www.brokernews.com.au issue 10.02
naked Competition stripped down
ONLINE BROKING MAKING FRIENDS NOT FOES OF COMPUTERS
COURAGE DRIVE FEAR OUT OF BUSINESS
NEW CHALLENGES JOHN FLAVELL PROFILED
Is competition dead?
Competition is certainly down, but is it out altogether? The GFC forced foreign banks to pull out, non-banks into hiding and the second tier to look at consolidation. The number of products available to consumers has dropped and the market share for major banks has skyrocketed. Some say the sudden shift in power has left brokers at the mercy of the few players left with any money to lend, proof of which was the way in which commission cuts were uniformly handed out, while quality metrics were introduced. In this special edition of MPA, we examine the nature of competition in Australia starting with its growth over the last few decades, the effect of the GFC and the possibility of a comeback. We’ll take a special look at the potential for non-banks and mortgage managers to capitalise on a service advantage and the future of low-doc loans. And we’d love to hear readers’ thoughts on the issue – send your letters to the editor to andrea.cornish@ keymedia.com.au and we’ll publish the best in the next issue. Also in this issue, we take a special look at strategic partnerships – who to look for, how to make it work and whether you should be paying someone else to refer your business. And finally, I can’t help but make special mention of former stunt couple Bren and Kylie Rodda who recently joined the broking profession. Look for their humorous take on why broking is similar to riding dolphins. Happy reading!
Andrea Cornish Editor
MPA 2.0 Our multimedia edition features on-camera interviews with the industry’s biggest players. Visit Brokernews. com.au/MPA to hear their thoughts on the hottest issues facing mortgage brokers.
26 Competition: Where we’ve been, where we are, where we may be heading. A comprehensive review of the changing mortgage landscape
Look for extras in MPA's 2.0 eMag edition. On-camera interviews with: Ian Graham
60 online broking What’s in it for brokers and why they shouldn’t necessarily fear their web rival
10. 02 issue
12 Stress-relief: Paul Summerhayes, shares methods to help you overcome stress at work 22 Column: David Fox describes the unstoppable forces changing the industry 54 Column: Former stunt couple Bren and Kylie Rodda explain why mortgage broking is similar to riding a pair of dolphins
PUBLISHER Justin Kennedy
DESIGNER Paul Mansfield
DIRECTOR Claire Preen
SALES MANAGER Rajan Khatak
REGIONAL MANAGING EDITOR George Walmsley
Account MANAGER Simon Kerslake
EDITOR Andrea Cornish
10 Judgment review: broker ruled to be an agent of the lender, not the borrower
MPA LENDER 56 News: A review of news in the world of non-bank lending and mortgage management. 58 Profile: Interim Finance
HR MANAGER Julia Bookallil
JOURNALIST Tim Neary
MARKETING MANAGER Danielle Tan
PRODUCTION EDITORS Carolin Wun Katrina Fox
MARKETING COORDINATOR Jessica Lee
DESIGN MANAGER Jacqui Alexander
TRAFFIC MANAGER Stacey Rudd
PROFILE 14 Leaders: NAB Broker’s John Flavell 18 Broker: Katrina Parrington
10. 02 issue
LIFESTYLE 64 My favourite things: Joe Sirianni
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Macquarie’s new super group The Mortgage Professionals (TMP), National Brokers Group (NBG) and The Brokerage (TB) have signed an agreement in principle to form a new aggregator. The new merged entity will bring together a national network of more than 900 brokers that collectively have loans under management of about $16bn (as at November 2009). “The deal is expected to be finalised early next year provided all relevant conditions, precedents and approvals are met. The new business will then be officially launched with its new name and brand,” the three aggregators said in a statement. Currently, it has the project name ‘Wonderland’. Besides the three aggregators, two other signatories to the agreement are Macquarie Bank, which helped to facilitate the merger, and Jeffrey Zulman, the proposed CEO. “This is an exciting development. The new business offers all the advantages of size while losing none of the traditional broker-focused values of these three aggregators. The business model we’ve devised is creating interest in the market place,” Zulman said. NBG chairman Rod Lange said the merger could not come at a better time for brokers, while TMP CEO Michael Nicholson said merging the three businesses would achieve “economies of scale that will underpin our brokers in every aspect of their business”. TB chairman Geoff Smith said: “There’s no doubt brokers are doing it tough right now, and this new merged entity aims to give control and power back to them.”
NAB considers online mortgages NAB is looking to add online mortgages to its distribution networks through its internet savings platform, Ubank. Group executive of personal banking Lisa Gray said the online platform would complement the lender’s existing distribution channels and expose it to a new segment of customers. A final decision about whether to sell mortgages through Ubank would be made in the first half of 2010.
CBA and Westpac have combined to take 80% of system credit growth over the six months to October, underscoring the dominance of the major banks
Future mergers “difficult ask”: ACCC ACCC chairman Graeme Samuel stated he “never says never” to the prospect of future deals between a major bank and a regional lender; however, he said it would be a “difficult ask”. In an interview with the ABC, he admitted that the timing of the Westpac/ St.George merger might have influenced the regulator’s decision. “If Westpac were to seek to acquire St.George today, rather than prior to the GFC, whether we’d have the same view as back then … I raise this as a question,” he told the ABC. Samuel indicated that competition has reduced since the withdrawal of foreign banks and non-bank lenders.
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Bouris’ new home lending venture
BIS Shrapnel’s Residential Property Prospect, 2009–2012, forecasts an annual rental rate rise of 5% in the country’s major cities
Yellow Brick Road chairman Mark Bouris has indicated a return to the home lending market, however he remains cryptic about the details. Bouris told The Australian “only three people know what‘s going on, and there are some regulatory hoops to jump through … Hopefully it will come together soon.” It is not clear whether the new venture will form part of Yellow Brick Road or will be a separate entity. It offers mortgage broking as part of its wealth advice offering.
NBG’s deal with planning group
Major banks lose influence on MFAA board The major banks no longer have any direct representation on the MFAA board following the industry body’s AGM held in November. Alison Whittle, director of Tiffen & Co and The Mortgage Detective, has replaced the CBA’s Kathy Cummings as NSW/ACT state president, while Adelaide Bank’s GM for third party mortgages, Damian Percy, has taken over as chair of the National Lenders Committee, a position previously held by NAB Broker’s Matt Lawler. Westpac and ANZ are not represented on the board. Stephen Kane, CEO of NAB-owned FAST, has been appointed chair of the national brokers committee and is also the treasurer. Mortgage Ezy CEO Garry Driscoll was appointed chair of the national mortgage management committee, while Barry Elmslie, from Specialist Mortgage, was named both WA president and vice president of the MFAA. All the remaining board positions are filled by members that are either brokers or who represent broker groups.
National Brokers Group (NBG) has signed an agreement to provide aggregation services to financial planning group, Matrix Planning Solutions. The announcement comes soon after NBG revealed its merger plans with The Brokerage and The Mortgage Professionals as part of the Macquarie aggregation venture. As part of the agreement, Matrix financial advisors will be able to offer mortgages by gaining access to NBG’s lending rates as well as a preferential fee split with the aggregator.
Big Two sweep market The CBA and Westpac have combined to take 80% of system credit growth over the six months to October. Yet overall credit growth has slowed to its lowest level since 1992. It signals a tough year ahead for some lenders as corporate Australia remains wary of taking out new loans, and interest rate rises continue to challenge housing market growth. System credit growth grew $10bn over the six-month period to October, as major bank loan growth of $53bn was offset by a lending contraction of $43bn by foreign and regional banks and other non-bank players.
Who do you work for? Mortgage broker ruled to be an agent of the lender, not the borrower Just the facts + Case name: Permanent Trustee Company Limited v O’Donnell; Permanent Trustee Company Limited v Di Benedetto; Tonto Home Loans Australia Pty Ltd v Tavares  NSWSC 902 + Court: Supreme Court of New South Wales + Judgment date: 4 September 2009
Article contributed by Peter Townsend, Townsends Business & Corporate Lawyers, (02) 8296-6201, 0419 448 844, email@example.com
recent decision of the New South Wales Supreme Court has held that the mortgage broker who arranged loans for borrowers was an agent of the lender and, in the circumstances of these cases, the mortgages were unjust and the loan agreement and mortgage void in whole. Historically, courts apply a principal and agent relationship to mortgage brokers, such that the mortgage broker is the agent for the borrower unless the particular circumstances dictate otherwise. The essential elements of a principal and agent relationship are: 1. consent of both the principal and agent 2. authority given to the agent by the principal to act on the principal’s behalf In the recent decision of three cases heard together, Permanent Trustee Company Limited v O’Donnell; Permanent Trustee Company Limited v Di Benedetto; and Tonto Home Loans Australia Pty Ltd v Tavares  NSWSC 902, the Supreme Court held that the broker was the agent of the lender and in the circumstances of these cases the contracts were unjust within the meaning of the Contracts Review Act 1980 (NSW) and declared void. The Court found that the broker fraudulently completed the loan application form and income declaration form in low-doc loans without the borrower’s knowledge. The broker knew the true financial position of each borrower and knew that truthful disclosure of the borrower’s assets and income would not meet the lending guidelines of
the lender. The Court held that but for the fraud, the loan would not have been approved. The lending guidelines in these cases gave the loan manager a degree of control over the actions of the broker and the loan application forms were branded by the broker to act on behalf of the loan manager. The broker did not offer any alternative lenders or ascertain any alternative loan sources. In these circumstances the role of the broker was not that of an independent finance broker acting on behalf of a borrower but a loan introducer. The Court therefore held that, “reasons of justice and commonsense, to my mind, require that the knowledge of [broker] of the true financial position of the [borrowers] to be imputed to the [lender].” Therefore the knowledge of the broker that the borrowers could not afford the loan was knowledge that was impliedly known by the lender. The conclusion is that the Court declared the mortgages void against the borrowers pursuant to s 7(1)(b) of the Contracts Review Act 1980 (NSW). That section provides that: “(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) … (b) it may make an order declaring the contract void, in whole or in part”. mpa
o to any of the websites that disclose statistics on the major causes of injury in the Australian workplace and you will see ‘stress’ high on the list of offenders. On the Workcover website, a report researched by the University of South Australia (2006) states: “Epidemiological evidence indicates that job stress is rapidly emerging as the single greatest cause of work-related disease and injury.” Go globally and the problem becomes magnified. A report issued in 2002 by the World Federation for Mental Health predicted “depression and heart disease, both linked to stress at work, are set to become the major public and occupational health issues”. Both reports were issued well before the Global Financial Crisis. One shudders to contemplate the statistics at this point in time. So, what specifically causes stress and fear in the workplace?
Causes of stress and fear The pressures of the modern day workplace, ever tighter deadlines and highly competitive environments are breeding grounds for stress. Dr Craig Hassad, a Melbourne-based medical doctor who specialises in counselling and mindbody medicine at Monash University, cites many causes of stress in his self-help book Know Thyself: The Stress Release Programme. From his research, Hassad has highlighted the specific triggers of stress in the workforce: rapid increase in the amount of change, job insecurity, the speed of life and competitiveness. He makes some compelling observations about stress and the seemingly worsening situation predicted by the statistics: “Figures indicating that stress is increasing can paint a negative picture and need to be considered with care. They do not tell the whole picture; for there is a lot that a person can do to help themselves.”
figh t wo k r p a l fear stress and
Paul Summerhayes, a business tutor at The School of Philosophy in Sydney, shares methods to help you overcome stress at work
Causes and triggers of stress
Mind (causes of stress)
Outside world (trigger of stress)
“ Stress is far less dependent on the actual event as it is on how the person sees and responds to the event ”
Hassad also concluded that “a superficial reading of these rating scales of life stress does not take into account the fact that stress is far less dependent on the actual event as it is on how the person sees and responds to the event”. The power of the mind Hassad says that the anticipation of an event or the replaying of an event in the mind can produce a stress response even though the event may never happen or is over. He claims that much of the stress is caused by what goes on in the mind and that it can be controlled. (See box above.) Hassad asserts that our reaction to people and events often has far less to do with them than it has to do with the various thoughts and feelings we have about them. Many of these thoughts are habitual, mechanical and unreasonable. He says the cornerstone of stress management is to be aware of what is going on in the mind: which ideas and motives are worth retaining and which ones are untrue, harmful and should be let go. To clearly see what is going on in the mind and to be able to decide appropriate action, we need to step back and take a break from the turmoil of the mind. Stop the replaying of past events, imagining the future, the fear, and the worrying or thinking of being somewhere else.
