regional business development manager for commercial banking, Andrew Benham, stepped into a new role as head of origination and quality, and has been charged with ensuring continued quality and customer satisfaction.

Speaking with Australian Broker at the time of the appointments, Bankwest head of business and private banking, Mark Reid, said the changes in the division were designed to improve broker relationships and the quality of written business.

Reid said “quality has always been a concern” for the bank. “I just don’t think you can grow at the expense of quality, because at some point it will come back and bite you.”

Aaron Milburn became the bank’s new head of broker sales for Bankwest Business, moving across from his former role as head of broker sales for Bankwest Retail.

Outsourcing is ‘the future’ says Insight Processing Outsourced loan processing and submissions will be the way of the future as growing pressure drives brokers to search for increased volumes and efficiencies, according to Insight Processing.

Centre manager at Insight, Shannon McLeish, said that years ago brokers could write a couple of loans a month, do all the work themselves and still manage to have quite a good business.

“Today, things are very different,” she said. “Less brokers, lower commissions.

The successful broker of the future is one that is volume and efficiency driven,” she added.

Outsourced loan processing involves an external provider tracking and guiding an application from submission through to settlement. In the case of Insight Processing, a data entry service has also recently been launched, where supporting documentation for a loan application is collated and data is entered, ready for a broker to check and submit the application.

McLeish said outsourcing enables brokers to scale up or down quickly depending on demand, converting fixed costs to variable costs, while the outsourced cost only becomes significant when a certain level of business is written.

“Removing the administration frees the broker to focus on more dollarproductive activities, like networking and marketing,” she said.

McLeish also said some brokers had doubled their business in a very short period of time as a result. Turnaround times can improve, according to Insight, as loan processing professionals are able to push applications through the system, and prevent hold-ups along the way. Yet McLeish denies loan processing is impersonal.

“We maintain such a strong correspondence with clients throughout the process that our team often forms amazing relationships with the client,” she said. Earlier this year, Insight passed $1.25bn in annual submissions.

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Anti-bank mood favours non-banks Growing anti-bank sentiment could see customers return to non-bank lenders in droves, according to a former founder of Wizard.

Paul Ryan, CEO of Opportune Home Loans, said that potential mortgage interest rate rises by the major banks outside the RBA rate could see consumers deserting banks, especially following the record profits announced by CBA this week.

“Record profits like those announced by CBA could make it very hard for the major banks to justify an independent mortgage rate rise – they risk

being seen as greedy,” said Ryan. “That could drive consumers to look for other options, such as second-tier banks, credit unions and non-bank lenders.”

Ryan suggested that we could see a similar situation to that of the mid-1990s, which saw the rise of lenders such as RAMS, Aussie and Wizard.

“The market is screaming out for new players to come through and take that role, and any number of market players could do that – including Opportune,” he added. “It would mean a lot of work, but it would be great for

consumer choice, for ensuring competitive rates, and for the overall customer experience.”

Ryan’s call to arms echoed comments by National Mortgage Brokers’ managing director Gerald Foley, who recently called on brokers to support non-bank and second-tier lenders.

“I think brokers – and it may be driven a little bit by the customers as well – have a pre-conceived idea that the big banks are really the only option available, and I just think they need to broaden their horizons a little bit, for the longer term benefit of the marketplace,” Foley said.

He warned that second-tier lenders should be supported, or they may reconsider their role in the broker market.

“If brokers don’t support those brands then those businesses

will make a decision to go another way to try and obtain the new lending they need to fund,” he said.

Paul Ryan

Balancing the books a challenge for second tier ING Direct and AMP profit announcements in August have shown that second-tier lenders continue to struggle with

Don Koch

ongoing market challenges, past the financial crisis.

ING Direct announced a profit of $133.1m for the six months to 30 June, which marked a $7m drop on the profit that the group achieved during the corresponding period in 2009.

Chief executive of ING Direct, Don Koch, said the rising cost of funds had compressed margins and slowed profit growth for the bank in the first six months of 2010. “The GFC has left a stubbornly higher cost of funding,” Koch said, adding that growth in customer numbers and in savings and mortgages had contributed to the result.

Year-on-year, ING Direct’s mortgage book rose by $1.1bn, to a total of $37bn. In response to its funding challenges, the bank

indicated it would diversify funding sources with a new move into the securitisation market in 2010.

“Our deposit base is the core strength in our funding mix but we also need to take advantage of alternative funding sources as they become more attractive,” Koch said.

Meanwhile, AMP’s banking operations reported a decline in home loan lending as part of its profit announcement for the half year to 30 June.

AMP Bank contributed operating earnings of $21m to the group’s overall bottom line, up from the $18m reported during the corresponding period in the first half of 2009.

The group said while deposits remained “strong” for the

banking division, “the operating environment was characterised by a slowdown in home loan demand across the industry”.

AMP’s statement added that second-tier banks continued to experience ongoing funding constraints. Overall, the AMP group reported an underlying profit of $383m during the first six months of the year – an increase in underlying profit of 4.4%, despite “an ongoing volatile market”.

AMP chief executive Craig Dunn said while AMP retains a “reasonably” positive economic outlook for Australia and the region, it continues to be cautious about the global economic outlook, expecting ongoing market volatility and subdued investor confidence.

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INDUSTRY NEWS IN BRIEF LMI adds to QBE bottom line

QBE’s lenders mortgage insurance business (QBE LMI) has increased its weighting to almost 13% of the insurer’s overall portfolio mix in Australia, up from just over 9% a year ago. The insurance group has forecast that gross written premiums for the entire Australian business will hit $4.2bn during the full year 2010, with LMI expected to contribute $220m. Overall, gross written premium for the year to June was up 26% across QBE’s Australian operations, to over $2bn. The group said in a statement while difficult economic conditions and competition have impacted the business during the first half, it will follow a continued disciplined approach to only renewing business that meets strict profit criteria.

Banks post solid Q3 profits

ANZ and Westpac both posted solid third-quarter profits – but are warning that the future outlook is less rosy. ANZ recorded profits of $1.3bn in the three months to June, an increase of 37% on the same period last year. The bank’s income was bolstered by a fall in bad debts and a surprise lift in profit margins. Westpac, meanwhile, posted Q3 profits of $1.4bn. ANZ chief executive Mike Smith warned the global outlook remains “unusually uncertain” and that banks around the world are facing “permanently higher costs” due to pressures on wholesale funding and forthcoming international regulation, while Westpac CEO Gail Kelly echoed Smith’s concerns, saying the Australian economy is robust but conditions in Europe and signs of slowing growth in the US continue to create global uncertainty.

Wealth Today spruiks advice potential

Mortgage brokers should expand their businesses into related areas of financial advice, including debt management, because of growth potential, according to Wealth Today. The financial advice group, which recruits brokers into franchise positions across Australia, said: “without a doubt, the public’s need for debt management advice and other complementing financial services in Australia is enormous and largely unmet.” National franchise development manager Julian Musgrave, a former mortgage broker, said brokers should be broadening their horizons. “No broker should be comfortable simply getting a client a mortgage – getting them deeper into debt – without a full and clear understanding of that client’s entire financial situation,” he said. A wealth adviser can earn as much as 532% more than a broker in upfronts, and 1,036% more in trails, the group claims.

Landlord insurance claims on the rise

Claims on landlord insurance have leapt by 42% in the last year, according to a specialist insurance company.

Carolyn Majda, a manager at Terri Scheer Insurance, said claims handled by the company had rocketed in the last year, and that the average total claim value had increased by 20%. She urged landlords, particularly those with fully or partly-furnished properties, to ensure they are adequately covered. Items typically claimed for on landlord insurance include fridges, washing machines, dishwashers, beds and mattresses, plasma televisions and framed pictures. Some more unusual items also include split-system airconditioners, lawnmowers, taps, door handles and even a kitchen sink.

South East Queensland bucks real estate rules

A groundbreaking study commissioned by the Local Government Association of Queensland has revealed boosting the housing supply has not put downward pressure on prices. Using information from RP Data and modelling from the University of Queensland, the study’s findings contradict similar studies on national and capital cities. The rule of thumb in real estate is that a 1% increase in stock typically results in a 3.34% decrease in real median house prices.

However in South East Queensland prices dropped only 2.39% after a 1% increase in stock. Development delays in the area are still unexplained, according to AEC group chief executive Simon Smith. “What’s illustrated through the data is that there’s a response by developers to put their applications in to develop their land once they see the price is increasing and sustainable,” he told media after the release of the study.

Election battle over credit, housing

Promises delivered by election hopefuls Julia Gillard and Tony Abbott during the election campaign included policies on credit and housing. A re-elected Labor Party would stop lenders from making unsolicited offers to raise credit limits unless customers had agreed to being approached for these services, and would seek to stop providers from allowing their customers to go beyond their credit limits unless they had specifically indicated their permission. Meanwhile, the Coalition delivered a housing policy to tackle affordability, which focused on affordability by advocating national affordable accommodation targets.

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News

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ASIC signals solid licensing start Brokers and other intermediaries were leading ASIC’s Australian Credit Licence rollout until midAugust, with ASIC saying that the channel had received 60 of the 65 licences issued.

