Australian Broker magazine Issue 8.06

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ISSUE 8.06 April 2011

Future only assured for ‘smart’ brokers

Stephen Porges

 Current brokers may be unable to cope with the new age consumer

The mortgage broking industry is set for a shake-up, with many brokers currently in the field set to be forced out by greater demands for education and technological savvy.

Aussie CEO Stephen Porges has claimed the next five to 10 years will see a marked change in the mortgage broking field, as the demands of consumers evolving will leave many current brokers unable to cope. Porges said the winners in this new broking era will be those with higher levels of education, and who have a willingness to engage consumers in new ways.

“I think it will become a more educated person’s market. Some of the older brokers will drop out because they won’t want to change. There are going to be greater demands for education and greater demands for technology,” Porges said. “I think a lot of current brokers won’t adapt because they don’t even know how to use a computer well.

They’re not educated enough.

Smart ones will get online and service customers.”

While Porges believes there are good days ahead for the Australian mortgage industry, he said the next decade will see “very different players” in the market. Aussie itself will look very different in future, and is uncertain whether broker numbers will grow or shrink.

“You just don’t know what the market’s going to look like,” he explained. “We may have 1,500 brokers, but they may all be sitting in front of a screen talking to customers over a webcam.

The role of brokers in terms of educating consumers and finding the best products won’t change.

The way they do that is what will change.”

A new breed of borrower is encouraging this trend. Porges said as consumers more often independently research products, they will come to brokers with a better understanding of what they want. Porges predicted this will mean growing comfort with online interaction. “Consumers demand service in the way they want it, Page 16 cont.

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Melbourne makeover

Brokers nonplussed by St.George’s rebrand Page 2

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New-found fire

Broker suspended as ASIC flexes regulatory muscle Page 6

>>

Genworth on LMI

Mortgage insurer reacts to FBAA allegations

Page 8

Inside this issue Analysis 20 Life after DEF Viewpoint 22 Industry debates Steve Keen Opinion 24 Exit fee ban is a dangerous wish Insight 26 Time management basics Market talk 28 Foreign investment wave People 32 Citibank’s new mortgage head Caught on camera 33 Suncorp’s NSW celebration

>>

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News Vic brokers nonplussed by St.George rebrand MPA Top 100 brokers working in Victoria have sounded off on St.George’s rebrand as Bank of Melbourne in the state, and say it remains to be seen if customers will view it favourably.

Westpac acquired Bank of Melbourne in 1997, rebranding all the branches to Westpac branches by 2006. The bank has now announced moves to rebrand its St.George branches in Victoria under the Bank of Melbourne name. David Johnston, director of Property Planning Australia, said the brand was viewed favourably before it was acquired by Westpac.

“The Bank of Melbourne had strong recognition in Melbourne. It was fairly well known as providing better service than the Big Four.

After Westpac purchased it, they lost a lot of customers who deliberately chose to bank with a second tier rather than a major,” Johnston said.

Anthony McDonald of Port Finance said the bank may try to recreate a local bank feel with its

service. “Bank of Melbourne was the local brand and had that community feel. Once Westpac made the purchase this was lost.

Maybe they will try to bring this element back with more personalised service,” he said.

Vincent Power of Investors Direct believes customers will see through the move, which he called a “marketing exercise”. “Let’s not kid ourselves here. They are not bringing back the Bank of Melbourne because of the great feeling that Melbournians have for the name. They are doing it to make a profit using the same business model masked by another name,” he said.

Brett Amos of Seven Point Finance believes the branding of the bank will not significantly impact market share, and that customers will make their decision based upon the bank’s products and service proposition. “It is important for the consumer to identify the true changes that may come with this, if it is just the

façade then it seems to be an unnecessary burden on the shareholder,” he said.

However, Johnston David Johnston said the move will not affect the amount of business his company writes through St. George, unless the rebrand includes changes to products and service. Johnston commented that as St.George Flame Brokers, Property Planning Australia will continue to write loans through the bank regardless. “I don’t think it will have an adverse effect on the level of business we write through St.George as long as the same products and service propositions remain. Opening more branches could actually make it easier to write business with Bank of Melbourne,” he said.

ASIC serious about compliance ASIC should not be underestimated as a “friendly giant”, and is currently active in the industry pursuing surveillance and enforcement actions on newlylicenced brokers, according to QED Risk Services.

Greg Ashe, director of compliance and risk consultancy group QED Risk Services, has said that the notion that ASIC is our “giant friend” is a stark contradiction to the evidence he is already observing in the industry, and even in regard to his own clients.

“I’ve already had clients who have had production orders on them – not for anything sinister, just because ASIC are out there already doing surveillance – they are certainly active,” Ashe said.

To date, Ashe said that particular areas of focus for the regulator are “high risk” areas, such as debt consolidation.

Recently, Gadens Lawyers senior banking and finance partner Jon Denovan said that ASIC will not be taking an adversarial stance towards brokers. “ASIC is the friendly giant. They’re there to help, and they’ve said that publicly,” he remarked in early March.

Denovan suggested that ASIC would seek to assist brokers and aggregators with compliance for the first two years of the NCCP regime – like a “nice uncle” – though after this, the regulator may be more stringent – and become more like “Uncle Scrooge”.

However, Ashe said that while

ASIC “bent over backwards” to help businesses get their licences in the lead up to the NCCP regime, Greg Ashe when it comes to surveillance and enforcement “they don’t mess around”.

Ashe has also labelled the idea that the NCCP law is too vague and open to interpretation as “a cop out”.

“Yes, absolutely the law is not prescriptive – it was never meant to be, and it never will be,” he said.

“But a simple, reasonable approach, this will bear out the answer for them [brokers].”

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Brokers urged to focus on quality deals A major bank representative has told brokers they need to focus on the quality of their deals in order to protect their place as a channel of distribution.

Commonwealth Bank’s executive general manager of third party distribution Kathy Cummings told the Australian Banking + Finance Mortgage Innovation Conference in Sydney that banks will want to see greater quality deals and more efficiency from brokers.

Cummings warned that brokers would need to increase their value proposition in order to compete with proprietary channels.

“To continue to grow in distribution, brokers need to add value. The industry has to

embrace efficiency,” Cummings said. “Brokers have to look at where they fit in the value chain, and focus on efficiency and cost-to-income ratios.”

Cummings accused other major banks of failing to focus on the quality of deals submitted by brokers, and instead lowering their standards to accommodate the channel. She said this would not be the case with CBA. “CommBank will not walk away from driving quality and efficiency in the industry,” Cummings remarked.

According to Cummings, new technology platforms and software available to brokers will not be most effectively utilised unless brokers focus on bringing well-

Yes we can, says CBA’s Cant A senior CBA executive has called on mortgage lenders to surmount a series of challenges that are threatening their growth, including a higher cost of funding and increased regulation.

Michael Cant, executive GM of retail products at CBA, said the cost of bank funding was the single biggest factor that will impact the price of mortgages, and that it would be “a long road” before seeing any improvement.

Speaking at the Australian Banking + Finance Mortgage Innovation 2011 conference in Sydney, he said while there has been some stabilisation in funding costs following the GFC, there remained significant downside risks, particularly due to chronic economic problems in Europe stemming from high private and

public sector debt. Recent natural disasters in New Zealand and Japan, as well as unrest in key oil-producing countries in the Middle East, have all added to the balance of downside risks, he told delegates. “So while we remain reasonably optimistic of a gradual stabilisation and hopefully reduction in long-term funding costs, this is not going to happen overnight,” he said.

Cant said that banks were still paying in the order of 10 times the amount they were paying for foreign funding prior to the GFC. Cant said politicians and regulators had felt “obliged to act” following the crisis, and that some measures – particularly new global prudential standards – were right and necessary. However, he questioned the weight of consumer

written deals to the bank. “If you keep putting rubbish in, it doesn’t matter that you have good systems,” she said.

Cummings urged aggregators to better educate their broker networks on the intricacies of submitting efficient deals. She said aggregators also need to work to operate efficiently under the new NCCP regime.

“We have embraced compliance and understand operational risk, and we need aggregators to do the same,” Cummings commented.

Cummings claimed that as margins tighten for banks, the efficiency with which the broker channel operates will determine its value proposition to lenders.

She said this could also affect

commissions in the future. “[Commissions are] as good as it’s going to get right now,” she said. “We’re working to hold them where they are, and don’t foresee changing them anytime soon, but I need you to work on efficiency.”

protection regulation being slated in proposed reforms. “While most of the [consumer protection] regulation is well intended, much of it is being implemented in an unnecessarily bureaucratic and prescriptive way, adding significant costs to the industry, which will be ultimately born by consumers. Cant listed other challenges as: slower credit

growth, changing consumer attitudes to debt, and a need to manage greater productivity and efficiency.

Kathy Cummings

Michael Cant

 Cant’s five challenges Credit growth

Will not return to previous levels, which were “unsustainable”

Cost of funds

Will remain expensive for years, influencing mortgage pricing

Regulation

A burden that will increase consumer costs, and decrease competition

Consumer attitudes

A “decade of deleveraging” will see greater savings, and less debt

Efficiency

Lenders will need to become more efficient amid cost challenges

Success comes from the right balance of growth and support As the winner o f the Australian Mo rtgage Award fo r custo mer service in 2010, Peita Davies epito mises pro fessio nalism in bro king while remaining fo cused o n the evo lutio n o f her business.

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Broker feels heat of ASIC’s new-found fire

Planners could bring fight for mortgages

Following on from its promise to scour the industry for NCCP breaches, newly enfranchised credit regulator ASIC has suspended the licence of a Sydneybased finance broker.

ASIC said it has suspended the credit registration of Dark Blue Fire Pty Ltd, after it ceased to be a member of COSL. Under NCCP, licensees have to be part of an external dispute resolution scheme (EDR). In its announcement in March, ASIC said the finance broker’s licence would be suspended until it becomes a member of an approved EDR scheme.

The move marks ASIC’s second public action against a broker, after it suspended the registration of a Queensland company for failing to be a member of an EDR in September 2010. ASIC suspended the registration of Dennis Ian Grant of Coochiemudlo Island, Queensland, after enquiries into his licence application revealed he was an undischarged bankrupt. It also cancelled the registration of Express Finance Solutions Pty Ltd, a firm of which Grant was the company secretary, when it was found it was not a member of an approved EDR, and had “made

Financial planners will increasingly eye the mortgage market as another revenue stream, an industry representative has warned.

Alexis Insurance Brokers principal Christina Kalantzis has told a Sydney mortgage conference that financial planners are well equipped to take on the task of mortgage offerings, as they are familiar with compliance regimes.

“A lot of groups holding Australian financial services’ licences are applying for Australian credit licences. They have all the compliance and reporting systems in place that brokers are having to set up now, and they can see a new revenue stream. They have been doing compliance for a long time,” Kalantzis said.

Kalantzis predicted that finance brokers holding an AFSL will find ACL compliance simple, saying the legislation was so similar it appeared to be a “cut and paste job”. She urged mortgage brokers to diversify their product offerings as well. “Insurance products and superannuation products work very well with mortgage products,” she commented. However, Homeloans general manager of

false statements” in its application.

ASIC has warned it would be actively searching out breaches of the NCCP. Late last year, ASIC chairman Tony D’Aloisio said that the regulator would be undertaking “verification surveillances” to ensure licence application information was accurate. “Our focus will be on smoothly transitioning the industry to the new credit regime and ensuring our oversight of the industry is effective,” D’Aloisio said at the time.

The maximum criminal penalties for operating without registration or a licence are $22,000 for individuals and $110,000 for corporations, or two years’ imprisonment, or both; or civil penalties of up to $220,000 for individuals and $1.1m for corporations, partnerships or multiple trustees. ASIC Commissioner Peter Boxall previously said ASIC was likely to pursue prosecutions where firms or people persisted in engaging in credit activities without being registered or licensed. He said ASIC will take other actions at its discretion.

Dark Blue Fire was unavailable for comment when contacted by AB.

third party business Tony Carn said brokers could find themselves spread too thin if they tried to heavily diversify.

“If I went into a law firm, I’m not going to ask the guy who did my conveyancing to get me off my drink driving charge,” Carn remarked. He suggested that revenue diversification take place within broker businesses, with individual brokers specialising in separate product areas.

Kalantzis also said it will ultimately be consumers who dictate the remuneration model for brokers. “Are consumers comfortable with a fee-forservice?” she said. But Kalantzis warned that legislation could dictate remuneration structures if commissions were ever deemed to influence the products brokers recommend.