Self-help exercise To accomplish this, Hassad recommends what he calls the ‘mindfulness exercise’. The object of this exercise is to endeavour to quieten the mind, come into the present moment, and to turn inward to connect with our own deep stillness. He says people who practise this approach find a new sort of self-control. It is like a shift from a state where we are controlled by fears and emotion to one where we are our own person –able to use reason, make choices and act accordingly.
Of course what Hassad is telling us is not new. The wisdom carried by various philosophical traditions on the art of living a peaceful and happy life offer similar guidance. Consider the ancient Stoic philosopher and Roman Emperor Marcus Aurelius, who said: “If you will concentrate on living what is really your life – the present moment – then you will be able to live the rest of your life free from anxiety, nobly, and at peace with your own spirit, with the god that is within you.” Consider also the modern day philosopher Eckhart Tolle who in his best-selling book The Power Of Now offers us direction that rings true with the key messages passed down through the ages: “The present moment is sometimes unacceptable, unpleasant or awful. It is as it is. Observe how the mind labels it and how this labelling process … creates pain and unhappiness. By watching the mechanics of the mind … you can then allow the present moment to be. This will give you a taste of the state of inner freedom from external conditions … Accept – then act. Whatever the present moment contains, accept it as if you had chosen it. Always work with it, not against it.” Courage To face up to stress and fear takes courage. Courage is a word that we associate with war heroes, fire fighters and the like. But courage is a virtue ingrained in all of us, available to be called forth in our time of need. In essence the courage we need to meet our fears is very often sourced from stillness. If a decision has to be made, if a step has to be taken, if a stance is required then courage is there to be availed. In the stillness of your inner presence face the fear of loss, fear of failure, fear of being hurt. The great philosophic teachings all point in the one direction – true power is within, and it is available to you now. mpa
Paul Summerhayes is a business tutor at The School of Philosophy in Sydney. He is the presenter of a two-part, five-week business course ‘Philosophy in Business’. The next course is scheduled to begin on 16 February 2010. For more information on the course, see www.practicalphilosophy.org.au
on the way
John Flavell breaks down his rise to general manager of NAB Broker and the challenges and opportunities that lay ahead for the industry
ohn Flavell’s CV reads like a who’s who of the mortgage industry. In the general manager of NAB Broker’s 17-year career, he has worked with Westpac, RAMS, Aussie and NAB and sat across the boardroom table from some of the most influential figures in the mortgage industry. Flavell took property valuation at Melbourne’s RMIT. While he graduated as a valuer in 1993, he never actually got around to practising as one. His first job was at Westpac, which was trialling the concept of home finance managers at the time. “I took to it like a duck to water and thoroughly enjoyed it – meeting people, getting out and getting involved. I did that for a couple of years and, being an ambitious type, I kept my eyes and ears open and an opportunity came up at RAMS.” Nobody knew much about the relatively new start-up in 1995 and Flavell was made the general manager of Victoria, Tasmania and SA, which he says was a big title, but not really a big role. “We had five lending managers in the field, five credit people and about 500 leads, and were settling about $5m when I started.” It was still a small operation, but Flavell says it was an exciting time as he was in the room with John Kinghorn and the other directors when they were forming the company’s strategy and developing the brand. “It was a great time to be in that business and I learned a lot in a short time,” he says. Within three years, RAMS grew significantly. Flavell’s team went from five agents in the field to 50 working in regional Victoria, SA and Tasmania. While the average loan amount was only about $120,000, RAMS was settling in the vicinity of $60m–$70m a month. Flavell says the experience really taught him about running sales teams. It also gave him a chance to spend time in the field with customers and work on the non-bank lending side. From RAMS, Flavell had a change of industry. A position at Telstra opened up in Sydney in 1998. At the time, the telecommunications company was looking to bring in managers that had experience in growing sales, but not necessarily in the telco
Fact file: John Flavell + Age: 40 + Family: Married with three daughters, 12, 7, 4 + Hobbies: “I like to surf as often as I can, and if I don’t get down to the beach I get cranky. I also like to run a bit and go snow skiing and sailing as well.” + If I wasn’t in banking… “I would be looking for a role in banking.” + Favourite holiday spot Byron Bay + What do you do to relax?: Play the guitar + Highlight of career: “I don’t have a specific highlight, but the thing that gives me the greatest pleasure is seeing the people that I work with have great success.”
industry. He started as an account director and ran a team of people in business-to-business sales. Flavell was there for four years, in time to witness both the dot.com boom and the crash. “So I learned a lot about big corporations, and I learned a lot around working with people as business partners, as opposed to providers of basic services.” In 2002, the career wheel spun round again for Flavell and his old contacts at RAMS got in touch with him about an opportunity with Aussie. Flavell joined just as Aussie was launching into the mortgage market. “So I was there when they were going through a pretty significant change that really shook up the whole industry. We grew the business really, really aggressively.” Flavell worked as state manager for NSW and stayed with the mortgage giant until three years ago. “At that point in time I was keen to do what was next. I thought it was a good time to build a financial planning arm to Aussie and they weren’t that focused on it at that point.” He met NAB’s Matt Lawler, whom he discovered shared a lot of the same business philosophies, as both were looking at the potential for brokers to move into providing a broader range of solutions to their customers. So Flavell switched camps and started with what was then the Homeside business in November 2006. “And soon after we re-launched the business as NAB Broker and really started to go out and expand our capability in terms of working with brokers as business partners to provide a broader range of solutions, from mortgages, to insurance, to term deposits.” Flavell was named general manager of NAB Broker in October after NAB announced the restructuring of its personal banking division. Under NAB Broker, Flavell
“ We re-launched the business as NAB Broker and really started to go out and expand our capability in terms of working with brokers as business partners ” brokernews.com.au
“ At the end of the day, any industry will flourish or flounder based on the value that consumers place on the services provided ”
oversees the Homeside, MLC, Allianz and Vivid sections of the business. “Our vision is to work with brokers as business partners to enable them to provide a complete and broad range of financial solutions to their end customers. My role enables me to work across the industry with the aggregators and the brokers to develop a better understanding of their needs as business people as well as their needs for customers. It’s all about being a trusted advisor across a range of people’s financial requirements.” Advice model Three years ago, there was interest in the advice model, but interest has transformed into action, Flavell says. “When people talk about their business, ‘advice’ comes into it more and more. Interest and talk have shifted to fascination and in the last 12 months there’s been a shift to action.” In some ways, Flavell says the GFC has pushed brokers to expand their services. “At the end of the day, any industry will flourish or flounder based on the value that consumers place on the services provided. And in difficult times, people really value advice,” Flavell explains. As brokers move to offering a broader range of services, Flavell says many will be advancing their own education. But he stopped short of saying Cert IV would be
inadequate for brokers going forward. “When we launched our star rating scheme 12 months ago, we made education a part of that because we think it’s good for the industry … Already brokers are asking not ‘What’s the minimum that I can take?’ but ‘What other opportunities are out there?’ And ‘What will really differentiate my business?’ ” NAB/Challenger The biggest challenge facing NAB is its acquisition of Challenger’s mortgage aggregation arm – newly re-branded ‘Advantedge’, which encompasses the PLAN, FAST and Choice Aggregation businesses. Flavell spent much of October on the road talking to brokers and allaying fears that those belonging to the Advantedge family would get… er, an advantage. “The way that my team interacts with them will be the way that it always has, in that we’ll be out there actively competing for their businesses.” Flavell admits the Advantedge players represent a big part of the market, but he adds, “It’s not the only part of the market”. “And if my team isn’t continuing to go out and build successful relationships with the rest of the market, then we wouldn’t reach our objectives.” He adds: “The structure and approach that we’re taking is that it’s an even playing field and we’re keen to get business across the entire market. People listen to the words, but it’s by your actions that you’ll be judged.” mpa
On the big issues: John Flavell, general manager of NAB Broker, breaks down his predictions on the economy, on regulation and on the potential for the fee for service model to take hold in the Australian mortgage industry: On the economy: “If you look where we are now compared to six months or 12 months ago, then there’s some cautious optimism at the moment. At the same time, there’s some degree of uncertainty and fear. Is it a false dawn? Or the beginning of
the end? I think some of the big risk events are behind us. “We can expect increasing interest rates. Another thing is unemployment. It may not be as dark or bleak as people have predicted. There are still some challenges, but a great opportunity for brokers. “A lot of people are talking about the shift in their business.” On regulation: “The other big change is licensing and regulation. We have a fair degree of understanding of what that’s
going to look like. That will present a challenge for some business people and models but will also be a real opportunity. The shape of what brokers provide to the end customer is going to change a little and the way aggregation businesses operate will probably change too. “If consumers see an industry that’s well regulated, this will increase the demand to use brokers.” On fee for service: “There are already people charging a fee for
the services they provide. Your ability to charge is going to be determined by the work or services you provide, and as the professionalism and range of services evolve, then the customer’s willingness to pay for those services will increase as well. If you look at the financial planning industry, there are as many planners charging a fee as there are that don’t. It’s about advice and structure. “People are willing to pay for that advice, and it gives them confidence.”
centre at the
Alice Springs broker Katrina Parrington is proving that it’s possible to do big business in a small town
hen you’re in ‘The Alice’ if you do right by people, word spreads quickly. Katrina Parrington has only been a broker since July 2009, but she’s already averaging 17 deals a month. It’s a phenomenal start for any broker, let alone one who has set up shop in the midst of an economic downturn. Part of her quick success can be attributed to her passion and drive, but she also has a solid reputation as a home loans specialist from her previous lending career at ANZ. “I was consistently in the top four at ANZ in home loan lending,” she explains. “I took to it like a duck to water. I loved working with people and getting positive outcomes for them. They’d introduce me to their family and friends and say ‘this is the woman that got me my house’.” While she moved from home loan lending into business banking, changed banks and even moved to Darwin, she never forgot her love of selling
loans in Alice Springs. And when she eventually moved back to the Red Centre and started her own brokerage, it turned out that the customers hadn’t forgotten about her either. To the Alice, Alice! Parrington hasn’t always been a local. The former Adelaide resident was visiting Alice Springs with her partner nine years ago when on the drive back she found out her employer had died. “So I said to [my partner] Jo, ‘what do you want to do?’ And Jo said ‘let’s go back and put the house on the market’. It was a spontaneous decision that reflected the instant connection Parrington felt for the community she describes as “really vibrant”. The town of 23,892 boasts a large indigenous community and numerous American, Russian and Chinese residents who work at the space base at Pine Gap.
“ I loved working with people … they’d introduce me to their family and friends and say ‘this is the woman that got me my house’ ”
Katrina Parrington + Company: Elders Home Loans + Location: Alice Springs, NT + Previous experience: 15 years in financial services
It’s a major tourist hub but, like Parrington, a lot of people that come to visit end up staying. Although she worked as a commercial property manager in Adelaide, when she made the transition to Alice Springs, Parrington started working in insurance with Elders. Shortly after that, the opportunity to work in home loan lending with ANZ arose and Parrington switched paths. Then, despite loving her role as an ANZ home loan specialist, she took up the challenge of working as an ANZ small business manager and was soon picked up by CBA to be a relationship manager – corporate, in Darwin. Parrington called Darwin “an exciting place to do business”, but CBA had an issue in Alice Springs and asked her to move back. Pressure to increase ‘wallet share’ and the fond memories of her time in home loan lending sparked a desire in Parrington to move from banking to broking. “Corporate people are not as grateful or as appreciative of what you do for them, but the home lending people really are … I just said to my partner – who was very hesitant about the whole idea – I’m going to start on my own.” Parrington faced the biggest challenge of her broking career right at the start: convincing her partner that starting her own broking business wasn’t a crazy idea. “The bank supplied me with a company car and it wasn’t a bad salary and Jo was absolutely very unhappy about it at the time, but it seems to be that I’ve proven I was probably right.” Parrington resigned from the bank in April last year and negotiated to buy a mortgage franchise with Elders. “Because I’d worked for Elders previously in insurance, I was familiar with the organisation and it has a very strong presence in rural communities in central Australia.” There were several other advantages to signing up with Elders. The company has a real estate office in Alice Springs, which Parrington works out
of. Not only was she able to move into a building that was already branded, but the real estate side of the business provides a valuable referral source. By July, Parrington’s accreditations were in place and she was ready to hang out her shingle. Despite having the Elders advantage, she didn’t sit back and wait for referrals to trickle in from the real estate side. Parrington has been actively engaging several accounting firms and conveyancing offices in town, and networking outside of office hours to get her name out there. “I still practise the same discipline I had when I was at the bank,” she explains. “I was always out networking, so the transition into my own business was really quite easy.” In addition to attending “a huge amount of functions”, she has launched a major radio and television advertising campaign. Parrington has developed two of her own commercials, which are upbeat, straightforward and unique. She wanted to set herself apart from the tired imagery that is often used in financerelated advertising. “I was nervous about my TV advertising because I didn’t choose the traditional financial approach. I went with something a little bit quirky and a little bit out there and I thought, are people going to look at me and think there’s no substance there because I’m not doing the ‘I’ve been in business 30 years’ kind of thing? But they’ve remembered it. It’s short and simple. And I’ve created a character, a bear that’s become the mascot. He’ll be in all the ads, so people can relate to him.” The TV ads play every day of the week on Channel 7 during the morning news programs.
