www.brokernews.com.au ISSUE 10.12
bigger picture Second-tier lenders widen the provider landscape
QUALITY CONTROL THE IMPORTANCE OF SMOOTH SUBMISSIONS
OFF THE SHELF COMPLIANCE SOLUTIONS COMPARED
Good things, small packages Sizes isn’t everything, particularly in business. While larger companies may have the clout and financial muscle to offer keener pricing, there are other advantages to being smaller, such as manoeuvrability and a more personalised service approach. Such bonuses are not lost on intermediaries, as was evidenced in our comprehensive ‘Brokers on Non-Banks’ survey conducted recently. This year’s poll was our biggest and best yet, with hundreds of you voting for your favourite second-tier lenders in a number of categories. One of the most remarkable aspects of the survey was the sheer volume of non-banks nominated, with over 50 lenders making the long list in some sections. If the results of our poll are anything to go by, the banks could soon have some serious competition on their hands as their non-bank counterparts are outshining them in terms of service, turnaround times and flexibility. Many intermediaries that voted are keen to increase the percentage of business they write through non-bank lenders too, so the majors have been warned. Thanks to all of you who voted and congratulations to the winners.
10. 12 issue
Elsewhere in the issue, we look at what impact the creation of a new industry body will have on the short-term lending sector, investigate whether business lending is beginning a recovery and discuss how brokers are adapting to the ‘flight to quality’ when submitting applications. For those of you who have yet to arrange your compliance procedures as we enter the licensing regime, we also round up some of the various ‘off the shelf’ packages available. The industry we know and love is all about the people who operate in it and this month we have profiled some of its leading lights. In this month’s MPA, we sit down with Advantedge’s Steve Weston fresh from his success at the Australian Mortgage Awards, interview Bankwest’s Ian Rakhit and find out more about Loankit’s Kym Rampal and ANZ’s Andrew Everington. Enjoy the magazine and all the best for a busy month.
Barney McCarthy 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.
22 Flight to conversions MPA tracks the shift towards higher quality loan applications
36 Brokers on non-banks Intermediaries rank lenders on turnaround times, service levels, rates and products
10. 12 issue
ADVANTEDGE’S STEVE WESTON IN PROFILE Visit our website to watch excerpts from our exclusive interview with this year’s Golden Morgie winner including his take on: »» The market shift towards a fee-for-advice model »» Declining commission payments »» The importance of diversification www.brokernews.com.au
EDITOR Barney McCarthy
NEWS ANALYSIS 12 The waiting game: With an RBA cash rate change expected imminently, it seems to be a question of when and not if
COPY & FEATURES CONTRIBUTORS Andrea Cornish, Laura Carew, Agnes Gajewska PRODUCTION EDITORS Jennifer Cross, Moira Daniels, Carolin Wun ART & PRODUCTION
FEATURES 14 Plugging the gap: The creation of a new industry body for short-term lenders should bring a whole new level of repute and professionalism to the sector 26 Credit where it’s due: After seemingly neglecting lending to businesses during the GFC, are lenders regaining their appetite? 32 Comply with me: With licensing looming, we round up a range of the compliance packages available to time-pressured brokers
DESIGN MANAGER Jacqui Alexander DESIGNERS Paul Mansfield, Lucila Lamas, Ivee Caburian SALES & MARKETING NATIONAL SALES MANAGER Rajan Khatak BUSINESS DEVELOPMENT MANAGER Lisa Tyras ACCOUNT MANAGER Simon Kerslake MARKETING EXECUTIVE Kerry Buckley MARKETING COORDINATOR Anna Keane TRAFFIC MANAGER Stacey Rudd CORPORATE DIRECTORS Claire Preen, Mike Shipley CHIEF OPERATING OFFICER George Walmsley PUBLISHING DIRECTOR Justin Kennedy
COLUMNS 54 The missing millions: Peter Heinrich investigates the vast piles of unclaimed commissions that aggregators could be hoarding 59 Helping homebuyers stay afloat: Paul Caputo discusses how lenders can help borrowers in difficulty
10. 12 issue
PROFILES 50 Leader: Steve Weston of Advantedge evaluates his 25 years in the mortgage industry 60 Lender: Bankwest’s Ian Rakhit talks management shakeups and a renewed commitment to brokers
LIFESTYLE 10 A day in the life of… Kym Rampal, Loankit 64 My favourite things: Andrew Everington, ANZ
ASSOCIATE PUBLISHER Rajan Khatak CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil
Editorial enquiries Barney McCarthy tel: +61 2 8437 4790 firstname.lastname@example.org Advertising enquiries Sales Manager Rajan Khatak tel: +61 2 8437 4772 email@example.com Account Manager Simon Kerslake tel: +61 2 8437 4786 firstname.lastname@example.org Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 email@example.com Key Media www.keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Hong Kong, Toronto www.brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as MPA magazine can accept no responsibility for loss
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HIA slams building starts stats
Housing market set fair: QBE LMI Australia’s housing market will see up to 20% growth in house prices over the coming three years, though the Reserve Bank cash rate will also likely rise and hit 6.5% by mid-2013. QBE LMI’s Housing Outlook, prepared by BIS Shrapnel, predicts state capitals Perth, Sydney and Adelaide will see the strongest median house price growth over the period, at around 20%. Chief executive Ian Graham quashed recent doomsayer predictions of a cataclysmic 40% decline in Australian house prices. “It’s hard to imagine any price decline in an economy that is growing, where unemployment is falling and there is significant deficiency of stock – as long as the demand side is higher than supply – that’ll act as a floor in terms of where the current house prices are,” he said. The report predicts that slacker house price growth experienced in early 2010 will turn around later in the 2010 calendar year, and in early 2011. Part of this resurgence will be thanks to the return of first homebuyers, following a quiet first half of 2010. “Although first homebuyer activity was pulled forward into 2009 and is down 50% to 60% on the levels seen at the same time last year, demand is forecast to return to more normal levels – around 130,000 to 140,000 approved loan applications in 2011,” Graham said.
6.5% The possible cash rate by mid-2013 Source: QBE LMI/ BIS Shrapnel
Building starts are forecast to decline by 4% in 2010/11, as the market emerges from a federal stimulus period. The Housing Industry Association’s (HIA) latest National Outlook Report has found that while new homes built nationally increased by 26% in 2009/10 to 165,209, the winding down of stimulus will see a tapering off to 159,393 in 2010/11. The news caused the HIA to claim Australia “is staring down the barrel of a housing downturn”, with chief economist Harley Dale saying the nation is not building enough homes to meet demand, which will increase the shortage in housing. Low interest rates and renewed growth in home values drove a 5% increase in total renovations activity in 2009/10, according to the National Outlook Report, to a record $32.8bn. However, a rise in rates has dampened activity and renovation growth has now stalled. “Total investment in renovations is forecast to tick up by less than 1% in 2010/11 to a value of $33.1bn,” Dale said.
Thumbs up for Aussie property Australian property investors still believe property is a secure long-term investment despite the GFC, according to Momentum Wealth. The Perth-based investment firm’s latest survey has revealed that 98.6% of respondents are still confident in property investment – a fall of only 0.5% from last year. Four-fifths believed that we will see growth over the next year, while 70% said that now is a great time to buy. Momentum Wealth managing director Damian Collins said the responses did not come as a surprise. “Property has long been popular with investors,” he said. “Post-GFC, lenders appear to be relaxing some policies, providing opportunities for investors who aren’t afraid to go against the herd.” While 80% of respondents thought interest rates will rise over the next year, this has not affected the plans of three-fifths of those surveyed.
PLAN ushers in new era With legislation imminent, PLAN Australia believes the current industry crossroads is a major opportunity for brokers to improve not just their customer service proposition but the overall professionalism of third-party distribution. PLAN said its members are in a fortunate position, having the choice to meet the new NCCP requirements as an ACL holder or leverage off PLAN’s infrastructure as a credit representative. PLAN has said there is no right or wrong path for brokers. The fundamental compliance requirements are essentially the same for both options and there is little difference in how a broking business will operate under each model. “Compliance is a daunting proposition and while some brokers will have the time and resources to [operate as] an ACL, there will be others who will choose [to be] a credit representative,” said Ray Hair, PLAN CEO. “Fortunately, as the ACL holder we can take care of the bulk of compliance on the broker’s behalf.”
Resi predicts LVR battle Competition in high-LVR will intensify in the coming months as lenders seek to meet the needs of stretched first-time buyers, says Lisa Montgomery. Resi’s CEO said that recent innovation in both the high-LVR and low-doc spaces was a good thing, and indicated that momentum was returning to the marketplace. She also nixed worries that high-LVR loans could lead to borrowers over-committing themselves, arguing that new responsible lending obligations will protect against that. However, she did express concern at the reappearance of 100%-plus loans in recent weeks. “I don’t agree with 103% or 105% loans – I never have,” said Montgomery. “I don’t think they create a healthy relationship between borrower and lender. I’d prefer to see a buyer with at least some level of savings.”
BOQ overlooks broking community
Bank of Queensland’s 2009/10 profit
Bank of Queensland (BOQ) has confirmed it still has no plans to return to the broker market, and that it will target equipment, vendor, debtor and motor vehicle finance growth in the coming financial year. Announcing its $197.1m 2009/10 financial profit – an increase of 5% on last financial year – BOQ detailed the launch of a new finance company to spearhead this focus: BOQ National Finance. David Liddy, BOQ managing director, said the new finance business will exploit “real opportunities” to create a “best-in-class” finance company. “We’ve created a new division to manage the bank’s equipment finance, vendor finance and debtor finance businesses,” Liddy said. “We also intend to enter the motor vehicle finance market within the next year.” The bank has confirmed it will continue to use brokers to source equipment finance business as part of this push. BOQ claims its new national finance division will grow lifetime customer relationships, which will be transitioned to banking customer service “experts” – BOQ’s branch owner-managers. The profit rise was assisted by lending growth that outperformed the market by 2.5 times, in tandem with deposit growth measured at 1.5 times system growth. The bank indicated its focus will remain on well-secured housing and SME lending. The group’s full year net interest margin increased by four basis points to 1.6%, despite a contraction in the second half of 2010 due to higher funding costs. Liddy added the bank had delivered record profits despite difficult economic conditions, and that its bad debt losses had peaked in the FY10.