Niche lenders better prepped for DEF ban Specialised lenders may be better positioned to absorb the impact of the DEF ban, said one non-bank.

Pepper Home Loans, which specialises in low-doc and nonconforming mortgages, said niche lenders may have an easier time adjusting to the exit fee ban than non-banks more directly competing with the majors.

Pepper abolished the deferred establishment fees in late February. According to Pepper COO David Holmes, as a specialised lender Pepper can do

so without suffering the same consequences as other non-banks.

“For us it’s a bit easier, because we don’t compete with the majors.

Non-banks that do compete may have to put interest rates up or front-load their fees,” he said.

Because many people requiring low-doc or non-conforming loans may not have as many options in the market, Holmes said Pepper is in an advantageous position.

“We’re not up against the banks, because we’re not as rate sensitive,” Holmes commented.

Holmes even believes the DEF ban could work to the advantage of the lender and said that borrowers previously put off by DEFs may now see Pepper as an option.

“Pepper is a solution loan. People may see it as a solution for 18 months, and then move to a major.

The ban may well attract people to us, because they may have seen the DEF as a deterrent,” Holmes said.

However, Holmes said he remains adamantly opposed to abolishing exit fees, as it will hurt the ability of other non-banks to

compete. “It’s a bit of a conundrum for other non-banks. They will have to do something, and no one wants to be the first mover. The cost of establishing a loan hasn’t changed. It has to go somewhere,” he remarked. “I hope the government delays the legislation to seek more consultation, but I fear it’s a done deal.”  To see how non-ADIs may absorb the DEF ban, see Analysis on page 20

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Genworth responds to LMI criticism Genworth Financial has lashed out at widespread industry criticism of LMI and Ellie Comerford its impact on both borrowers and competition.

In a submission to the Senate inquiry into banking competition, Genworth Financial president and CEO Ellie Comerford wrote that “an apparent lack of understanding, on the part of some industry participants, has led to some incorrect assumptions and assertions regarding LMI being made”.

Despite claims from a variety of industry sources and brokers that LMI does in fact act as a barrier for consumers who are looking to refinance, Genworth clearly stated that its position was that “LMI does not serve as a barrier to consumers switching lenders”.

“Only 1% of residential mortgages originated in Australia each year are likely to involve a consumer paying an additional LMI premium (where there is a dollar for dollar refinance),” the

submission states. Genworth explained that it is only where a consumer seeks to refinance a high loan-to-value (LVR) loan with another lender very soon after loan origination that they may have to pay another LMI premium. The insurer said that in 85% of those cases, this would also involve additional risk for the lender and LMI provider due to the consumer borrowing more money.

“Our analysis shows that the consumer is unlikely to be asked to pay LMI again if they switch after two to three years, given the LVR for the new loan is likely to be below 80% given long-run home price appreciation assumptions,” the Genworth submission states.

The insurer used its submission to argue that a form of portability already exists for LMI policies, citing the premium refund schedules in place for lenders, which do refund 40% of the premium if a loan is refinanced in less than one year, or 20% between one and two years.

However, the insurer argued against any legislative measures that would enforce 100% portability from lender to lender.

“Complete portability of LMI as opposed to the current refund

FBAA proposals meet opposition Genworth Financial has rebutted FBAA assertions concerning LMI, in a submission to the Senate inquiry into banking competition.

The mortgage insurer said that in the FBAA’s submission, the body criticises the LMI premium refund scheme for lenders and consumers and suggests the refund should be calculated on a pro rata or proportional basis, commensurate with the term of the loan.

However, Genworth said this FBAA position fails to recognise that: • The risk of default in respect of a mortgage is not proportional “like car insurance”, and is “very much weighted” towards the first three to four years of a loan • LMI providers are required to carry full capital for the first three years of the loan, after which the capital gradually reduces as the risk reduces • LMI providers incur significant upfront expense in acquiring, underwriting and monitoring the loan in the early stages of the life of the loan.

However, Genworth indicated it will “work with government and industry to create a greater level of consumer awareness about LMI refunds”, after the FBAA claimed consumers are unlikely to gain the refund they are entitled to, unless they ask their lender. Genworth said that at present, no consumer refund is generated automatically via their insurers or lenders. arrangements would require significant market and regulatory (capital) changes plus potential legislation. Such moves would give rise to a number of complicated legal issues and take years to implement,” the submission to the inquiry states.

Genworth said average LMI costs currently total between $3,000 and $4,000, and that in Canada the premium is “almost 50% higher”, in

part because of a type of portability.

“Changes to the status quo could result in LMI premium increases for all homebuyers due to regulatory capital requirements” the insurer warned.

Genworth said the current system could be enhanced by more effective disclosure and transparency to consumers about LMI and self-insurance programs in the market.

Russell calls for action on undersupply Mortgage Choice’s CEO has called for urgent action to increase housing supply, amid a “deterioration of affordability”.

Responding to a recent Productivity Commission report which acknowledged undersupply as a factor impacting affordability, CEO Michael Russell said “it is time for governments to take immediate and effective action, which is long overdue, or suffer the consequences of even more Australians being pushed out of the market”. Russell said the real issues are problems with sufficient

land release, development approval processes and development costs, and that it was necessary to roll back the “red tape” to ensure these borrowers were not locked out.

“Australians deserve transparent, effective housing decisions to be made quickly and regularly in the interests of turning around the deterioration of affordability,” Russell said in a statement to media.

“We call on the Federal Minister for Housing to open up a much more productive, consultative

communication channel with the state planning ministers to take immediate action to resolve the true cause of housing affordability.”

Russell suggested that increasing the supply of residential properties in the low to medium price range will deliver a reduction in pricing pressure.

“We need to dissolve the rolls of red tape that limit the supply of land for development,” Russell continued. We need to implement timeframes for re-zoning and planning amendments to improve

the development approval process. We need to formulate planning guides so developers can be confident in Michael Russell their due diligence, and we need to include automatic zoning of land for ‘urban use’ to save time releasing land.”

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Suncorp vows to become broker champion Suncorp will halve turnaround times by the end of 2011 and widen the scope of business it will accept through brokers as part of a vigorous push to emerge as the preferred second tier bank for ‘middle Australia’.

Danny Robinson, executive general manager of specialist sales and service at Suncorp, told brokers at a Sydney gathering last night that “Australia wants and needs a second tier bank”, and that Suncorp was in a strong position to take up the mantle.

Citing the bank’s current mortgage portfolio growth of 1.3 times system, as well as its “abundance” of capital – with 70% of its $40bn loan book funded by retail deposits – Robinson said the regional bank was well positioned to “take on the majors in a big way”. The group outlined plans to double its branch network in NSW and Western Australia by 2013, as well as expanding in Victoria, aims to boost its customer base to one million (from 900,000) by the end of 2012.

For brokers, Robinson said the bank’s commitment is to provide consistent turnaround times, and that it would improve on its 48-hour target turnaround – met since January this year – by 100% by the end of 2011.

Robinson said it had invested in systems and back office processes, and brokers would begin to see improvements as soon as July this year. “We’ll … give you the commitment you need,” he said.

Suncorp is also in the midst of reviewing credit policy “to make it easier to deal with Suncorp”, and will attempt to widen the types of loans it will accept through third party channels, as it tweaks the make-up of its target market.

Robinson said Suncorp will also follow some of its larger rivals in providing new services to its top echelon of ‘Champion’ brokers, by offering a broader target market with which they could deal, providing better turnarounds, and giving new access to the credit decision-making team.

Brokers currently introduce 80% of Suncorp’s business in NSW. The bank has recently doubled its BDM numbers in Sydney to support the channel, and has committed to branch/broker parity Australia-wide.

Robinson said Suncorp would offer competitive, consistent products to attract new customers.

He cited research which showed 62% of Australians want a regional bank, and that half a million planned to switch to a regional this year.

LoanKit hits broker milestone Aggregator LoanKit has recruited its 100th broker since being relaunched by Mortgage Choice in April of last year.

LoanKit head Kym Rampal said the company now caters to 150 brokers, with its “compliance in a box” model, in which brokers hold their own ACL while the aggregator manages their compliance, has proven most popular. Rampal said the company has focused strongly on recruiting new brokers to its compliance model.

“Having focused on recruitment since early last year, we are thrilled to reach this professional highlight. It’s encouraging when your business experiences success after hard work,” he commented.

According to Rampal, the company’s compliance model allows for greater freedom than operating as a credit rep under an aggregator’s licence.

“LoanKit, in comparison to the majority of other aggregators, offers brokers the freedom of employing their own subcontractors and other employees while benefitting from dealing with one in-house team for all their service needs,” Rampal said.

Rampal commented that the model allows brokers to remain

Compliance to cause clients tough time A leading investment-focused “Each one has their own are negative in his opinion, and mortgage broker has warned that interpretation of what responsible warned that clients who are trying new NCCP regulations under lending means, and each has to access finance will have a the remit of newly enfranchised introduced more requirements on “tougher time” than in the past. regulator ASIC could cause “more you and I,” he wrote in the client “So a word of warning – problems than they are worth”. letter. “Some institutions have accessing finance is significantly In a client email, Smartline covered it off with a half page of more difficult this year as a result mortgage broker Kevin Lee of extra questions, whilst others have of ASIC’s compliance regime. Not Pennant Hills in Sydney said the created literally pages and pages impossible, just more difficult and “knee-jerk reaction” from lenders to of extra compliance.” somewhat slower,” he wrote.

B M2 A B _ A d _ F I n a l _ P R . p d f Pa ge 1 1 8 / 0 3 / 1 1 , 4 : 5 3 PM responsible lending practices has Lee warned clients that However, Lee was more upbeat been “nothing short of amazing”. developments in the lending area about his Pennant Hills business,

independent while freeing them from concerns over compliance.

“Especially Kym Rampal important at present is that our broker members can maintain their independence while enjoying the protection of an experienced, responsive corporate compliance department,” he remarked.

The company has made improvements to its software offerings to brokers, as well as its broker care program and infrastructure. NSW business development manager Trish Taylor said that while actively recruiting new brokers, the company remains committed to the ongoing development of its current broker network.

“We have an ongoing focus on recruitment but have not lost sight of our existing members because they are the reason we are becoming more successful.

Recently we have been organising professional development days for our current brokers, with the next session being held on March 18.

This is one of the many activities we are enthusiastic about being able to offer,” Taylor commented. saying his office was “still flat out”.

“Smart investors have been active over the second half of 2010 Kevin Lee and so far in 2011, safely accumulating affordable, neutrally-geared Sydney properties and positively-geared regional properties,” he said.

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Banks fail to support self-employed

Pepper Home Loans chief operating officer David Holmes has criticised the major banks for leaving self-employed borrowers underserviced, while naming the sector as a key opportunity for non-banks and smaller lenders.

Speaking at the Australian Banking + Finance Mortgage Innovation 2011 conference in Sydney, Holmes said self-employed business models had been “severely stressed” by the GFC. “The self-employed are really growing in Australia, and through the GFC have been denied access to credit,” he said. “But they have come through it and they deserve our support.”

Holmes said the major banks had failed to provide adequate service to the sector. “You have to put more effort into servicing the self-employed, and the smaller lenders will do that,” he said. “The banks find that difficult because they have so many mortgages passing through them, they really don’t have the time, so I think for us and non-banks that is an area we should concentrate on and we should promote that.”

Aussie Home Loans chief executive Stephen Porges agreed

there was an opportunity in the self-employed space. “I find it strange that the banks are not going there, because they take on more than one product. They almost should be a customer focus for the banks,” he said.

Holmes said that the NCCP guidelines have helped the low-doc sector, and that ASIC had got it “just about right” in allowing multiple ways to evidence income, such as BAS statements, letters from accountants, and tax returns.

Mortgage broker Loan Market recently conducted a survey of its broker members which found that self-employed borrowers had been hard hit by the financial crisis.

It found that 64% of brokers claimed self-employed borrowers were the worst off following the crisis, with 32% suggesting first homebuyers, and 4% refinancers.

“Currently it’s tough for hard working self-employed people and small business owners to obtain finance,” Loan Market COO Dean Rushton said.

“They have felt the impact of interest rate rises last year on their businesses so they are hit with a double whammy if they also have a struggle to obtain finance.”

David Holmes

Products must change as culture shifts: Resi

A non-bank lender has urged other lenders to pursue more innovative products to address the changing desires of consumers.