The state of WA was ahead of all other states in the transition to licensing, having had 26 licences issued to applicants under the National Consumer Credit Protection Act. NSW was second on the list, with 14 licences approved, while 12 licences were granted in Queensland, 10 approved in Victoria, and two credit licences granted in South Australia.

Tasmania, however, had had no licences issued by ASIC. By mid-August, ASIC had received 411 credit licence applications, out of the 14,760 registrations that were lodged prior to the 30 June 2010 cut-off.

The remainder of the registered parties have until 31 December to lodge an application to be licensed.

According to ASIC commissioner Peter Boxall, the online application system for ACLs has been well-received, and he added ASIC has learnt from its previous licensing experience to “cut unnecessary red tape and the cost of compliance for credit participants”.

ASIC said the other five licences granted by mid-August went to credit unions and similar providers.

However, ASIC has been forced to grant extensions to the official NCCP registration period for a number of industry parties, after they failed to meet the

cont. from cover

>>

Cummings’ comments follow the announcement of record end-of-year profits for CBA of $6.1bn in cash and $5.7bn after tax. CBA chief executive Ralph Norris attributed the record profits to the bank’s “unrelenting focus over the last four years on our customers and our people”.

However, he warned that underlying business activity is likely to be softer than anticipated in the next six months due to lower business and consumer confidence in the face of

deadline on 30 June this year.

ASIC has confirmed it had granted at least 19 parties extensions under the National Credit Act to allow them to lodge registrations, and was considering further extensions.

ASIC would not elaborate on the parties concerned, or the reasons for extending their registration.

However, it is established at least one medium-sized business has had to have their licence registration period extended, following a mistake where the business had failed to register its loan writers as well as the business in applying for credit representative status.

Under the legislation, companies appointed as credit reps in effect can’t do any loan writing, as this has to be done by ‘human beings’ or ‘natural persons’ under common law legislation. These ‘natural persons’, therefore, need to be individually accredited by ASIC.

Housing rockets out of reach affordability problems become worse than in 2007.

Commenting on Victoria’s situation, the Housing Industry Association’s Victorian executive director, Gil King, said as housing affordability “slips away”, so too does the “chance for many Victorians to realise their dream of owning a home”.

“Unless as a nation we are willing to accept that home ownership is no longer a fundamental tenet of our society worth fighting for, then substantial federal government engagement in addressing plummeting housing affordability is required,” King said.

The affordability index produced

by HIA-CBA combines interest rates, household incomes, and home prices to determine affordability conditions.

Peter Boxall

Melbourne is becoming almost as unaffordable as Sydney according to the most recent Housing Industry Association – CBA Housing Affordability Report, which shows that interest rates and rapid house price growth is pushing housing across the country out of reach.

The report showed that Melbourne’s affordability dropped by 6.7% in the June 2010 quarter, which puts the city’s affordability down by 39.8% when compared with the same period a year ago.

Meanwhile, regional affordability in Victoria also fell by a huge 9% during the quarter, to a level that means affordability has dropped 32% since the June quarter 2009.

However, the largest falls in affordability came in Sydney, where the ability of prospective buyers to enter the market was impinged by a drop of 9.1%, while homebuyers in Adelaide also suffered a significant hit, after an 8.7% drop. Regional Tasmania was also high on the list of difficult locations for new buyers to enter, after affordability decreased by 8.8%.

The combination saw a national decrease of 9.5% in affordability over the June 2010 quarter in the nation’s capital cities, and a 6.7% decrease in regional Australia, a decline that has been labelled a crisis by housing pundits, as

economic volatility in Europe and the US. Cummings agreed, calling the result a ‘tremendous effort’ but also highlighting the difficulties of the current economic situation.

She warned that CBA will be taking a conservative growth position going forward, as well as continuing its focus on customer satisfaction and “making money safely”.

“The Australian economy is strong compared to Europe and the US,” added Cummings.

“However, we are still facing strong headwinds. The pressure

on margins continues to increase due to funding costs both in the domestic and overseas markets.”

She also revealed that home loans total income was $2,405m – over one-third of CBA’s total income for the year and up 38% on the previous year. Total home lending volume growth was 11%, compared to systems growth of 8%, with broker volumes increasing by 16%. Third-party originations accounted for 36% of the total home loan originations for the 12 months to June 2010.

Reaction to CBA’s profits have been mixed, with FBAA president

Peter White summing up the bank’s position as a ‘catch-22 situation’.

“We have to have a healthy banking sector, and we need our banks to be profitable,” he said.

“The end-of-year announcements we’ve seen from banks thus far certainly show that Australian banks are healthy.

“However, I’m not surprised that people have criticised the bank: coming out of the global financial crisis and posting a 42% increase in cash profits while many people are still hurting is going to provoke anger.”

 Affordability angst • National housing affordability

drops 9.5% • Sydney is worst affected,

dropping 9.1% • Melbourne market entry gets

6.7% harder • Regional Victorian affordability

dives 9% Source: HIA-CBA Housing Affordability Report

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Investment lenders face NCCP hurdles The National Credit Code will impact lenders who make loans to individuals to purchase or refinance investment residential property, a leading lawyer has warned.

Gadens Lawyers’ senior banking and finance partner Jon Denovan said a common type of loan provided is a three-year interest-only loan, which includes a common condition that if the loan is repaid early, the borrower must pay interest to the date of repayment, plus three months additional interest. “The three months additional interest was an

important revenue source, as it covered the lender’s loss of opportunity while it found a new investment for its money,” Denovan said. However, the National Credit Code prevents lenders charging interest other than on daily rests. In addition, the NCCP Act provides that a borrower is entitled to repay a loan at any time upon payment of interest charges and other fees and charges up to the date of repayment. “However, the provision also allows lenders to charge early termination charges if provided for in the contract,”

Denovan said. Restrictions in the NCC on early termination fees will present challenges, according to Denovan.

“In the past, opportunity costs have not been a material concern as most retail lenders had a large pool of loans, and so re-lending was not a significant challenge,” he said.

“On the other hand, smaller lenders, especially specialist residential investment lenders, may face delays of six months or more before they can re-lend, and the return while money is on stand-by may be small.”

Meanwhile, requirements for lenders to follow procedures to determine if a loan is ‘not unsuitable’ for a borrower will present difficulties due to differences between investment and owner-occupier loans.

“Generally, an owner-occupier needs to be able to demonstrate a medium to long-term ability to service the loan repayments. On the other hand, an investor may have specific investment strategies that make it reasonable to accept pre-paid interest, interest capitalisation and special exit strategies,” Denovan said.

18 www.brokernews.com.au

News

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

MFAA backs DEFs The MFAA has come out in support of deferred establishment fees (DEFs) as part of a formal response to ASIC’s ongoing consultation on “unfair” and “unconscionable” exit fees.

The industry body claims that DEFs are an important mechanism allowing the nonbank sector to offer increasingly competitive interest rates to borrowers.

“A deferred established fee is not a penalty for breach of contract or even a fee for early repayment; it is applicable when a lender gives the borrower the option of deferring the establishment costs of the loan

(which most lenders require to be paid upfront) in return for a lower rate,” said MFAA chief executive Phil Naylor. “There is no requirement to pay the fee at all if the loan continues beyond a specified period; usually three– five years,” he added.

Naylor warned than any regulatory intervention on DEFs could “ultimately be to the detriment of consumers”. “The reality is if non-bank lenders were required to diminish deferred establishment fees, the end result would be higher upfront fees and higher interest rates,” Naylor said. “In turn, this would reduce any downward pressure on

interest rates, and reduce the likelihood of innovative and competitive products.”

In June, ASIC released an industry consultation paper on early exit fees, which under the National Credit Code can be annulled or reduced by a court if deemed unconscionable, and under the Australian Consumer Law can be declared void if unfair.

The regulator said the new provisions would strengthen ASIC’s ability to challenge unfair early exit fees, as the regulator feared that excessive early exit fees may in fact deter consumers from switching to another

mortgage with another provider.

AIMS Home Loans and other non-bank lenders have expressed concern with proposals to crack down on exit fees, saying any changes would impact competition in the market.

Phil Naylor

Application kits save time and money

An ACL application kit available from financial services training provider The National Finance Institute could save prospective licence holders from unnecessary costs during the transition to ASIC’s supervision of the

industry, according to its managing director Peter Heinrich.

The NFI’s step-by-step guide to obtaining a licence, launched at the time the legislation was introduced, is a do-it-yourself manual that includes all the

necessary information to apply for a licence.

Heinrich said using the “self-explanatory” and “easy-touse” kit meant applicants could avoid paying an external provider between $3,000 and $10,000 to apply for a licence, as well as make their business compliance-ready for the new regime.

Other kits available to brokers “appear to be cheaper”, Heinrich said, but often require applicants to either buy more material or obtain further advice to comply with different aspects of the legislation.

The application kit, which sells for $957, covers all aspects of the mortgage broking business, and includes a walkthrough guide to the application process, the required policy templates, a summary business description template, guidelines

on all the other information required in the application process, as well as a preapplication checklist.

Heinrich said templates can be used for other aspects of the business, such as the risk management plan, which can be used to cheapen rates on PI insurance coverage.