A DAY IN THE LIFE OF...
A day in the life of… Kym Rampal, head of LoanKit, talks lead generation, bain-maries and computer games
I have no alarm to wake me up. Instead I rely on a wet tongue in my ear: my dog is punctual as ever and wants his walk.
It’s a beautiful day with the sun warming up a cool morning as we take a stroll around Blackwattle Bay.
0730h Kym Rampal
“ Share dinner with my wife and catch up. I also regale her with new technology projects I have dreamt up. She gets that glazed look. ”
Back from my walk and a quick catch-up on some emails. The keyboards out there in mortgage land were getting hammered late into last night so there is the usual queue of emails awaiting my response.
A quick breakfast and shower before donning my suit and preparing to battle the bridge traffic to LoanKit’s head office in North Sydney. My son hops into the car, ready to be dropped off to school along the way.
Settle in at my desk before a quick catch-up with colleagues on issues that need addressing. IT is especially close to my heart and I’m excited by quite a few projects in the pipeline.
An executive team meeting to plan out next steps and discuss previous items. Things are going well and the execs are geared up about their initiatives and raring to implement. I love the adrenaline coursing through our team.
Hop into the car and head off to a broker meeting. I catch up with our brokers whenever I can to find out how their world is faring and whether we can identify any trends to help their business.
Back at work and I start returning calls from messages retrieved from my mobile. ANZ and Bankwest have graciously agreed to sponsor LoanKit’s PD day in mid-October.
Catch up with my other team members in commissions and lending support before they head off for the day.
Prepare my regular progress report for the executive team. Cross off items from my personal task list plus items I have promised our brokers I will follow up on.
Hop back into the car to head home knowing the bridge traffic should be reduced by now.
Play a computer game with my son while drinking a cup of tea. Thrashed silly – again.
Implant my son with the notion of bedtime. It will be a further half an hour before it sinks in.
A catch up with our compliance officer. Licensing is here and we are finetuning our ‘compliance in a box’ offering as more news comes from ASIC on its expectations in regards to brokers’ duties and responsibilities.
Watch a movie together before bed.
Lunch down in one of the food halls. North Sydney does have a great selection of cuisine served from those ubiquitous uninspired bain-maries; however, I think I will go with the
freshly cooked Thai stir-fried mixed vegetables cooked with great flair in a wok.
Share dinner with my wife and catch up. I also regale her with new technology projects I have dreamt up. She gets that glazed look.
A last check of my emails.
The Reserve Bank of Australia held rates in October, but fears of an imminent increase remain. Barney McCarthy reports
he cash rate has been left unchanged by the Reserve Bank of Australia (RBA) since May, but with every monthly announcement comes the increased likelihood of a hike. Plenty of smart money was on a rise in October, but RBA governor Glenn Stevens cited another hold as “appropriate for the time being” and in line with the “current stance of monetary policy”. Before brokers and mortgage borrowers rest too easy though, this statement was couched with the warning that a change is on the way. Stevens added: “If economic conditions evolve as the Board currently expects, it
is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.” Even in the unlikely event that the RBA does hold the cash rate into 2011, brokers and borrowers will be hoping that the lenders do the same with their own interest rates to avoid further complications. While the cash rate has not increased since May, a spate of rises before that means Australians are paying $446 more on monthly loan repayments than in October 2009, according to the Real Estate Institute of Australia (REIA). David Airey, president of REIA, said “with interest rates being a major determinant of housing affordability, homeowners are already enduring affordability stress and another rate rise would only have compounded the issue”. Another body to welcome the cash rate hold was the Housing Industry Association (HIA). Its senior economist Andrew Harvey applauded the RBA’s restraint, but acknowledged the attention of thousands of households was now on the banks. “In such an environment it is imperative there is no independent move by Australia’s leading banks to hike rates,” he added. And it’s
The waiting game
not just industry bodies keeping a beady eye on the banks either, with Treasurer Wayne Swan warning them not to lift rates out of line with the RBA. Swan said: “I don’t believe there is any case the banks can make to move over and above any decision that may or may not be taken by the Reserve Bank” – a statement that holds true beyond October and is equally applicable to any subsequent rise that may occur.
Bowing to the inevitable The initial reaction to the October cash rate hold saw an air of calm and no lenders instantly looking to raise interest rates, but many believe hikes are on the way. AFG’s managing director sales and operations Mark Hewitt told Broker News the reprieve gave the RBA more time to digest conflicting economic data, but that a rise before Christmas was inevitable. Although consumers are quick to criticise any rises in interest rates over and above the cash rate as being supposed greed on the part of the
banks, it is worth noting that there are far more factors at play than the RBA decision. Increased funding costs for the lenders are likely to be passed on in the coming months and there seems to be an acceptance of this in the industry – with the caveat that it comes with an increased appetite to lend to potential homeowners. Dean Rushton, chief operating officer of Loan Market, said demand for housing finance had dropped off significantly as a result of previous rate rises and the GFC causing stricter criteria. “We believe banks will move their interest rates up independently of the RBA, but better they do this than pull back from lending altogether,” he said. “The saving grace for the home finance sector in that eventuality would be if banks were to relax their lending criteria. We’ve seen a number of the major banks pull back in 2010 citing costs of funds as an issue. Hopefully any increase outside RBA will restore some of their appetite to lend, particularly to the first homebuyer sector.” MPA
Plugging the gap C
aveat loans are quick-settling, short-term loans of 1–4 months, which are priced between 3% and 6% per month. HomeSec’s managing director Paul Stone uses an analogy to describe this segment of lending. “The big myth here is people multiply this rate by 12 and freak out. They are not long-term loans, which is why they are priced accordingly. “It’s a bit like catching a taxi. You wouldn’t hire one to drive around interstate, but they’re handy if you need to make a quick trip. So it’s important to see short-term loans in the correct context.” Redilend’s general manager Dan Isaak says people have a bad image of the market because of
The creation of a new industry body for short-term lenders means mortgage brokers can have greater confidence in recommending caveat loans for business clients in need of a quick financial fix
a few “unlicensed shonks”. “These were fly-bynight caveat cowboys who had only one objective in their minds – to maximise profits. The truth of the matter is that there definitely is a place for this type of finance in the industry – to bridge gaps between what banks can’t or won’t do, especially when time is of the essence,” says Isaak. As an example, Isaak describes a recent scenario between his company and a business client. “A client who had a strong asset standing, but was cash-strapped, approached us. He had a major construction contract with a government body and over 46 staff members, all paid fortnightly. The government body had delayed his next drawdown, which he depended on to pay his staff. He expressed major concern that if he didn’t pay his staff within three days he would not only lose them, but also the contract to complete the $9m project. So we said we could assist via our sophisticated investor caveat funds,” Isaak says. “We followed all legal and ethical
“ There definitely is a place for this type of finance in the industry – to bridge gaps between what banks can’t or won’t do, especially when time is of the essence ”
protocols and ensured that the client was happy. He realised that these facilities can cost more than normal, however he said that he would rather pay a few bob more than risk losing the entire project. So we settled this loan within 72 hours – providing cash in his account – and he continued on powering our economy. So it’s a double winner: since then, we’ve refinanced him back to a standard lender and everyone lives happily ever after.” Short-term lenders were particularly useful during the credit crunch. The high cost of funding and the major banks’ focus on gaining market share in the home loan market meant business customers found it increasingly difficult to obtain credit. During the height of the credit crisis, Dun & Bradstreet’s chief executive officer Christine Christian noted that the circumstances had made it more difficult for Australian businesses to access funds. “It has also caused significant volatility in the movement of the Australian dollar,” she says. “As a result, executive confidence has declined sharply, with expectations falling to levels not seen since the 1990s.” The economic climate, in turn, increased the prevalence and importance of short-term lenders. In an interview with MPA last February, Interim Finance’s Andrew Littleford explained that the credit crisis actually had a positive effect on his business. “To be frank, the GFC has provided this company with a greater level of business activity than experienced in previous years. Regardless of the economic environment, businesses need credit – it is the lifeblood of enterprise. Fewer lenders and a return to a more rigid credit assessment by banks have opened the door for alternative credit sources.” But along with good lenders, there are always a few bad ones: it is with this in mind that the existing ethical short-term lenders have built a new industry body.
ASTLA The Australian Short-Term Lenders Association was officially launched in October 2010 with three founding members. While it had been in the making for more than 12 months, the group really got off the ground in July 2010 when fellow board members and executive directors of PSAL Limited, Jaime Dormer and Peter Flanders, held a formal meeting for short-term lenders in Melbourne. They chose a name for the association, nominated board members and within eight weeks established a Code of Conduct along with an
association entity and structure, as well as a mission, vision and values statement. At the time of writing, ASTLA had approximately 15 new members ready to be accredited, but spokesman Paul Stone says they anticipate having up to 40 members nationally by Christmas, with a gradual increase from there. As short-term finance is a relatively small segment in the overall lending landscape, Stone points out that the association will never have a level of membership in the hundreds or thousands. It is also an association that is strictly made up of lenders only and does not include other related industry professionals. “At this stage we believe ASTLA represents approximately 20% [of the industry], however due to the fragmentation of this end of the finance industry, the true quantum of short-term business lenders won’t be known until awareness of ASTLA reaches a peak in the coming months,” Stone says. He explains that, traditionally, short-term business lending has been made up of hundreds of private lenders across the country, with most being private individuals or companies solely using their own funds. “Therefore, as most are not listed companies or do not have a prospectus (as there is no capital raising activity), short-term lenders seem to have kept to themselves. In other words, there has been no formal requirement to disclose book size or performance. There is nothing sinister about the fragmentation, however the downside is that there has been no collective voice to dispel the many myths or sing the praises about short-term business lending. With ASTLA, this is finally about to change,” he says.