Resi CEO Lisa Montgomery said that as generational and cultural change occurs, lenders will have to develop entirely new products to address a new customer base, or risk future generations giving up on the idea of home ownership.

“We don’t want the appetite for home ownership to wane,” she said. “We’ve adopted a very European lifestyle in terms of the café and bar culture, and all the expenses that go into sustaining that. Some of the younger generation may adopt the same outlook we see in France, Germany and Sweden that property ownership is not a priority. To that end, we must innovate and the government must put in place initiatives to keep that appetite alive.”

This appetite, Montgomery believes, is core to the cultural identity of Australia.

“In terms of Australiana, no other country in the world has embraced property ownership like Australia.

It would be a shame to see the appetite for the great Australian dream go away,” she said.

Montgomery said some lenders already have innovative products in place, but need to find new ways to market to changing cultural segments.

“We need to look at how to address the cultural preferences of our future target market,” she said.

Montgomery commented that as affordability increasingly becomes a barrier to entering the market, loan products enabling first home ownership may have to change.

Asked if Australia would ever see home loans of 40 years or longer such as those seen in Canada, or intergenerational home loans like those that exist in China and Japan, Montgomery would not rule out the possibility.

“I wouldn’t say never,” she commented. “But I don’t think we’ll see them in the short or medium term.

“A demand may develop because of cultural shift, as our market has Asian influences sitting on an Anglo base.”

Liberty sees profits grow as loan book contracts Non-bank lender Liberty Financial has posted a net profit of $40m for the year Sherman Ma ending June 2010. The lender’s result was underpinned by a 42% write-down in bad debts.

Liberty raised $350m in term funding over the financial year, while impairment charges fell from $67.3m in 2009 to $39m.

Its total funding capacity increased by around $500m for the financial year.

The company also saw success in the launch of its motor dealer finance arm and term investment fund. Managing director Sherman Ma said the result was indicative of Liberty’s moves to further diversify its product base.

“Liberty has produced a strong result that underscores the benefits of our diversified business model offering products and services spanning the financial services landscape. The continued reinvestment of profits strengthens our capital position

and puts us in great shape to continue growing our business by supporting our valued business partners and customers,” Ma said.

The company’s results also show a slowdown in lending, with its total loan book decreasing from $2.77bn to $2.28bn. A Liberty spokesperson stated this was due to a larger amount of repayment activity and refinancing rather than a purposeful decline in lending activity.

“Whilst our total portfolio was down on 2009, the figures reflect a greater amount of existing loans being repaid or refinanced than the number of new loans that were

written. We attribute this to a softer demand for loans as the industry emerged from the GFC, but we did not purposely scale back our lending activities,” the spokesperson said.

The Liberty spokesperson further commented that the lender continued to write new business throughout the GFC, and expanded its product offering in 2010 with the addition of its motor dealer floorplan finance business.

“Our settlement figures remain strong as we continue to grow our business by supporting our business partners and our customers,” the spokesperson said.

www.brokernews.com.au

13

ING moves amid competition ‘bloodbath’ A resurgence of competition in the lending market has forced ING Direct to look at new changes to price and policy, including cutting 1-year and 2-year fixed rates by 0.35%.

The rate move – which brings the 1-year fixed rate down to 6.89% and the 2-year fixed rate down to 6.99% – follows a similar decision to reduce its 3-year fixed rate earlier in the month.

ING Direct executive director of mortgages, Lisa Claes, told Australian Broker the price adjustment was a direct response to vigorous competition among all lenders in the market at present, and said that despite competition complaints, it is “a bloodbath out there”.

“The first and second tier banks are pulling all levers they can – saying that, they are acting responsibly – but it’s probably fair to say they’re pulling some of the levers out of the pre-GFC cupboard and dusting them off and giving them a go,” Claes said. She also said what is unique about the

Now with

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current environment is that “everyone is playing”.

“We don’t have many – if any – fence-sitters, and I think there is an urgency or sensitivity of the fact that the home market isn’t growing at levels that it has been in the past. There is a lot of big fish trawling a small pool, and trying to get as much of it as they can. That is what has triggered this price war, the credit war, the lever war,” she explained.

Claes said although competition is real, there is “still some way to go” towards levelling the playing field between major banks and second tier lenders. She said moves such as legislating to allow banks to package 10% of their assets as covered bonds would go some way to making the market more liquid and competitive, as would changes to the withholding tax regime on bank international borrowings and providing incentives for personal savings.

Following a commitment to increase mortgage production by 20% this year, Claes said this

“intention is definitely still there”.

“We had a really strong February.

We came out with some initiatives in late January that got the attention of the returning broker holidaymaker. We have seen some dissipation of that momentum in March, but still significantly up on last quarter.”

Claes said while ING Direct’s offering was still competitive, more “noise” and the resurgence of competition meant it was no longer as unique to the market as it was in February.

Claes said ING would continue to meet the competition head on. “We

are looking at a number of levers – not just price. We’ve worked very hard to get our services beneath target levels, and the trick will be to maintain them. We want to make sure we provide the service we have promised on a consistent basis, because we understand that’s what brokers love.”

ING will also increase communications to brokers. “We are conscious they [brokers] may feel they are being bombarded at the moment, but we will be trying to cut through with more intuitive information that will help them understand our offering,” she said.

Second-tier funding pressures remain Funding will continue to be a challenge for second-tier banks and smaller lenders, an industry expert says. ING Direct head of treasury Glenn Baker has said the major banks retain a significant funding advantage over smaller players. According to Baker, there has been only a slight reduction in the cost for new funds, with the cost of debt much higher for smaller financial institutions. Baker said funding costs will continue to be high for the immediate future.”This effect will stop or reverse once higher cost borrowings can be replaced as they mature with lower cost new ones. [This is] expected during 2012,” he said. Baker also lamented the government’s initiatives. “No single government funding initiative stands out as being able to make a significant competitive difference,” he remarked.

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14 www.brokernews.com.au

News Symond vows to fight government Aussie Home Loans founder John Symond has pledged to publicly fight the federal government if the DEF ban goes through.

Speaking to the Australian Banking+Finance Mortgage Innovation conference, Symond said the government has used exit fees as a source of rhetoric.

“We’re seeing political rhetoric that scares the hell out of consumers,” he commented.

Symond said the ban on DEFs will hurt the industry, calling it “strangulation by regulation” and “feral legislation,” and argued that Treasury has refused to consult with industry stakeholders.

Symond claimed the MFAA has made repeated requests to consult with Treasury, but has thus far been ignored. He sharply criticised Treasurer Wayne Swan for not meeting with industry representatives.

“We’re dealing with a government who doesn’t understand consumer needs and refuses to sit down with industry,” he remarked. “We have an arrogant Treasurer who refuses to enter into dialogue.”

Should the DEF ban go through, Symond said he will actively work to ensure a consumer backlash at the next election.

“If Treasury thinks they can put out a lot of empty rhetoric, the industry and myself will remind consumers that the cost of a mortgage has gone up because of botched regulations,” Symond commented.

The advent of DEFs, Symond indicated, meant greater consumer choice as non-banks were able to offer more competitive rates.

“We gave consumers a choice.

We said, ‘Do you want the money or the box?’ ” Symond has predicted that consumers will bear the burden of the DEF ban, with costs rising as a result of the loss of margin by lenders. Symond also argued that borrowers who do not want to switch between lenders will subsidise those who do.

“This is going to penalise loyal customers who stay for years by raising interest rates half a per cent,” he said.

“It’s so blatantly wrong, but consumers will know all about it come election time,” Symond added.

Rising rents motivate first-time buyers Rising rents could push more people into the property market, a new survey has found.

The Future First Homebuyer Survey, commissioned by Mortgage Choice, has found that 51% of respondents feel motivated to buy property due to rising rents.

The prospect of rising housing prices may also be motivating first-time buyers, with many feeling they must enter the market soon or be locked out.

“There’s a real sense of urgency among those with home ownership in their sights; a persistent feeling of it’s now or never,” Mortgage Choice spokesperson Kristy Sheppard said.

“In the past couple of years these Australians have observed significant price rises for units and houses and now they’re starting to see rental costs jump up. Many are thinking they need to get in soon or they may not ever be able to afford a home that resembles what their heart is set on.”

Supporting Sheppard’s assessment, 11% of respondents said interest rates would only have to increase by 50 basis points for them to give up on the idea of buying. The result is a 4% increase on last year’s response.

Respondents indicated their top concerns about buying a home were being committed to a large financial obligation for a long period of time (48%), not being

able to afford repayments (48%) and the length of time home loans take to pay off (45%).

However, Sheppard said these concerns may be outweighed by prospective buyers looking to escape rent rises in the future.

“For many, the notion of continuing to pay someone else for a roof over their head – and paying more for that every year – is an increasingly unappealing option

when measured against the commitment of repaying a mortgage for the privilege of living in their own home,” she said.

Buyer breakdown: Age of budding first-time buyers

Gen Y: 59% Gen X: 35% Boomers: 5.5% Builders: 0.5%

Source: Mortgage Choice

nMB commences compliance audits A major aggregator has undertaken audits of its brokers as compliance and licensing comes to bear on the industry.

National Mortgage Brokers has commenced audits on its broker network to ensure compliance standards are being met.

Managing director Gerald Foley said the audits have shown some brokers are still adjusting to the new regime.

“Early results show us that some brokers still need to improve in the area of file notes and generally recording the details of the process to achieve the required ‘not unsuitable’ test,” he said.

“The test in itself is not a very high benchmark, and one brokers clearly cover. It is just a matter of fully recording, using the tools provided by us, the details of the transaction.” Foley said nMB will take a proactive approach in

helping its brokers fulfil the NCCP requirements.

He commented that the aggregator will look to mentor brokers finding the process difficult.

“Our whole approach to broker audits is ‘coach, not cop’. It is a proactive process, designed to identify and improve areas where we feel a broker can better protect themselves in the event, sometime down the track, a customer has forgotten the process followed and the reasons given to arrive at their selected loan and is seeking some form of redress from the broker,” he commented.

Ultimately, Foley said there have been few surprises in the compliance regime thus far.

“I think compliance is what we expected it to be: A process where we will find some small gaps in the way some brokers have recorded

their client interaction, and addressing them. nMB has always had a tight follow-up process around renewal of Gerald Foley PI, COSL, licensing and registration and MFAA or FBAA memberships, so this hasn’t been a change for us or our brokers at all,” he remarked.

“A few brokers still straggle in renewing these items on time so we’ve hardened up on them a little to make it clearer that they need to renew in sufficient time to ensure their Credit Representative appointment isn’t jeopardised,” Foley added.

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16 www.brokernews.com.au

News are very comfortable without face-to-face interaction. Indeed, some are very uncomfortable with face-to-face interaction. I see the direct channel being very important.”

In fact, Porges has rubbished industry claims that the online direct channel will never see widespread adoption due to consumers’ desire to deal with someone face-to-face. “That’s bullshit,” he remarked. “I would guarantee the person who made that statement is over 40 years of age.” Porges believes this attitude betrays a fundamental lack of understanding of Gen X and Gen Y consumers and their service demands. “There’s been a generational lack of investment in technology,” he said. “We think of generations in terms of human generations, but a technological generation is only about five years.

There hasn’t been a lot of investment in the new technological demands of Gen X and Gen Y consumers. Very few people can actually talk to them in the method and means that they demand.”

Porges said brokers must change as the ways in which Gen X and Gen Y choose to communicate change. Currently, every Aussie franchise has a Twitter and Facebook account, which has become increasingly important for lead generation and client

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

communication. “We are the leader in social media in the finance industry, not just in the mortgage industry,” Porges said.

Aussie founder John Symond echoed Porges’ sentiments, telling attendees at a recent conference in Sydney that social media would become crucial for lenders and brokers.

“Banner ads are old-fashioned today. Just ask any of the younger generation. Have a look at what’s happening on Facebook and Twitter. We need to invest bigtime in technology and social media,” Symond stated.

“I would go a step further,” Porges added, in response to Symond. “I’d say if you advertise on the internet with banner ads and attract customers via that form of advertising, and you’re not able to fulfil their needs in an efficient digital manner, you’re going to ostracise those customers. The customer who comes to you via the internet expects a level of technological innovation the average customer doesn’t. Do you want to alienate a customer? Draw them in via the internet and then put a bunch of paper application forms in front of them.”