Peter Heinrich

Connective allies with Lifebroker Aggregator Connective will offer life insurance products through a new partnership with online life insurance broker Lifebroker, as it seeks to diversify its offering to brokers.

Lifebroker, which deals with 13 insurers in the Australian market, offers access to life, total and permanent disablement, trauma and income protection insurance policies.

Taking care of the mortgage component initially, brokers will be able to refer clients to Lifebroker to ensure the debt will be covered in the event of a serious illness or injury.

Connective principal Mark Haron said Connective’s “main priority is mortgage broking”, but that the group is aiming to boost its range of service and its systems.

“We see this alliance as taking positive steps forward, not only for us as a company, but also for our clients,” Haron said. “We want to ensure our customers are taken care of, not only during the initial mortgage process, but [with] what happens after.”

Haron said the Lifebroker alliance enabled the aggregator to provide a “full package”.

Lifebroker managing director Chris Eade said the deal with Connective was a way to broaden the group’s client base, by giving it access to an extensive range of mortgage clients.

Lifebroker is operated by National Financial Solutions, which provides financial planning and boutique investment services, as well as life insurance product advice.

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19

Karen Hambleton-O’Grady is the proprietor of Simply Mentoring

OPINION DO NEW BROKERS KNOW A DEAL WHEN THEY SEE ONE?

Being thrown straight in the deep end is leaving budding brokers bereft of many basic industry skills, argues Karen Hambleton-O’Grady With industry pressure pushing for the traditional mortgage broking course to be delivered in as short a time as possible, this direction has created its own set of problems. Once upon a time, brokers spent weeks and months refining their knowledge through well-paced courses delivering strong skills and competencies. They spent ample time work-shopping loan scenarios, structuring deals, learning how to read financials and the important compliance procedures behind a successful mortgage broking business.

However, brokers now – especially those new to the industry – face challenges. For instance, without the proper training, how will they know when a deal is really a deal? Without strong learning behind them, the new broker often struggles and this transpires to lower the quality of submissions getting to the lenders.

New brokers often feel stranded, not knowing how to correctly structure a deal for their clients, which can create many situations that involve repeated ‘reworking’ of a deal to get it over the line.

The real cost of this inefficiency on the part of new professionals can actually end up being shouldered by other brokers in their aggregation group.

Some lenders calculate the commission paid to the broker group as a whole based on the quality and conversion ratios of the whole group, not just the individual. This may mean a reduced commission payable to the other brokers who are doing their best to submit quality submissions. This creates a loss of earnings simply because some brokers are not knowledgeable enough.

The key for brokers new to the industry is to get up and running as quickly as possible, and learn the signs for when a deal is actually a deal. This comes from knowing the right questions to ask of a customer at the initial fact-finding session, from training and experience. The learning environment a new broker chooses is paramount to their success, and with ASIC now requiring that new brokers have a mentor

for two years, the education must be planned and sustainable to overcome issues such as deal skills, even if they choose to work part-time.

The mindset of a new broker must be full-time, regardless if they choose to work part-time, and the attitude of broker (and mentor) must be tuned to success and quality business. Those new to the industry must have a solid plan in place to: • Learn new product knowledge • Present solutions to loan scenarios • Build client relationships and create networks • Self-manage sales performance • Analyse and research information • Present information in a logical format • Develop a sales plan • Secure commitments • Make a presentation to clients One of the pitfalls new industry entrants face is they often do not realise that they are actually in sales, not finance. In selling, customers will buy from the person they like (and trust) the most, if there are two people selling the same product. New brokers need to be aware that there are techniques available for them to ‘sell’ product effectively: • Passion – they must believe in the product being sold or it is really a waste of time • Persistence – others won’t persist and will often let their guard down, and this is where new brokers can successfully win new business. If there are times that they’ve lost business to someone else, their competition was probably more persistent.

• Discipline – how is their attitude? Do they talk themselves into or out of a sale? When they look at a deal, do they think that they will never be able to get it set or do they believe that it is possible with a little persistence?

• Systems – refining the systems brokers have or commencing with one is important, for those brokers who want to enter the industry and build a sustainable business.

There are many areas to consider and improve on when brokers commence in the industry. The skill is to identify these and rectify them. Remember, if you are new to broking then choose your mentor well: you will be locked in with them for two years.

The key for brokers new to the industry is to get up and running as quickly as possible

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Comment VIEWPOINT

With recent doom and gloom predictions on the ‘bubble’ in Australia’s housing market, Australian Broker asked leading pundits for their views on where housing is heading

Gerard Minack

Andrew Harvey

David Airey

Anthony Ishac

Chief economist, Morgan Stanley

Senior economist, Housing Industry Association Economics Group

President, Real Estate Institute of Australia

General manager of research and valuations, Australian Property Monitors

Australia’s debt-fuelled housing market remains a major macro risk. Dodging the worst of the global financial crisis didn’t demonstrate there’s no bubble, in my view it just showed we dodged it. I’m not persuaded by arguments that say houses are sustainably priced; I’m not persuaded by the view that debt is not a problem; and I’m not persuaded that policy makers could prevent collateral damage to banks. In my view, Australian house prices are expensive on every value metric. They are expensive relative to history, and expensive relative to houses in comparable countries. Most measures suggest house prices are around 40% above fair value.

There’s a word for a financial asset that’s over-valued by 40%, so let’s use it: housing is a bubble. However, the risk of big price declines in the near-term seems low.

I don’t believe the doomsday scenario. To see the kind of major correction that some commentators are predicting would require significant employment losses, which is highly unlikely. The labour market is performing well, confidence is solid and the chance of further rate hikes has recently lessened a little.

Moreover, the fundamentals of Australia’s housing market are very different to those overseas.

Indeed, supply-side constraints are preventing us from bringing new homes on-line to satisfy underlying demand. So, while a small correction in the housing market is a possibility, any sudden large loss of value is unlikely.

Currently, the national property market is stabilising after a period of strong and consistent growth. REIA’s data highlights that historically, median prices compared to income have been relatively stable for the past 10 years, taking into account normal fluctuations. When determining the future path of house prices, we need to consider population and migration, supply of housing, composition of households, ageing of the population and tax structure. History tells us that over the period December 1996 – December 2009, median house prices increased from around $160,000 to around $500,000; a steady trebling in 13 years – this included four distinct phases of both increases and decreases in the median price. Over the medium to longer term house prices will continue to grow, albeit with short-term variations.

The doomsayers had their best chance to be right during the middle of the global financial crisis when Australian property fell by less than 5%. It’s hard to see a bigger trigger in the medium-term. Whilst property price growth cools from the boom levels seen over the last 18 months, with unemployment anchored under 5.5%, population growing strongly, a chronic undersupply of housing, mortgage arrears remaining stubbornly low and building approvals for new dwellings falling, it’s hard to see anything other than demand continuing to outstrip supply for the next few years and supporting steady price growth into the future.

FEATURED VIEW

Kevin Lee Smartline personal mortgage adviser

There is much self-interest involved in the property industry – so the truth is often

lost in the fog. Some basic facts should help clear the ‘fog’; facts most property experts tend to ignore.

A key strength of property as an investment vehicle is that, in the main, residential property markets across Australia have a ‘natural’ buffer of 70% owner-occupier versus just 30% investor ownership. Analysing the 30% investor base, some 70% of these are ‘single property novices’. The remaining 30% are multi-property investors.

Result: ‘residential property’ is generally not a volatile market. Want proof that residential property is not a volatile market? The Big Four banks still lend up to 97% against quality residential property, however, they will only lend 70% against the shares in our best companies.

Why? Banks know their game: it’s all about the risk factor!

In relation to the 70/30 ratio mentioned above: what’s the potential downside of an investment in real estate?

Potential loss of capital? Ten, 20 – maybe 30% of the purchase price?

And the potential downside for shares? Many people over the past few years can attest to losses between 30% and 60%.

And thousands saw their entire investment wiped out. Not much safety in that market?

For the next fact, look at Sydney in isolation. It is the only city in Australia “geographically constrained” in what is referred to as the ‘Sydney Basin’. With around 4.25 million residents right now (and 5.1 million projected by 2020), it’s easy to see why Sydney is similar to New York, Hong Kong and

London – to see Sydney’s future, have a look at property prices in those cities.

Brisbane and Melbourne will also add more than a million extra people each during the next 10 years, resulting in even more urban sprawl.

So, will the Australian property market continue to have a rosy future, or will it collapse as predicted by the doomsayers like Gerard Minack of Morgan Stanley and Steve Keen from the University of Western Sydney? As long as interest rates remain in the ‘affordable’ range, people keep their jobs and our economy doesn’t collapse, it will be business as usual across Australia. I think my threeyear-old grandson answers it best, when he responds to most questions with: ‘you tell me’!

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21

FORUM PROPERTY DOOMSAYERS, A CREDIT CRUNCH, AND AFFORDABILITY ANGST When Morgan Stanley’s Gerard Minack controversially predicted a possible house price implosion of up to 40%, brokers came out both against, and in support, of his view.

Here’s what you said – on this and other issues – on the Broker News forum.

I think he might have been talking about Austria, not Australia. Rents have never been better, the banks aren’t letting you take cash out and it’s hard to sell a house for more than it costs to build. This man is very ill-informed.