Government liaison The organisation has four main objectives, the first of which is to liaise with the government and ASIC on the formation of legislation and enforcement. Stone says ASTLA’s job will be to ensure the regulator “has all the facts about short-term lending, and that they fully understand what we (lenders) do and what role we play in the allimportant small business finance sector”. ASTLA has hit the ground running with a submission to ASIC during the regulator’s consultation on Phase Two of the national consumer credit regulations. ASTLA is “gravely concerned” that the consumer credit code may be applied to business lending. “This would then
Case study: Redilend
“ There is nothing sinister about the fragmentation, however the downside is that there has been no collective voice to dispel the many myths ”
Redilend’s general manager Dan Isaak says he has high expectations for the new industry body. “ASTLA will be the first of its kind to have ever supported this sector of finance. Hopefully their efforts will do multiple things; cleaning up the industry and ensuring that only legitimate players remain in the arena is the priority. Secondly, it is hoped that ASTLA will bring greater transparency to the industry and open up a dialogue between funders, consumers and industry bodies – this will then create a whole new legitimacy to the private mortgage market.” According to Isaak, the industry segment needs an official representative to help consumers feel safe when obtaining short-term finance. “I believe the consumer is the main objective here and the lender the second priority,” he says. “The fact that lenders will be able to market themselves as ASTLA members is no different to the current model of trusting an MFAA-accredited broker to offer you honest service. So [the ASTLA] logo will provide the client with comfort.” Isaak welcomes further inspection of the industry under the Australian Securities & Investments Commission. “The fact that ASIC intends on paying a lot of attention to the industry isn’t such a bad thing. In fact, it will ensure a higher level of ethics is maintained. The concept behind ASTLA and ASIC intervention is that the industry offers compulsory safer service to all consumers who need such an important product,” he adds.
totally destroy the short-term business lending sector, and in turn would impact on small business and its ability to borrow short-term funds fast,” Stone explains. The industry body’s main objectives were to highlight the merits of short-term business lending and fully explain the need for caveat lending, why businesses use it, why the interest rates appear high and also to dispel the myths surrounding the sector. By way of example, Stone suggests that if you run a small business, you might need access to $100,000 today so you can buy some surplus stock that a supplier is clearing out at a fraction of the usual wholesale price. “Unless you had that kind of cash sitting in the bank, how do you obtain it? Going to banks and traditional lenders is not the
answer, as that can take weeks or months to get the money by way of an overdraft, refinance, or business loan. The only way is to take out a short-term business loan,” he says. Stone adds that it is important for regulators to recognise that short-term business loans are for business purposes only. “Therefore if you need to take out a short-term business loan, you simply do a cost/benefit analysis, and if the benefit of getting the funds fast outweighs the cost – go for it. If it doesn’t, then don’t do it,” he says. “I understand that there needs to be interest caps and other protection afforded to consumer lending, as you can’t do a cost/benefit analysis when borrowing for a holiday, or buying a jet ski. However, bringing business lending under the NCCP will take away the ability for businesses to borrow quickly over a short term. We do, however, strongly support the changes made by ASIC, where business declarations are no longer sufficient on their own, as we only want to see members funding caveat loans for bona fide business purposes.” Stone says there also needs to be a viable exit strategy with these loans, as lenders do not want borrowers to have these loans any longer than the minimal short term required. “If regulation makes short-term business lending unviable, the real losers will be small businesses that may need access to funds fast. Like we have seen with other forms of prohibition, there is also the risk that this legitimate sector could be driven underground and be run by organised crime syndicates, which would be the worst possible outcome.”
Industry standards and support The second objective for the industry body will be industry compliance. According to Stone, the defragmentation of the short-term business lending sector is vital to its survival. However, to be taken seriously the sector also needs to run with a uniform framework (the ASTLA Code of Conduct), to ensure it is not tarnished by the one or two unscrupulous lenders who may still exist. “So by being a member of ASTLA, you are telling the world that you have met the criteria set down by the association, you will abide by the Code of Conduct, you are answerable to ASTLA should a complaint be made by a member of the public and you are a genuine and reputable short-term business lender,” Stone says. “For members, this is also a great marketing tool, as it
gives the member the right to display the ASTLA logo on their website and stationery, which sends a signal to the public that you are a genuine and reputable short-term business lender,” he adds. The body will also give support to its members. Until now, Stone says the fragmentation of the short-term lending community has meant that lenders have been easy prey for fraudsters. “There have been many cases of fraudulent loans inadvertently being funded by short-term lenders, resulting in substantial losses,” he says. While some lenders will pick up an elaborate fraud attempt, others won’t. ASTLA members will have exclusive access (via the members-only area of the website) to a live database of fraudulent deals, and other suspicious documentation doing the rounds, as well as a ‘caution list’ of other people associated with the overall finance industry who may have engaged in deceptive or misleading conduct. “This alone is potentially a huge moneysaver for every member,” Stone says. ASTLA members also have access to legal, marketing and operational tips, which will help short-term lenders run their business better. Lastly, the organisation will provide a service to small businesses that need finance solutions, but are afraid of dealing with a disreputable shortterm lender. “There are all kinds of myths out there, but now if they see that the lender they’re choosing to borrow from is an ASTLA member, they can proceed with confidence knowing that the lender is genuine, and abides by a very visible Code of Conduct,” Stone says. MPA
“ We strongly support the changes made by ASIC … as we only want to see members funding caveat loans for bona fide business purposes ”
conversi The ‘flight to quality’ fluttered (or crawled) from the ashes of the GFC and, spurred on by the winds of regulation and commission changes, brought a desire for higher conversion ratios. Agnes Gajewska looks at how brokers can best fly in this new direction…
f you cast your mind back to the early days of mortgage broking you might remember that the name of the game was volume. Brokers received ample commissions and pumped out an even more generous amount of loans. However, with the coming of the GFC and its effects on funding costs, risk management and funding capacity – as well as a general move towards a recognised, regulated industry – the focus changed from quantity to quality. One by one, lenders began to tweak commission criteria – taking trail away here, adding clawbacks there, staggering broker revenue and adding requirements concerning arrears, electronic lodgment and conversions, until – finally – we arrived at the present situation. And here we are, mere moments away from a regulated, licensed industry with the ground still shifting beneath us, flapping our proverbial wings and hoping that we’re flying in the right direction.
A flight to conversion ratios… Arguably the biggest changes to broker commissions and lender expectations have been around the area of loan conversions, with several lenders adjusting commissions to reward brokers for better conversion ratios or punish them for worse ones (whichever way you prefer to look at it). In 2007, NAB changed its commission structure and introduced a star rating system which included a conversion ratio measure. Some months later in 2008, when it changed its commission structure, CBA introduced measures for the quality of loans supplied by brokers. Most recently, St.George moved to stagger upfront commissions to reflect conversion targets, further stirring the pot. However, despite all of the conversion ratio hype, according to industry experts most brokers
ons are living up to the challenge and thriving in an environment that rewards high ratios. “Conversions are going up,” says general manager of NAB Broker Distribution John Flavell. “Brokers have lifted up the star ratings with more four-star brokers than when we first started and that has continued to go in the northerly direction.” He goes on to say that currently 60% of all NAB Broker loans are being written by four-star brokers (that is, those with a conversion rate of 80% or greater). Chief operating officer of Vow Financial Steve Lambert agrees. “Brokers have taken up this challenge well and have adapted to the use of checklists, electronic lodgments and ongoing training,” he says. According to principal mortgage consultant and national recruitment manager at AMB, Stewart Noble, while top brokers aren’t doing things too much differently and thriving, the pressure to submit quality loans is having an effect on those who might be struggling. “This flight to quality is more geared at weeding out those brokers that have probably never been sending in deals of a certain standard,” he explains. “So those brokers either have to pick up their game or reconsider their chosen career path.”
Failure to launch To paraphrase the chief executive officer of PLAN Australia, Ray Hair, credit policies have changed, lender requirements have changed and borrowers aren’t always aware of their true financial status. “Brokers need to be prepared for all these contingencies,” he says. “Those brokers who don’t have the business discipline of consistent processes, checklists [and so forth] do struggle to
“ It’s about attention to detail. If it says you need three years of payslips, don’t get two. Get three ”
get it right every time.” In fact, according to the experts, there are several areas that brokers need to be particularly mindful of when it comes to submitting successful applications.
lender’s documentation checklist carefully and are supplying everything it requires,” adds Noble. “And make note of important issues that may not be obvious to a credit assessor in your comments.”
Lenders and suitability
Arguably the most important aspect of filing a successful loan application involves being a little bit obsessive-compulsive in ensuring all supporting material is there, that everything is filled out correctly and there are no gaps in the application. According to Lambert, two major lenders recently informed him that 11–16% of all applications lodged didn’t include income details. “So, it’s about making sure the lender has all of the paperwork when the loan is being assessed,” he says, adding that lenders shouldn’t have to call brokers to fill in the gaps in order to move ahead with the loan. “This is an area in which some brokers need to improve,” he adds. FBAA president Peter White agrees. “Brokers need to make sure they take due diligence and tick all the boxes, and if a loan doesn’t, don’t put it there. It’s about attention to detail. If it says you need three years of payslips, don’t get two. Get three.” White goes on to say that often when people get busy, they take shortcuts but if they want to lead a profitable business, brokers can’t afford to do that. “Don’t look for shortcuts or to short-change what the requirements are,” he says. “Brokers should ensure all supporting documents are up to date, that you have gone through the
A part of ‘ticking all the boxes’ requires brokers to be familiar with the lenders they have on their panel and knowing what kind of business is suitable for those lenders. Noble advises brokers who struggle in this area to educate themselves on their preferred lenders’ expectations, including documentation that their clients need to provide. “Don’t send in deals that you know have an unlikely chance of approval,” he says. Lambert agrees. “It’s really about knowledge of the product and lender’s procedures,” he says. “If in doubt, call the lender’s BDM for feedback. It’s better to get it right than to have a number of follow-ups that hold up the file and slow down approval.” The sentiment is mirrored by Flavell who says that to a degree, good conversion ratios come down to understanding not only the process, but what sort of business suits a particular lender. In this, he advises brokers work closely with the bank to manage the process from application to settlement. Finally, White adds that brokers should not only be comfortable with the Big Four, but should take a good look at non-banks: understand their products, know the benefits and be educated enough to offer them to clients. A deal which may be unappetising to a major bank may find favour with a non-bank.