While lenders increasingly spruik new ways to package mortgage products, Porges claims the way lenders and brokers deliver their service should be the

Stephen Porges

primary area of concern. “[Customers will] be buying the same products; they’ll just be buying them differently,” he said.

“Bankers are always talking about innovation in products. The product doesn’t need to change.

What people are demanding is greater service delivery in the way they’re given those products. True innovation is service delivery innovation.”

However, Porges predicted few current players in the marketplace will embrace service delivery innovation. He believes many current stakeholders will bow out, alienated by the demands of a younger generation of consumers.

Porges said their replacements will be people who understand how

to harness the digital revolution to communicate in the way younger generations demand. “This is not new technology. It’s technology that’s already out there,” he said.

“It’s just about utilising what’s already there.”

However, Porges said these new entrants into the field will bring a new level of professionalism. “Will the industry attract new entrants because it’s more attractive, or will skilled people come into the industry and raise the level of professionalism and education, and that makes it more attractive?

It’s about the industry encouraging higher levels of service and professionalism that changes the culture and external perception,” he remarked.

Bankwest pegs bounce in residential interest Bankwest is seeing a surge of interest following revisions to its product suite in March.

After changes to interest rates, application fees and broker commissions as part of its residential mortgage business, Bankwest head of specialist banking Ian Rakhit said the bank has seen an increase in business, including for its Premium Select Home Loan.

“We have had a tremendous response from brokers and customers and we have seen close to a 20% increase in business with this particular product,” Rakhit said. “We are also seeing an improvement in the time from submission to unconditional approval which is down to an average of four-and-a-half days.”

The Premium Select Home Loan offers a 70 basis point

discount over the entire life of the mortgage, while its minimum loan value dropped from $750,000 to $400,000.

These changes came in addition to a waiver on all application fees for Bankwest products, and the offer of a 10 basis point upfront bonus for brokers on loans with an LVR of 75% or less.

Following the residential offer, Bankwest has also announced that it will offer 10% extra on all upfront commissions for all new commercial business deals.

Bankwest head of business broker sales Aaron Milburn said the commission offer was designed to reinforce its commitment to “loyal” commercial brokers that use the bank.

“We expect this increase in commission will give the brokers

we work with an extra incentive to secure more deals and grow their business in the lead up to the end of the financial year,” Milburn said.

The offer applies to commercial deals settled between 21 March and 30 June.

Milburn said the bank had been “extremely focused” on growing relationships with commercial brokers over the last 12 months.

The bank was working closely with brokers to gain their feedback on what they would like to see the bank’s offering look like in future, he said, and had taken this on board in regard to its service agreement with its commercial brokers, as well as its product suite.

Milburn pointed to the bank’s recent moves on its 3-year and 5-year fixed rate products, which

Aaron Milburn

he said would be complemented by the current 10% increase offer.

Milburn said that Bankwest was in the market for “quality” commercial business. “I think brokers play a key part in helping business with their lending needs through financial institutions at the moment, he said. “What’s apparent is that the public is moving more and more to brokers to get that advice for both resi and business which is good for the industry as a whole,” he said.

www.brokernews.com.au

17

It’s all about

INDUSTRY NEWS IN BRIEF Borrowers pay down mortgages Home loan borrowers are paying debt off more quickly, an RBA study has found.

The Reserve Bank’s March Quarter Bulletin has indicated that ahead of schedule home loan repayments have risen sharply since the GFC. After declining from 2002 throughout the early 2000s, ahead of schedule repayments spiked in 2009 as interest rates began to ease. “The recent increase in repayments reflects lower home loan interest rates in 2009, which boosted the cash flow available for households to repay debt, as well as the elevated financial caution of households following the global downturn,” the Bulletin said.

Churn to follow fee abolition Vow Financial CEO Tim Brown has said the proposed ban on exit fees will only serve to increase churn. In an email to Vow Financial’s broker network, Brown said the government plan to abolish exit fees was missing the point, and was not likely to increase competition.

“The debate around the removal of exit fees does nothing for competition, it just increases churn,” he said. The heart of the problem with competition is the cost of funding mortgages, according to Brown.

He said the government needs to do more by supporting securitisation as the Canadian government has done successfully throughout the GFC.

Australian Financial spruiks ‘alternative’ Mortgage manager Australian Financial has launched a new product range through its accredited broker network.

Branded the ‘Alternative’ range in a direct pitch against the dominance of the major banks, the products offer up to 95% LVR, a variety of repayment options, ongoing rates from 7.09% and no application fees. The group has also made its broker commission structure “more flexible” as part of the new product structure, due to what the group said is a desire from brokers to offer their clients better interest rates. The product range includes the ‘Right Alternative’ and ‘Balanced Alternative’ options.

Wealth Today tailors broker offer Financial advice group Wealth Today has restructured its business model to encourage brokers to join the dealer group. From the beginning of March, it began offering two options - one for new entrants to the industry, and one for more experienced business owners - designed to transition brokers to providing financial advice as part of their offering.

Wealth Today said its business model is built on the “limitations inherent in the future of traditional mortgage broking”.

The first option is an introduction model for new entrants, on business coaching and mentoring, while the new second option offers higher profits.

Firstfolio nabs CBA facility Financial services group Firstfolio has inked a deal with Commonwealth Bank to fund a senior debt facility. The $23m, threeyear funding agreement will help pay off minor debts held by the company. According to a company release, Firstfolio will use the facility to pay down debts to ING and Adelaide Bank, as well as to pay out financing agreements to vendors of eChoice and Domain Financial Services. The company will also pay $8.9m off the balance of a loan owing to a company associated with non-executive director Tony Wales.

CBA joins NAB as the second of the Big Four to provide funding to Firstfolio.

Business unimpressed with majors Business customers continue to show growing dissatisfaction with the major banks. What is typically a good predictor of consumer sentiment, the Roy Morgan Research Business Bank Satisfaction survey has shown declines in satisfaction for three of the four major banks.

Commonwealth Bank saw its proportion of satisfied business customers fall from 62.3% in January to 59.7%, while NAB dropped to 58.2% from 59.5% and Westpac fell from 61.3% to 60.5%. ANZ was the only major to post a rise, up 0.5% to 58.6%. Second tier Suncorp saw a 1.8% increase to 66.9%, while Westpac subsidiary St.George fell 0.8% to 65.9%.

ASIC to focus on aged advice ASIC has revealed that it will focus on regulating financial advice provided to retirees, as part of a newly launched ‘shadow shop’ of the financial planning industry. ASIC Commissioner Greg Medcraft said in a statement that ASIC is focusing on retirement advice because the numbers of people getting ready to retire is growing, particularly Baby Boomers.

The advice provided by mortgage brokers in regard to equity release transactions was recently questioned by financial planning peak body, the Financial Planning Association, which has argued consumers should be given a full financial plan, rather than go to a broker. However, SEQUAL CEO Kevin Conlon argues that brokers are able to advise effectively.

Aussie eyeing direct channel Aussie Home Loans will tap into the emerging online proprietary market, founder John Symond told a conference in Sydney in March. Symond said the company will soon kick off a direct online channel to cross-sell products. “I think we’re going to see that the channels of distribution are going to expand,” he said. According to Symond, cross-selling has been difficult for brokers in the past when dealing with mortgage customers.

“Our brokers are leaving a lot of food on the table, but we understand brokers can find it difficult to offer cross-sells,” Symond commented. Symond said it is more effective to cross-sell products such as credit cards and personal loans after a client has moved into a new home.

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Analysis

Life after DEF With the DEF ban looming, nonbanks are scrambling to restructure their products. How will smaller lenders and industry absorb the impact of the exit fee ban?

T

he unilateral ban on DEFs appears set to become a reality. Industry pundits have almost uniformly criticised the ban, saying it will stifle competition, hurt smaller lenders and lead to higher upfront costs for the borrowers. However, with the ban a seeming inevitability, the non-bank sector is moving to absorb the impact of the blow. In spite of doomsday predictions that the DEF ban would be the death knell of non-ADIs, leading figures in the non-bank lending industry have said the sector will continue to innovate in an attempt to grab market share from the banks.

Pepper Home Loans chief operating officer David Holmes believes most non-ADIs will have already run projections on how to restructure their products, but will continue to publicly oppose the ban in hopes it will be delayed or reworked.

“They’re waiting for detailed legislation before they make any moves. I understand why people are taking time to consider their options and won’t jump until the government comes out with the legislation,” he said.

Holmes said lenders will undoubtedly have a plan, but will not make such plans public because of intellectual property concerns. Homeloans general manager of third party distribution Tony Carn has admitted the company is currently conducting research to find the best way to absorb the blow dealt by the ban on DEFs. “We are seriously engaged in market research at the moment,” he said. “We’re consulting consumers and mortgage brokers to find out what will be the most palatable.”

Carn has expressed tentative hope that the ban may even have its upsides. DEFs have tended to make brokers hesitant to engage with the non-bank sector, despite their desire to support smaller lenders. He said the ban may strengthen the relationship between non-banks and brokers.

“A lot of customers were treated badly during the GFC by large corporate lenders who withdrew from the market and did a lot of damage. As a result, a lot of brokers have been reluctant to recommend non-banks because of the DEFs. With DEFs being abolished, brokers may be more comfortable with non-banks,” Carn remarked.

Holmes agreed, pointing out that many brokers saw their clients burned when non-banks withdrew from the market during the GFC. “When RAMS was active in originating loans, they had a low interest rate but had high DEFs. A lot of people felt trapped when they left the market. That did put brokers off. The removal of DEFs will attract brokers,” he said.

However, this does not change the fact that non-banks face the same cost for establishing a loan, Holmes said.

He believes brokers may bear some of the pain of nonbanks trying to keep their margins intact.

“The issue is how do you replace the economics of the establishment fee? Commission is another area nonbanks will look at,” he predicted. Carn echoed Holmes’ remarks, saying nearly all non-banks will be forced to

David Holmes

review their commission structures. “Commissions will have to come under further scrutiny. For us as a nonbank, we don’t enforce clawbacks. Quite frankly, though, we’re going to have to look at a clawback model,” he admitted. “But we pride ourselves on innovation and it presents a good opportunity to find new structures that best suit brokers.”

And a potential cut in commissions could see the non-banks lose any broker pull they gain from abolishing DEFs, Carn said. “If they cut commissions again, they are probably going to force brokers into the arms of the major four even more.”

This review of commissions and clawbacks, though, would be contingent upon the DEF ban having the widely-predicted effect of increased lender-hopping at the first sign of a better deal. Resi CEO Lisa Montgomery does not believe this will be the case.

“A lot of people think the ban on DEFs will see customers moving about and changing more frequently. I don’t think that will happen,” she remarked. “I don’t think exit fees resonate with the majority of customers.

For most clients who are happy and feel they have a healthy relationship with their lender, it’s not resonating.

But in the meantime the focus comes off all our businesses in terms of growing and being strategic.”

Montgomery also believes there are a number of ways for the non-ADI sector to innovate and restructure products so as not to see customers put off by larger upfront fees. “One way it might occur is for the fee to be something the customer might pay upfront, which may be refunded as the loan moves forward. It’s all about determining what that fee is going to be, and how to position it with customers and clients,” Montgomery commented.

Likewise, Carn has said such a model may be feasible for some non-bank lenders, though it is not without its drawbacks. “I think we’ll see some lenders who will seriously consider that. However, there are indications such offers could confuse the customer,” Carn said.

Holmes believes, though, that any upfront costs, regardless of whether they are later refunded, may alienate customers.

“To fully load establishment costs makes it difficult.

There are circumstances where it would work to reward loyalty, but customers do not want to have large costs upfront. Non-banks will have to go back into the lab and think about what they’re doing,” he said.

Regardless of how non-banks choose to respond to the ban, Carn believes the sector will continue to provide innovative products. “One of the great opportunities is to look at the market differently and be flexible in what you offer consumers by market segment,” he said.

Montgomery agrees, and said the non-ADI sector will evolve and adapt to the new environment. She believes non-banks will always have a place in developing new structures for products and providing a source of competition to the major banks.

[Lenders are] waiting for detailed legislation before they make any moves – David Holmes, Pepper Home Loans

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First homebuyers lifeblood of market: REIA The REIA has claimed first homebuyers hold the key to property market recovery.

REIA president David Airey pointed to the group’s Deposit Power Housing Affordability Report, saying it showed a 42% decline in first homebuyers over the past 12 months. He said the government must do something to bring first buyers back to the market.