“ I was always out networking, so the transition into my own business was really quite easy ”
“I always ask customers how they heard about me, and I’ve found that TV has worked outstandingly well. Probably about 50% of new customers have come in from the TV ads.” Parrington backs up the TV campaign with 15-second radio ads that air during the prime drive time in the mornings and afternoons. Right now, Parrington dedicates about 80% of her time to residential and 20% to commercial. While she has the expertise to expand her commercial services, she can only write directly with CBA and ANZ and doesn’t feel comfortable ticking and flicking deals over to other lenders. The other deterrent is that commercial deals often involve a lot of work for little reward. On the residential side, 25% of her business comes from first homebuyers, while the rest is mostly investors. “Investors are very heavily involved in this market; we have very high yield returns in investment property here and a less than 1% vacancy rate. We’re also land starved – I know of three homes last week that were sold before they even got to the paper,” she says. “I’ve been here nine years and I’ve never really seen any dips in the real estate market in Alice Springs.” Parrington’s goal this year is to get a stable cash flow to employ an administration assistant, and refine her systems. So far she’s been doing it all on her own, working six days a week, but Parrington doesn’t seem bothered by a little hard work. “As long as you’re passionate about something, the only challenge is making sure you’re staying on track and doing what you need to do.” mpa
Unstoppable forces T
realisation for the need for advice in a number of finance-related areas and are demonstrating that they will no longer accept nor respond to an offer or level of service that does not clearly satisfy their specific advice needs.
Advice Centre Consulting’s David Fox reveals the changing landscape of the mortgage industry and what small businesses can do to adapt
he broking industry has undergone significant changes over the last few years, but nothing like the change that will occur in the immediate future. Many will attribute these changes to a combination of the difficult economic environment of the last 24 months and the impact of new legislation. However, the change that has already commenced, and which will accelerate over the next three to five years, is the result of a number of unstoppable forces that are reshaping the structure and economics of our profession. The single most powerful force that is already starting to reshape the whole advice industry is the changing customer. More demanding and sophisticated customers now have a greater
Changing customers Of course it is not only the mortgage broking and broader advice industries that are being impacted by the changing customer. We have seen wholesale changes in convenience shopping, retail hardware, spectator sports and office supply industries all driven by more demanding customers. Whereas the community corner store held a dominant position in the convenience shopping industry only 10–15 years ago, that position is now occupied by petrol stations. Corner store owners once boasted of their customers’ loyalty. Now those customers are supporting the service station for their one to five-item shopping, and the major supermarkets for the bulk of their everyday needs. The need for greater choice, one-stop shopping,
parking, 24/7 access and competitive prices have not been met by the corner store, resulting in customers leaving in droves. The neighbourhood hardware store has been a similar victim. Once positioned as an advisor of equal importance as the family doctor and local bank manager, the local hardware store proprietor is currently witnessing his customers migrate to the larger chain stores where DIY tragics are spending their weekends having fun! The office supply industry has also undergone huge change. Small and large businesses alike shopped at their nearby newsagent for office supply needs years ago. Now the specialist office supply super stores dominate this industry. Products ranging from modular storage facilities, laptop computers and bulk packaged DVDs to coffee and toilet tissue are available from these retailers who have rapidly increased their understanding of their customers’ changing needs.
“ The single most powerful force that is already starting to reshape the whole advice industry is the changing customer ”
And in sports-mad cities such as Melbourne, football fans that once stood in mud and rain on the terraces of their suburban sports field to follow their favourite team now won’t attend a game unless there is a roof over the stadium! Adapting to change These are all examples of industry change driven by the changing needs and greater demands of customers. And the newly-shaped businesses and industries have recognised that customers have become more sophisticated and demanding and will not tolerate the same level of service and product which they did years ago. As customers become more aware of their power in shaping the advice offer of the future, they will successfully make a number of demands from the mortgage, finance and other financial advice businesses seeking to service them. They will demand the following:
• Guidance in understanding what their advice • • • •
• • •
needs are Clarity around the role of the mortgage and/or finance broking and/or advice business To be given ‘a damned good listening to’ That the advice is explained in a language they understand That the advice is delivered in the order that is a priority to them – not the order that is a priority to the business That someone is accountable for looking after their best interests and coordinating the appropriate specialist to deliver advice that is the priority at that point in time – they want ‘one throat to choke’ To be kept informed – to know their progress in achieving what is important to them To know the value of the advice and clearly see the relativity between it and the price they pay A relationship with the business that is built on trust, empathy and care
The changing customer is the single biggest influence and unstoppable force impacting the mortgage & finance broking industry at the moment and will continue to be so over at least the next three to five years. Other unstoppable forces But there are other unstoppable forces, too, which are reshaping the financial advice-related professions. These include: • The increasing costs of operating a business. The costs of technology, business infrastructure, compliance, marketing, operational overheads and people are all rising. Businesses are looking to gain benefit from the economies of scale that a larger business may provide. • Businesses are aggressively competing for talent. Businesses are not only competing aggressively for new customers but for talented employees. There is a broad acceptance within the business-owner community that superior business performance is largely dependent on the capability to attract and retain talent. It is the growing and developing business that is far more effectively able to achieve this objective as talented people need the opportunity to learn, to develop, to be challenged and to transition to more rewarding positions. A smaller business
“ There is a broad acceptance within the business-owner community that superior business performance is largely dependent on the capability to attract and retain talent ”
or one that is unable to grow will not be able to offer these opportunities. • Long-term talented employees have an expectation to share in the rewards of business ownership. In other words, they are looking for ‘part of the action’ – a share in actual ownership of the business or at least in the profit to which they have been an important contributor. Business owners are faced with the dilemma of sharing some of the ownership, or at least profit, with such employees or risk losing this talent. Addiction to growth The combination of all these factors will create an industry-wide addiction to growth. Business owners will try to counter these forces by gaining critical mass and benefiting from the economies of scale. Scale will enable business owners to absorb rising costs and the reduction in their share of business profit. There will also be increased competition. Competitors will not necessarily be greater in numbers but will have greater capabilities in attracting new customers and delivering value. Advice professionals will incorporate lending and credit advice into their suite of services, and larger institutions will become more customer-focused. And of course new legislation will also have significant impact. The whole credit and advice industry is currently experiencing a raft of new legislation which will have some impact on reshaping the mortgage & finance profession. This remains a subject of industry discussion and debate. The economic and structural changes that are already in place and will continue to occur as a result of these unstoppable forces will eventually reshape our industry into one that is unrecognisable compared to today. The business that recognises these forces and adapts to take advantage of them will be among those that dominate the mortgage & finance broking profession in 2013. mpa David Fox is the principal of Advice Centre Consulting and has been involved with the financial services industry since 1991. He held a number of senior positions with Sealcorp and MLC before establishing his own consulting business two years ago
competition? ACCC chairman Graeme Samuel admitted that as a result of the GFC there is less competition in the banking landscape. But what does this mean for brokers? MPA’s Andrea Cornish and Tim Neary investigates in this special feature…
ompetition – that great engine of capitalism – is up on blocks in Australia’s front yard. In the past two years, the nation’s mortgage industry witnessed an incredible breakdown. Like sugar in the gas tank, the global financial crisis has almost completely seized once healthy components such as second-tier lenders and non-banks. Dependent on securitisation, these entities have been forced to sit out the crisis, while their big bank counterparts continue to lap them in market share. Former US president Herbert Hoover once stated: “Competition is not only the basis of protection to the consumer, but it is the incentive
to progress.” If so, then what does the present situation mean for borrowers? And more importantly, what does it mean for brokers? Evolution of competition To analyse the present state of competition, it’s important to look at how it’s evolved in Australia. In the 1960s, competition was just a twinkle in the eye. At the time, Australian banks operated under a very protective legal and regulatory regime, which sealed their position in the banking system as core credit providers. Credit was expensive and the only alternatives to the banks were credit unions and building societies, which were subjected to less stringent regulations, could provide and charge higher interest rates, but were restricted in the range of services they could offer. Most importantly, they were not allowed to call themselves ‘banks’. Fast forward to the mid-1980s and there were three things that were true, says Fujitsu Consulting’s managing consulting director Martin North. One is that the bank margins for mortgages were higher than they are today – by almost 4%. Two is that most of the business was written
Major bank mergers: ANZ 1970 In what was then the largest merger in Australian banking history, ANZ merged with the English, Scottish and Australian Bank Limited to form the present organisation, Australia and New Zealand Banking Group Limited 1979 Acquired the Bank of Adelaide 1984 Purchased Grindlays Bank 1985 Acquired Barclays’ operations in Fiji and Vanuatu 1989 Purchased PostBank from the New Zealand government 1990 Acquired National Mutual Royal Bank Limited - Acquired Lloyds’ operations in Papua New Guinea - Acquired Bank of New Zealand’s operations in Fiji - Acquired Town and Country Building Society in Western Australia 1991 Acquired 75% of Bank of Western Samoa
- Sold Canadian operations to HSBC Bank Canada 1998 Acquired stake in PT Panin Bank, Indonesia 1999 Purchased Amerika Samoa Bank 2000 ANZ sells its Grindlays businesses in the Middle East and South Asia, and associated Grindlays Private Banking business, to Standard Chartered 2001 Acquired 75% of Bank of Kiribati 2003 Acquired National Bank of New Zealand 2007 ANZ acquired Citizen Securities Bank (Guam) 2009 Signed an agreement to acquire Royal Bank of Scotland’s Asian operations. The deal includes RBS’s retail, wealth and commercial businesses in Indonesia, Taiwan, Singapore and Hong Kong, and its institutional banking businesses in Taiwan, the Philippines and Vietnam
through a small number of major banks and state banks. And three – there were no brokers. But the situation started to shift in 1983, following the Campbell Inquiry. De-regulation gripped the Australian banking system and a number of mergers took place between the major banks and state banks. International banks also entered the Australian market and competed with banks not only on price but on product features, says Provident Cashflow Limited’s CEO Steve Sampson. “Eventually, because the market was so competitive, many of the international banks left the market or their Australian subsidiaries were swallowed up by Australian banks.” At the same time, the world was awakening to the emergence of global capital markets. Banks that traditionally made loans based on deposits were starting to access other sources of funding through the global capital markets. It was the birth of a new era. New originators that were accessing these capital markets started to sprout. Registered Australian Mortgage Securities, better known as RAMS, was formed in 1991; however, the RAMS Home Loans brand wasn’t launched to the retail market until 1995. Meanwhile, Aussie Home Loans was founded in 1992 as a mortgage originator. Supported by Macquarie Bank, it became one of the first to introduce the securitisation of home loans. “This was possibly the biggest shake up that the banks ever had,” Sampson says. “The mortgage manager emerged rapidly on the back of what Aussie had achieved in the marketplace and by 1995 mortgage managers had a 10% market share
“ I think [the merging of banks] was the economic circumstances. Much to the annoyance of the Australian public, but necessary ”
of the home loan market.” About this time, the Australian government launched the Wallis Inquiry, also known as the Financial System Inquiry. Its report, which was released in 1997, was a major review of the Australian financial system that included a stocktake of financial de-regulation, an analysis of the forces driving change and recommendations on regulatory reform. In light of the report, the government ended its so-called ‘six-pillars’ policy, which involved a blanket ban on any mergers among the major banks. It also decided that mergers among the four major banks would not be permitted until it was satisfied that competition from new and established participants in the financial industry had sufficiently increased. According to North, the report suggested that the banking industry needed to unbundle costs and services because borrowers didn’t know what they were being charged. In addition, “they needed to find a way to increase competitive tension”. As a result of the report, there was more disclosure to consumers, increased de-regulation and Australia started to see more overseas players. While there was greater consolidation among banks, there were also many new entrants into the marketplace. And with the rise of the non-bank sector came the dawning of a new profession – mortgage broking.