Commented by: Steve Taylor at 18 Aug 2010 11:06 AM I was thinking we need a way to make people more accountable for their words. The only saviour here is that no one in their right mind would take any notice. Morgan Stanley clearly do not care too much for their reputation in the marketplace.

Commented by: TW at 18 Aug 2010 11:58 AM I tend to agree with him. As for his credibility, chief strategist at Morgan Stanley, that’s not a job you get by doing a Cert IV. I’d say he knows a bit about money and asset bubbles. I can already see softness in Sydney’s inner west – the gravity-defying bastion of over-pricing.

Commented by: No time like the Future at 18 Aug 2010 12:45 PM I would tend to agree Australian housing is over-priced and is supported by a tax system that encourages speculation. The whole investment property industry is reliant on negative gearing (losing money and claiming a tax deduction). Imagine the demand for housing if this were to be reduced or removed totally. Would most investors pay the prices out there now and go into debt (as not many could pay cash) to get the sort of income (rent) yields that residential property pays (before costs)? I doubt it. The performance of property, like any asset, is based on the price at which you purchased it – the costs of owning it and the sale price after tax and inflation.

Commented by: Fergus Hardingham CFP at 18 Aug 2010 01:02 PM

The Labor Party’s Julia Gillard waded into credit during the election campaign, saying she would restrict the way credit cards were marketed and operated if re-elected.

It’s nice to see someone finally looking into this. Credit cards are an evil beast that slowly cripples the many who do not know how to control their spending. The same can be said for interest-free shopping. Customers pay an inflated price for the goods and are then

sometimes charged massive amounts of interest for not paying in time.

Further, what about our young who do not understand the trouble they are getting themselves into with credit cards? Good money management is not taught in school and many parents have grown up in a credit society and therefore find it hard to teach their young good principals.

Commented by: Jim at 16 Aug 2010 10:31 AM I agree with Jim. Over the years we have seen rises and decreases in home loan interest rates but not with credit cards. To obtain a home loan you have to provide documentary evidence of your income, and assets and liabilities. However when banks send out automatic increases to credit card limits they do not ask the client if their circumstances have changed, don’t ask to see any payslips or ask the client whether they can afford it. Banks need to take ownership, be responsible and accountable on automatic increases in credit card limits.

Commented by: rosiej at 16 Aug 2010 11:54 AM Nice bit of election spin. It might or might not happen. The real question is: why wasn’t this addressed in the NCCP? Most people don’t get into debt trouble from home loans, it comes from credit cards and personal unsecured credit.

Commented by: Peter T at 16 Aug 2010 12:06 PM

Opinions around the impact of regulation on first homebuyers continued to flow Interesting, this new legislation and responsible lending. What will happen if I am interviewing a young couple for first home purchase and deem that, in my opinion, they are not going to be able to afford the new loan based on the fact I believe they will have a baby in the next couple of years and will only have one income, and I also believe rates will be higher by then. Gee, how many first-home borrowers/buyers will there be left?

Commented by: Tony at 05 Aug 2010 04:14 PM Solutions suggested: ban the purchase of domestic housing property by anyone other than Australian residents, cancel the first homebuyers gift, reduce migration to replacement levels only of, say, 50,000–100,000. This should see a rapid 20% reduction in prices.

Commented by: Decimus at 19 Aug 2010 02:22 PM To join the debate, go to www.brokernews.com.au/forum

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Comment OPINION SMALL BUSINESS SHOULD BE SPARED FROM UNNECESSARY CREDIT REGULATION The following is an edited version of a submission made to Treasury by Finance Solutions’ Raymond Weir, along with other WA brokers, in response to the National Credit Reform Phase 2 Green Paper Small business borrowers have been adequately protected in the past by the Trade Practices Act 1974, the Australian Securities and Investments Commissions Act 2001 and state fair trading laws. To the best of my knowledge the incidence of complaints from this type of borrower has been negligible. Further remedies are available to borrowers that obtain credit from lenders that are subject to various industry codes, such as the Banking Code of Practice, the Mortgage & Finance Association of Australia’s Code of Practice and External Dispute Resolution Schemes. Most practising finance and mortgage brokers are members of a professional body and EDR scheme and are therefore also subject to various external codes and disciplinary procedures.

Further government regulation of credit for small business borrowers is not sought by any stakeholder or consumer advocate and is unwarranted, for the following reasons: 1 In my 34 years of experience in the finance industry, persons owning and operating a small business either as a sole trader, partner or company director are sufficiently experienced and knowledgeable to protect their own interests when obtaining credit.

2 Excessive government regulation may restrict competition as non-bank lenders, who frequently have a more flexible approach to loan structuring and assessment than banks, will have difficulty in meeting the extensive compliance standards. Non-banks don’t have the unlimited financial and personnel resources that banks have in order to meet exhaustive levels of regulation, and as a result may be forced out of the market.

3 Past Federal government (ACCC) decisions that have allowed countless bank mergers over the past 10 years have led to a severe lack of competition in the Australian banking sector. This has been exacerbated by the global financial crisis which, together with the government guarantee of bank deposits, resulted in considerably reduced funding available to nonbank lenders. In fact, deposits have flowed out of the mortgage securitisation market and mortgage trusts to the banks, further limiting competition among small business credit providers.

4 Small business enterprise affords many Australians with the opportunity to break free from being “employed” to become “self-employed” and therefore assists in the growth of the economy and expansion of the labour market. Restricting the availability of

“start-up” finance, which is often secured by equity in the family home or investment property, will stifle economic growth and impede freedom of choice to be self-employed. Because banks rely heavily on past tax returns to prove serviceability, they often will not provide finance for new business “start-ups”. This sector of the market is better served by more flexible and less risk-averse non-bank and private lenders that rely more on security to protect their investments.

5 Credit for residential and commercial development will become more difficult to obtain as credit providers will be forced to apply the same “debt servicing” criteria to builders and developers as they do to personal and household borrowers. Developers almost always rely on meeting interest on construction and subdivision loans from cash on deposit or equity in the available security, pending completion and sale of the project (with subsequent full repayment of the loan within 1–2 years). Applying the same debt servicing standards that apply to personal and household credit will severely restrict, if not completely choke off, credit to small developers.

If the government was to place a further layer of regulation upon credit for small business, similar to those applicable to personal borrowers, it is likely to restrict the availability of small business credit. Any further regulation should be limited to requiring the credit provider or intermediary to hold adequate PI insurance and be a member of an EDR. In relation to private lending, based on Australian and English case law I am satisfied the majority of private lenders involved in “one on one” loans (that are not covered by managed investment laws) will be exempt from regulation because they will be able to demonstrate they do not fulfil the definition of “carrying on business of providing credit, or incidentally to another business”.

As this source of finance has long filled a niche for short-term lending for property investors and business borrowers (6–24 months commonly, amounts in the range of $50,000 to $300,000), this valuable source of credit would shut down if it became regulated.

Private lenders clearly cannot meet a high degree of regulatory compliance.

Raymond Weir is director of Finance Solutions, and an A-Class licensed finance broker in Western Australia. He is a former chief executive officer of the FBAA

Small business enterprise affords many Australians with the opportunity to break free from being employed

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23

News New training program to polish soft skills

Traineeship Management Australia (TMA) has launched a 12-month diploma and mentoring program for aspiring brokers that will include training in soft competencies such as customer service, sales, and para-broking.

In an industry first, students will also be put through a mentoring program where they will settle at least three live

loans under the supervision of experienced practitioners via The Mortgage Academy.

The face-to-face offering – initially running out of Melbourne – will see students graduate with a Diploma in Financial Services (Finance and Mortgage Broking Management) which encompasses Certificate IV (Mortgage and Finance

Broking) as well as competencies in ASIC Tier 2 General Advice requirements.

The additional soft competencies aim to give students a “practical understanding of the end-to-end process of lending”, according to TMA managing director Scott Donnelly, and include cross-selling or ‘diversification’ training, and coursework on referring clients to other advice professionals.

“All too often we see courses that deliver students into the industry without any real understanding of what practical skills are involved in being a professional mortgage broker,” Donnelly said.

He argued the TMA program is “by far the most robust in the market”, after the inclusion of the “much-neglected” soft skill competencies as well as practical know-how through mentoring into the program.

TMA expects to conduct the course in other states next year, and a fast-track model will be

offered to candidates with industry experience who wish to broaden their industry knowledge. TMA was launched in 2005, and the team includes the MFAA’s former head of professional development, Michael Eddy. Uptake of its courses has been assisted by a subsidy from the Commonwealth and Victorian governments allowing students access at discounted rates.

 TMA’s ‘soft’ customer service competencies • Responding to customer inquiries • Processing customer complaints • Maintaining customer databases • Delivering a professional service

to customers • Identifying opportunities for

cross-selling of products and services • Prospecting for new clients

24

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Insight EXECUTIVE COUNSEL

Mark Bouris

Former founder of Wizard Home Loans Mark Bouris knows what it takes to build a business and make it a success. Australian Broker gets the inside track on his business approach

The five drivers of revenue growth In challenging times, driving growth in business revenue growth can seem like an uphill battle.

Peter Heinrich outlines a five-step road map for increasing your business’ bottom line

What main goal got you to where you are?