“Sales activity in the property market has been slowing since the

First Home Owner Grant Boost ceased. The federal government needs to put well thought-out measures in place to assist first homebuyers in purchasing a home,” he said.

According to Airey, first homebuyers buoy the market by purchasing properties at the lower end of the price scale, allowing consumers looking to buy second or third homes the opportunity to upgrade. This, Airey claimed,

 Broker survey: Who was most disadvantaged by the GFC?

Self-employed: 64% First homebuyers: 32% Refinancers: 4% Source: Loan Market

boosts building activity.

“In addition to aiding activity in the property market, there is a sense of achievement that comes with the attainment of property and having your own patch of grass which is important to the health and wellbeing of young Australians,” Airey claimed.

The REIA has recommended a review of the First Home Owner Grant, and that first-time buyers be allowed to access their superannuation for home purchases.

“We want to work with state and federal governments to put in place measures which address the level of first homebuyers in the market,” Airey remarked.

The group’s affordability report also indicated there has been a 0.5% rise in the proportion of income required to meet home loan repayments, bringing the figure to 35.3%. Over 2010, the REIA said housing affordability fell 4.6%. Mortgage Choice CEO Michael Russell has claimed

David Airey

housing supply is the largest barrier to affordability. Russell pointed to a recent Productivity Commission report which found delays in land release, zoning and development.

“Undersupply is the barricade, not interest rates. The latest Productivity Commission report findings are long overdue; muchneeded improvements must be actioned ASAP,” Russell said.

“Increasing the supply of residential properties in the low to medium price range will deliver a reduction in pricing pressure.”

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Comment VIEWPOINT

Is the housing market set for a crash? Back by popular demand is controversial economist Steve Keen, who exchanges views with our leading mortgage industry pundits

Steve Keen

Andrew Hawking

Lisa Montgomery

University of Western Sydney

Mortgage Choice

Resi Mortgage Corporation

On expanding credit and LVRs: In the 1960s, if you went to the bank with $30,000 as a deposit, they would lend you $70,000.

Therefore you’d walk out of the bank able to bid $100,000 on a house. If you walk into the CBA today with $30,000, they’ll lend you $970,000. I wonder why house prices went up? On land shortages: Totally unique! There’s never been a land shortage anywhere in the world except Tokyo, England, California, England, Canada – everywhere you care to name. The fundamental reason why house prices rise is that people borrow more money to buy them. On Australian debt: Australian mortgage debt to GDP back in 1990 was roughly 20% of GDP, and it’s now roughly 90%. The US situation back then in 1990 was about 40%; it peaked at about 80%, and is now heading down. So how can you say we are more responsible when we have lent from a lower base, and got a higher level of aggregate debt at the end? On affordability: Buying a first home in Melbourne or Sydney for most people is just out of reach. And that’s what normally brings a bubble to the end: the bubble is driven by people upgrading, but to do that they’ve got to sell to somebody buying who has their zeroeth home.

On price stabilisation: I don’t believe we are in a bubble.

We are seeing some stabilisation in some areas – especially where I am on Sydney’s lower North Shore.

We are sometimes seeing a little bit of a decline in values, but that is in different segments within those markets themselves. But generally what we are seeing – when I talk to real estate agents – they are all saying the same thing – we are seeing a stabilisation of prices. On market regulation: Unlike the US, Australia is a very highly regulated lending country. So what we are seeing is that in the US, due to the bubble, people were able to get 110% finance on their properties, on their future value. So what we do in Australia is look at their current values, not their future values. On media hype: There seems to be a lot of hype in regards to a bubble that’s about to burst. There has been a decline in property prices, but we are not seeing people just walking away and just handing in their keys. When you talk to mortgage insurers, they are saying their claims experience is actually slightly increasing, but it’s not going through the roof. So I think the media has a lot to do at the moment with talking something up that potentially is not there.

On housing undersupply: We are currently undersupplied in this country by about 200,000 homes, and that’s an issue across the board. We keep talking about undersupply, but I don’t really think we are seeing any initiatives from the government from a national, state or local level, and really it has to start with local government, and changing those rules – we need to get those housing starts increasing.

On responsible lending: In this country we’ve always had prudent and appropriate legislation, regulation to ensure that there is responsible lending practices in place, and now with the NCCP legislation in place those are even more articulated. On affordability: As affordability in the major capitals is an issue, we’ll see a shift in where people are buying and people will look outside metropolitan areas to the fringe, and also look to regional areas for their property purchases. And that’s only going to be healthy because it’s also going to assist those first homebuyers who are looking to get into the market.  To watch the debate online, visit The Big Story at www.brokernews.com.au/tv/

FORUM When mortgage insurer Genworth responded to recent FBAA criticism of the refunds being provided to lenders and consumers upon refinancing, brokers on our Forum were nonplussed.

What percentage of clients ever see these refunds? Unless the client is savvy enough to request the refund from the lender, they just hang onto it or in many cases the refund option was negotiated away by the lender in lieu of cheaper premiums (after which premium increases quickly followed). In spite of Genworth’s comments LMI is the biggest barrier to refinancing in many cases and will remain so until LMI portability is introduced. davo_j on 22 Mar 2011 01:35 PM Re: LMI refunds. In the vast majority of cases the lender keeps any LMI refunds and will only pass these on to the borrower if the (borrower) asks for it.

T. Hamilton on 22 Mar 2011 03:25 PM

Suncorp Bank’s plans to take on the majors by tweaking its broker offering met with mixed sentiment.

Meanwhile, Pepper’s call for aggregators to do more for brokers met with this feedback from our readers.

Good luck Suncorp. My few dealings with you have been quite positive. One tip – get rid of your target business policy and pay trail in year one and then you will really challenge the majors. positivebroker on 18 Mar 2011 01:12 PM

In reality, the lenders are lazy and are blaming the brokers. What the lenders need to do is to upgrade their online loan submission platforms so that they have enough intelligence to stop bad/incomplete deals from getting submitted. But this would cost the lenders money and would put the onus on the lenders, and would not allow them to blame the brokers. oldBroker on 17 Mar 2011 11:36 AM

I don’t know how they will achieve this when their remuneration makes dealing with them totally unviable. I cannot afford to send deals to Suncorp. raydib on 18 Mar 2011 06:50 PM Suncorp will find a way to ask you for more information and turn an easy deal into a difficult one. Lower rate of commission on non-target business and no trail in year one make this lender unviable for brokers.

JB on 21 Mar 2011 02:53 PM

Poll: The DEF ban Question: Is the ban on exit fees a bad step for lending competition?

Yes (33%)

No (33%)

Undecided (33%)

Total votes: 537 Poll date: 2/03–23/03

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

I would disagree. I think the quality aspect is something we all should be striving for... jointly. The online systems could make this process so much easier but so could a generic application form but none of these are important for the lenders. So I would suggest that our associations (MFAA, FBAA etc) lobby the lenders on our behalf to implement these changes which will assist everyone in the mortgage chain.

Ozboy on 17 Mar 2011 12:29 PM The lenders need to protect their own operations, and rather than complain that the brokers/aggregators need to lift their game re: training/quality, they need to ensure their systems stop bad/incomplete deals, thus not relying on whether the individual broker is capable or not. oldBroker on 17 Mar 2011 01:54 PM

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OPINION

Factoring in the broker Finance brokers are playing an increasingly important role in the debtor finance Industry, having become a valuable ‘middle player’ in educating business owners about the benefits the service can provide to support cash flow.

Debtor finance – also known as invoice finance or factoring – is designed to increase cash flow to allow businesses to grow, or in many cases, support normal business operations without using the family property as security.

It typically converts up to 80% of the value of each sales invoice into immediate cash within 24 hours. Once payment has been received from the debtor, the remaining 2%, less a service fee, is returned to the client.

As economic conditions improve in 2011, businesses are turning to debtor finance more than ever before. Factoring turnover reached its highest level in Australia in the December 2010 quarter, rising to almost $1bn.

A key reason for this increase is the cash flow benefits. Recently, many firms are experiencing a rise in demand for their goods and services, and orders are consequently increasing. At the same time, businesses are generating higher costs – through expenses such as the purchase of raw materials, or hiring more staff – which is placing more strain on cash flow.

According to Dunn & Bradstreet, payment terms for businesses rose steadily from about 50 to 53 days in 2010; however, many firms are waiting more than 60 days to get paid. The additional delay is increasing the risk outlook for many firms.

More than 10,000 firms ceased operations in 2010 – a 23% increase from 2009 – and significantly more failures than during the global financial crisis.

Traditionally, businesses have relied on an increased bank overdraft to support increased cash flow, however, banks tightening restrictions on lending has made accessing this funding more difficult and businesses are looking elsewhere.

Furthermore, many business owners are looking to ‘de-risk’ and remove their personal property from the business funding equation. Debtor finance doesn’t require property as security and has less reliance on business performance

Shane Webcke Greg Charlwood

Many business owners are looking to ‘de-risk’ and remove their personal property from the business funding equation and trading history – relying more on receivables and the quality of the debtor’s ledger.

These factors are supporting the growth of debtor finance and making it a more compelling and accessible option. Also, allowing businesses to automatically increase the amount of finance available to meet cash flow needs by using their receivables.

A factor worth considering Finance brokers are a vital part of the debtor finance supply chain, particularly as they work closely with businesses, understand the issues and are able to diagnose problems in advance. Growth of the industry means a growth in the number of opportunities for finance brokers, and presents a new revenue stream for your business to aid diversification.

Greg Charlwood is the managing director of Bibby Financial Services.

Think differently about your business.

Homeloans is seeking successful, motivated brokers to help expand its national retail network in 2011.

Open your own Homeloans sales office and become part of our growing and respected brand to receive ongoing support in the development of your business.

• Marketing support and lead referrals • Ongoing training and support • Direct access to decision makers • No license fees • Simple and competitive commissions • Access to a dedicated service model.

For a confidential discussion, contact Greg Mitchell on 0400 228 099.

New debtor finance by state (September quarter 2010) NSW

$5.6bn (37%)

Victoria

$3.8bn (25%)

Queensland

$3bn (20%)

South Australia + Northern Territory

$1.2bn (8%)

Western Australia

$1.4bn (9%)

Tasmania

$45m (<1%)

Total:

$15bn

Source: The Institute for Factors and Directors

homeloans.com.au Homeloans Limited ABN 55 095 034 003. AFSL 247829.

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Comment Be careful what you wish for, if it’s the exit fee ban

A ban on DEFs may on the surface seem palatable for consumer choice, but as Kym Dalton argues, legislators may cause undesirable effects on the mortgage market

Kym Dalton

Banning exit fees appears to be politically expedient overkill that masks the real problemaffordability

‘Exit fees’ have been banned for new mortgages from 1 July 2011 in an initiative to ‘promote competition’. The big issues are whether this move will promote competition, does competition really ‘need promotion’ and could there be unintended consequences of this ‘initiative’.

Australia already has ‘world’s best practice’ consumer protection legislation in the form of the NCCP. So long as brokers and lenders meet the requirements of the Act in a lawful and ethical manner – consumers will have significant protection and avenues for redress via the EDRs and the courts. ‘Banning’ exit fees seems to be overkill.

No free options In the US, prime mortgages lack an exit fee. Rather than promote competition, this ‘free option’ to prepay has caused massive instability, and was ultimately a factor in the insolvency of the two governmentsponsored mortgage entities, the ‘GSEs’ – Freddie Mac and Fannie Mae. The problem is that there is no such thing as a ‘free option’. Someone pays – either the grantor or the grantee of the option. The lack of exit fees in the US led to massive ‘refinance booms’ when interest rates on long dated fixed rate mortgages fell.

Superficially, the opportunity to grab a long dated lower interest rate on a 30-year fixed mortgage was a good thing for consumers, however, this periodic ‘seismic’ level of refinancing activity practically meant that mortgage funding could only be provided by the ‘GSE’s’ themselves, who conducted their business as ‘black boxes’ relying on the implied credit of the US Government. Under the onslaught of the sub-prime contagion, the black box was quickly exposed as a house of cards – so what started as a ‘free option’ for the consumers ended being a very expensive cost for the American taxpayer.

This is not just an academic consideration – this ‘not so free’ option has already had an impact for Australia – remembering that the NAB wrote off $3.6bn in 2001 after a refinance boom caused them to write down their investment in Homeside Lending in the US. It should also be remembered that 1 or 2% establishment fees are the norm in America – there ‘all borrowers’ pay the true costs of establishment, not ‘some borrowers’ as has been the case here now.