Late founder of McDonald’s Ray Kroc on competition: “If any of my competitors were drowning, I’d stick a hose in their mouth”
Major bank mergers: Westpac 1982 BNSW merged with the Commercial Bank of Australia to create Westpac Banking Corporation 1984 WBC and the government of Kiribati formed Bank of Kiribati as a 51%–49% joint venture
1990 Bank of New Zealand sold half its shares in Bank of Tonga to WBC and half to Bank of Hawaii, giving each of them 30% - Bought Banque Indosuez’s operations in New Caledonia and Tahiti
1985 Replaced Barclays Bank in the National Bank of Tuvalu (est. 1981) in Tuvalu (ex-Ellice Islands), taking 40% of the shares as well as a 10-year management contract
1995 Sold its shares in National Bank of Tuvalu to that country’s government, which now wholly owns the bank
1988 Acquired the European Pacific Banking Corporation in the Cook Islands and an HSBC subsidiary, the Solomon Islands Banking Corporation
1996 Merged with TrustBanks
- Also acquired HSBC’s operations in Fiji and the New Hebrides
1995 Acquired Challenge Bank in Western Australia
1997 Acquired Bank of Melbourne in Victoria 1998 WBC sold its operations in New Caledonia and Tahiti to Société Générale
2001 The government of Kiribati sought to reduce Westpac’s share in Bank of Kiribati from 51% to 49%, leading WBC to sell its shares back to the government - Bank of Hawaii sold its interest in Pacific Commercial Bank (42.7%) to Westpac, which held an equal portion
- WBC offered Samoan investors, who held the remaining shares, the same price it had paid Bank of Hawaii. WBC now owns 93.5% of Westpac Bank Samoa, and Samoan companies and individuals own 6.5% - In Tonga, Bank of Hawaii sold its shares in Bank of Tonga to Westpac, giving
WBC 60% ownership of what is now Westpac Bank of Tonga 2002 WBC acquired BT Financial Group 2008 Westpac merged with St.George Bank - Acquired BankSA (continues to be a division of St.George Bank) - Acquired RAMS Home Loans
In the mad grab for volume, both banks and non-banks looked to mortgage brokers to provide greater distribution of their products. “The mortgage manager was a driving force of competition for the banks and eventually the bank spreads on home loans reduced from up to 5% pa to 1.5% pa – that’s competition working,” Sampson says, adding that banks were forced to close branches and retrench staff to hold up their profits. Consumer choice was at its height: some 2,300 home loan products were available in Australia. The increase in product diversity and loan providers fuelled the acceptance of the mortgage broker in Australia and banks embraced the third-party channel to hold up their market share. At the time, about 80% of loans written by mortgage brokers went to major banks. The banks recognised this success and started putting their own ‘mobile lenders’ on the road. By 2004–05, brokers were firmly entrenched in the mortgage business, writing 30–40% of loans, and by 2007 mortgage managers wrote about 20% of home loans in the marketplace. It was the broking world’s equivalent to The Age of Aquarius.
“ The GFC has allowed the Big Four to reduce competition ... and to dominate the home loan market ”
Long-time witness FBAA president Peter White has 30 years invested in the banking and mortgage broking industry. He had his first mortgage broking company in the late 1980s; however, at the time mortgage broking was not quite the industry it is today. “The 1990s was when we saw the real growth,” he recalls. “The consumer drove the non-banking sector – they wanted it. They wanted the service, they wanted the pricing and they wanted the product opportunities.” White later became involved with Wizard – working as its chief executive officer. He founded Avanti Commercial in 2002 and has been an active participant in the FBAA since 2003. Despite the GFC’s crushing effect on non-banks, White says he’s not worried about the current state of competition. “Like anything when you over-blow the balloon, there are going to be some that pop out the end of it and you come back to what is probably a more solid core. So the competition as we go forward will probably be a more solid group, and the fringe element disappears.” But he’s doubtful that the return of securitisation markets will result in a return to the days of pre-GFC in Australia. “No, I don’t think anything is going to look like it did pre-GFC. A lot of securitisation vehicles were doing things outside the box. And we need to come back within the box,” he says. Peter White
Brokers and competition The mortgage broking profession really grew in lock-step with the rise of non-banks. And when competition was at its height, brokers were the prettiest people at the dance. But now that there’s been a significant reduction in competition, it seems the balance of power has shifted to lenders. The commission cuts in 2008 could be seen as evidence of the changing dynamic. At the time, brokers talked about “voting with their feet” but the ultimate loan choice comes down to the borrower and when a “flight to brand quality” mentality exists, there really isn’t much brokers can do to steer business elsewhere. The cuts were coupled with higher demands from banks for brokers to lift their game – metrics were introduced around conversion and electronic submission for instance. “The banks are in such dominant positions at the moment that they are going to determine who they use as providers,” says principal of research at Brandmanagement Andrew Inwood. Fujitsu Consulting’s managing director Martin North looks at the lack of competition and its effect on brokers slightly differently. He says that when there was a dizzying array of products available, consumers had a greater need to use brokers to help them navigate the complexities of a home loan. “There are a smaller number of originators now and the products are much more similar. So to an extent, the broker proposition is less relevant.” However, he adds, “I think today the broker proposition is different; it’s more about taking the complexity out of the process, so in other words the banks pass on some of their inefficiency and the brokers deal with all the difficult issues – they make a consumer’s life easier. And the second point is, there’s more emphasis now on broader advice.” North argues that the broking industry may have to re-invent itself and brokers could be faced with a decision to offer whole-of-market advice for a fee or work for a small number of lenders for a commission.
“ It’s clear from 2009 figures that NAB has its work cut out if it wishes to catch up with CBA and Westpac ”
Cue sinister music But nothing good lasts forever, right? The turmoil in the global credit markets severely hampered non-banks’ and regional lenders’ ability to raise the cash needed to stay competitive in the lending game. The first to falter was RAMS, which showed signs of struggle in September 2007 when it failed to refinance $6.1bn in short-term debt during the height of the credit freeze. Westpac took over the group’s brand and franchise network in October. On top of this, non-banks had to deal with the flight to perceived brand quality. Resi’s head of consumer advocacy Lisa Montgomery publicly admonishes banks for “scaremongering”. “Major banks delivered negative comments informing consumers that non-bank lenders would be more adversely affected (than banks) by the increased cost of funding, which would be reflected in significantly higher interest rates,” she says. “They gave consumers the false impression that all non-bank lenders will cost them more to borrow.” Montgomery also says banks led borrowers to believe the US sub-prime crisis was primarily a non-bank issue. Damage was further done to the non-bank and mortgage manager sector by actions such as GE Money, which failed to pass on rate cuts to borrowers and then pulled out of the market by ceasing to offer home loans through third parties. Bendigo and Adelaide Bank, which provided wholesale funds to a number of mortgage managers, also had to close ranks. And formally strong specialist non-banks such as Pepper, Liberty and Bluestone entered a period of hibernation, creating cost efficiencies through job cuts and diversifying their services into other areas in an effort to survive. According to figures provided by CANSTAR CANNEX, since November 2007 42 lenders and 562 products have dropped off its database, either because the lenders have left the industry or removed their information. Undeniably, the GFC left its mark on competition. Mortgage Choice chief executive Michael Russell remarked to The World Today: “I’m terribly concerned that it has regressed … I think it really is an unintended consequence of the global financial crisis, but I think we’re operating in a marketplace now where the four major banks certainly have a fairly significant stranglehold on the market, and I don’t think that’s healthy for anybody – short or long term,” he said.
Major bank mergers: CBA 1989 Acquired 75% of ASB Bank in New Zealand 1991 Acquired the failing Victorian governmentowned State Bank of Victoria 1994 Sold its shares in National Bank of Solomon Islands - Took a 50% share in PT Bank International Indonesia
2000 Commonwealth Bank and Colonial Limited announce merger, included Colonial’s stake in Colonial National Bank, the former National Bank of Fiji - Also acquired remaining 25% of ASB Bank
2006 Acquired remaining 49% in Colonial National Bank 2008 Acquired Bankwest - Purchased 33% stake in Aussie, which had recently acquired Wizard Home Loans
- Acquired full ownership of PT Bank International Indonesia
Major bank mergers: NAB 1981 Merged with The Commercial Banking Company of Sydney 1987 Bought Clydesdale Bank (Scotland) and Northern Bank (Ireland) 1990 Bought Yorkshire Bank (England and Wales)
1992 Acquired the Bank of New Zealand 1995 Purchased the Michigan National Bank 1997 Bought HomeSide Lending 2000 Its acquisition of MLC Limited for $4.56bn marked one of the biggest mergers in Australian corporate history
2009 Purchased Aviva’s Australian wealth management business Navigator 2009 Purchased Challenger’s aggregation and mortgage management business for $385m
His comments were echoed in an interview that ACCC chairman Graeme Samuel gave to the ABC: “… we’ve got a whole different banking and finance market in this country to what we had before,” he said. “There is less competition; there are fewer competitors.” Between big banks In addition to the black eyes the GFC gave non-banks, we’ve seen consolidation. This has resulted in some seismic shifts in competition. According to Sampson, “the GFC has allowed the Big Four to reduce competition, buying smaller banks at red spot special prices and to dominate the home loan market at 82% (67% pre-GFC)”. He says 12% of that growth came from acquisitions. The mergers between CBA and Bankwest, and Westpac and St.George have helped those banks pull away from their main competitors. Statistics released in December from the Australian Prudential Regulation Authority revealed that CBA and Westpac garnered 80% of system credit growth over the six months to October 2009. The merged Westpac/St.George entity dominates the housing market with 23% share – just slightly ahead of CBA/Bankwest which had 22.1% of the mortgage pie. Andrew Inwood, principal of research at Brandmanagement says competition hasn’t “died” – it was given away. “Westpac, which has really survived through the Bradbury effect, has now found itself in a relatively luxurious position, and CBA is effectively out-competing everybody else,” he told MPA. In another interview with the ABC, Inwood maintained that there’s still competition
between the two majors and they’re still fighting hard to get share. “There’ll be a drive by NAB, and also ANZ, to re-enter the market and start to claim their share back as well.” NAB’s decision to match the RBA’s December rate rise was a clear challenge to Westpac, which had doubled the rate rise. NAB group executive of Personal Banking Lisa Gray says, “we’re sending a message to customers at Westpac, and the other banks, that NAB can offer them a better deal.” But it’s clear from 2009 figures that NAB has its work cut out if it wishes to catch up with CBA and Westpac. Analysis done by Inwood found that in the first three months of last year CBA and Westpac accounted for $23bn worth of new residential lending out of a total for that period of $25bn – more than 90%. Australia appeared to be moving in 2009 from a four-pillar policy to a “two-pillars, two-stumps policy”, as ANZ CEO Mike Smith notes. However, he is not onside with comments made by Samuel that suggest the ACCC would be looking at any mergers involving one of the Big Four banks “very rigorously indeed”. Smith has argued that there is still genuine rivalry in the banking sector. He told the ABC, “I think this whole issue of ‘Are banks being competitive?’ is crazy. People do have a choice.” It’s a sentiment shared by Huw Bough, Westpac’s head of broker sales, who says competition is alive and well within the banking system. “This has been due to the competitive positioning of our products as well as the backing and strong support for our broker partners and our customers. There has also been a significant
“ ... the banks have held down the interest rates on home loans to build up market share and wipe out the second tier ”
Westpac crimps new lending Competition took another blow in January when Westpac made a series of announcements that effectively curtailed new lending. In late January, Westpac announced it was tightening home lending criteria for home borrowers on house-branded loan products. The lender lowered its LVRs for new customers on standard variable mortgages from 92% to 87%. It also limited borrowers applying for higher-risk low-doc loans to borrowing up to 80% of the value of the property they are buying. The move was followed by an announcement that its subsidiary, RAMS, would no longer be offering loans through the broker distribution channel. RAMS said the decision was made in order to align its time and resources to activities that added the most value to its customers and that having different pricing and policies across the two channels was causing conflict and confusion between the two. Mortgage Choice’s senior corporate affairs manager Kristy Sheppard expressed disappointment with the decisions. “It’s pretty obvious that Westpac is under funding pressure and it has experienced higher activity than expected lately, so it needs to reign in its availability to new home loan customers,” she says. “But I think Westpac’s recent moves – whether it’s a 45 bps rate rise that we saw in December or news of it backing out of the mortgage broking channel along with the latest tightening of the lending criteria – reduce the competitiveness of the lending market and this is a time when we really need to increase borrower choice. “We’re starting to see those smaller lenders come back through and now this is just another blow to the mortgage market.”