I never expected or chased wealth, I simply continue to do what I love and feel passionate about.

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

Success means different things to different people.

Basically though, it’s about hard work. You can get off your butt and do something with your life or you can watch everybody else.

At the end of the day, it’s about how much you really want something and how hard you’re willing to work to get it. There are always ups and downs but if you keep trying, you’ll get there.

What character trait has helped you the most in business?

Hosting The Apprentice Australia has made me realise that you can’t underestimate people. Even someone 19 years of age can have something valuable to offer. Sam Hooper, a 19-year-old contestant on the show, proved to me that age is no barrier to enthusiasm and potential. I think it’s important to remind yourself sometimes that it’s not only your peers that you can learn from – you can learn something from everyone.

At the end of that series I offered Sam a job and he now works for Yellow Brick Road.

What is the key to great business relationships?

Be open and honest. It’s true not only of your business relationships, but your customers as well.

If you’re not, people see through you.

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

Three things: 1) What’s the calibre of the team?

2) Make sure there is enough capital 3) Ensure that I understand the marketplace What’s the best piece of advice you’ve ever received?

Kerry Packer once told me, ‘take the money off the table’. It makes the situation much clearer.

What trend are you currently watching?

The recovery of the US economy.

What is your next big ambition?

To ensure Yellow Brick Road continues to challenge the Big Four banks.

Australians deserve a better deal – and Yellow Brick Road can give them that.

I

t’s no secret that growing a mortgage broking practice is tougher than it ever was. In years past broking firms could focus on working hard and delivering (what they thought) was excellent customer service. This was enough to grow revenue through repeat business and referrals, but not anymore.

Clients are far more sophisticated and demanding, and competition much tougher. Change is constant, sudden and scary (for example, commission cuts, the GFC, the FHBB) so accordingly brokers must change with the times. Many are simply overwhelmed by the changes and are just ‘hoping’ everything will be fine.

However, better brokers are taking on the changes – rising to the challenges and taking advantage of new opportunities. I believe maximising revenue growth can be divided into just five essentials, outlined below:

1The interview process

Interviewing used to mean you got a phone call and angled as hard and quickly as possible to get an appointment. You got to the client’s house, collected the information from them while filling out an application form and hoped you could make it work – not good enough. You now need to collect as much information as possible before seeing the client and turning up prepared to sell them a loan you have prepared for them.

Under the NCCP and its reference to the term ‘not unsuitable’, the use of a needs analysis form or prospect sheet to collect information is crucial. From this you can ‘prepare’ for the interview before you go and see the clients so that when you are there you are ‘selling’ rather than ‘collecting’. The best prepared broker will always win the loan as opposed to the broker who tries to wing it.

For new brokers, preparation is the way you overcome the lack of knowledge and experience. Remember that the first experience is the first step in retention of the client – and retention starts from the first meeting.

How well do you measure up?

The five drivers of growth 1. How well do you handle the interview process?

2. Is your practice set up to maximise the success of the business you’ve developed?

3. How attractive is your service and value proposition?

4. Does your marketing strength measure up?

5. Are you branding, generating leads, and supporting marketing success to generate loyalty?

Peter Heinrich is co-author of ‘The Mortgage Marketing Handbook’ and can be Peter contacted through www.

Heinrich financeinstitute.com.au

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2Structuring your practice

How well is your practice set up to maximise the success of the business developed?

Clients measure how you respond to their enquiry. Referrers want to see how well you handle their referrals. Referrers must be rewarded and treated very well and the best way to do it is to respond to their referrals really well.

You must be in constant contact with referrers and your client management must be exceptional (through your CRM). Your delivery to clients must be impeccable – what can you do for them? A good way to judge yourself is to ask ‘what does the best in the industry look like’ – and ‘how can I do that?’

3Service and value

The attractiveness of service and your value proposition must be continually improved. Eighty per cent of brokers believe they provide superior service, but only 8% of their clients agree. So how do you find out? A simple way is to survey all your clients and probably the best time to do that is when you have obtained approval for them. Do not ask too many questions (three is enough) and allow space for comment.

The ones where the client may criticise your service are the gold ones because the honesty allows you to improve your service offering. Other areas you need to concentrate on are continually improving your skills and knowledge and development of your process. Your motive must be at all times to do the very best for your client and provide them with heaps of explanation and feedback.

Ensure you are totally up to date with your computer system and what it can do for you and think long-term on the consequences of what you are doing for your client.

4Marketing strength

Why do so many marketing efforts under-achieve? The principal reason is lack of focus: too many ideas poorly executed or not followed through. If, for example, you do letterbox drops, you can’t do just one; you must do nine or 10 before you can ascertain whether it worked or not.

Good marketing must create conversations with potential buyers and increase your odds of winning client engagements. Your aim must be higher revenue per engagement and higher fees. Good marketing concentrates on answering this question: ‘we need…’

The lower the cost and the more consistent the marketing, the more effective it generally is.

5

Earning loyalty

Build your brand, generate leads, support marketing success, establish loyalty – sounds easy doesn’t it? Does your brand include trust, loyalty, and desire to refer? Do you know where your leads come from and how do you measure that? Do you deserve to win the loans and how do you reward your referrers? Loyalty (like trust) is earned (it is not a right). Do you stay in touch (often) – what do you need to do?

We are told about 40% of people taking out a loan use a broker. This tells me there are 60% of people taking out a loan who are yet to experience the advantage of using a broker. More importantly, more than 50% of people refinancing use or intend to use a broker – so this gives us an indication of the market strength brokers have and which areas they need to concentrate on.

There is undeniable evidence that repeat business (loyalty) follows client satisfaction. Further evidence suggests that client satisfaction is driven by the value the client perceives they receive from their broker. I would suggest most brokers know this – but what we do about this knowledge is much more important.

WORK IN PROGRESS  Planning to recover your lost clients Client recovery is always an important consideration for brokers, as from time to time things are going to go wrong with a client, or expectations are not going to be met. The unique thing with the broking channel is they don’t control the entirety of the service proposition – being reliant on lenders, mortgage insurers, valuers and solicitors – so it’s often unclear what went wrong. What should you do in this situation to protect your business?

Who is the client? Clients are either those that talk, or those that walk. Those that talk will make it known they have a problem, while those that walk are more ‘tricky’, as it’s harder to establish if they are happy, and they don’t tell you upfront what their problem is.

Sell service: Tell clients upfront that you are going to conduct client surveys and service is important to you, to ensure they let you know if there are any problems along the way.

Have a plan: Establish a client recovery plan that seeks to recover the customer, or at least make them a ‘neutral ambassador’ for your business. Client recovery should also be a constant response in negative feedback situations.

Communication: Communicate with the client to establish where the concern with your service lies, to see if the problems that occurred in the first place can be corrected.

Get help: All brokers can speak to their peers about their experiences, get advice on PD days, or consult a mentor or coach to help them with their client recovery strategies.

Source: Doug Mathlin, Frontrunner Consulting

25

MY WAY 1st Street Home Loans’ Jeremy Fisher tells Australian Broker success is about planning, persistence, professionalism and exceeding clients’ Jeremy expectations on service Fisher

What is your greatest business achievement?

I still feel that my greatest achievement in business was being able to progress past that first year and persist with my plan of building a successful mortgage broking business.

What’s the key to getting business through the door?

In an industry where trust, professionalism and dependability are paramount, a lot comes down to the client service proposition. I have worked hard to build a reputation for offering excellent client service and I feel that this is the reason for many of my referrals.

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

My goals focus on providing exceptional client service and strong client retention. Each year I try to improve particular aspects of my methods to continue to meet or surpass these client service and retention goals.

Who has helped you the most, and how?

My aggregator, nMB, has been by my side since day one and has offered me plenty of support and guidance.

What character trait do you most value in yourself?

I always aim to treat people in a way that I would like to be treated. In my business this comes through in the responsiveness, attentiveness and dedication to clients.

How do you stand out from the crowd/competition?

1st Street provides a highly personable service and part of this approach is having shopfront offices. It has been great for the business in that the shopfronts create the feeling of permanency and accessibility.

What do you say when the going gets tough?

I always try to remain level-headed and stick to my guns, and reassure myself that if I do so then everything will work out fine in the end. Sometimes I also review past experiences and outcomes for reassurance, as well as working longer hours as necessary.

What is one thing you want to improve in your business?

I have been expanding the risk insurance side of the business which is an exciting development. Our new risk insurance team will provide a more holistic approach to finance and further our duty of care.

What piece of advice would you give to an ambitious broker?

Always act with professionalism and integrity in both work and social environments. Look after your clients and through referrals they will look after you. Have a good plan and give yourself time to succeed.

What’s your next greatest ambition?

I am working towards having 1st Street shopfronts and brokers in all states whilst retaining the same personal, reliable and professional service that has been the backbone of the business since the beginning.

26

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Market talk

Bouncing back

Melbourne has seen a torrid winter following the boom of 2009.

Is it finally over?

I

t’s been a long, hard winter in the state of Victoria. Not only has the state had to contend with the harshest weather seen in several years, the property market well and truly slowed following the highs of 2009 and early 2010.