Commoditised chaos?

Banning exit fees in Australia will focus consumers on rate as the prime determinant of the merit of a mortgage – indeed the government is encouraging this view by such phrases as ‘walk down the street to get a better deal’. Having the cheapest rate will lead to a race to the bottom rate by lenders and in turn is likely to lead to the commoditisation of mortgage products.

Transformation of a product to a commodity leads to a market that was once widely differentiated, transitioning to a market of bland products differentiated on price. Apart from featureless products

The DEF ban could lead to…

• A commoditised market, as a lender battle focused primarily on interest rate price drives differentiation out of the products on offer to Australian consumers • A ‘hot mortgage’ market, as consumers chase the ‘best’ mortgage based on price, causing potentially large ebbs and flows between individual lenders • Systemic risk in financial markets, based on commoditisation and the ‘hot mortgage’ phenomenon, which could leave institutions vulnerable in times of crisis

– commoditisation is likely to lead to near uniform prices (i.e. less competition) – a requirement for lenders to bulk up to seek increasing economies of scale (i.e. less competition again).

With an undifferentiated price, there could also be the temptation to seek to differentiate on credit.

This ultimate outworking of seeking to differentiate via reducing credit standards with a commoditised product was another factor that led to the sub-prime crisis in the US. We surely don’t want a repeat of that experience here.

A return of risk Another potential impact of focusing consumers on price and banning exit fees is that we may see the development of a ‘hot mortgage’ market phenomenon – as currently exists in deposit markets. When an ADI comes out with a short-term higher rate, deposit markets can experience substantial migration of funds chasing the highest yield. Some of these deposit pricing initiatives constitute short-term marketing gimmickry, and mimicry of these tactics in mortgage markets could cause whole of market instability as mortgages ebb and flow between lenders.

The most sinister potential unintended consequence of banning exit fees is that a focus on price, commoditisation and ‘hot mortgages’ may cause systemic risk in the financial market.

Australian lenders generally have a significant dependency on wholesale, securitisation and foreign funding. Each has a different mix of funding and therefore differing levels of dependency. More simply; the mortgage product may be commoditised, but the funding inputs to this product, aren’t. There is therefore a possibility for some extraneous, ‘Black Swan’ type event, such as a sovereign default crisis, to impact some lenders more than others –- and some may need to re-price their mortgages for a short to medium period to reflect their funding situation until equilibrium is recovered.

With no exit fees and ‘hot mortgages’; such adversely impacted lenders could see their mortgages and revenues migrate away at a time of particular vulnerability – leading to systemic risk and possible contagion. Unlikely, but Black Swan events, by definition, are.

Competition and pizza Finally, if exit fees are meant to ‘promote competition’– does competition really need promoting?

The current ‘mortgage war’ with its plethora of switching inducements on offer would indicate that there’s plenty of competition out there right now. However, if a lender did somehow gain some sustainable funding or efficiency advantage such that they could sustainably undercut their rivals by say 50bp on a $300,000 interest-only mortgage, this means a ‘better deal’ amounting to around $29 a week – about the cost of one family-sized pizza.

Is this really tangible evidence of ‘genuine competition’ that will assist Australians to achieve home ownership more readily or to improve their quality of life? I doubt it – it ignores the real elephant in the room – housing loan affordability.

Banning exit fees appears to be politically expedient overkill that masks the real problem – affordability.

This bolt-on addition to the current suite of consumer protections could lead to unintended consequences; the impact of which may well outweigh the short-term and largely illusory benefits to consumers.

Kym Dalton is a principal of mortgage market consultancy SAKS Consulting

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

Issue: Australian Broker issue 7.6 Headline: Non-bank lenders making a comeback (page 6) What we reported: Non-bank lenders are making a comeback says Opportune Home Loans CEO Paul Ryan. Ryan noted that while consolidation had caused the industry to lose some of its independence, it had also left behind great opportunities for new players to corner a market share. Ryan believes that the tough decisions banks are now making on interest rates are driving consumers to challenge their motives and look for alternatives.

What’s happened since?

Non-banks have seen an increase in market share as debate over banking competition has raised their public profile. According to Australian Finance Group’s February mortgage index, non-bank lenders comprised 21% of all home loans processed through the aggregator. The result was a rise on the 15.4% share of the market the sector claimed in the December quarter of 2010.

Headline: First homebuyers ageing and under-informed (page 8) What we reported: What’s happened since?

A recent survey has revealed that more than a quarter of Australians looking to buy their first home in the next two years will hold off on the purchase if interest rates rise by two or more percentage points.

Results from the 2010 Mortgage Choice First Homebuyers Survey also show that 55% of first-time buyers are aged over 30, with only 12% claiming to be well informed about the buying process.

Mortgage Choice spokesperson Kristy Sheppard said that while a large portion of first-time buyers are prepared for interest rate rises, 28% say they will back out of buying if rates increase.

According to the survey, compromises are something first-time buyers are prepared to make. Mortgage Choice found that 78% of respondents would make sacrifices to their lifestyle, and more than half would choose to buy an established home over a new one.

Interest rates are now weighing heavily on consumers’ minds after 2010’s period of tightening by the RBA and out-of-cycle moves by lenders. In this year’s survey, 11% of respondents said it would take only a 50 basis point move for them to abandon the idea of home ownership. That’s up from 4% from last year among those who tipped the same tolerance for rate rises.

The average age of first buyers has come down somewhat, with 46% of people entering the market aged between 18 and 29. The number of respondents expecting to make lifestyle sacrifices to save for their home purchase has risen to 82%, up from 78% in 2010. The recent record floods have also had an impact on first-time buyers, with 17% saying the floods made them change their mind about where to buy.

Headline: Airport alert issued after broker flees country (page 20) What we reported: What’s happened since?

Kate Thompson, the former owner of Mortgage Miracles who is under investigation for alleged fraud, has travelled to Hong Kong, prompting the major fraud squad to place Australian airports and ports on alert.

Thompson settled $110m worth of loans in 2007 securing her fourth place in MPA’s Top 100 broker list but in 2008, after more than 30 borrowers owing an estimated $15m claimed they have been victims of fraud, the offices of her Perth-based company were raided and an enquiry ensued.

While no charges have been laid against Thompson and she has not faced any travel restrictions, authorities are concerned that she will not be available for questioning if required.

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The WA police and Department of Commerce conducted extensive investigations into Thompson’s activities, levelling 27 allegations of breaches of WA finance broker regulations against her. She was charged with stealing $4m. A State Administrative Tribunal hearing into the allegations was to start earlier this month, but Thompson argued she could not defend herself until the WA District Court settled on the theft charges, which is to occur possibly in December.

Meanwhile, Thompson has denied wrongdoing, saying the shoddy lending practices of banks are to blame for her clients losing their money or homes.

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Insight EXECUTIVE COUNSEL Mortgage Ezy CEO Garry Driscoll has piloted the mortgage manager through the depths of the global financial crisis.

Australian Broker finds out why he isn’t afraid to say what he thinks, and why this telling of the truth is a good rule of thumb Garry Driscoll

Name a business leader you admire. Why? Trevor Eastwood, who joined Wesfarmers as a junior when it was just a local co-op and eventually became the CEO and later the chairman. He turned it into one of the largest and most successful companies in Australia and did so without moving its head office out of Perth.

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

I wanted to be the best I could be at whatever I did.

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

Some talent is a must but mainly working very hard and putting yourself in the position where, when an opportunity arises, you are ready to move. As Gary Player once said “the harder you work, the luckier you get” What character trait has helped you the most in business?

I pride myself on being honest and straightforward. It has caused me some grief in the past but I believe these traits have enabled me to build a pretty good reputation in the industry over many years. I believe that it is more important to be well respected than well liked.

What is the key to great business relationships?

Mutual respect and honesty.

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

Is the return worth the expense in terms of capital, both financial and intellectual. Or more simply, in the words of James Symond: “Is the juice worth the squeeze”.

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

When in doubt tell the truth. Too often when people are under real pressure they tend to tell half-truths or try to deflect blame rather than just saying it how it is and accepting the consequence. It usually comes back to bite you in the bum anyway.

What trend are you currently watching?

Looking at decisions being made by the current government and seeing if it is good policy, labour party policy or Greens-influenced policy. The trend is definitely towards making policy that is designed to keep themselves in power not what is good for the country. It is very sad really.

What is your next big ambition?

On a personal level, making the transition from my life revolving around having my three boys at home and around their sport and associated activities, to now all of them being independent. Professionally, to keep working in a business that excites and inspires me.

A timely reminder Basic time management skills may seem simple, but we often forget them in the thrust of day-to-day business.

Peter Heinrich provides 13 steps to help you make time.

I

recently delivered a webinar on time management and the preparation of it was very cathartic.

While all of us know most of the rules about successful time management, we allow ourselves to forget them, or we ignore them and we pay the price. It is undeniable that the more time organised we are, the more effective we are. The other undeniable fact is that we can’t ‘save’ time. When it’s gone it’s gone, never to be got back. What we must learn to do is use it more effectively.

Accordingly, complete the following sentence: “I wish I had more time for…”

Following that, complete this sentence “I know I sometimes waste time on…”

Answering both of these questions can provide us with most of the solutions – but let’s look at the issues.

Our principal time stealers are many and varied including; telephone interruptions, visitors and meetings, tasks that should be delegated, procrastination and indecision, inadequate technical knowledge, unclear objectives and priorities, acting with incomplete information, crisis management, unclear communications, lack of planning, stress and fatigue, the inability to say no, desk management and personal disorganisation. What I have come up with is 13 strategies to help alleviate the frustration with the way we sometimes use our time.

1. Come to work to do work. I know many of you work from home so how tempting is it to just vacuum that room or put out that load of washing. Are you able

to get done what you need to without going into leisure time? Time must be spent on planning and organising – using time to think is time well spent. An analogy I use is think of your more productive work days (the days before a holiday is a good example). We are effective because we are focused, do not waste time on non-productive tasks and we are not distracted. How effective would we be if we were like that all the time?

2. Stay in control. Take an attitude check and leave your problems at the door. Act like you like it and allow time for interruptions (plan 50% of your time for interruptions). Schedule routine tasks when you expect to be interrupted.

3. Set goals. SMART goals: Specific, measurable, achievable, realistic and timely. Optimum goals cause you to ‘stretch’ but not ‘break’ as you strive for achievement. Goals give creative people a much-needed sense of direction.

4. Plan your work and work your plan. Daily, weekly, monthly, annual and career. Schedule time for emails, phone calls, ‘quiet time’, time to get rid of ‘e’ clutter. Schedule time to create and update a good file system and monthly maintenance. Schedule time for professional development.

5. A place for everything. Clean it up, practise the art of intelligent neglect (i.e. ignore things that don’t matter). Eliminate distractions, trivial tasks and tasks which have no long-term consequences. Take 10 minutes a day to clean up. Handle it once, which means either: Do it, put it onto ‘to do list’, file it or trash it.

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6. Prioritise. Use the 80/20 rule, 80% of the reward comes from 20% of your efforts. We must isolate and identify 20%. Prioritise time to concentrate your work on those with the greatest reward.

7. Use a ‘To do’ list. The last things not completed from the previous day and the urgent things for today. Running the ‘to do’ list means concentrating on the most important things on that list. Can I suggest the ‘If I do nothing else today’ list?

8. Your biorhythms’ ‘prime time’. People understand their prime time during the day.

Some people are morning while others are afternoon or night people. Schedule the prime time for priorities.

9. If its urgent, do it now. However, we

have to take care that we are not creating the urgent issues. Urgent tasks have shortterm consequences so we must work towards reducing urgent things. Important tasks have long-term, goal-oriented implications.

Flagging items on a ‘to do’ list may help keep important things from becoming urgent ones.

10. Avoid being a perfectionist.

Perfectionism is paying unnecessary attention to detail, and can be a form of procrastination.

11. Overcome procrastination. Rather than avoiding something, break it into smaller tasks, do just one of the smaller tasks or, work on the larger task for a short time. By doing a little at a time, eventually you’ll reach a point where you’ll want to finish.

12. Learn to say ‘NO’. Sometimes very

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difficult for new brokers who just want to help everyone where that is not always possible.

Your priorities are important, so say no to the unimportant. It prevents you from overpromising and under-delivering.