customer flight to quality and the security of mainstream banks. However second-tier lenders and non-banks still have a viable proposition for a cross-section of borrowers,” he adds. The majors’ willingness to write home loans at a reduced margin is proof of the fierce competition within the sector, says Advantedge CEO Drew Hall, who took over his present position after NAB purchased Challenger’s mortgage management business. “There are a number of lenders and certainly a multitude of brands in the marketplace. And I think there’s some extremely strong competition, and the best evidence of that is seeing businesses writing loans and seeing the margins stay down and contracting in many cases. If there wasn’t the
“ Non-banks have a different culture and mentality to banks. The first thing a bank does when it acquires a nonbank is to try to turn it into a bank ”
competition in the marketplace you’d see margins expanding much further outside of the RBA cycle.” But Firstmac’s managing director Kim Cannon has a different take on the situation. He says that the major banks are performing a classic Pincer manoeuvre – writing cheap home loans at the expense of business lending, in an effort to drive non-banks into non-existence. “… with the GFC, the banks have held down the interest rates on home loans to build up market share and wipe out the second tier, and business and small business are paying for it. You didn’t see rate cuts to those guys. You see bigger lending margins now under the guise of credit. You see bigger fees in that area. They’re all subsidising home loan rates to keep everyone happy, but to the detriment of the consumer.” Did the ACCC act prudently in allowing these mergers? Samuel told Lateline Business that “the advice that we had at the time from APRA and the RBA, I think, gave us absolutely no choice. We had to approve that merger.” However, he admitted in a later interview with the ABC that had the merger not taken place during the GFC, it’s questionable whether it would have been approved. North says he believes the ACCC had no choice given the circumstances. “I think they’ve done a very good job – you’ve got to remember the state of play at the time … There were good reasons why those mergers should have gone ahead – at the stage where we were in the GFC, some of those banks needed to be propped up. The second thing is none of those players were effectively leading the market in terms of price or product. So effectively it wasn’t like you were taking out a really innovative player that was leading the market, which is why I think what they did was perfectly ok. Now, the next big deal will be AMP or Suncorp – that could be a lot harder because it could change the complexion of the market more dramatically.” Sampson also agrees, although somewhat more begrudgingly. “Look, I think it was the economic circumstances. Much to the annoyance of the Australian public, but necessary.” Between banks and non-banks Not only has there been consolidation between banks, but Australia has witnessed increasing bank involvement in the non-bank space. Westpac took over RAMS in October 2007, CBA took out a 33% stake in Aussie (which bought Wizard from GE) in August 2008, and NAB
purchased Challenger’s aggregation and mortgage management business in October 2009. But what does this mean for competition? Is this the mortgage industry’s version of grocery store home brands? “Does it blur the line?” Inwood says, “Yeah, I guess it does and probably quite intentionally.” But Hall maintains the difference between banks and non-banks has never been black and white. “The line between them has always been blurry,” he says, adding that there are several classic examples of bank involvement in non-bank entities. For instance, Macquarie Bank was the funder and operator of the PUMA program which funded businesses such as Aussie Home Loans. In addition, there’s Adelaide Bank, which ran a wholesale lending bank and funded a number of mortgage managers. “So in some ways ‘bank/non-bank’ is a bit of a state of mind. It’s the way that the people who operate those businesses interact with their customers. And the service proposition and the way you go about doing things differently from all the more established brands.” Hall adds that he thinks genuine competition is borne out of having these brands (such as RAMS) stay in existence even though they might have some common ownership. “And speaking from my own point of view with Advantedge, we’re very much motivated – our key performance indicators are not about how many loans NAB writes, it’s about how we grow our business. My mandate is to grow the business and make it as successful as it can be.” Bough says Westpac’s multi-brand strategy is about offering choices for customers, “and is the most effective way to meet their needs”.
The role of competition in capitalism In a capitalist economy, the prices of goods and services are controlled through two factors: supply and demand, and competition. Competition results when several producers of a similar product sell to the same buyers. It is the catalyst to innovation and reasonable prices as companies jockey for buyers. And without its presence, you risk the creation of a monopoly or cartel.
“Ultimately, I believe that the customer will largely dictate how much room there is for competition and this will ensure that every lender, however they are aligned, will have to offer competitive products.” Cannon says bank ownership of non-banks gives consumers the illusion of choice. He adds, however, that eventually banks will try to turn the non-bank entity into a mini-version of itself. “Non-banks have a different culture and mentality to banks. The first thing a bank does when it acquires a non-bank is try to turn it into a bank. The variation may be [a brand] like Aussie, which has only sold 30% to the banks,” he says. At the time of CBA’s investment in Aussie, the bank maintained it would continue to keep Aussie “strongly independent”. Aussie said CBA’s 33% stake would give it “the financial muscle to seize opportunities in the non-bank sector” and investigate acquisition opportunities. NAB’s purchase of Challenger’s mortgage management business was met with similar enthusiasm from mortgage managers. Mortgage Ezy CEO Garry Driscoll states that the purchase signalled a return to competition. “NAB and their purchase of Challenger (now Advantedge) could stir up some real competition. The opportunity for mortgage managers to gain access to funding via such a strong balance sheet has a huge positive implication for competition. Mortgage managers provide a far superior level of service to brokers at the loan assessment and approval stage, and a more personalised service to borrowers post-settlement, and once armed with a competitive suite of products, they’ll be able to challenge the recent bank monopoly of the home loan market,” he says. MPA
CoreData-brandmanagement dramatically stated that the second tier is “dead”. Meanwhile research from KPMG suggests credit unions and building societies are on an upward trajectory. MPA investigates these trends…
second-tier banks CUBS Fate of
on-banks are not the only entities to have suffered from the GFC. Australia has witnessed a rapid deterioration of the mid-tier banks, which had weaker deposit bases than major banks and were much more reliant on securitisation. The second-tier gang of five has been reduced to three – Suncorp, Bank of Queensland and Bendigo and Adelaide Bank. Of the remaining independent regional banks, Suncorp has a market share of just 2.79%, followed by Bendigo and Adelaide Bank which has 2.49%. Bank of Queensland, which does not use brokers to distribute its mortgages, has 1.99% of the market. Suncorp chief executive Patrick Snowball attempted to repress rumours that the bank had
plans to divest in November, commenting in his update to the market: “We have all no doubt read the tea leaves that suggest the further consolidation in banking is unlikely to achieve regulatory and government approval at least in the short term.” He added that the continued speculation around a sale had been the biggest threat to the bank’s prospects. In an effort to compete more effectively against the major banks, Suncorp revealed that it would reduce costs across its banking and insurance business through job cuts. Snowball was optimistic the bank could pull through. “There’s an appetite for a second-tier banking system in Australia and Suncorp is probably the strongest bank in that sector… If we get the economics behind running it correctly, then we have a very good future.” Merger talk and operating efficiencies aren’t the barriers to success in the second tier. The government’s retail deposit guarantee and wholesale funding guarantee has also been problematic for the regional banks. Bank of Queensland CEO David Liddy has been very outspoken regarding the differential fees charged by government for banks versus second-tier banks, saying that the system undermined competition.
“ There is an appetite for a second-tier banking system in Australia and Suncorp is probably the strongest bank in that sector ”
As he quipped on the ABC: “Clearly, when elephants dance, ants tend to die.” The major banks, which are seen as more secure by ratings agencies, currently pay about half of what their BBB-rated regional counterparts pay. Suncorp’s former acting chief executive Chris Skilton compared trying to compete with the Big Four banks in this market and match or undercut their rates was like a corner store trying to beat Woolworths or Coles. Credit unions and building societies (CUBS) face similar disadvantages with the guarantees. Louise Petschler, head of Abacus, the industry body representing mutual banking institutions, says there are two aspects to the guarantees. “The retail deposit guarantee up to $1m, which covers all banks, building societies and credit unions – that’s been a timely and welcome stabilising influence on the economy generally and on the banking system in particular… so that was an important pro-competitive element of the government’s response, but we do have serious concerns about the government’s guarantee scheme for large deposits and wholesale funding, because that scheme has pricing that significantly advantages the major banks.” She adds that the wholesale guarantee has disadvantaged smaller ADIs in being able to fundraise, particularly while the markets were closed – and they still really are shut for the smaller players without a government guarantee. Abacus also argues that the guarantees feed into the perception that there are different classes of ADIs, which Petschler says is not the case “and certainly not borne out by our risk profile”. Abacus has made a number of submissions to the government and regulators about the wide differential in pricing in the wholesale guarantee and while the organisation has received some sympathy, Petschler says the government has not been moved by the body’s arguments. “But our sense is that as soon as the government can get rid of that wholesale guarantee, they will, and their preference is to see markets normalise – we just don’t want to see that happen at the expense of major banks clawing back market share or having a funding advantage which they do at the moment.”
“ We do have serious concerns about the government’s guarantee scheme for large deposits and wholesale funding ”
There are currently 113 credit unions and nine building societies in the sector, but the number is constantly shrinking as the pace of consolidation grows. Petschler says it’s definitely a continuing trend and one that emulates what credit unions in Canada and the US are doing. “And it’s part of a maturing credit union system where you become a mainstream competitor.” But not every merger is a good merger, says KPMG financial services partner Martin McGrath after releasing KPMG’s annual performance survey of the sector. He argued that mutuals had to ensure mergers didn’t alienate members who were often attracted to the institution based on geographic identity. Mutuals have a strong deposit base and sit behind the four major banks and Suncorp in terms of total on-balance sheet assets. Collectively they hold 8.1% of the new home loan market. But where they really stand out from their competitors is on bad debt – which sits at .03% for building societies and 0.1% for credit unions compared to the bad debt ratio at major banks which rose to 0.45% in 2009. Prior to the GFC, about 15–20% of CUBS’ funding was derived from securitisation, but there was a lot of variation in that, Petschler says, adding that some didn’t use any, while others (which are no longer around) were at about 50%. “So it was important and it was funding growth, but it wasn’t a critical funding source and that’s one of the reasons we didn’t see a liquidity crisis across our sector,” she says. But Petschler adds the sector needs to see some form of securitisation come alive again in order for CUBS to be in a stronger position to compete. The sector isn’t relying on securitisation to increase its market share, however. Petschler says the main strategies will be around marketing and market presence. Never the same When (not if) securitisation comes back, will market competition look the same as it did pre-GFC? Most think not, and some think that’s a good thing. Advantedge’s CEO Drew Hall says he’s a big believer in securitisation because it works.
“Investors who’ve invested in Australian mortgage-backed securities haven’t lost money on their investments; what they’ve found is those investments haven’t been that liquid and so if they’ve had to sell those investments they might have held below what they bought them for. But in terms of actually paying their coupons and repaying principal, there’s been no issues with that. “I don’t think we’ll see money being raised as cheaply as it was for quite some time and that’s because the supply and demand equation has been altered for a long period of time. One of the reasons why securitisation became such a cheap source of funding was that there was a lot of short-term money market investors and a whole range of investment businesses looking to get a yield above the cash rate and invest it in securitised products, without really taking into account the maturity mis-match between a mortgage-backed security and their needs to get cash in a hurry. And I think the markets won’t forget about that for a long
period of time, which means securitisation will take some time to come back at cheap rates.” But as much faith as Hall has in securitisation, he doesn’t want to see it return to where it left off. “I wouldn’t like to see it come all the way back to pre-GFC days because if you took it to its extreme – what you saw in the UK and the US is you get a very loose credit system with people writing business for the sake of it and writing business at a loss, and that ultimately is unhealthy for the markets and we’ve seen the consequences of that in the collapses offshore.” Petschler says there will be innovation in the market. “There is a competitive gap at the moment so there will be innovation from outside the deposit taking institutions … we feel that there’s a strong appetite among consumers for competition but also safety and reliability, so we think that’s an excellent environment for our sector which is member based and member driven to be able to have a stronger competitive position.” mpa
Rocky t n e o m m
for securitisation and non-banks Securitisation is down, but not out for the count. Many suspect the funding vehicle is about to make a comeback
he GFC’s left hook (delivered after the bell) left the entire securitisation market concussed, but with the credit crisis receding now, the demand for Aussie RMBSs has tilted upwards again. Good news indeed, since most market commentators agree that without it the non-bank sector doesn’t stand a chance. Comeback signals Advantedge’s general manager for distribution – broker platforms and lending Steve Weston says we’re seeing many positive signs of improved investor appetite, and points to events like the ME Bank’s RMBS pricing last year – without the help of the AOFM – to support his notion. The market is also showcasing some great innovation. Says Weston: “The recent Member’s Equity deal included some innovative structuring, which provides investors with options to take lower returns for greater liquidity protection. This deal points to new thinking whereby issuers will create new features to increase investor appeal.” But it’s not about to be all plain sailing. Global investors in RMBS have been spooked by the GFC, suggests Weston – and the Australian market has not been immune. “That being said, it’s important to realise that Australian RMBS has been a stand-out performer on the global stage. I expect the relative out-
performance of Aussie RMBS will hold us in better stead for the future,” he says. The reality is that some investors, including some offshore hedge funds with short-term investment horizons, are unlikely to return. But as markets continue to demonstrate stability and investor mandates open up other domestic and offshore investors are likely to come back. In fairness, much of this accolade should go the way of the AOFM. “The AOFM has done a fantastic job of fulfilling its mandate to assist the securitisation market,” says Weston, calling the initial $8bn AOFM allocation both “meaningful and appreciated”. The willingness of the AOFM to invest in various triple-A tranches produced a consistent flow of transactions – and it allowed the Australian capital market to stand out as the world’s only functioning RMBS market, he added. “In addition, the AOFM has already contributed to upholding competition in Australia since consumer choice is driven by the number of lenders able to compete for business,” says Weston. Cautious Paul Garvey, manager for capital markets at ME Bank, concurs that the securitisation market is on the way back, but cautions that it may not come back to the extent of where it was before the onset of the GFC.