You just have to look at the contrast in figures to see the difference: while Residex’s full-year growth up to July stands at nearly 19% for houses and over 16% for units – far and away the best in the country – growth for the last quarter stands at less than 2% for houses and 2.27% for units. That’s a slowdown of over 5% and 3% respectively, compared to the April quarter.

However, the signs are that the potential freefall that many feared has been arrested, and that Melbourne is getting back on its feet. Jarrod Frazer, director of CB Richard Ellis (CBRE)’s Victoria office, is confident that the market has stabilised. “The situation for Melbourne completely changed in the quarter leading up to August –

it levelled off significantly over the course of 8–12 weeks,” he says. “We’re seeing prices coming back by up to 10% on what they were at the height of the frenzy; however, that’s probably a good thing, as I think the market would have struggled to support 2009 prices in the longer term. Where we are now is more realistic.”

The amount of housing stock on the market is also starting to settle, following a spike early in the winter season. That, says Frazer, was due to sellers attempting to catch the crest of the wave and failing. “People are now more realistic in terms of their asking price, and stock levels are back under control,” he adds.

Brendan Smith, valuations manager at WBP Property Group, concurs. “I’d go as far as to say the market is stagnant right now – that’s probably a good thing,” he comments. “Houses aren’t simply selling themselves any more, and vendors have come back down to earth. The market is at a much more realistic level.”

Smith suggests that Melbourne will continue on a stable path for at least the rest of the year – assuming there are no unexpected economic shocks. “Interest rates are likely to stay on hold, and much depends on the wider economic factors, but generally it looks like the market will stay at a similar level for the next few months. I’d predict growth of between 2% and 5% for rest of the year.”

Not everyone is as positive as Frazer about the city’s short-term prospects, however. Louis Christopher, managing director of SQM Research, reckons there may be a danger of oversupply. “The area I’m concerned about is within 3km of the CBD,” he comments. “There are a few areas which have seen oversupply of apartments, and there’s a danger this could continue.”

Frazer disagrees that there’s any chance of a wider oversupply issue. “The number of people coming into Melbourne is still very high, and they still need housing,” he comments. “We’re nowhere near having any kind of oversupply problem.”

Christopher even suggests that activity could pick up again in the coming months. Even so, all three advise buyers to pick their purchases carefully. “Do your research, make sure you know what you’re trying to achieve and where the risks are,” he says. “It’s a difficult call – Melbourne could become a real buyer’s market come spring and summer: it looks like there will be choice of stock and the option to pick something up for a good price.”

Christopher adds that, despite a more stable prognosis, Melbourne will not be the property location of choice this spring. “I’m most bullish on Sydney as the best area for growth, due to the NSW capital’s circumstances relating to supply of housing and employment opportunities.”

People are now more realistic in terms of their asking price, and stock levels are back under control

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MARKET NEWS IN BRIEF Sydney sees off-the-plan interest surge

The NSW government’s waiving of stamp duty costs for people buying off-the-plan dwellings of under $600,000 has contributed to an increased amount of buyer interest in residential developments in Sydney.

Two of Sydney’s most prominent residential developments had almost 1,000 buyer inquiries, even before the apartments have officially been put on the market. Caritas – the St Hilliers Group development in Forbes Street – had 650 people interested in purchasing off-the-plan apartments. Meanwhile, Meriton’s development site in Epping has also had strong interest, having seen over 300 applications.

27

NUMBER CRUNCHING Stock levels: Month ending 15 August QLD

NSW

VIC

WA

Bearish outlook for property

The property market is unlikely to change until well into the spring selling season. Robert Larocca from the Real Estate Institute of Victoria believes that there are no factors that will influence prices to change – either for better or for worse – in the short term.

“The second half of this year has been at a much more sedate pace than the first,” he told the Herald Sun. Ray White joint chairman Brian White also added to the gloom: he suggested Australia was experiencing a ‘two-speed’ property market, with strong demand in Melbourne and Sydney and uncertainty elsewhere.

SA

TAS

NT

At same point last year Month ending 15 August

ACT 0

Unit rental growth outstrips houses

Units have shown better rental growth than houses in a relatively flat quarter, says a new report.

Australian Property Monitors’ (APM) latest quarterly rental report has revealed that while rental growth remained “largely flat” in the three months leading up to June, units had a relatively strong quarter with national growth coming in at 3.5% for the quarter. This brings annual growth for units to over 4%, compared to just 3.1% for houses. The flat market indicates that landlords accepted renters who may not have been as willing to agree to rental increases recently, says APM economist Matthew Bell.

Fees drive account switching

Lower fees and better banking infrastructures are two key reasons for consumers to switch their transaction accounts. Research by Datamonitor has revealed that account fees are the main reason for consumers to switch banks, with 43% of those who have changed banks in the last 12 months indicating that better fees were one of their reasons. Next most important was infrastructure, particularly in terms of branch and ATM penetration, with 26% of consumers moving banks due to better infrastructure.

US house prices fall

US house sales fell 27.2% in July – almost twice the drop expected, casting a shadow on economic recovery for the nation. The pace of sales in July was at the lowest rate recorded since 1999 – about 1.43 million fewer homes were sold than June. Sales picked up earlier in 2010 as a result of a buyers’ tax credit that expired in April, which added confidence about a US recovery. However, high unemployment rates of 9.5% (almost double that of Australia) contribute to demand for housing dropping, along with tighter credit conditions and a stalled housing market. The inventory of unsold homes has skyrocketed to a record 12.5 months’ supply.

10,000

20,000

30,000

40,000

50,000

60,000

70,000

As widely reported, stock levels have increased significantly from this time last year – most dramatically in Queensland, where there were nearly 8,500 properties on the market in total.

Interestingly, the number of total listings was significantly lower in both NSW and Victoria yearon-year: this is perhaps indicative of sellers in Melbourne and Sydney holding off due to the more bearish environment, buyers concentrating on proven performers, or simple churn due to greater demand.

Auction clearance rates: Week ending 8 August Clearance rate

Number of auctions

Sold

Sydney

61.2%

379

183

Melbourne

65.4%

460

301

Brisbane

20.4%

108

=22

Adelaide

55.6%

36

20

Darwin

n/a

2

0

Perth

58.3%

12

7

Canberra

80%

15

12

Hobart

14.3%

7

1

Auction clearance rates: Week ending 15 August Clearance rate

Number of auctions

Sold

Sydney

62.3%

422

263

Melbourne

63.3%

551

349

Brisbane

28.2%

78

=22

Adelaide

57.4%

61

35

Darwin

25%

4

1

Perth

11.1%

9

1

Canberra

70.4%

27

19

Hobart

42.9%

7

3

The first week of August showed clear signs of both winter and pre-election doldrums, as almost all measures slumped across the board – and volumes in particular. The week ending 15 August showed improvement, though, with the number of sales increasing everywhere except Brisbane and Perth – a good sign for both the months ahead and private sales.

All information supplied by RP Data

28

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Toolkit

Cloud computing and you

looking at hosting broker websites in the near future. The key is really to leverage the technology platform for a large number of uses.”

The advent of the mobile internet, with better smartphones and iPad-style tablets on the horizon, also makes greater cloud connectivity more of a reality. “To some extent, the method of delivery – whether phone, pad or web – is somewhat irrelevant, but the IT industry is certainly moving to a more ‘mobile’ view,” Durston said.

“Ultimately, it’s about disconnecting people from central software as much as possible and allowing them to access information and services from anywhere. Over the next three years, we’ll certainly see a stronger push to deliver services through mobile devices.”

Security concerns

Forget Web 2.0 – cloud computing is the latest computing buzzword, especially in business circles.

Indeed, CBA’s IT chief is such a convert that he’s gone on record to say that the bank will never go back to ‘conventional’ systems.

The issue has also been brought back into focus by AFG’s recent $1m investment in IT infrastructure which will allow it to provide private cloud services to its members.

That’s all well and good, but what relevance does all this have for your average broker? What does all this actually mean in real life? The chances are that you’ve already got your head in the cloud – without knowing it.

At its most basic, cloud computing just refers to applications, data and systems hosted elsewhere – not on your computer – and accessed via a web connection.

So, web-based e-mail like Yahoo or Google Mail are basically cloud

There’s no way that small businesses would be able to invest in a solution of this size and complexity

systems, as are websites such as Flickr, YouTube and even Facebook. And increasingly, aggregators’ customer relationship management (CRM) systems are also web-based, with systems, client information and compliance material hosted elsewhere.

Lee Durston, Enterprise Architect at AFG, argues that taking a cloud-based approach has a number of advantages. “We provide all our software as a service,” explains Durston. “Yes, you log in via the web, but for all intents and purposes the data and software could be on your office computer.”

The core of the service is the CRM, he adds, which is integrated with AFG’s panel of lenders and allows brokers to lodge applications electronically and communicate directly with lenders. However, that’s not all: “Also provided through the cloud are services such as disaster recovery, marketing services – particularly brokerbadged email campaigns – training, commission processing, and National Consumer Credit Protection Act compliance,” adds Durston. “We’ve also recently introduced business intelligence services for larger broker groups, so they can pull off sales reports and see trend rather than transactional views, and are

Not everyone is a fan, though.

Tim Ford, customer service manager at Linx Software, wrote in a recent issue of AB’s sister magazine MPA that going through the cloud may not be the best option for brokers.