The flip side While most industry experts agree that it’s positive for the industry to be aligning targets with quality outcomes, some question marks have been raised as to whether too much focus is being put on broker performance, where lenders might still be lagging. According to FBAA president, Peter White, the fault doesn’t always lie solely with the broker. He suggests that in some cases where poor quality loans are submitted and then declined, there might not be so much an issue with training but with a BDM encouraging the broker in the wrong direction, with ineffective communication
or with lenders changing policies mid-way. “Quite often you get comments like ‘the bank changed the rules during the processing of the loan’. A fairly prominent voice being aired among brokers is that you submit a loan under a certain understanding but it gets rejected because a premise has been changed.” He goes on to say that while he doesn’t deny that some brokers submit poor quality applications, a part of the problem still exists in the drive for volume which is hard to align with quality. “With some lenders the case is that if [brokers] drop in volume they
go to a lower rating and don’t get the money. So sometimes it’s outside of a broker’s control,” he says. Chief executive officer of PLAN Australia Ray Hair says that while the flight to quality is the right strategy for brokers now and in the future, “brokers are rightly cynical about lenders requiring brokers to ‘get it right first time’ when lender staff and processes struggle to do so”. “Changing credit policies, valuation shortfalls and reduced lender appetite or capacity contribute to increased complexity and frustration,” he adds.
Clients All brokers must remember that clients are not mortgage professionals and may not be aware or willing to provide all the required information. “Borrowers usually over-value their security and are not aware of credit report issues,” warns Hair. However, in order to secure a successful loan application, a broker has to determine the client’s real situation and guide the client to the desired result. “Be upfront with your clients about the documentation they will have to provide. Be firm with clients that without all the documents requested you will not be able to submit their application,” Noble advises.
Education It has long been said that knowledge is power. This is no different in the mortgage industry. Brokers who want to look to a long, successful career in the industry need to embrace training and education. “Having a level of training that informs you about how the processes work, how the documentation has to be submitted and why makes a big difference. Ticking all of the boxes becomes easier and makes more sense when you understand the ‘why’ of successful cases,” says White.
Thinking ahead Sometimes getting a successful loan application means mitigating potential risks. Flavell once again advises brokers to use their resources where possible, by organising upfront valuations and credit checks. “[This] reduces the number of loans that get declined,” he says. Noble suggests that in cases where a broker knows a client will have little-to-no trouble getting finance once they’ve found a property, that broker should rethink the need for pre-approvals.
Why do loans get declined? While a lot of negative attention has been targeted at brokers’ conversion rates, according to Flavell most brokers “are not in the habit of putting through poor loans”. He says that while there are always loans that get declined, brokers are usually aware of what constitutes a good and a bad loan and sometimes it’s outside of a broker’s control. “Typically [loans get declined] because there’s some information that the customer didn’t make [the broker] aware of with their credit history. Or maybe there’s an issue with the security. And sometimes people just change their minds,” he says. MPA
Open for business During the GFC, the major banks jockeyed for greater market share of the home loan market, leaving business clients struggling to obtain credit. But it looks like a recovery in this area of funding is on the horizon. Andrea Cornish examines what you can do to help your business customers get the finance they need
usinesses have been doing it tough for some time. Not only did the GFC impact customers’ ability to purchase goods and services, but any chance of accessing credit from banks was severely limited as banks imposed stricter credit rules. Peter White, FBAA president and managing director of Avanti Commercial, confirms the last few years have been a struggle. “It’s been very hard. The main issue has been the funders moving the credit goal posts from what was historically a reasonable position to something that wasn’t,” he says. “For example, prior to the GFC, LVRs to 70–75% were normal. In these last few years 65% LVR is normal and
“ There has been an improvement in the number of firms indicating they had better access to credit ”
maybe if you are lucky it’s 70%. Normal servicing was considered at 1.5–1.75 times coverage of the debt, which now is not less than two times coverage of the debt. Developers were able to get funding based on their pre-sales, but now they must be able to show clearance of the debt by the pre-sales plus serviceability of any overruns from normal cash-flows and not the project. This is near impossible for most true developers.” But according to brokerage RBS, business lending will return to double-digit levels by 2012. “While the timing of the actual drawdowns has been pushed out, the strength of the domestic economy and of Australian corporate balance sheets point to an imminent improvement in business credit growth,” say RBS analysts Andrew Lyons and John Buonaccorsi. The prediction coincides with increased advertising to business customers, which suggests that lenders are gearing up for a recovery among small to mid-sized firms. Westpac’s head of retail banking Rob Coombe said in late September that business credit would grow in the next six months as a rise in consumer spending flows through to the commercial sector.
He indicated that improved consumer confidence, boosted by low unemployment and post-GFC economic stability, would trigger increased spending on goods and services. In turn, companies would be looking for greater access to credit in order to grow their businesses. RBS forecasted credit growth of 8.2% in FY2011 – peaking at just above 10% through 2012. Australian companies are also predicting increased access to credit. The latest Dun & Bradstreet (D&B) National Business Expectations Survey found that 17% of firms believe access to credit will be the most important business influence in the December quarter – a rise of nine percentage points in three months. The survey also found that 19% of firms said they had better or greater access to credit, while 74% said there had been no change and 7% said they had less access. The report states: “Tracking this question over time reveals there has been an improvement in the number of firms indicating they had better access to credit. Back in July the percentage saying they had better or greater access was 13%, in June it was 12%, while in May it was 9%.”
Bankwest courts business customers
Bankwest appointed new heads of broker sales and origination and quality within its business division in July, as part of its strategy to reform its operations and improve broker relationships. Aaron Milburn was appointed new head of broker sales for Bankwest Business, moving across from being head of broker sales for Bankwest Retail. Key responsibilities for Milburn include driving activity, as well as sales and quality. He is also Bankwest’s brand ambassador in the business broker market. Milburn says his appointment
confirms the bank’s dedication to growth within the business banking sector. The bank’s commitment to the business sector is further evidenced by the new products Bankwest launched – a 6.99% Business Edge Intro Loan and a zero fee transaction account. “These products were developed largely in response to feedback from brokers and customers,” Milburn says. According to Milburn, the sector is hungry for growth. “For the right deals that meet servicing requirement, lending will be available.” Bankwest has also appointed Andrew Benham in the new role of head of origination and quality. Benham is responsible for credit quality and customer satisfaction. Mark Reid, Bankwest head of business and private banking,
says the new appointments were made in response to aggregator feedback. “On the basis of their feedback, it’s difficult for brokers to get hold of someone from Bankwest Business,” he says. “This will now give the brokers a clear point of contact.” Reid says Milburn possesses “knowledge of the broker network as well as strong relationships with the chief executives of our aggregator partners.” Benham, meanwhile, has strong experience across commercial lending and credit risk management. The business broker sales team is responsible for the origination of all new broker-introduced business loans, including business banking, rural and regional, and commercial banking. Reid adds that improved broker relationships would, in turn,
increase the quality of loan submissions. “Quality has always been a concern,” he says. “I just don’t think you can grow at the expense of quality, because at some point it will come back and bite you.” According to Milburn, Bankwest will be ensuring brokers have easy access to their product and policy information. “Bankwest has a number of new training and development programs that will be rolled out shortly to ensure brokers have the necessary tools to assist their clients in gaining the funding and products required,” he says. The division will also be restructured to make sure business development managers spend more time out in the market with brokers, while dedicated back-office staff will put the deals together.
“ Executives are now expecting to deliver solid sales and profits growth in the December quarter ”
According to D&B’s CEO Christine Christian, the Christmas trading period could be the catalyst Australia needs to drive a significant increase in sales and economic growth. “The confidence of Australian firms has improved substantially over the past 18 months,” says Christian. “Executives are now expecting to deliver solid sales and profits growth in the December quarter – they are also anticipating a need to take on new staff and are displaying an appetite to invest in their operations. All of these factors bode well for our economy and indicate we will continue to deliver healthy growth in the second half of 2010. “However, much of this buoyancy is being driven by expectations that the Christmas trading period will deliver its usual influx of buyers, with the sales index particularly strong. “Although solid December quarter results will undoubtedly assist GDP figures for 2010, growth in these key areas must continue into the New Year if we are to prove resilient to the economic factors impacting other developed nations,”
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explains Christian. At present, White says he has had the most success in obtaining credit from non-banks such as Think Tank Wholesale. He adds that some lenders are getting aggressive now after a lull, and MIA lenders (managed investment act/old solicitor funds for low-doc funding) have come through for his clients. In addition, White has had favourable outcomes with new lines from overseas “which are not traditional and have their challenges, but have the money to lend for the right investment debt”. White has noticed a movement among the majors to start lending to business again. “Yes, banks are wanting to lend, but within their new guidelines which at times seems to be a bit of a backhander, but some are showing good movement. All business credit – either property debt, cash-flow funding for debtors’ ledgers or leasing – has tightened, but providers want to lend when and where they can.” Brokers must be clear as to what they can or cannot do for their business clients, White says. “Spell it out in writing upfront – the dynamics of business lending are that you might start at one point but end up at another. Ensure you don’t go into fields where you have no understanding; get the assistance of colleagues who do.” MPA
The deadline to get your compliance arrangements in place is looming. MPA profiles a selection of providers who can help take the strain out of regulation for you
he impending licensing regime has dominated proceedings this year, and brokers rushed to meet the June registration deadline. But having expressed interest in continuing to operate as a broker in the new era, many intermediaries are still deciding whether they will be better off handling their own compliance or outsourcing the regulatory burden. For brokers who have their own licence, the onus will inevitably be on them to ensure they are operating in line with ASIC’s rules, whereas becoming a credit representative of an authorised organisation often means that compliance support and guidance is included as part of the package. In this article, MPA takes a look at some of the compliance packages available in terms of price, what is included and how much bang you are getting for your buck.