Prior to the credit crisis and for seven years until June 2007 the securitised market in Australia experienced a period of rapid growth; reflected in the rise of the mortgage originators who relied almost solely on securitisation for funding. However, as US house prices collapsed and investors reappraised risk, global RMBS incurred significant losses and delinquency rates rose. “The domestic RMBS market was tarred with the same brush, despite the fact that it continued to perform well and was more transparent and less complex. Unlike the US, prime loans made up 97% of the market,” Garvey says. But, in recent months he says conditions in local securitisation markets have improved markedly. Underscoring this return in confidence is the fact that around 16% of ME Bank’s recent RMBS transaction was sold to European investors. “And participation by international investors will continue to deepen over time – determined in part by deal structures,” he says. Like Weston, Garvey believes that if during the worst of the GFC there was a “glimmer of competitive hope” kept alive by the non-bank sector, then it was due to the efforts of the AOFM. “Its strategy has been critical to maintaining competition in the mortgage market not simply by providing an access to funds, but also by supporting reasonable pricing margins,” he says. Now the onus to determine appropriate pricing without AOFM support rests on the market’s shoulders. Says Garvey: “This will ensure the best outcome for issuers and investors, and will be essential in terms of AOFM’s broader policy of getting the market back on a self-sustaining footing.” Mary Ploughman, director for securitisation at Resimac, is also cautious about the return of the securitisation market. She says it is recovering but will have the strength enough for conservative transactions only. “We do not expect that complex and esoteric structured transactions will be part of the recovery. The securitisation transactions of 2010 will be for quality assets and issuers with well understood vanilla structures,” she says. RMBS took a beating during the GFC, where just how illiquid an asset class it could be was highlighted. However, now that the credit crisis is beginning to thaw, Ploughman sees investors who understand RMBS – and in particular Australian RMBS – continuing to feel comfortable with it “from a credit risk perspective”.
Thin base Ploughman says the current reduced securitisation investor base has been caused by investors suffering “significant redemptions” following the write-down of their portfolios. However, like Weston, Ploughman is of the opinion that the underlying asset quality of Australian mortgages and their first-rate performance during the GFC (compared with the UK and the US) will mean that Australian RMBS will be favoured as an investment by those still in the market. Point of difference When the non-bank sector was first born it traded on competitive pricing; however, now with the market changing many remaining service providers are talking up their service advantage. And Tanya Sale, general manager at Finconnect, says the way the majors conducted themselves during the significant rate decreasing period (massive service issues) has made it easier for the non-bank sector to do so. Accordingly, she says competition is desperately required to keep the banks honest. “Borrowers have long memories and in this sense it is imperative for the industry as a whole to ensure that the non-bank/mortgage manager sector succeeds,” she says. Tight fit However, Sale says the non-bank sector’s service advantage is closely aligned with its price differential. “It will be sustainable only if rates remain just outside those of the banks – it will become a major problem for the non-bank and mortgage management sector if there is a significant gap,” she says. Sale believes consumer confidence is the major pre-requisite to the return of real competition. “There would need to be a strong marketing campaign specifically targeting the need for the consumer to have a choice other than the majors – explaining the risk factor involved in all the lending going to the Big Four,” she says. Sale also makes the point that readily available funding is crucial in this competitive comeback. Garry Driscoll, CEO at Mortgage Ezy, says service has always been an essential part of the offering by mortgage managers – and it has become even more so in the last 18 months during the time the wheels fell off the banks’ processing centres.
“Eight-week turnarounds were further compounded by the total lack of meaningful communication back to brokers,” he says. Driscoll says that as much as service is a major factor in providing a competitive voice against the dominant majors, it means little if the offer is weak. He adds that some mortgage managers found it difficult to obtain market leading products during the GFC. “But indications are that this will change in 2010 as investors return to the capital markets and the balance sheet funders of the mortgage management sector get more aggressive,” he says. Comprehensive value offer To stand a chance at being properly competitive, mortgage managers need to couple competitive products with excellent turnaround times, commission levels and what Driscoll calls “real personal service” to both borrowers and brokers. He makes the point that while mortgage managers value their broker partners, the majors only deal with brokers because they have to in order to maintain their market share. “If they could do the same economically via their branch networks, they would drop the broker channel faster than the Liberals dumped Malcolm Turnbull,” he says. The non-banks have a lot of extra work to do to claw back lost market share. “The banks did a great job during the GFC scaring borrowers away from the non-bank sector,” Driscoll says. “But, the public is beginning to see through this, especially now that the federal government has showed its confidence in the sector by injecting $16bn into it.” To back up his sentiments Driscoll points to “some strong balance sheet funders” supporting the mortgage management sector, including ING, NAB and Adelaide and Bendigo Bank. This is propped up by the return of investors to the securitised market as “capital looks for a secure home”. “We saw that even in the midst of the crisis FirstMac was able to come out with innovative products such as the 2.99% fixed rate so I have no doubt there will be more to come in 2010 as funding improves. “All our research indicates that brokers want to support the mortgage management sector and it is the responsibility of all mortgage managers to provide a compelling reason for them to switch from the majors,” he says. Gus Mendez, director and CEO at Loan Services Australia, says that superior service has
“ The banks did a great job during the GFC scaring borrowers away from the non-bank sector ”
been the only competitive lever for mortgage managers for a decade already. “The sector has had some success with product differentiation to the majors with low-doc and sub-prime but all this was just about undone by the GFC,” he says. Economies of scale Furthermore, Mendez argues that the main advantage the non-bank sector has over the majors is its size, and in particular the ability it has to efficiently scale its cost base. “If a mortgage manager operates with the same cost base as it did just a few years ago, any new business it writes might be unprofitable. This has become more evident in the current environment. So those in the sector that deliver a unique service proposition have thrived; those that don’t will struggle,” he says. Meanwhile Kim Cannon, CEO at FirstMac, says given the banks’ dreadful service record of late you’d think the non-banks would easily be able to trade on their service advantage. But with some jolting words for brokers, calling the average broker “just plain lazy”, he says too often this is not the case. “The average broker is just sitting down with mum or dad and saying ‘Who do you bank with’, and they say ‘CBA’, and they say ‘Well here’s CBA’s best rate – stick with them’. Without even trying to sell them on something else,” he says. It’s a situation he’s not at all happy about: “I’m sick of getting the bank’s leftovers. If brokers can’t put a deal with one or two of the majors, then they drop it out to a non-bank and hope they can place it.” So to some degree it can be seen as second-rate business. At least Cannon is wise enough to know the non-bank sector needs to change the way it does things to become first choice. “There are opportunity niches out there for non-banks to pounce on if they are to offer real competition to the banks,” he says. Low-docs There is one area where non-banks continue to put one over on the mainstream lenders: the nonconforming space. In this risk-averse climate, as might be expected, the banks have quickly pulled back from the low-doc/no-doc market. David Holmes, chief operating officer at Pepper Homeloans agrees, saying the low-doc space remains largely the domain of specialist lenders.
“Banks, and in particular the two mortgage insurers, have tightened their criteria for low-doc loans to the extent that brokers now no longer see the product as a viable option,” he says. Alt-doc Also, as Holmes points out, some specialist lenders understand the challenges faced by the selfemployed better than the banks. Accordingly, they have refined their product offerings to the extent that a new category of non-conforming loan has emerged – an alternative documentation product. “This product provides the small business owner the opportunity to evidence income and ability to meet mortgage payments by providing the latest six months of business bank statements,” he says. Since the statements provide the most up-todate business cashflows, lenders are able to assess a borrower’s ability and willingness to make future mortgage payments. Holmes even argues that this up-to-date information is more relevant than the traditional “two years’ financials” in determining a borrower’s credit credentials. In this market it seems specialist lenders are way ahead of the bank lenders. They know how to tailor structured products for the self-employed better than the unwieldy majors which remain hamstrung by bureaucracy and policy. Also, their service staff gain specific experience in working with self-employed clients so are often better placed to offer genuine help when borrowers run into strife – which normally revolves around temporary cashflow issues. Furthermore, the credit assessment required in this market sector is mostly manual in nature. “So the major lenders, with their drive for volume through online and automated decisions, are likely again to fall short in it. As a result specialist lenders will carve out a niche in this important area of the mortgage market,” says Holmes. Michael Watson, operations and marketing manager at MKM Capital agrees that the majors are poor opponents in this space, and contends that since they have chosen to pull back from it, that it is their own doing. He says that “the business end” of low-doc lending is set to remain the domain of specialist lenders – certainly for the foreseeable future. “Banks will continue to offer clean credit. Low LVR low-doc loans, however, or any client with the
slightest adverse credit history will require the assistance of a specialist lender,” he says. Oligopoly Furthermore, he says that with the proposed legislation for lenders creating significant barriers to entry, it is likely that the non-bank dominance in the low-doc market will see it develop into an oligopoly. In it, each participant will differentiate itself on its service proposition rather than price – injecting a level of stability into the sector and reversing the recent trend of fast entry and exit. Also, Watson predicts ancillary non-financial information required for low-doc loans will increase. “This will better reflect the circumstance of the loan on a case-by-case basis, and put an end to the days of the self-cert only approval,” he says. Adding credence to the idea that the more flexible non-bank sector is ahead of the majors in this space, FBAA president Peter White says he is “very in favour” of giving people a second chance if they’ve been through hardship. In addition, he says it is important to remember that the low-doc loan was designed for a business customer, not a salaried employee. “If you’re a PAYG, why do you need a low-doc loan? If you put it back to its original intention it makes sense. I’m just really disappointed that the capital market has priced it so high. So if you had a credit history problem and you were going to refinance, your rate might have gone hypothetically from 7.5% to 9.5%. Well, if they’re having a hard time making payments why are they hitting them up for more? I just can’t see the logic,” he says. Risk and reward For Steve Sampson, CEO of Provident Cashflow, it’s a case of pricing for risk. “I think there’s a market there, but there has to be a better recognition for risk and I think that is coming through, mainly on the pricing and the types of deals that the non-banks will lend,” he says. Cannon says: “With the new credit laws that are out you’re going to have to have some brave people to lend low-docs, where there’s the threat of having the mortgage overturned if you haven’t done your serviceability correctly.” But, describing it as having “the right place for the right people”, Cannon isn’t against the non-conforming loan. He just thinks leading up to the GFC it lost its way. “It’s a great product for self-employed people with complicated financials but also with assets.” mpa
ACCC defends competition in Australia I
n terms of competitive economies, the World Economic Forum ranks Australia 15th out of 133 countries. And according to ACCC chairman Graeme Samuel, solid foundations laid down by three decades of competition and financial reform are part of the reason why. While the ACCC has come under fire by some commentators for allowing competition to erode by giving bank mergers the green light during the GFC, Samuel has routinely defended the commission’s actions. In an opinion letter to the AFR in late January, Samuel defended the ACCC’s decision to allow the CBA-Bankwest merger to go through, stating that commentators on competition in the sector fail to fully appreciate the “cataclysmic impact of the global financial crisis on the sector’s competitive structure”. With regard to the merger, Samuel said that the
brokers on the ACCC In response to ACCC chair Graeme Samuel’s interview with the ABC: What an irresponsible response from Mr Samuel. The deal has been done, with integration finalised over 12 months ago, so what is the point of speculation after the event. Jobs have been lost and competition reduced, these issues were on the table when the proposal was originally blessed by ACCC. What has changed? The ACCC took the line that St.George Bank and Bankwest were in serious risk of failing and a merger was a far better option than having to go down the path of rescuing them with public money. In my opinion, I think Bankwest would have maybe failed but they should not have let the St.George one through as they would have been OK. Too late now. I think someone should start a new ADI with the backing of the Treasury for the first four years to compete with the majors. Mr. Samuel decided early on to keep quiet about the Westpac/St.George Bank merger. It strikes me as odd that he should come out now and ostensibly say ‘whoops, got that wrong folks’. Well, unlike Wayne (The Treasurer we needed to have) Swan, at least Mr. Samuel can admit that he mucked up. Now if only we can get the rest to fess up to their banking guarantee bungles. But of course this would ultimately lead to admitting that a huge deficit currently masquerading as Federal Stimulus is in actual fact borrowings. Whoops! Then Swan would be forced to explain his repayment plan.