13. Reward yourself – for even small successes. Celebrate any achievement of a goal.

Promise yourself a reward for completing each task or finishing a total job, then keep your promise to yourself and indulge in your reward.

Finally, complete this sentence: “The first technique that I will use to use my time more efficiently is…”

Peter Heinrich is the managing director of MFAA-approved industry trainer The National Finance Institute.

MY WAY Loan Clinic’s Tanya Du Preez was recently acknowledged at the MFAA’s Excellence Awards. Australian Broker finds that her corporate and accounting as a commitment to doing her best by clients, is serving her well in mortgage broking

What goals have got you to where you are?

When I first started on this journey I set specific goals for what I wanted to be doing on a daily basis, the impact I wanted to have in my clients’ lives and the type of strategic partners I wanted to work with. It’s gratifying to know I’ve achieved most of them, but you have to keep setting goals.

Tanya Du Preez

What is your greatest business achievement?

Leaving behind a well-established corporate career and, in a relatively short time period, building a successful business doing what I love: helping business owners and investors achieve their financial goals. Being recognised amongst my peers at the MFAA Excellence Awards is a great acknowledgement of how far I’ve come.

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

Doing my absolute best by every client and referral partner. It’s that simple. Understanding what is important to them and why, and then delivering on their needs to build a deep level of trust. This makes it easy for them to refer friends, family and colleagues with confidence.

By building my business through referrals, I can spend more time focusing on quality clients.

Who has helped you the most, and how?

John Frame, founder of Loan Clinic cooperative brokerage, helped me find my niche in the market early in my career. The first-class Loan Clinic processing centre, headed by client service manager, Prue Reinke, has been critical in enabling my solid, sustainable growth. Having the support of other highly professional brokers in our co-operative also enables me to balance growing my business while enjoying time with my young family. Astute Financial Management, my aggregator, as well as providing support and encouragement, has helped me stay on top of both legislative changes and industry trends.

What trait do you most value in yourself?

My positive attitude which gives me the resilience and determination to achieve the right outcome for my clients.

How do you stand out from the competition?

I leverage my professional knowledge and skill as a Chartered Accountant. My understanding of complex structures, income streams and tax implications enables me to find solutions for

business owners and property investors alike.

What do you tell yourself when the going gets tough?

Focus on what’s right and what is possible.

Avoid dwelling on the problem; rather focus on finding solutions.

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

To use technology more to streamline my processes and continuously improve ongoing support and service to my clients.

What piece of advice would you give an ambitious broker?

Establish a strong foundation for growth. Make the investment in a team to support you early on, particularly in processing loans and post settlement support for clients (a co-operative model like Loan Clinic is a great way to do this without a significant spend). With these critical elements in place, you can focus on spending time with clients and potential referral partners.

What’s your next greatest ambition?

To continue to leverage my strategic relationships (financial planning and accounting) to ensure that I am the primary point of contact for all things financial to my clients. I believe there is great value for clients in having a cohesive team looking after all elements of their financial lives. Secondly, I’m keen to mentor other women eager to join our co-operative.

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Market talk Chinese investors take shine to Sunshine State

Queensland’s foreign investment market is seeing drastic shifts, and could present an opportunity for brokers, writes Adam Smith

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ueensland has always been a hot spot for foreign investors, and when it comes to foreign investment, the market has historically seen its buyers hail predominantly from the UK and New Zealand, with the UK and the Kiwis swapping spots year-on-year at the top of the investment heap. However, the landscape of foreign investment in Queensland has seen a drastic shift over the past year.

China recently toppled the UK as Queensland’s main source of property investment. According to property firm Colliers International, investment activity from China rose a staggering 72% in the 2009/10 financial year. The firm’s director of project marketing, Brinton Keath, said the sudden spike in activity from Chinese investors is largely due to changes in Chinese law.

“It ebbs and flows with the situation in different countries. China is so strong at the moment because their government has changed federal laws to slow down their property investment market internally. Investors now have to put in 50% equity on their second investment property, and for their third and onwards they have to put in 100% equity. They can’t borrow anything. When they can come here and only need 20% equity, that’s given Australia high traction for the Chinese,” he says.

And while Australian property buyers may have been spooked by last year’s interest rate tightening by the RBA, Chinese investors have seen it as a boon, choosing to pump $30.8m into investments in Brisbane last year and $29.3m into Gold Coast properties, in spite of rate rises.

“Interest rates rising in Australia are seen as a good sign of economic recovery,” Keath says. “It probably doesn’t help on the home front, but it’s seen in a positive light overseas.”

And it’s more than just a robust economy and the availability of credit that make Australia attractive to Chinese investors.

“Australia is seen as a very politically stable country which is a protection for their investment. When we’re vying for investment against other countries, that face puts Australia fairly high in the pecking order,” according to Keath. “The other factor is the lifestyle benefit of Australia. The lifestyle here is seen as very attractive.

Investors can always do a trip and come see their investment property at the same time. A lot of them have always wanted to come to Australia, and this gives them a reason.”

With a slowdown on residential buying in Australia, targeting foreign investors could present a new market

for many brokers. However, foreign property investment can be governed by fairly strict rules. Ken Raiss, director of accounting firm Chan & Naylor, has said this is something brokers need to keep in mind when seeking out foreign investment clients.

“In reference to property, the Foreign Investment Review Board needs to approve all foreign owners’ purchases,” he stated.

According to Raiss, this process should not put off potential foreign investors, but they should be made aware of the stipulations dictating who is allowed to buy Australian property. In general, the Foreign Investment Review Board will only allow the purchase of residential property insofar as it increases the supply of new dwellings.

“Review Board approval to secure new properties is not hard to get. However, the board does not approve foreign purchases of existing properties unless it is within limited constraints. For example, the board will approve a purchase to house an overseas expat but not for regular ownership,” Raiss says.

Keath has pointed out that brokers should also prepare clients for some of the unfamiliar circumstances they may face when engaging in Australian property transactions.

For instance, Asian investors may find paperwork for Australian property transactions daunting at first, and may need reassurance through the approval process.

“The most important point for the mortgage broker is that the contract process for Australia is much different than Asia. There a contract might be two or three pages.

Here it’s much more involved and onerous,” Keath says.

“The process is a lot more drawn out, and they will require more feedback on its progress. It’s something new to them, but once it has been explained it’s pretty straightforward and not that difficult.”

The lifestyle here is seen as very attractive.

Investors can always do a trip and come see their investment property at the same time Brinton Keath, Colliers International

Foreign investors in Queensland Other: 21%

China: 20%

US: 3% South Africa: 12%

Malaysia: 4% Russian Federation: 4% Singapore: 5%

UK: 10%

New Caledonia: 6% Japan: 6% Source: Colliers International Research

New Zealand: 9%

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29

NUMBER CRUNCHING National house sales over the past decade

Concerns among prospective first-time buyers

700,000

The rising cost of rent: 9%

600,000

Government economic management: 6%

500,000

Other: 3%

Interest rates: 14% 700,000

600,000 400,000 300,000

500,000 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: RP Data

At a glance…

5.25%

The cash rate NAB has predicted by the end of the year

Other costs of living (clothing, utility bills, etc): 18% Petrol and food prices: 8%

Rise in housing prices:

30%

400,000

300,000

Job security: 11%

Source: Mortgage Choice

MARKET NEWS IN BRIEF Property sales show sharp drop off Data released by REIA has indicated a 21.8% drop in residential sales for the 12 months to December 2010. REIA president David Airey has commented that the poor performance for residential sales can be traced to the winding back of the First Home Owner Grant Boost and the RBA’s monetary tightening policy throughout the year.

Home ownership falling in Australia A new report from the OECD has found home ownership rates in Australia have fallen since the 1990s, dropping from 71.4% to 69.5%.

Urban Taskforce CEO Aaron Gadiel has claimed the figures do not represent the actual severity of the situation.

“Older Australians are more likely to own their own home, so our changing demographics have propped up the headline home ownerships rate, disguising significant falls in home ownership amongst young and middleaged Australians. If the impact of our ageing population was excluded, the OECD concludes our levels of home ownership would have fallen by nearly another 1%,” Gadiel said.

Housing starts decline again New ABS figures show a 5.3% drop in new dwelling commencements for the December 2010 quarter, following on a 13% decrease in the September quarter. It marks the fourth consecutive quarter of declines for detached housing starts.

Australians frequent movers A new study has indicated Australians move house more than almost any other country.

The OECD study found 24% of Australians have moved home in the past two years, with most moves the result of housing upgrades or for family reasons. Only around 10% said they moved for a new job. The result puts Australia second in the world in terms of frequency of moving, with Iceland ranking first.

First homebuyers market lifeblood: REIA The REIA has claimed first homebuyers hold the key to property market recovery.

REIA president David Airey pointed to the group’s Deposit Power Housing Affordability Report, released earlier this week, and said it

showed a 42% decline in first homebuyers over the past 12 months. He said the government must do something to bring first buyers back to the market.

“Sales activity in the property market has been slowing since the First Home Owner Grant Boost ceased. The federal government needs to put well thought-out measures in place to assist first homebuyers in purchasing a home,” he said.

REIA reports affordability slump Housing affordability declined in December according to the Real Estate Institute of Australia’s (REIA) Deposit Power Housing Affordability Report.

The report has shown a 0.5% rise in the proportion of income required to meet home loan repayments, bringing the figure to 35.3%.

Over 2010, the REIA said housing affordability fell 4.6%.

“Compared to the corresponding quarter of the previous year, all states and territories recorded a decline in housing affordability – the largest decreases were evident in Victoria and NSW,” REIA president David Airey said.

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Review Swan exultant over exit fee ban ‘victory’ Australian Broker looks at the ban, and reviews some of our incendiary coverage of recent months.

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reasurer Wayne Swan has labelled the exit fee ban a “victory for Australian families”, after it was passed into law in late March.

Despite widespread mortgage industry opposition to the plan, which many argue will have the opposite effect of stifling competition rather than encouraging it, the exit fee ban is now in force and will apply to all new home loans from 1 July 2011.

Swan said the law marked an “important day for consumers” because it had removed “one of the biggest roadblocks stopping Australians getting a better deal for their families”.

“This critical measure will help boost competition in the home loan market over time, by giving consumers greater freedom to walk down the road if their bank isn’t doing the right thing by them,” Swan said.

Justifying the move, the continued industry opposition. relating to Treasurer lashed out at cases of In a regulatory update following special types of exorbitant exit fee charges, saying the ban’s introduction, Gadens loans,” . “there’s simply no excuse for Lawyers advised clients According to slugging a family with an exit fee that although industry lobbying Gadens, the of up to $7,000”. may continue, “it seems unlikely ban “creates Wayne Swan “Exit fees can be so high that the government will retreat from particular they completely wipe out the its stated position despite almost problems for savings from switching to a unanimous opposition to the smaller lenders”. Gadens Lawyers cheaper mortgage with another initiative”. senior partner Jon Denovan has lender,” he said.

However, the Gadens update labelled the ban “wildly unfair”.

Swan also claimed credit for said there is potential for some Denovan previously attacked recent moves by major banks to exemptions to be made by ASIC the mode of the ban’s introduction abolish exit fees. “Some of the big class order: “It would appear that – via an amendment to banks have already responded to a class order is appropriate for legislation, rather than passing the government’s initiatives by certain fees payable at the end of a through Parliament – as abolishing their exit fees, with credit contract, particularly “legislation by stealth”.

NAB even offering to pay exit fees  Under the ban, exit fees will be banned if: for home owners to switch across from the two big banks that still • it is provided for in a credit contract entered into on or after 1 July 2011 have the fees in place,” he said.

• it is to be paid on or in relation to the termination of the credit contract Following opposition from the • any of the amount of credit provided under the credit contract is secured Coalition, Swan used the over residential property (including residential investment property) opportunity to urge shadow treasurer Joe Hockey not to follow  The exit fee ban won’t apply to: through with his “irresponsible • a break fee that relates to early repayment of a fixed rate component of the loan threat” to try and use Parliament • a discharge fee which reimburses the credit provider for the reasonable to bring back exit fees on new administrative costs of terminating the credit contract loans after they had been • exit fees in a credit contract that is not secured by residential property successfully scrapped.