QED Risk Services
Packages: ACL Application Kit and Full Licensing Service Prices: $870 (+ GST) for application kit, $3,000 (+ GST) for full service for 1-2 loan writer business What is included: Application kit: + User guide + ASIC application walk-through + 11 policy templates + Summary business description template + Guidance updates + Pre-application checklist Full licensing service: + In-your-office fact-find consultation + Composition of best-practice policies + Consultation to introduce new policies/client education + Completion of ASIC online application form; all ASIC enquiries directed to QED + Unlimited support until application fully processed
In QED’s own words: Application kit:
“Comprehensive, best-practice templates, fully scalable to individual businesses. What’s really unique is there is no need to read the ASIC Regulatory Guides as all coaching and instruction is given in the kit.” Full licensing service: “Apart from first and second interviews, client needs to spend no time on the process; their time is freed up
to do business. World-class policies that are not just about compliance with ACL requirements – they are about the whole business and tailored to it.”
Find out more: www.qedrisk.com.au; 1300 817 662
AAMC Training Group
Package: NCCP Compliance Toolkit Three categories: Companies (AFSL Licence Holders), Individual Licence Holders (sole traders with no authorised credit reps acting under them) and Authorised Credit Representatives (working under a company’s licence) Price: From $297 What is included: + An online handbook, covering all the ASIC Regulatory Guides and other relevant information + Necessary regulatory forms and templates + 12 CPD points which will relate to reading online courses and assessments + Online CPD Training Management System for the licence holder and their members + Also available (additional costs apply): CPD material and courses to assist you with ongoing education and training; and tailored templates
Find out more: www.aamctraining.edu.au;
1800 662 262 or email firstname.lastname@example.org
National Finance Institute (NFI) Package: ACL Application Kit Price: $957 (incl free updates until 31 December) What is included: + Walk-through guide to the online ASIC application + Required policy templates
“ There is no need to read the ASIC Regulatory Guides as all coaching and instruction is given in the kit ”
+ Summary business description template + Responsible management and lending information + Pre-application checklist
What is included:
In NFI’s own words: “By using the plain-English
This package contains a step-by-step guide to help you through the application process as well as a set of compliance templates. The guide will simplify and help answer the questions and requirements asked of you as a licensee by ASIC. The compliance templates are essential in obtaining a licence, and are the biggest hurdle to potential licensees. These templates will not be personalised and customising these and the questions will be your responsibility.
templates to create the policies and procedures you need under the NCCP, you learn as you go about how the requirements operate in practice and how you can use them to your advantage. Written to the exact standards that ASIC suggests (and hence prefers), the templates ensure you meet your general conduct obligations. But more than just templates, the kit walks you through the ASIC online application form and gives you all the information you need … If brokers are unsure or simply don’t want to do it themselves, NFI can arrange for experts to visit you, clarify any concerns and complete the application for an additional cost.” Find out more: www.financeinstitute.com.au/ACL/ ACL_Kit.html
+ Compliance Plan and Templates DIY Application Kit
+ Compliance Plan and Documents Standard Support Package
As well as the step-by-step guide and templates, we will support and amend your submission as required as well as submit it to ASIC. We will also manage all ASIC queries. Our professional team will handle the application process to completion to remove the complications for you. + Compliance Plan, Documents and Compliance Certificate Professional Support Package
Walker & Miller Financial Services
Packages: Compliance Plan and Templates DIY Application Kit; Compliance Plan and Documents Standards Support Package; and Compliance Plan, Documents and Compliance Certificate Professional Support Package Prices: $1,100; $1,570; $2,600 (prices + GST)
This package is a complete licensing and first year compliance pack. We will manage your licence application through to submission, all correspondence with ASIC and make sure you have all the regulatory requirements met for the first year of being a licensee. The compliance package includes an annual desktop audit, updates on regulatory changes and assistance in preparation of required registers and compliance systems. Find out more: www.walkerandmiller.com.au/ compliance-services/acl-solutions.html
In addition to the recorded support webinars which are accessed in conjunction with the toolkit via Intellitrain’s online training portal iTrain, Intellitrain and CreditWise will also be running a number of live, interactive support webinars. These webinars will provide brokers with the opportunity to obtain additional assistance and have specific questions answered by CreditWise lawyers and advisors.
In Intellitrain/CreditWise’s own words: “Many of
Packages: NCCP Licensing Risk and Compliance Framework Toolkit; and NCCP Framework Interactive Support Webinars Prices: Toolkit $900 (+ GST); Webinars $40 (+ GST) each What is included: Toolkit: + NCCP licensing obligations templates + Licensing agreement and instructions + Licence application process + Broker licensing obligations checklist + Recorded support webinars
the offerings around NCCP provide either a simple overview of the legislation or standard templates. To obtain an ACL, a broker needs to understand their obligations under the NCCP Act and develop a range of processes and documentation based upon a rigid framework. The Intellitrain/ CreditWise product provides brokers with the most comprehensive risk and compliance framework toolkit in addition to a range of superior support mechanisms. CreditWise is recognised as the pre-eminent law firm specialising in the NCCP Act. We have been associated with consumer credit legislation since its inception and have been a member of Treasury’s working group on the development of the NCCP Act.” Find out more: www.intellitrain.com.au MPA
Brokers on nonbanks There is far more to the Australian lending landscape than just the big four banks, as the huge response to our Brokers on Non-Banks survey revealed. Barney McCarthy crunches the numbers
BROKERS ON NON-BANKS
t has been well over a decade since Australiaâ€™s non-bank lenders first arrived on the scene, and they have been hardy battlers ever since. After a promising entry into the mortgage market which provided some genuine competition for the big banks and gave borrowers a real alternative when sourcing their home loans, the global financial crisis hit smaller lenders on these shores harder than their big four counterparts. Reckless and excessive home lending to high-risk borrowers in countries such as the US had a knock-on effect around the globe, with international investment institutions being far more careful about who they funded after having their fingers burned with
sub-prime loans which became worthless. This evaporation of the funding lines meant non-bank lenders struggled with liquidity issues and public perception of lenders outside the mainstream took a knock as customers started researching more diligently where their mortgage was coming from. It would be fair enough if non-bank lenders in Australia were fed up with being unfairly tarnished for the mistakes of companies overseas and chose to exit the market altogether, but an impressive number have stayed put, dug their heels in and fought to see another day. While the big four banks continue to hoover up the majority of mortgages written in Australia, the non-bank scene remains healthy and if the responses to our survey are anything to go by, brokers appreciate the competition they bring to the market and often actually prefer dealing with them than the banking giants.
BROKERS ON NON-BANKS
The survey Before explaining the methodology of our poll, it is worth discussing exactly what merits inclusion as a non-bank. While technically speaking any company that is not a deposit-taking institution or ‘bank’ could justifiably be labelled a ‘non-bank’, we weeded out the votes that were cast for aggregators, wholesale lenders and other establishments whose core business is not servicing brokers directly. Australia’s mortgage model is among the most complex in the world, so deciding just where to slice and dice the feedback has been a tricky task, but one arrived at after much heated debate at MPA HQ. Even after removing ineligible nominations, what was staggering was the sheer breadth of companies nominated, with over 50 organisations put forward in most categories. As with our Brokers on Banks survey, brokers were asked to submit their favourite three nonbanks in 10 categories: turnaround times, BDM support, transparency of commission structure, broker support, interest rates, product range, overall service level to brokers, satisfaction with credit policy, internet platform and customer support. Votes for these sections were then tallied to give the top three lenders in each category, and intermediaries were also asked to name their preferred non-bank to ascertain overall favourites. As well as ranking individual institutions, brokers were asked a variety of questions about non-banks,
such as how commissions and service compared to the big banks, what they can do to improve and what their motivation is for using smaller lenders. The results certainly made for interesting reading and may stop the big boys getting too complacent.
The headlines Statistics don’t lie and the fact remains that many Australian borrowers prefer the familiarity afforded by the big banks. However, brokers have a hand in around two-fifths of mortgages these days and given the beliefs expressed here, the monopoly may be about to be challenged. The average respondent on our survey puts 37% of their business through the non-banks each month, but this figure was much higher in many instances. Pointedly, when asked how much business they would like to be placing with lenders outside the mainstream, this figure leapt to over 60%. The next question gave a telling insight into one reason why this is not the case, with less than one in five customers enquiring about non-bank products. Public perception was a constant throughout the feedback, with many brokers saying the smaller lenders need more of a marketing presence to reassure customers. As one Sydney-based broker explained: “Ever since the government guaranteed the banks since the beginning of the GFC, the public seems to think they are the only organisations worth trusting. This is slowly turning around, but if the non-banks formed an institution that promoted them wholly and solely, public perception could change for the better.” Many others echoed this sentiment and called for some sort of unified marketing/advertising campaign.