ACCC found that prior to the GFC, Bankwest had been a vigorous competitor in WA and was aggressively expanding into the eastern states. But Samuel noted that its competitive strength relied on funding from its UK parent HBOS which, due to the crisis, was in substantial financial difficulty. “Following inquiries with regulators, HBOS, and Australian and overseas banks (including those initially approached by HBOS in relation to the sale), the ACCC concluded that an alternative buyer for Bankwest was unlikely and its competitive model was not sustainable. Accordingly, the ACCC did not oppose the merger with the CBA.” Samuel also defended the regulator’s analysis of the Westpac-St.George merger which preceded the onset of the GFC. According to Samuel, the ACCC concluded that the merged entity would face competition from regional banks, CUBS and the other three majors. “St.George was not considered to be a key driver of competition in terms of price, product development or innovation, and the ACCC found the acquisition would not be likely to substantially lessen competition.” However, had Westpac sought to acquire St.George at a later date, Samuel has admitted that the outcome of the ACCC’s decision might not have gone through. In an interview with the ABC in December, he said: “There’s even a question … that if Westpac were to seek to acquire St.George today, rather than prior to the global financial crisis, whether we’d have the same view as what we had back then. I don’t know the answer to that but I raise it as a question.” He also said that he would “never say never” to the prospect of future deals between a major bank and a regional lender; however, he said it would be a “difficult ask”. MPA
International competition Comparing Australia’s experience with Canada, the US and the UK is enlightening. MPA looks at the GFC, competition and its effect on brokers in these different markets Canada While in many ways Canada and Australia had very similar experiences through the GFC, it is clear that competition has fared much better over the last two years in the North. According to the Davis and Henderson Market Share Report, as of Q3 2009, banks had 55.8% market share, while mortgage banks were at 30.8%. Credit unions made up 2.8% of the pie and the rest is non-conforming sub-prime lenders. Compared to the same period in 2008, the mortgage bank share had actually grown. President Boris Bozic of Merix Financial, a non-bank lender in Canada, says there are two reasons why the Canadian non-bank sector has been resilient throughout the GFC. “The CMB Program has continued to help non-banks to compete in this marketplace by offering a competitive cost of funds. While not as cost-effective as the banks’ balance sheets, the CMB has allowed competition to thrive in this marketplace. “Secondly, the non-banks over the previous five years never strayed too far away from quality ‘A’ business. That has served our industry well as Canadians who own their homes have the financial ability to remain in those homes.” As in Australia, competition in Canada has been very beneficial to Canadian borrowers. Bozic says non-bank lenders have been able to provide tailored solutions to specific niches that were largely ignored by the banks. As well, the size and speed of smaller non-banks has enabled that sector to drive most of the product innovation in that country – dead-tracking systems for originators, no frills mortgages and split-level mortgages for example. Bozic adds, “furthermore, non-banks are generally not hampered by multiple distribution channels, which allows them the ability to offer discounted rate sales immediately to the market as cheaper funds become available.” But Bozic forecasts Canada may be heading down a similar path to Australia, although not to the same extent. “There are less lenders in this industry today. And on top of that we have seen how lenders in this industry have moved toward this ‘selective access’ approach based on volumes, which, ironically, Merix pioneered five years ago. The result is that many brokers now don’t have access to all lenders. We recognised this at Merix and have shifted our focus. We’re still selective, but the focus is now on efficiencies and this has opened us up to mortgage brokers and their customers who would have otherwise not had access to us.”
US The effect of the GFC on the US has been much more pronounced. And the decline of competition has coincided with the decline of broker numbers. International mortgage commentator Dave Agena spoke anecdotally on the state of competition in America. He says market share between banks and non-banks “flipped in a heartbeat” as a result of the GFC. Prior to the crisis brokers were sending approximately 70% of their business to nonbanks, whereas now it’s closer to 30%. As well, the overall broker population has plunged from 54,000 to just 15,000 (and continues to drop). “The GFC decimated the brokers because the banks could no longer package the mortgages into MBS that could be sold to the private (Wall Street) and public (FNMA and FHLMC – the Government Service Enterprises) secondary markets and therefore the liquidity to fund the brokers all but vanished. It was like an electrical grid that went black almost overnight,” Agena says. He adds that the banks’ current monopoly on lending has resulted in slower turnaround times for consumers, higher rates and fees, limited product selection and “severe to draconian credit guidelines”. “Ultimately, I feel competition and the need for the broker will return when the markets start to view MBS as a favourable investment. Then liquidity will return to the mortgage market and the banks will not be able to provide the volume at the profit margins they will want... outsourcing mortgage originations to brokers is a much more efficient and costeffective way to ramp up volume (via variable costs) than to go in-house (via fixed overhead).” Agena says the decimation of the mortgage broking industry in the US is more than just the result of liquidity problems. “Congress in general and the mortgage industry in particular was looking for a whipping boy, a scapegoat they could point the finger at the ‘sub-prime meltdown’ so they threw the brokers under the bus and backed up and ran over them several more times just to demonstrate (superficially) they were fixing the problem. It was like the winemaker blaming the grape-pickers for the bad grapes that caused the bad wine.” He adds that brokers were an easy target – they were not organised on a national basis, they had little capital to spend on lobbying, and they were at the coalface of the situation. “Ironically, a case can be made that the brokers were the least at fault because the broker was only originating (picking the grapes) what the banks wanted them to deliver,” Agena says, adding that brokers had no authority to determine the underwriting guidelines, appraise the loans, approve the loans or provide LMI approval (the five major private mortgage insurance companies fund the loans, package the loans into MBS, or rate the MBSs AAA to CCC). Agena admits there were plenty of bad apples in the industry, but responsibility for the sub-prime crisis lay with bigger fish. “Greed is a powerful motivator and left unchecked it will always lead to its own demise. The grape pickers were making great money but the winemakers were getting rich and funding their retirement plans at the ultimate expense of the taxpayers.”
UK Like the US, the UK suffered much more through the GFC than Australia. Alan Shields, director at Retail Finance Intelligence, says a lot of lenders that were active prior to the crisis have now exited. But the make-up of the banking sector is very different to that of Australia – in the UK the equivalent ‘Big Banks’ or High Street Banks, such as Barclays or Lloyds TSB have 5–7% market share each, so they’re not the big home lenders. The largest home lenders in the UK are current or former building societies. Halifax, a former building society, has almost 15% of the mortgage market, while Nationwide, which is still a mutual, is the second-largest in the home lending space. “You’ve also got a much wider range of sizeable players in the UK market,” Shields says. “So there are a lot of players that have more than 1% of the market, whereas here, it’s only a handful.” And in contrast to Australia, the deposit base of UK institutions is much smaller. For Australian banks, about 60% of funding is derived from deposits, whereas UK counterparts derive about 30% of funding from deposits. The UK’s reaction to the GFC has been quite different, but Shields says it was by necessity – government bailout of big banks was absolutely vital to ensure they lived to lend again. Fujitsu Consulting’s managing director Martin North agrees. “In the UK because several of the banks nearly fell over, the government put massive amounts of capital into them, effectively nationalising those big banks. The biggest has 40% share at the moment. The next biggest has 25% share. But they’re predominately nationalised institutions in all but name at the moment. Under direction from the EEC, they’ve had to sell off pieces of their business. Ultimately, they’ll probably go private again, but not in the short term. What they’ve said in the UK is that they’re less worried about competition and more worried about survival at the moment. “It’s a very different scenario to here. Australia didn’t have any failures, whereas the UK had lots of them. The banking system in the UK, I think, has five to 10 years of significant pain with low returns to shareholders. Competition has gone through the floor; bank fees have gone through the roof. It’s a very, very sad situation.” mpa
opinion top 9
Stunt brokers Former stunt couple Bren and Kylie Rodda have traded their daredevil lifestyle for home loan files – but the two pursuits are not so far apart, they say…
ylie and Bren Rodda met while performing ski and dolphin shows at Sea World. They’ve travelled the world performing for captivated audiences, but recently decided to swap their wetsuits for business attire and become mortgage brokers. The Loan Market Group brokers recently set up shop in Darwin, but took some time out to explain to MPA how their new life compares with the old one
9 ways in which performing stunt shows is similar to mortgage broking: Live Shows No two shows are ever the same.
Mortgage Broking Our clients’ situations and needs are never the same.
Live Shows Before each stunt show you have to set and double check your equipment is safe and ready to go.
Mortgage Broking When preparing your client’s appointment you have to be prepared (have the correct application forms, etc).
Live Shows You need to train every day to maintain your skills and to learn new ones.
Mortgage Broking Keeping up with changes in policy is a daily task, learning new skills for dealing with clients is also very important.
Live Shows You need to work closely with your team mates and understand how they operate.
Mortgage Broking It’s important to understand how your associates operate, including BDM, referrers, etc. They are your team.
Live Shows We were always sore from knocks, falls and crashes on a daily basis.
Mortgage Broking Now we are always sore from spending so much time at the desk.
Live Shows Audience reactions at live shows is always rewarding.
Mortgage Broking Your client’s reaction when you can help them get into their dream home is more rewarding.
Live Shows Working with animals is unpredictable.
Mortgage Broking Bank policies are unpredictable.
Live Shows It hurts when you crash and burn.
Mortgage Broking It hurts when you crash and burn.
Live Shows Wearing a wetsuit all day can be restricting.
Mortgage Broking So can suit pants!
mpa lender news
contents 56 News: A review of news in the world of non-bank lending and mortgage management 58 In profile: Short-term lender Interim Finance
RAMS exits broker channel In a surprise move, RAMS Home Loans has left the broker distribution channel. The non-bank lender said the decision was made in order to align its time and resources to activities that added the most value to its customers. Having different pricing and policies across the two channels was causing conflict and confusion between the two, it said. The move would help to optimise the size and structure of the company in order to “protect the sustainability of the business and the brand”. “Following a review of the options available to manage lending growth it has become clear that pursuing a dual distribution model in the current environment is not the best use of our resources,” said RAMS chief executive Melos Sulicich. He added that the RAMS staff, leadership team and the Westpac Group were “fully committed” to continuing to grow and develop the RAMS business. The change was scheduled to become effective from the close of business on Friday 26 February.
Members approve Savings & Loans and Australian Central merger The members of Savings & Loans and Australian Central credit unions have voted to merge the two organisations. The merger creates the largest member-owned financial institution headquartered in Adelaide, with 350,000 members and more than $7bn in combined assets under management and advice. Chief executive of the new credit union Peter Evers said it was “fantastic news” for the members of both unions who would soon be part of an organisation able now to provide “an even better member-owned alternative to the big banks”. “Now is the beginning of our journey to bring together the best aspects of both credit unions, including developing new products, opening new branches and deciding on a name for the new credit union,” Evers said. Chair of the new credit union Bill Cossey said while member approval was required to bring the two organisations together, there had been “overwhelming” support for the merger. “This merger is a great example of the principles of mutuality that both Savings & Loans and Australian Central have supported. Over the last month, our members were given the opportunity to ask questions about the merger and then vote on their credit union’s future,” he said. The positions of more than 85% of staff members have been guaranteed.
Bendigo and Adelaide Bank launched its first stand-alone RMBS issue in more than a year
mpa lender news
Liberty looks for broker business Liberty Financial waived customers’ upfront fees for applications received in December and settled in January to demonstrate to its partners that it is “serious about writing their business”. The non-bank covered the cost of document preparation, title protection and loan processing for eligible applications, saving customers “thousands of dollars”. In a statement, Liberty said its recent ‘Enjoy the Experience’ events drew in excess of 1,000 introducers nationally, “signalling the return of a recharged sector looking at finance alternatives”. “The turn-out was a clear indication that there are many introducers out there looking for a banking alternative,” said Kendall Mahnken, GM for personal business at Liberty.
Bendigo and Adelaide launch stand-alone RMBS issue Bendigo and Adelaide Bank launched its first stand-alone RMBS issue in more than a year – another signal that regional lenders are tapping into the securitised funding market at competitive rates without any assistance from the government. The lender is looking to issue $500m of debt securities. Fund managers have indicated the transaction will contain a number of cornerstone investors and price at a margin of 130bps above the benchmark swap rate. Bendigo spokesperson Will Rayner said the transaction was attracting strong investor demand.