• exit fees contained in a credit contract secured by residential property that Gadens Lawyers has issued is not regulated by the National Credit Code advice to clients saying the • exit fees such as deferred establishment fees, early repayment fees, and LMI recoupment fees contained in credit contracts entered prior to 1 July 2011 government was unlikely to reconsider its move, despite Source: Gadens Lawyers

What they said…

In the lead up to the ban on exit fees, the industry made known its concerns. Here are just some of the views we reported

“We’re dealing with a government who doesn’t understand consumer needs and refuses to sit down with industry.

We have an arrogant Treasurer who refuses to enter into dialogue. If Treasury thinks they can put out a lot of empty rhetoric, the industry and myself will remind consumers that the cost of a mortgage has gone up because of botched regulations.”

John Symond Founder, Aussie Home Loans

“The anticipated decline in competition will hit mortgage holders hard where it counts most – interest rates and fees and, most importantly, future product innovation and customer service. Non-bank lenders are forced to raise funds at a higher cost to their banking counterparts, and must impose an exit fee to recover their reasonable costs should a loan be discharged early.”

Michael Russell CEO, Mortgage Choice

“The debate around the removal of exit fees does nothing for competition, it just increases churn. The heart of the problem is the cost of funding; and the government needs to do more by supporting securitisation. If the Government is serious about making the market competitive, forget about exit fees and focus on increasing funding sources.”

Tim Brown CEO, Vow Financial

“Once the analysts had digested the proposed reforms and worked out what it meant, they saw the major banks being a big winner out of it. As far as consumers are concerned, the government is trying to pull the wool over their eyes. It’s just political grandstanding and a sham. Mind you the Opposition is not doing much better in terms of their grandstanding.”

Mark Haron Principal, Connective

“No doubt funders are looking at ways they can restructure a product from a fee point of view. Establishment costs have increasingly been moved to the end of the loan or in the event of early payout. It will be interesting to see whether the structure changes to moving them to the front of the loan.”

Lisa Montgomery CEO, Resi

“Commissions will have to come under further scrutiny across the board. For us as a non-bank, we don’t enforce clawbacks. Quite frankly, though, we’re going to have to look at a clawback model. That’s the sad necessity.”

Tony Carn Head of broker distribution, Homeloans

“The ban is very significant because it is a ban on any fee that is payable at the end of a loan contract. Why would someone go to all the trouble of setting up a housing loan for you if two days later you can repay for no cost? It’s an absolute nonsense.”

Jon Denovan Senior partner, Gadens Lawyers

“Removing the ability for lenders to charge an exit fee will limit the non-bank lenders’ ability to compete with the banks.

Without the protection of a DEF, a non-bank lender, who has a higher cost of funds in the first place, will have to charge a higher interest rate on the loan so as to remain viable.”

Kevin Matthews Executive director, AFG

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People Citibank appoints new head of mortgages Citibank has named Singaporesourced Vibha Coburn as head of mortgages for its Australian business, and reassured third party channels it will be business as usual for brokers.

Coburn was most recently a business director in the bank’s secured finance solutions team in Singapore, where she was responsible for diversifying the distribution of mortgage product through both indirect and direct sales.

Coburn will report to Roy Gori, Citibank Australia CEO, who said her experience selling through direct and broker channels will be an asset. “Her experience with Citibank in Asia and in the banking industry in Australia is also of great value,” Gori added.

In January, Steven Ramage was dropped from his role as Citibank’s head of mortgages, a move which a

bank spokesperson at the time called “a refocus of business strategy”.

However, Matthew Wood, Citibank’s acting head of broker sales, said the group’s strategy towards the channel would not change, and that it was “business as usual”.

“We’ve got some fairly serious growth targets we want to meet in 2011, and as we have done for the last 25 years, we are looking to brokers to help us achieve that, so we are very keen to continue supporting that channel,” Wood said. He said this could involve product enhancements and continued support for brokers, to ensure that the bank remains competitive in today’s environment.

Wood said the bank currently has a good offering on product and price that will appeal to the

channel. “We are quite competitive at the moment, so our brokers are actually enjoying the fact that we’ve moved back into that competitive space – we are building momentum and getting support, so we are just out there trying to consolidate on that, and grow on a daily basis,” he said.

Coburn has been with Citibank since 2002 and has held a number of senior roles in the retail and commercial businesses in the Asia-Pacific regional office and Singapore.

Her responsibilities have included strategic planning, business management, e-business and finance.

Prior to joining Citibank she was South East Asia Head of Financial Services for PA Consulting Group and also with Westpac Challenge Bank in Sydney and Perth.

Vibha Coburn

We’ve got some fairly serious growth targets for 2011 Matthew Wood, Citibank

NAB Broker recruit to get cosy with aggregators NAB Broker has created a new role, appointing Michael Trencher as its national manager of partnerships and broker distribution. Trencher previously held sales and relationship roles with Mortgage Choice and ANZ, and owned and operated an Adelaide Mortgage Choice franchise.

General manager of NAB Broker distribution John Flavell said Trencher’s previous roles have given him experience in dealing with the broker channel at both a third party franchise

and aggregator level. “Michael’s industry experience at both a corporate and owner-operator level gives him a unique insight into the broker market which will complement and add value to the NAB Broker Distribution team,” Flavell remarked.

A NAB Broker spokesperson said Trencher’s role will entail working with management of the bank’s aggregators and broker group partners to understand their long-term plans and growth strategies. Trencher will also work with internal stakeholders

to ensure NAB Broker’s support systems best serve the bank’s broker channel partners.

Flavell said the creation of the position will allow NAB Broker to work more closely with third party channels.

“This is a new role on my leadership team that will focus on building a deeper understanding of our key business partners in order to meet their needs and deliver optimum business outcomes,” Flavell commented.

This is a new role on my leadership team John Flavell, NAB Broker

MOVERS & SHAKERS

Anne-Marie Pickard

 Resimac names NSW BDM

 AAMC promotes client manager

Non-bank lender Resimac has recruited Anne-Marie Pickard as a senior business development manager in NSW. Following 12 years with GE and Wizard, seven of which were in client relationship management, Pickard has been tasked with continuing to enhance Resimac’s standing as a lending wholesale funder by growing business volumes in 2011 through third party distribution partners. Resimac COO Allan Savins said he expects a positive impact, as a result of her experience in the home loan market.

AAMC Training Group’s Michelle Firth has taken on a role as national client manager of the group, following her ‘focus and drive’ as a business development manager in NSW and Tasmania. Firth joined AAMC in 2009. According to AAMC, Firth is “extremely passionate about learning, and feels that adult training allows individuals great opportunities to progress in their current career or within other desired industries and avenues”. In her role as national client manager, she will be responsible for looking after larger, national clients.

Michelle Firth

www.brokernews.com.au

33

Caught on camera Suncorp rallied its top Sydneybased broker supporters for drinks and canapés at Bicentennial Park in midMarch. The mood was upbeat, as Suncorp’s Danny Robinson promised to support brokers and take competition to the majors 2

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11 Image 1 Image 2 Image 3 Image 4 Image 5 Image 6 Image 7 Image 8 Image 9 Image 10 Image 11

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Martin Liszewski (Suncorp) with Kin Wong (APFS) Karen Nahm (Summit 21), Julie Adams (Suncorp) and Bob Lam (Vow Financial) Marc Adam (A & B Financial Services) and Owen Davi (Davis Financial Group) Michael Khoury (Aussie Home Loans) with Chris Slater and George Srbinovski (AFG) Angelo Tantaro (Suncorp), Craig Holland (Aussie Home Loans) and Shay Lena (Suncorp) Dave Coulton (Scope Financial Services) with John Hare (Aussie Home Loans) Mel Williams (Loan Market), Alissa Childs (Suncorp) with Loan Market’s Liz Henderson and Lepaa Kamar Lindsay Rogers, Craig Holland, Brett Davies, Lisa Maxwell, Paul Ferguson and Matt Hemmons (Aussie Home Loans) Hoa Hong (Dargan Financial), Effie Nie (Suncorp Bank) and Brian Gray (Mortgage Choice) Tanna Tao and Raymond Xue (ACA), with David Xu (A & C Financial) and Calvin Chen (Apple Home Loans) Mel Williams (Loan Market), Alissa Childs (Suncorp) with Loan Market’s Liz Henderson and Lepaa Kamar Angelo Tantaro (Suncorp) with Mani Subramani (Multi Choice Investments) Jon Gillingham, Harry Hills and Danny Robinson (Suncorp)

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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

I’m free, just try me

Free lunch, or home deposit?

W

ith many budding first homebuyers in Australia spending years trying to scrape together enough money to make a deposit, Insider has an idea for brokers to suggest to them. One young UK-based homebuyer – 23-year-old Dries De Coster from Brentwood, Essex – has launched a website enabling organisations or individuals to obtain pixel advertising space, in return for a minimum 25 pound purchase (at a rate of 0.25 per pixel). The website – www. helpmegetamortgagedeposit.com – is fairly self-explanatory – the proceeds will go to De Coster’s home deposit (less 10%, which he plans to donate to charity).

Reportedly, this struggling buyer wants to raise enough deposit money to purchase a first family home for his wife, himself and their three-month-old baby boy.

“At the end of the day, paying rent month-by-month does not leave my family with any asset,” he said. “I plan on advertising the website through social networking websites and the media. Although not limited to the

following, I hope the construction industry and financial institutions in particular would want to financially contribute to this project by purchasing advertising space.” If this seems at all similar to previous efforts by Alex Tew – who famously raised $1,000,000 by selling similar rights to pixel space – that’s because yes, De Coster is essentially copying the idea. While Insider does not see what his “project” actually is – besides a neat way to make a quick buck, and not too dissimilar from charity cases themselves – we wish De Coster the best of luck.

However, if his next venture is www.please­helpme­payoff­therest­ ofmy­mortgage.com, or www. helpme­prove­there­isucha­thingas­ afreelunch.com, Insider might begin to suspect that the “project” description might best be replaced with “scam”.

Not so assured

B

eing on the receiving end of a large amount of mortgage industry public relations material on a daily basis, Insider often wonders what respect remains for us poor media hacks, who are expected to play their part and swallow the information they are given. Enter Assured Home Loans, who announced on 8 October last year (that’s 2010) that they were set to launch their first WA office “next Tuesday” (that’s

the Tuesday after 8 October, 2010). Insider, who naturally felt this good news story should be reported to the mortgage market at large, published a story flagging the group’s imminent office opening, which was meant to mark the start of a broader, national push for the Assured Group. No wonder then, that Insider was puzzled on receiving another press release six months later (in mid-March, this year – that’s 2011) announcing – yes, you guessed it, Assured Home Loans’ imminent WA office opening. The questions began. Had Insider somehow dreamt the future, lost his mind, or was this just déjà vu? Was he losing his grip on reality? Or, what had happened for Assured in between time? Was Tuesday just not a good day, and why wasn’t Wednesday better? As it turns out, the previous office opening had in fact fallen through, according to a spokesperson, because of “a few issues”. Problems with a lease were mentioned.

Well, Insider would like to ask – having been put in the unfortunate position of publishing an inaccurate story in Australian Broker’s print publication after the initial opening was canned – why weren’t we notified? Insider has a journalistic reputation to uphold! Yes, brokers are entering a new age of accountability – and Insider feels the industry’s PR efforts should be as accurate as loan recommendations. But feel reassured – Insider will keep the industry honest.

Dumb and dumber

A

US couple has skipped over the pesky ‘raising money for a deposit’ phase of home buying and skipped straight to owning their home outright … despite having made only one payment. The Iowa couple exploited a 123-year-old legal loophole in the state which dictates both spouses must sign a home loan agreement. These being the free and easy days of pre-GFC

lending, neither the mortgage broker nor lender CitiGroup did their due diligence to ensure all the documents had been filled out correctly. As only the husband had signed, the mortgage was declared void and the couple gets to keep the house free and clear. CitiGroup tried to fight the decision, but had to shamefacedly withdraw when it was pointed out the lender had actually fully approved the

loan before having even seen the application. Talk about responsible lending practices! The best twist in the story is that the couple found out about the obscure law while facing foreclosure proceedings on the house. Now, it’s admittedly gratifying to see a homeowner pull the old switcheroo on a foreclosure-happy US lender, and Insider would like to chalk this one up as a win for the little guy, but he did a little extra research. Turns out this couple were high-flying financiers who got wiped out during the GFC due to their irresponsible spending, and moved into the house knowing they couldn’t afford it. So this is not so much a case of David slaying Goliath as it is David being saved from his own stupidity because of Goliath’s even more monumental stupidity.

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