First-class service The overwhelming majority of respondents were quick to heap praise on the service offered by
BROKERS ON NON-BANKS
smaller lenders. A staggering 88% of you thought non-banks offered better service than their banking counterparts, with many lauding specific BDMs and remarking how they could often speak directly to someone handling their case rather than waiting days for a call back. An ability to look at individual cases was also a common theme, with the flexibility and personalised approach of non-banks heralded in comparison to the automated rejection procedures of some majors. When asked to cite instances of non-banks going the extra mile, many mentioned lightning turnaround times and a willingness to take on more complex cases. Brokers were largely satisfied with the remuneration on offer too, with 81% saying they thought the levels of commission payments from non-banks were appropriate. Several mentioned that trails could be higher and clawbacks were understandably unpopular.
Carrying the fight Looking forward, the picture looks promising for non-banks after an encouraging year. Over a fifth
of brokers said they had written the same amount of non-bank business over the last 12 months as the previous year and 49% said they had written more. There is still room for improvement though and brokers were quick to suggest ways non-banks can advance. Alongside the suggestions of enhanced profiles, intermediaries also put forward ideas about rates and fees. “[Non-banks need] a more competitive rate offering and lower exit fees which are some of the major considerations in not delivering more business to non-banks,” said one Queensland-based broker. “The fit and proposition has to stack up for the customer as we are not driven in to place business for higher commissions. Our customers’ requirements and payback are our major considerations.” Food for thought indeed and if the non-banks can take on board the constructive criticism, borrowers and the big banks alike will have to sit up and take notice. Tune in next month for the nonbank reactions to our findings. Many thanks to the hundreds of you that vote – read on to find out which non-banks took the plaudits.
“ Public perception was a constant throughout the feedback, with many brokers saying the smaller lenders need more of a marketing presence to reassure customers ”
BROKERS ON NON-BANKS
Turnaround times 1st Australian First Mortgage (AFM) 2nd Liberty Financial 3rd Homeloans Ltd Highly commended: La Trobe Financial, Heritage Building Society Number of companies nominated: 50
BDM support 1st Liberty Financial 2nd AFM 3rd National Finance Club Highly commended: La Trobe Financial, Heritage Building Society Number of companies nominated: 44
Transparency of commission structure 1st AFM 2nd Homeloans Ltd 3rd (joint) Liberty Financial 3rd joint) National Finance Club Highly commended: Mortgage EZY Number of companies nominated: 48
The speed at which cases are processed was the most important category to our respondents, with 79% of you deeming turnaround times a “very important” consideration. As well as being the most vital category, it also received the widest selection of candidates, with 50 lenders put forward. Australian First Mortgage landed the most votes, ahead of Liberty Financial and Homeloans Ltd. La Trobe Financial and Heritage Building Society weren’t far behind either. Time is often of the essence where home loans are concerned, with borrowers having to move quickly to snap up their dream home. When asked what the best thing a non-bank had done for them in the past year was, many respondents mentioned speedy processing. One broker from Jandakot, WA, praised non-banks for their “quick processing times and prioritising when settlements are urgent” and many others lauded the expediency the smaller lenders are able to offer.
BDM support Having a good relationship with the BDMs you deal with is vital for the smooth running of your business and many respondents commented on the personal service they received from non-banks and how it helped to be able to communicate with the same person from start to finish on a case. A number of brokers singled out individual BDMs by
BROKERS ON NON-BANKS
name to give them special praise and acknowledge their diligence and hard work. Liberty Financial triumphed in this category, receiving a vote from almost 10% of all brokers surveyed. AFM came in a close second ahead of National Finance Club in third and La Trobe Financial and Homeloans Ltd just outside the podium places.
Transparency of commission structure AFM scored another victory when it came to the transparency of its commission structure, edging out Homeloans Ltd. Liberty Financial and National Finance Club tied for third, with the exact same number of votes. Mortgage EZY finished just outside the medal positions with a respectable 5% of voters commending it. While four-fifths of you were happy with the commissions on offer from non-banks, a number of respondents were refreshingly candid with their opinions on remuneration. “I don’t believe that commission should be the prime incentive,” admitted one Sydney-based broker. “As long as it is competitive to the other lenders on offer. The incentive is to get the deal done. Non-bank lenders are fulfilling the necessary gap and delivering a service that there is obviously a solid and growing market for.” An intermediary operating in Gladstone, Qld, went even further: “Sometimes [commission payments] are too high and it looks a bit out of place for the client signing off on the commission and how much it is.” With licensing on the horizon and an everincreasing need to put the customer first, it is reassuring for the future health of the industry that brokers are continuing to put the needs of the borrower at the top of their priority lists.
of those surveyed regarded turnaround times as “very important”, making it the most highly regarded category in the survey
Broker support This category recognised the non-banks that assist intermediaries through the training they offer, the information they provide and seminars and events they host. Homeloans Ltd and AFM shared the spoils, while National Finance Club secured the bronze. Liberty Financial warrants a special mention in this category, finishing a close fourth. While brokers suggested in their feedback that they were happy to use non-banks for myriad reasons, a host of advisers suggested they could offer more training. In fact, reading between the lines, perhaps the brokers who didn’t vote in our poll or who don’t use non-banks, don’t because they are unfamiliar with the lenders and the products they can offer. Alongside increasing their presence to consumers, non-banks could possibly do more to
“ When asked what the best thing a non-bank had done for them in the past year was, many respondents mentioned speedy processing ”
BROKERS ON NON-BANKS
Broker support 1st (joint) Homeloans Ltd 1st (joint) AFM 3rd National Finance Club Highly commended: Liberty Financial Number of companies nominated: 40
“ Non-banks could do more to remove the fear of the unknown for brokers, by providing more literature on their propositions ” remove the fear of the unknown for brokers too, by providing more literature on their propositions and adequately training brokers in how to sell their products.
Interest rates 1st AFM 2nd Homeloans Ltd 3rd National Finance Club Highly commended: Heritage Building Society, The Rock Building Society Number of companies nominated: 44
Product range 1st Homeloans Ltd 2nd AFM 3rd (joint) Liberty Financial 3rd (joint) National Finance Club Highly commended: Mortgage EZY Number of companies nominated: 44
Overall service 1st AFM 2nd Liberty Financial 3rd (joint) National Finance Club 3rd (joint) Homeloans Ltd Highly commended: La Trobe Financial Number of companies nominated: 41
Familiar faces marched to the medals in this section, with AFM leading Homeloans Ltd and National Finance Club home. Two mutuals scored highly on interest rates too, with Heritage and The Rock scoring a significant percentage of the vote. Keen rates are just one part of the wider package brokers evaluate when considering which mortgage is suitable for each borrower and non-banks may not have the clout of the major lenders, but the fact they warranted praise for their pricing here shows they are attempting to bring genuine competition to the market.
Product range Non-bank lenders have traditionally been associated with non-conforming products and while many do offer sub-prime and nonmainstream mortgages, they also operate in more conventional spaces too. Much of the feedback received commended the flexibility of non-bank lenders and their willingness to consider cases rejected by the major banks. While the product ranges themselves drew praise, there were plenty of suggestions on how non-banks can further strengthen their propositions, mainly concerning fees and add-ons. Deferred establishment fees
Brokers weren’t particularly concerned about non-banks’ internet platforms, with just 17% rating it a “very important” factor
BROKERS ON NON-BANKS
BROKERS ON NON-BANKS
“ Deferred establishment fees remain highly unpopular and brokers cited these as a barrier to using non-banks more frequently
2nd (joint) Homeloans Ltd
Satisfaction with credit policy 2nd (joint) Liberty Financial Highly commended: Mortgage EZY, La Trobe Financial, Heritage Building Society Number of companies nominated: 40
Customer support 1st AFM 2nd Homeloans Ltd 3rd Liberty Financial Highly commended: Mortgage EZY, National Mortgage Company, La Trobe Financial Number of companies nominated: 40
Internet platform 1st (joint) Liberty Financial 1st (joint) Homeloans Ltd 3rd National Finance Club Highly commended: AFM, La Trobe Financial Number of companies nominated: 29
Overall winner 1st AFM 2nd Homeloans Ltd 3rd Liberty Financial Highly commended: National Finance Club
remain highly unpopular and several brokers cited these as a barrier to using non-bank products more frequently. Several respondents called for an increase in the LVRs available on low-doc loans and some called for free LMI on larger loans. In terms of the honours in this category, Homeloans Ltd was considered the non-bank lender with the best product range, followed by AFM in second and Liberty and National Finance Club who finished joint third. Mortgage EZY was again in the reckoning, finishing highly commended in fourth place.
Overall service “Non-bank lenders provide far superior service than bank lenders,” claimed one broker based in Western Australia. “They are more approachable and flexible, they want to do the business and encourage brokers to use them by offering competitive loan products and commission structures. They do not hide behind their shareholders and they do not use the GFC as an excuse when cutting products or commissions.” Strong words indeed, but symptomatic of what many brokers told us, with almost nine in 10 of you saying non-bank service was as good if not better than their banking peers. Many of you suggested the fact that non-banks need the business more made them keener to please and hinted at complacency among some of the majors. AFM scored another victory in this category, with 9.6% of brokers nominating them for their service proposition. Liberty Financial landed the silver, while National Finance Club and Homeloans Ltd shared the bronze. La Trobe Financial merited a special commendation for finishing fourth.
Satisfaction with credit policy AFM landed another gong in this category, proving to be the non-bank with the most agreeable credit policy to brokers. Homeloans Ltd and Liberty tied for second place, with Mortgage EZY, La Trobe Financial and Heritage Building Society not far behind in what was a keenly-contested division.
BROKERS ON NON-BANKS
Although lenders across the board have tightened up their credit criteria, anecdotal evidence from the feedback received for this poll suggests that non-banks are more willing to treat cases individually and offer flexibility while the big banks adopt a more uniform approach. As one broker from Queensland said: “The more unconventional cases can be chewed over and discussed more laterally. Therefore the policy is not just black and white as it is with the mainstream banks. All the mainstream lenders say they are flexible on credit policy but with credit scoring becoming more widely adopted this is not the reality. Non-bank lenders are more open to see how a deal can be structured to suit the customer and even adapted if a little outside policy.”