Future Financial notes swing to non-banks On the back of increased volumes, mortgage lender Future Financial has declared a swing in borrower and broker sentiment towards the non-bank sector. Troy McLachlan, general manager at Future Financial, said “tough decisions” made over the last 18 months were starting to pay dividends with “volumes ... definitely on the up again”. Announced changes include “at least” a 0.50% reduction on its Low Doc and Premium Low Doc loans, the launch of a new range of ‘Choice’ products and new product guides, rate sheets and fact sheets for brokers outlining “positive policy changes and initiatives”. McLachlan said the company was “looking forward to launching another round of positive changes in the new year” to kick off what he said would be a “busy 2010 as more borrowers start to look beyond the banks and want to deal with reputable non-bank lenders who provide quality customer service”.
RHG borrowers hurting Listed mortgage book RHG, currently at risk of a $2.5bn loan default, has lifted its standard variable mortgage rate to 7.88% - the highest in the market. According to Canstar Cannex, borrowers that took out a loan with RAMS Home Loans prior to the sale of the brand and franchise network to Westpac in 2007 are paying 79bps higher than the next most expensive lender. RHG raised its SVR by 39bps this month. In comparison, ‘new’ RAMS Home Loans customers, financed with Westpac money, are paying a SVR of 6.48%. RHG borrowers wishing to refinance with another lender face a refinancing fee of $7,500. Most recent financials reveal that RHG has a $7.7bn closed mortgage book. The company is at risk of a $2.5bn loan default with its lenders after a court ruled it had defaulted on a $324m lending facility with German bank HVB.
The merged Savings & Loans and Australian Central has 350,000 members and $7bn in combined assets
Suncorp denies plans to divest Suncorp chief executive Patrick Snowball confirmed that there are no plans to divest the bank. In an update to the market, he said: “We have all no doubt read the tea leaves that suggest that further consolidation in banking is unlikely to achieve regulatory and government approval at least in the short term.” But continued speculation around a sale has been the biggest threat to its prospects, he added. The update also revealed that Suncorp’s bad debts dropped from $18m to $9m in the September quarter. The regional bank’s exposure to the collapsed Babcock & Brown International cost the company $104m. In an effort to compete more effectively against the major banks, Suncorp is reducing costs across its banking and insurance business, according to The Australian. Suncorp plans to split the bank into five business units and scale down non-core banking businesses. The changes involve the restructuring of its insurance division. “There’s an appetite for a second-tier banking system in Australia, and Suncorp is probably the strongest bank in that sector … If we get the economics behind running it correct, then we have a very good future.”
Broker Profile lender
In the Interim Interim Finance claims to be one of the few companies to benefit during the economic crisis. Director Andrew Littleford explains how…
Fast facts Interim Finance + Key personnel Andrew Littleford, director + Head office: Sydney + Number of staff: Four + Core business: Short-term finance + Area of business: Predominantly NSW, Vic and Qld + Range of loan amounts: Between $30,000 to $1m (larger amounts considered on merit) + Type of security: Property – combined LVR for all funds advanced must be no greater than 75% + Loan terms: Min – one month; no maximum; however, most loans do not exceed six months
he GFC created an overwhelming number of losers, but it’s good to know there were a few winners as well. Sydney-based Interim Finance was one of the few to come through in good shape, thanks to the culmination of several factors – reduced competition in the short-term lending space, tighter credit policies and increased business need. “To be frank, the GFC has provided this company with a greater level of business activity than experienced in previous years,” says director Andrew Littlewood. “Regardless of the economic environment, businesses need credit – it is the life blood of enterprise. Fewer lenders and a return to a more rigid credit assessment by banks has opened the door for alternative credit sources.” The GFC has not only reduced competition from non-banks, many of which fell into hibernation at the onset of the crisis, but it also made banks more risk-averse. “Demand for credit remains strong but supply is certainly limited,” Littleford says. “With the demise of some of the more prolific low-doc lenders and the more cautionary approach taken by the major banks, our transaction numbers have increased.” But tightened credit policies in the lending industry are a good thing, he stresses, for both borrowers and lenders. While people talk in terms of tightened credit policy, what they really mean is that we are now subject to more responsible lending guidelines, Littleford says. “These guidelines were in place before the advent of cheaper alternative credit. In balance I feel it is a good thing. Naturally everyone is wise to
the event in hindsight but there is of course something fundamentally wrong when a borrower can self-certify an application of $500,000-plus without demonstrable serviceability.” Rise up Interim Finance opened its doors in 1994. It started off as a small operation that basically supplemented cash flow for Littleford’s development projects. But Littleford says it became clear that lending had less headaches “most of the time” than property development. The company’s focus on short-term lending was not a specific strategy in the beginning, but it’s an area of finance that’s never short of clients. “So long as the current regime remains in place the need for supplementary credit should remain quite strong,” Littlewood says. The secret of Interim Finance’s success has been to look at the value of the asset and its location and price competitively. “That and the fact that I am probably known for asking brokers a few too many questions. Pricing of the asset is vital and the borrower’s method of repayment must be plausible. Confidence in your valuers and legal support is paramount. To that end we are well serviced.” Unlike other companies, Interim Finance doesn’t price for risk – if it’s a high-risk transaction, Littleford says they just won’t write it. “I have never really understood the mentality of charging a borrower a higher interest rate if you feel the principal is in jeopardy. Over the past 12 months we have made a decision to put downward pressure on our pricing. I think this is one of the defining differences in our business.” The proposed National Consumer Credit Protection rules will significantly affect short-term finance providers, Littleford says. The trend is towards far greater accountability, he adds, as rate, fees, benefit, exit strategy, security type all must stand up to audit and lenders who engage in grey processes will find themselves under more scrutiny.
Broker profile lender
On brokers Interim Finance doesn’t have a formal accreditation process. While it has a database of well over 400 brokers, less than 20% would be classified as highly active. Its business is metrobased and concentrated on the eastern seaboard. However, Littleford says that the company considers itself an accessible lender and he encourages brokers to pick up the phone and discuss the transaction. According to Littleford, a number of brokers have been forced out of the industry because they “quarantined” themselves to writing residential transactions. The best way for brokers to spot appropriate short-term finance clients is to ask a few simple questions: Does the deal have merit to the lender? Does it have a benefit to the borrower? And is the exit strategy plausible? The last point is critical, as it’s up to brokers to discuss exit strategies with clients. Littleford says this is one of the areas that the company has really tightened up on over the last two years. Littleford stresses that both brokers and Interim Finance are in a service-based business. “As much as you would like you can’t – or don’t want to – write all the transactions presented to you. Honesty and full disclosure by all parties is essential. As a lender or broker there will always be another transaction – the loss of a reputation is harder to replace.” 2010 Littleford expects 2010 will play out quite similarly to 2009 with the continuation of firm credit policy from the major banks and the absence of alternative lenders. His medium-term goal is to stay the course. “We intend to be the preferred supplier of bridging and cash flow finance. Our focus will be on delivering a competitively priced product nationally.” MPA Andrew Littleford
mortgages on the line The online mortgage broking space is an alternative channel that can both benefit brokers and provide competition for their business
or Jo Parkinson, national sales manager at online broker i.Lending, the mortgage business is – and has always been – about acquisition costs. “Once a mortgage is set, and the longer it stands, the more profitable it is. The big hit is getting it on the books,” he says. So, as it has for booking flights or buying books, the internet channel has the capacity to reduce that acquisition cost enormously. Complex Taking out a mortgage is also the most complex transaction the average person will ever do. “There are many different departments a loan application needs to travel through – all with their own jargon and all with their own mistakes,” Parkinson says. And while correct navigation of those many application departments neatly underscores the broker value proposition, it can be a prohibitively expensive solution for borrowers. This is why many believe the development of the online broker platform is perhaps the most important one to occur in the broker space in the modern era. According to practitioners in the space, it provides brokers with the opportunity to re-engineer the transaction workflow to allow it to follow a logical sequence. “Using this machine means uploading documents to it using standard software. Now as a broker you can see where the documents are and that they are in the right place,” Parkinson says. So it allows brokers to better manage client expectations. “If there is anything wrong with it, you know that you made the mistake. And best of all, you know immediately and can fix it immediately too. “We are all looking at the same thing. Everything is measured and everything is visible,” he says. Efficient workflow Legacy systems and laziness are the two impediments to all brokers taking advantage of a comprehensive online broker platform, according to Parkinson.
For instance, he asks: “Why is the file going around? Why aren’t people going into the file and doing whatever it is that they do, and then stepping away from it?” At the moment, if a broker sends a loan off to the bank via online, the same problems happen – people running around and losing things, he says. But with the true online service, more of the back-office processing is delegated back to the broker. The broker never loses sight of the loan. In fact, Parkinson says, (as a lender) he doesn’t even want to look at the file until all the data is correct and all documentation is present. “If the loan application doesn’t service it won’t go through the machine,” he says. But this regime is not going to suit everyone. Since there isn’t the same level of BDM support, it will appeal to more confident, established brokers. Under this system they take on more of the role of a branch manager. Parkinson feels it means brokers will need to “step up” and take responsibility for the quality of their loan applications. “Brokers need to know what they are doing – lots of layers between them and credit have been cut out now,” he says. Brett Mansfield, general manager at online broker eChoice, feels there is a lot of confusion in the market still about what ‘online’ really means. For him, it’s an alternative service proposition, rather than an alternative product or an alternative price.
broker case study: first hand experience Alistair McCreath, managing director at Financial Broking Consultants in Queensland, has seen various online platforms over the past five years. Although they all differ in some ways, he describes the online delivery regime as being the best system in the world “because it does everything for me”. “It allows me to submit an application that is quick, neat and tidy. It doesn’t allow me to go to the next step until I have satisfied the first. So mistakes are rectified immediately. Also, from a cost point of view, you are able to offer a better rate because it is all done online. And it provides an immediate indicative approval,” he says. Furthermore, McCreath turns his nose up at the idea of online platforms making brokers obsolete. “There are not enough people out there that can get onto an online system, tick the right boxes and get a deal through and end up with the right loan”.
Always open As a 24/7 platform the internet provides “convenience to customers, without inconveniencing the service provider”. “Being online is not about people manning telephones around the clock – it’s about providing information around the clock,” Mansfield says. He acknowledges online broking is a process built for a different style of customer, since it adds a different level of convenience to that of the traditional lender/broker-styled arrangement. “It provides enough content with things such as product comparison tools and the serviceability calculators that potential borrowers are able use to do much of their own research,” he says. And while it is true that people can help themselves online, Mansfield doesn’t think the electronic channel is a threat to brokers. He thinks it provides an ideal opportunity for customers to get comfortable before taking the “next step” and speaking to a professional. “It’s fast becoming a natural move to go straight to the internet to do the research before you jump into the deep end and make a significant enquiry,” he says. Then, in the web space, there is the direct online lender. The difference between the online lender and broker is that here there is no choice in product. Strict online lenders don’t give advice, they simply raise wholesale funds, develop product and sell it to customers whose needs it suits. Traditional Kevin Sherman, managing director at My Rate, says that while My Rate is more of an online lender than an online broker, it is still a traditional business. While in Sherman’s world there is never any face-to-face contact, there is still a high level of human intervention. “So a person can get a pre-app via the website before they need to work with the call centre,” he says. Typically, this delivery style will not resonate well with brokers. Like a broker, it sells itself on
service too. Except the big part of the brokers’ service proposition is the choice they offer – something consumers won’t get with online lenders. But direct online lenders do have some referring brokers. Not in the traditional sense, but if a broker’s customer decides to go with an online lender and the broker refers the lead, Sherman pays them an introductory fee when the loan settles. “Brokers seem to like that, even if it is not their preferred approach,” he says. So will the online lending platform make the broker proposition obsolete? Sherman doesn’t think so. “People who like to have someone take them through the loan process will always have a need for a broker,” he says. “However, experienced borrowers will want to get the best deal possible. And by us removing as many added costs as possible, like brokers, it helps us to bring the product to the market at a cheaper price. “So, while there will always be a kind of borrower who likes to work through a broker, I think we resonate really well with a particular style of borrower.” Maybe so, but it remains likely that more people will get to feel comfortable with this direct service model once they understand more about the details of the home loan market. Like Mansfield, Sherman points to those who like to do their own research as the group most likely to find it appealing. “That is probably the deciding factor. Some people put their hands up and go, ‘I know nothing about this, who can help me?’ For the people who do their own research, this model makes a lot of sense,” he says. So Sherman makes it easy for them to gather information with a website that is very well structured to help people compare deals and product features. “It makes a lot of sense for people who like to take things in hand themselves. It gives them the confidence that they are getting the answers they are looking for,” he says. MPA
Joe Sirianni + president, MFAA + executive director, Smartline
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