“Perhaps most important to ask is the question ‘can it be switched off? ’ and how would that impact on your business? What would happen if your relationship with the business controlling your data breaks down,” he asks. “If your provider does go out of business, change direction or the relationship ends, can you retrieve your data – and will it be in a usable format? ” Ford also raises concerns about data protection – particularly if customer data is likely to be hosted overseas. As he puts it, trans-border data protection is ‘truly a nightmare’ and warns that there could be exposure to litigation if data gets into the wrong hands.

“As a business owner, handing over any level of control should be done with serious considerations taken into account,” he says.

“Cloud computing may be a great

Perhaps most important to ask is can it be switched off and how would that impact your business? buzzword, but the software you choose for your business should reinforce and add value, not put it at risk.”

Durston accepts there are concerns over the protection of cloud systems, but emphasises that security is paramount. “Our system is certainly equipped with robust security – firewalls and proxy networks to foil attacks, and systems like Oracle Access Manager to ensure that only the people who are supposed to access that data can,” he comments.

“Bear in mind there are two aspects to the unauthorised access question – people breaking in from outside, and also security within the system, so each broker’s individual data is secure from other brokers.”

However, the take-up of cloud services certainly seems to be strong, despite any security concerns. “We have around 2,600 members within 1,600 small businesses. Five years ago, around 1,200 of our brokers were still using our mobile solution,” adds Durston.

“Now, that’s down to around 200, and is largely put down to being held back by the national network infrastructure.”

Ultimately, Durston argues that using a cloud-based system allows AFG to support its brokers more effectively.

“There’s no way that the small businesses we support would be able to invest in a solution of this size and complexity,” he says.

“The only way they can access something like this is if it’s through a cloud system. It’s the best and most cost-effective way of delivering this kind of service.”

Quick facts: cloud computing systems Pros

Cons

You won’t lose data if your computer crashes

Concerns over security – especially if hosted overseas

Compliance material automatically updated

Possible questions over who owns the data

Access to better systems

What happens if things go wrong?

Can you take client information with you?

Access to extra services – marketing and business intelligence

Reliant on having a web connection

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29

One year on What a difference a year makes… or not. Australian Broker reflects on the punditry, breaking news and influential trends that made headlines in the magazine 12 months ago

Issue: Australian Broker issue 6.17 Headline: RBA: Stevens upbeat, but wary of China (page 17) What we reported: While Australia’s economy was proving resilient and the global economy was improving, RBA governor Glenn Stevens warned that risks still remained. Stevens said that while the likelihood of a setback occurring had declined, the global economy “could suffer another setback of some kind”. Stevens predicted that the growth in China’s demand would falter in the coming 12 months, and that growth, which was extraordinary in the June quarter 2009, “cannot continue for long”.

What has happened since?

The injection of four trillion yuan ($586bn) of stimulus to combat the global financial crisis saw a major boom in China’s economy in the year to July 2009.

That growth has slowed significantly over the past year: economic growth slowed from 11.9% in the first three months of 2010 to 10.3% in the second quarter. Last year, Chinese banks lent a record RMB9.6bn ($1.4trn), an average of RMB800bn per month. In July of this year the banks recorded a lending figure of only RMB532.8bn ($78.7bn). A further fall in Chinese growth could have global repercussions if there is a reduction in demand for US and European factory equipment, as well as iron ore and other raw materials sourced from Australia, Brazil and elsewhere.

Headline: Real Estate Institute upbeat about property market (page 17) What we reported: Improving auction clearance rates, solid ABS housing finance data and the return of property investors were all signs the property market was consolidating, according to David Airey, Real Estate Institute of Australia (REIA) president.

Australian Property Monitors (APM) statistics showed Sydney clearance rates were at 69.3% in the first weekend of August, up from 47.5% during the same period in 2008. Melbourne clearance rates were at a 12-month high of 87%.

What has happened since?

The slowing rate of home auctions in Australia over recent months is indicating a drop in house prices over the second half of the year. President of the Real Estate Institute of Australia, David Airey, says “the market is slowing, not only in volumes but also in clearance rates”. Airey said these effects could be felt for the rest of the year. Auction clearance rates for both Sydney and Melbourne for the first weekend in August are down on figures recorded for the same period last year. Out of the 183 properties up for auction in Sydney, 128 were sold, indicating a clearance rate of 66%. Melbourne recorded a clearance rate of 69%, with 98 out of a total 142 properties being sold. Matthew Bell, economist at Australian Property Monitors, said the weak auction results confirmed that the market is beginning to cool after some frantic growth.

Headline: ASIC to become financial markets watchdog (page 15) What we reported: Already acting as the credit market regulator, ASIC was preparing to become the chief watchdog of all Australia’s financial markets, including the ASX. Minister for Financial Services Chris Bowen said that the current system at the time was “no longer desirable or sustainable” for Australian financial markets. He said the new system would mean Australia had a single unified supervisor for market participants, bringing the country “into line with international best practice.”

What has happened since? Earlier this year ASX Limited and ASIC reached a formal agreement that saw the transfer of responsibility for the supervision of trading on ASX’s licensed financial markets. The agreement came into effect on 1 August. ASIC is now responsible for the supervision of domestic licensed financial markets and for participants on those markets, while the ASX will retain responsibility for ensuring participants admitted to its market comply with its operating rules. So what does this mean for the industry? Greg Yanco, the head of market and participant supervision department at ASIC, said that “we will have a closer and more in-depth relationship than before.” Yanco said while the broad focus of market surveillance will continue to be insider trading and market manipulation, the proliferation and speed of electronic trading systems means there are now new types of market abuse that require ASIC “to be flexible enough to change our focus.”

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Feature OFF THE CUFF Kim Cannon

Managing director, FirstMac What was the last book you read?

Treasure Island.

If you did not live in Australia, where would you live?

France, Italy, Cancun.

If you could sit down to lunch with anyone you like, who would it be?

Nelson Mandela.

What was the first job you ever had?

Working at Waltons department store.

What do you do to unwind Photography, listening to music (Pink Floyd especially).

What’s the most extravagant gift you ever bought yourself?

I bought my wife Sia a beautiful engagement ring 25 years after we started in business (because I couldn’t afford to buy one sooner). So the most extravagant gift for me were the ‘mega’ brownie points for life I earned giving Sia her ring.

What CD is currently playing in your car stereo?

Dark Side of the Moon (yes, Pink Floyd!).

If you could give anyone starting out in business one piece of advice, what would it be?

Work hard, be innovative, think outside the box and dare to be different.

If I was not working in the mortgage industry, I would like to be...?

A concert promoter (hence why we throw the best functions!).

Where was the last place you went on holiday?

On the ship ‘The World’ from Barcelona to Lisbon.

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People Smartline targets $100K for community

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martline franchisees have set themselves an ambitious target of raising $100,000 for the group’s community kitty over the current 12-month financial year, after having reached a milestone of $500,000 only eight years after the initiative began. The initiative – which donates to charities that support children, or that provide shelter – generates a charitable donation of $10 from all loans settled, from over 200 franchisees.

Smartline Personal Mortgage Advisers managing director Chris Acret said the idea for the group’s fundraising came from a single franchisee, and have since been embraced. “The idea was to generate a charitable donation of $4 from every loan that was settled, but that donation soon increased to $10 per loan,” Acret said. Smartline has created a charity fund and committee in each state to administer the funds, consisting of two or three franchisees and a group head office representative. The committees meet quarterly to determine how the funds will be distributed.

Acret said the structure allowed little-known charitable groups to receive support, and both

franchisees and clients are involved through the loan approval process. Charities that have received funds include Ronald McDonald House and orphanages in Cambodia, as well as the Women’s Housing Association and Habitat for Humanity.

“It’s such a marvellous way to build on and further enhance the relationships we have with our clients – which is an integral part of how we run our business,” Acret said. He said the group’s merger with West Australian mortgage broking group Mortgage Force 12 months ago has added to the fundraising effort.

In the last financial year, Smartline raised and donated $90,000, and expects this figure to grow by $10,000 this financial year, to reach $100,000.

The idea was to generate a charitable donation of $4 from every loan that was settled, but that soon increased to $10...

MOVERS & SHAKERS

New BDM role

Suncorp’s lending sales manager

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oanKit has appointed a new business development manager, Trish Taylor, who has been charged with recruiting new brokers into the growing LoanKit fold.

Taylor has held business development, sales management and relationship management roles for the likes of Challenger Mortgage Management, as well as Empowernet, and has 18 years’ experience.

LoanKit is the aggregation arm of Mortgage Choice, and Taylor will be selling the re-launched group’s tailored solutions. She

S Trish Taylor, LoanKit

will also help drive, coach and support LoanKit brokers in the growth of their businesses.

Head of LoanKit, Kym Rampal said Taylor was “well equipped” to provide the direction, leadership and coaching needed to ensure the group builds on its service offering.

uncorp Bank has appointed David Kirk as a new manager of lending sales in North Queensland, who will be responsible for leading broker business development efforts in the region.

Kirk has spent more than 10 years at Aussie Home Loans as a regional and general manager, and has also spent time at RealEstate.com.au.

The bank says this new role will double the resources available to brokers in the region. In addition, Kirk will manage the mobile lending side of the business.