Customer support AFM scored another victory in terms of customer support, pipping Homeloans Ltd and Liberty to the post. Mortgage EZY, National Mortgage Company and La Trobe Financial also came close.
The fact that many non-banks offer products ‘outside the box’ can often help customers experiencing no joy elsewhere and many respondents highlighted the fact that as non-banks usually only operate through intermediaries, there are no channel conflicts or issues about who owns the client. As well as saying they preferred to use non-banks because of the superior service offered to them, brokers were quick to mention how their customers were also suitably impressed with the support afforded them.
Turnaround times drew the widest range of votes, with 50 different non-banks nominated by brokers
BROKERS ON NON-BANKS
Internet platform Perhaps surprisingly, non-banks’ internet platforms were deemed the least important consideration and also garnered the fewest different candidates, with just 29 lenders being nominated. Liberty shared top spot with Homeloans Ltd, while National Finance Club took the bronze ahead of AFM and LA Trobe Financial in the highly commended spots. Non-bank websites may not be on a par with the slick online offerings of the majors, but if smaller lenders are serious about competing for market share in the long term, they should be looking to enhance their internet platforms. It may not be considered an integral facet of their business at this juncture, but with technology constantly enabling us in other areas, it is surely only a matter of time before this category becomes more important.
Overall winner By totting up the individual successes in each category, AFM is the overall victor in the 2010 Brokers on Non-Banks rankings after securing seven wins and a smattering of podium finishes. “AFM is the best,” read one testimonial from a broker in Parramatta. “They are knowledgeable people, honest and deliver what they commit to. Customer care is important to them plus they look after brokers. I wish more lenders were like AFM.” Second place went to Homeloans Ltd with two first places and a clutch of other top-three ratings. In the words of one Sydney-based broker: “Homeloans Ltd is large enough to be a serious player and small enough to be flexible.” Liberty Financial came home in third position after a strong showing including two category victories. “Liberty ticks all the boxes,” one broker from Semaphore succinctly stated. “They have quick turnaround times, great broker
88% An overwhelming 88% of brokers think non-banks provide better service levels than the major banks
BROKERS ON NON-BANKS
BROKERS ON NON-BANKS
BROKERS ON NON-BANKS
of brokers are doing more business through non-banks than they were 12 months ago, with only 17% doing less. The remainder are doing about the same as last year
support and its policy is most suitable for my client requirements.” While the above are the top three non-banks by virtue of their overall rankings, it was interesting to note that the order changed slightly when brokers were asked outright what non-bank they preferred to deal with. Liberty topped that particular poll, with Homeloans Ltd and AFM in joint second, National Finance Club in fourth and La Trobe Financial in fifth. Congratulations to this year’s medallists and well done to all the non-banks that were nominated. MPA
iven the heights that Steve Weston, general manager of broker platforms for Advantedge, has scaled in the mortgage industry, it seems incongruous for him to admit he went to school “to play sport and to play up”. Nevertheless, the mischievous athlete from North Queensland belatedly developed a passion for studying, and pursued higher education all the way through to an MBA. “I started at Commonwealth Bank in Bowen, and working there fired something in my belly,” he explains. “I come from a family of builders, carpenters and glaziers, but I couldn’t drive a nail straight, so I was never destined to follow that path. I loved interacting with customers at the bank and realised you can really make a difference.” His return to the books was fuelled by an intense interest in the machinations behind accounting systems and how banks swapped money. After his apprenticeship at CBA and a stint running St.George’s Queensland business, Weston was lured to what was then Challenger, after a head-turning lunch with Brian Benari. “St.George was a wonderful organisation to work for and I didn’t have any real intention of coming back to Sydney,” Weston recalls. “But the more I learned about Challenger and James Packer, the more I could see they were ambitious and serious about making Challenger a major force. They were true to their word and five years down the line we are a significant player. One in six mortgages in Australia come through the Advantedge network.” Cutting edge Advantedge was famously created when NAB purchased Challenger Mortgage Management – which included the FAST, Choice and PLAN aggregator businesses – in October 2009, a move Weston describes as mutually beneficial. “The GFC wasn’t part of the plan and it was difficult to obtain
After scooping the Golden Morgie at the Australian Mortgage Awards, Advantedge’s Steve Weston speaks with MPA’s Barney McCarthy about his rise to the top
the funding to leverage our distribution base,” Weston says. “We needed to partner with someone with a deposit book and spoke to interested parties in Australia and overseas. At that time, NAB felt it was underweight in terms of market share and we had the distribution in place, so it made sense for both parties,” he says. Weston says the first 12 months under NAB’s stewardship has been a tremendous success. “Some things haven’t changed, while others are noticeably different,” he says. “The main changes are positive, such as the access to funding from NAB’s balance sheet which allowed us to reinvigorate stifled mortgage managers and write volumes they hadn’t written for three years. A benefit I didn’t appreciate before the takeover was the extent to which we have been able to tap into the expertise of NAB, through observing its successful models such as MLC, and its wealth management division which has already come through regulation.” Another boon for Advantedge under NAB’s ownership has been access to banking and lending products. This ties in neatly with the creation of Advantedge Financial Solutions, an auxiliary arm offering products outside the mortgage space to brokers. “We are putting together a panel of ‘best in breed’ products that sit adjacent to home loans, such as debt protection and general insurance,” Weston explains. “We’ll have a panel of providers, some of whom carry products we manufacture and other independent providers. Through regulatory
change, brokers will have to get closer to the needs of their customers, identify their needs besides a mortgage, and help provide the solutions.” Fly or die As well as helping out their customers, brokers will also be driven into diversification by the need to remain profitable, Weston says. “As we see a reduction in revenues, it is only natural that brokers should leverage their customer base more fully,” he observes. “Insurance penetration rates in terms of selling cover alongside a mortgage has soared beyond 50% in the UK, whereas in Australia we’re lucky if we’ve made it into double digits, so there is room for upside.” Another burning issue for brokers at present is the chatter around commissions and a move towards intermediaries charging a fee for the advice they give customers, rather than receiving remuneration solely from the lender. “There are brokers using this model already,” Weston says. “It is justifiable for brokers to charge a fee for the
advice they give and the services they provide that customers wouldn’t receive in a bank, such as expertise, a range of lenders to choose from and ongoing assistance in structuring facilities.” Yet Weston is quick to point out that adopting a fee for service model shouldn’t give lenders carte blanche to reduce commissions and that what brokers are charging for is separate. Licensing looms large on the horizon for the mortgage industry and Weston expects some attrition in broker numbers, although he says this may not necessarily be a bad thing. “We have already seen some material reduction in numbers over the past few years and this has not been driven purely by impending regulatory changes, but also [by] the cuts in commissions,” he says. “Around 20% of brokers have exited the market in the last 24 months because they were not writing enough home loans to make a basic living. The percentage of mortgages accounted for by brokers hasn’t diminished though, so the intermediaries that remain have obviously taken
up the slack.” Weston says this natural reduction in numbers means that the surviving brokers are writing reasonable amounts of business and want to be in the profession in the new era. Crystal ball Looking to the future, Weston says these are exciting times for an industry that has been “crying out” for licensing for years. Outside the mortgage space, Weston dismisses the opinions of foreign pundits who predict a property price crash in Australia. “I’m sceptical of supposed experts from overseas who say prices have to fall here,” he says. “We have strong fundamentals such as high employment levels, superior lending standards and many borrowers on variable rates, allowing the RBA to pull that lever if needs be. It’s chalk and cheese comparing Australia to the US, particularly as we have a high level of undersupply and strong net inward migration.” Weston isn’t one to personally speculate on what the RBA will do with the cash rate over the coming months, but says looking at overnight index swaps can be a telling precursor. “The swap markets suggest a 50-50 chance of a quarter-point increase by the end of the year, but that the cash rate will only be 0.5% higher by the end of 2011. Things can change, but they have usually been a good predictor in the past,” he says.
“ It’s chalk and cheese comparing Australia to the US, particularly as we have a high level of undersupply and strong net inward migration ”
Top man Receiving the Golden Morgie for lifetime achievement at the Australian Mortgage Awards in September was Weston’s reward for 25 years of sterling service to the mortgage industry, but he is quick to deflect praise. “The past quarter-century has seemed like a hell of a long time in some respects and it’s gone quickly in others,” he says. “Winning the Golden Morgie was a terrific surprise and very humbling. It may be an individual accolade, but I want to share it with the wonderful people I’ve worked with over the years and acknowledge their contributions.” Weston claims he still starts every day with a spring in his step and also enjoys spending time with his wife and two young daughters. He may not play as much sport as in his aforementioned school days, but Weston says he is still given the run-around the tennis court by his wife. Given his Midas touch in the day job, it must be about the only time that he experiences defeat. MPA
There could be millions of dollars of commissions lying unclaimed. Peter Heinrich asks if some could belong to you?
vidence suggests that many brokers do not regularly reconcile their upfront and trailing commission statements. As a result there may be millions of dollars in unclaimed or unmatched commissions forfeited by brokers, or held in unclaimed or unmatched commission accounts. Some brokers mentioned to me recently that they had been quite slack about reconciling their commissions from their aggregators and found that when they did they were owed several thousand dollars. One broker said that because he was very quiet at the moment he reconciled his loan book and found he was owed over $40,000 in unclaimed and/ or unmatched commissions, including $1,500 from a commercial loan lodged at a bank business centre four years ago. He quite openly blamed himself – but also suggested aggregators could be more proactive in finding out who was owed money. He admitted that his aggregator supplied him with an excellent reconciliation program as part of his software package, but he was using it sparingly and incorrectly. When lending times were good neither he nor his assistant had time to reconcile all commissions but now times are slower, every dollar counts. I think this is a very common problem: I recall one aggregator joking to me that his unclaimed commissions account was his biggest account with over $1m in it. I also understand that some brokers automatically forfeit their upfront and subsequent trail commission if not claimed within 12 months of receipt by the aggregator. One aggregator is known to retain the commission entitlements if not claimed by members within three months.