David Kirk, Suncorp

Suncorp Bank regional general manager, Brad Steele, said the appointment supports the bank’s provision of specialist services relevant to regional areas. Send your people news to the editor, at ben.abbott@keymedia.com.au

FOR ALL THE INFORMATION YOU NEED DAILY

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Caught on camera At Sydney’s Water’s Edge Restaurant in August, Australian Finance Group named Wollongong-based Katrina Rowlands as Champion Broker for NSW in 2009/10, and Apple Home Loans Champion Group.

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PHOTO 1: AFG’s Mark Hewitt, Apple Home Loans’ Sunny Liu, Calvin Chen and Nick Ni, and Chris Slater, AFG PHOTO 2: AFG’s Top 40 brokers PHOTO 3: ANZ’s Vito Benforte, Lana Moy and Steve Johnson PHOTO 4: Brett Compton, Oxygen Home Loans with CBA’s Selmina Aganovic and Greg Bourne PHOTO 5: Calvin Chen and Roger Guo, Apple Home Loans PHOTO 6: Back: Steven Degetto, Macquarie and Louie Ng, Injoy Finance; Front: Betti Li, Advanced Mortgage Group, Hye Young Kim, Now Home Loan, Effie Nie, Bankwest, Penny Xu, Advanced Mortgage Group and Ghek Lim, Injoy Finance PHOTO 7: Chris Slater, AFG PHOTO 8: David Brell and Cameron Wiles, Smart Move Home Loans, with Nicole Wiles PHOTO 9: Michael Khoury, Mortgage One PHOTO 10: Rob Carlton, MC PHOTO 11: Tony Carn, Homeloans, Adrienne Church, Genworth, and John Allen from Mortgage Mates PHOTO 12: Victor Guerrero, AFG, Alan Hemmings, St.George, and AFG’s George Srbinovski and Dan Heylbut PHOTO 13: Mark Hewitt, AFG, John Rowlands and Katrina Rowlands, Mortgage Success, Chris Slater, AFG PHOTO 14: Martin Liszewski and Harry Hills from Suncorp PHOTO 15: AFG’s Top 20 mortgage broking groups PHOTO 16: David Brell, Smart Move Home Loans PHOTO 17: Loren Adams and Haley North, Smart Move Home Loans PHOTO 18: Dan Heylbut, AFG

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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

Laos: within reach at 6.2bn

Call that a profit?

This is a profit...

C

ommonwealth Bank’s end-of-year profit has been welldocumented in these pages and elsewhere – but where does that money go?

CBA chief executive Ralph Norris wasn’t afraid to say that a large chunk of it goes back into the Australian economy in the form of dividend payments to ‘mum and dad’ investors and super funds.

But how else could CBA support the Australian – and global – economy with its $6.1bn cash profit?

Well, Insider has a few ideas. It could pay the entirety of the Liberal Party’s ‘grocery tax’, which has been budgeted to bring in exactly $6.1bn. Or, CBA could buy Ric Stowe’s Devereaux Park estate, which is a snap at just $68m – and 89 more just like it (bear in mind that this doesn’t take into account stamp duty, however), or perhaps help out Paul Hogan by paying off his reported $15m tax bill, which it could do more than 400 times over.

The bank could borrow another $100m (admittedly, it would probably have to be from Westpac) and take over an Indochinese country – Laos, to be exact (GDP $6.2bn). Alternatively, Caltex’s market cap as calculated by Forbes is $5.9bn, so CBA could snap up the group, and hopefully have enough left over for the solicitors’ fees.

How about its own soccer team?

Premier League club Liverpool’s going begging at just $800m, so there’d be enough to buy some decent players as well, and move the entire team to Sydney. As well as the Anfield stadium. And probably most of the fans.

Technology toys are always fun: CBA could afford 6.1 million new iPhones (32gb, $999), 5.8 million iPads (64gb with wifi and 3g, $1,049), or 1.2 billion 55” 3D TVs from Samsung (rrp $4,799).

If that doesn’t interest Ralph Norris, there’s always cars: 321,221 Ford Fiesta LXs at $18,990 (judged Australia’s best small car last year by the Australia’s Best Car website) are easily within CBA’s reach, or, if Ralph feels he requires more space, he could always plump for 171,879 Toyota Aurion ATXs $34,965 (voted best large car by the same website).

Last, but not least, CBA could also sort out breakfast for everyone: $6.1bn would buy 1.7 billion 220g jars of Vegemite or more than 2 billion three-buck flat whites.

The power and the salary

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he recent election campaign was fought on issues of great importance to Australia’s future; border protection, population, climate

change, and tax. As the political candidates locked horns – or hair colours – over minor differences in policy, their passion for gaining three years of power was revealed. Or was it really the pay packet that they were after?

Tony Abbott, before vying for the Prime Ministership, let slip in January 2008 how his mortgage debt had been given more weight by his relegation to opposition. “The advent of the Rudd government has caused serious mortgage stress for a section of the Australian community, ie former Howard government ministers,” he said, according to the Courier Mail.

“You don’t just lose ‘power’, you certainly lose income as well, and if you are reliant on your parliamentary salary for your daily living, obviously it makes a big difference.” Yes, the former Howard government minister had suffered a hefty pay cut after the Coalition lost power, with his $200,000-plus salary shrinking to about $127,000 a year. So was the weight of a purported $700,000 mortgage (on his house in Sydney’s northern suburbs) the secret driver behind his cries to turn back the boats? After all, being elected Prime Minister means Abbott’s income would crest above $330,000 per year.

Well, there was a lot of talk about the ‘mortgage belt’ deciding the election after all.

Seventh time lucky...

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New Zealand mortgage broker recently proved that persistence pays off – eventually. The NZ Mortgage Brokers Association, at their annual awards bash in August, decided that after six years of being shortlisted as a finalist for the coveted Mortgage Broker of the Year award, they couldn’t conceivably let Bruce Patten go a seventh without taking home something to show for it.

Patten, who finally took home the award, commented that after so long, he’d actually shed any

expectations of actually winning the title, apparently content enough to be a regular finalist and be treated to some dinner and wine on the night. So it was that after winning the award, he was reportedly “speechless”, a condition that he went on to elaborate was quite unusual for him. Insider can only send his congratulations to Patten on his win from across the Tasman, and hope that Aussie brokers can demonstrate such stamina.

Beaches, bananas cover for fraud

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awaii is the most remote island chain in the world.

Separated from the rest of civilisation by thousands of square kilometres of Pacific, one might think if there was a place to mastermind an epic case of mortgage fraud and get away with it, this is it. Unfortunately, this assumption would seem to be a mistake, as a “web of brokers” arrested by the FBI last month found out. A total of 14 people – mortgage brokers, real estate agents and accountants – were arrested and accused of operating their businesses as no less than “fraud factories”.

The defendants are accused of creating false documents to dupe lenders into providing sham home purchases, which caused banks to lose money, a good deal of house price inflation, and then eventual foreclosures, and a resultant property value plunge and devaluation of local communities. The acts – as FBI special agent Tom Simon was quick to tell the local newspapers – were a considered a “direct assault on the American dream of home ownership”. Apparently, foreclosures caused by mortgage frauds “blanket” the Hawaiian archipelago, even more than lava flows, banana plantations, and sun-seeking tourists. And to think, here Insider was assuming on life there was a beach – having seen ‘From Here to Eternity’ one too many times.

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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 PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5 BUSINESS FINANCE Bibby Financial 1300 850 322 www.bibby.com.au marketing@bibby.com.au page 13 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 9 EQUIPMENT/VEHICLE LEASING Macquarie Leasing Pty Ltd 1800 005 046 introducer@macquarie.com page 19 INSURANCE Life Broker 1300 304 964 www.lifebroker.com.au page 15 LENDER Citibank Mortgages 1300 651 059 www.mortgagebroker.citibank.com.au page 36 Liberty Financial 13 11 80 www.liberty.com.au page 3

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NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au page 7 & 17

MAS Funder 02 9283 7566 www.masonline.com.au info@masonline.com.au page 35 MKM Capital 1300 762 151 www.mkmcapital.com.au page 2 www.residex.com.au

Provident Capital 1800 668 008 www.providentcapital.com.au broker@providentcapital.com.au page 4 QBE LMI 1300 367 764 www.qbelmi.com page 30 MORTGAGE MANAGER / NON-BANK Mango Media 02 9555 7073 www.mangomedia.com.au page 1 Royal Guardian Home Loans 133 455 www.royalguardian.com.au info@royalguardian.com.au Vault Mortgage Corporation 1300 798 676 www.vaultmortgage.com.au page 10

The House Price Information People

OTHER SERVICES Residex 1300 139 775 www.residex.com.au page 23 RP Data www.rpdata.com page 29 Trailerhomes 0417 392 132 page 22 SHORT TERM LENDER Interim Finance 02 9971 6650 www.interimfinance.com.au page 6 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 8 WHOLESALE Resimac 1300 764 447 www.resimac.com.au newbusiness@resimac.com.au page 11

NON-BANK LENDER Hemisphere Financial Services 1300 793 742 www.hemispherefs.com.au To advertise in Australian Broker, Call Simon Kerslake on +61 2 8437 4786