Every little bit helps It should also be remembered the broker does not receive any interest earned on unclaimed
commissions, assuming they are able to claim retrospectively. There are several issues from not reconciling commissions, particularly trail commission. If a broker is not reconciling commission entitlements, they are probably not proactive in maintaining a client database and are equally neglectful of client relationships management. These two key aspects of business administration are closely linked. To have excellent client contact, a broker must maintain comprehensive, readily accessible and up-to-date records. If they don’t, then it is impossible to maintain regular contact with clients and reconcile commissions. Consider a broker I know who’s been in business for 25 years but does not have a client relationship management system or any meaningful record of the business he has written. How much business do you think he’s missed out on over the years by ignoring the majority of his clients after settlement? While some blame can be levelled at aggregators who do not attempt to match commissions, the main culprit is the broker who doesn’t reconcile their commissions monthly to ensure they are paid for settled loans. The longer a broker leaves it to follow up a missing commission, the harder it is for the aggregator and lender to make a match and process the payment. Reasons for upfront commissions not being matched include: • Incorrect names/companies or trusts with guarantors used and the names listed out of order by the lender when payment is made • More than one surname on the loan and commissions paid on the alternate name • A loan submitted directly to a bank business centre and the payment not manually processed by the lender
• The broker omitting their broker reference number or recording it incorrectly on the loan submission Reconciliation of trailing commission statements will also reveal those loans that have dropped off the system. Clients drop off trailing commission statements for various reasons listed below, all of which should be investigated by the broker:
• If clients are more than two months in arrears • If clients have refinanced or sold their property, possibly using the lender or another broker to finance their next purchase • If clients have been directly contacted by a lender and switched to another product and the introducing broker’s trail is not honoured • If clients pay out their loan from sale of other assets • If a client dies
“ There is no need to read the ASIC Regulatory Guides as all coaching and instruction is given in the kit ”
Sometimes it is simply aggregator or lender error when a monthly trail payment is missed. If the broker has an excellent client retention program and reconciles commissions monthly, they pick up errors very quickly and the chances of losing clients are minimal.
Get your house in order Brokers contemplating selling their loan book should be aware that the prospective purchaser looks very closely at how well the book is managed in terms of retention and reconciliation of commissions. The principal concern of someone purchasing a loan book is run-off (high run-off reduces the price of the book). If a broker is reconciling regularly they will have a good understanding of their client’s movements and if they have an effective retention program in place the runoff will be minimal – thus increasing the value of their loan book. A further concern for brokers should be the commencement of trailer payments after the lender waiting period. Many lenders do not pay trailer income in the first year (in some cases longer). A broker needs to have a good reconciliation system in place to ensure the trailing commissions actually commence after the 12 months or when they are due. If the trailing commissions do not commence after 12 months a broker will not know unless they are checking and matching regularly.
A simple test to track client run-off can be done by comparing trailing commissions from six months ago to the current statement. Match the names on the statement six months ago with the names on the current one. If the names on the statement of six months ago don’t appear on the current statement they are obviously gone for one of the reasons listed above – costing income and/or referrals – or it may just be an error. Many lenders will suggest unclaimed and unmatched commission is not their problem as they pay the aggregator and it is up to them to pay the broker. They are probably right in that and if the paperwork and claims are correct there shouldn’t be a problem. But there obviously is – and many brokers are unaware how big it is. However, neither the lender nor aggregators are motivated to check commissions that remain unclaimed or unmatched, unless prompted. Experience shows that when omissions are highlighted both the aggregator and lenders will take steps to locate and match missing commissions. In summary, reconcile monthly, have an active client retention program in place, check your aggregator agreement as to your rights to commissions not received and remember – it is your money – what are you doing to make sure you receive what you are owed? MPA Peter Heinrich is founder of The National Finance Institute, providing results-driven training to the mortgage and finance industries
MPA LENDER NEWS
CONTENTS 58 NEWS: A REVIEW OF NEWS IN THE WORLD OF NON-BANK LENDING AND MORTGAGE MANAGEMENT 60 IN PROFILE: BANKWEST
Mortgage EZY defends low-doc lending Mortgage EZY chief executive Garry Driscoll has dismissed claims that low-doc lending is ‘dead’ under the incoming National Consumer Credit Protection regime. Despite market concerns over the impact and extent of responsible lending requirements on low-doc loans under the new laws, Driscoll claimed “the low-doc is not dead”. “With rational new policies being adopted to support and protect all parties such as an accountant’s letter corroborating the client’s income declaration enclosed in an application, then the issue raised by the NCCP should be able to be addressed,” he said. Driscoll acknowledged, however, that no-docs are finished under the NCCP. Low-docs have a positive future as competition improves in the final months of 2010, Driscoll said. “Self-employed borrowers did not suddenly disappear from the market, but a certain amount of flexibility did,” Driscoll observed, referring to the circumstances following the GFC. “Undeniably there is a built-up demand for this type of product as it has not been readily available for a few years now, however in recent months pricing and policy enhancements have enabled legitimate borrowers to re-enter the lending market.” Driscoll said “a growing number of the funders to the mortgage management sector are opening up their low-docs again”, which is an “extremely positive sign” for this segment.
Bankwest offers bonus sweetener Bankwest will offer selected brokers a 10 basis point ‘quality bonus’ for business submitted during the final quarter of 2010, as it seeks to lure quality applications from previously disenfranchised brokers. The bonus – available on loans lodged before 31 December and payable quarterly in arrears – will be awarded should these selected high quality brokers exceed what the bank calls a ‘right first time’ quality measure of 70%. David Ewens, Bankwest’s national retail sales operations manager, said the bank wanted to engage and recognise brokers if they submit quality business, through the new quality bonus. “We’ve seen an opportunity here to engage some quality brokers that may have chosen not to use us in the past or may have used us at our peak service levels with the Rate Tracker and our most aggressive products in the past,” Ewens said. Ewens added that the bank has identified loyal brokers that have supported the bank in the past, as well as brokers who would be best suited to the short-term program, and who it is targeting in order to provide a new taste of Bankwest.
ING Direct targets production push ING Direct has declared it will boost mortgage production by 20% in 2011 and has recruited Peter Hayward, formerly Citibank head of broker distribution, as the individual who will be in the driver’s seat of the bank’s broker push. Lisa Claes, executive director of mortgages at ING Direct, said brokers can expect the increased mortgage production to come with a pipeline of service improvements to enhance the broker and customer experience, and added the push marked an “aggressive expansion”. She also declared brokers a key market for the bank. “Brokers and mortgage managers will remain a key focus for ING Direct going forward and our commitment to remain branchless is a testament to that commitment.” ING Direct’s new head of broker distribution, Peter Hayward, will commence in early November. Claes encouraged brokers to support non-major lenders as a key way of promoting competition in the financial sector. “Currently, the Big Four write close to 90% of mortgages. In no other industry is there such a concentration, except in groceries. Support of second-tier lenders by brokers is crucial for a competitive environment within the financial services sector.”
ING’s production boost target for 2011
Helping homebuyers stay afloat The global financial crisis increased awareness of financial hardship – including what can be done to prevent it and how to reduce the impact on borrowers, lenders and the wider community, explains Paul Caputo
A Paul Caputo, acting CEO of Genworth Financial
s one of Australia’s largest lenders mortgage insurers, Genworth Financial (Genworth) provides a second set of eyes on the mortgage market, with close scrutiny on pockets of hardship and a commitment to helping struggling borrowers. With this in mind, Genworth established a Hardship Solutions team in 2006. While the September Genworth Homebuyer Confidence Index showed confidence was generally high, by scrutinising the causes of mortgage stress within Genworth’s hardship data a picture is painted of what’s driving hardship difficulties experienced by borrowers. So how are borrowers coping at the moment? Genworth’s hardship solutions data shows unemployment to be the primary cause of hardship, accounting for 34% of applications in the first half of 2010, up from 24% in the previous 12 months. This is followed by reduced income at 28% in the first half of 2010, which increased from 23% over the previous year. Genworth has seen an increase in applications for hardship recently due to continued underemployment and unemployment, however cure rates remain healthy. This success can be attributed to a proactive approach by Genworth with lenders to ensure they encourage borrowers who are experiencing financial difficulties and are struggling to make their repayments to get in touch with their lender as soon as possible. Genworth works with lenders to provide a range of solutions to help those borrowers facing financial hardship to get back on their feet. In Genworth’s experience, capitalising arrears is one of the most successful measures for helping borrowers to resume scheduled repayments. Genworth also provides assistance for 3–6 months for borrowers who are unemployed, since most unemployed borrowers regain employment within this period. Other options available to
borrowers through their lender, and the lenders mortgage insurance (LMI) provider, include postponing repayments for an agreed time, agreeing to part payments if the borrowers have some income, converting to interest-only for an agreed period and extending the loan term to reduce repayments. Sometimes it’s a combination of a number of these strategies. For example, Genworth worked with a lender to assist a borrower whose income was reduced because of a reduction in working hours, by capitalising the arrears and reducing the minimum contractual payment by 50% for three months. This is just one example of over 13,000 borrowers Genworth has helped stay in their homes since the inception of the Hardship Solutions program until the first quarter of 2010. These measures are designed to keep borrowers in their homes and give them time to recover from financial hardship. The low ratio of hardship approvals to claims and re-default rates for hardship applications demonstrates the effectiveness of these measures, and that early intervention is a critical success factor. As greater consumer awareness of hardship avenues is brought about with the introduction of the National Consumer Credit Protection Act (NCCP), hardship applications and disputes may increase in the short term as borrowers realise they have an alternative to struggling alone. Indeed, the introduction of the NCCP has further defined roles and responsibilities within the industry in relation to hardship. We all have a role to play in supporting struggling borrowers. Through Genworth’s Hardship Solutions program, Genworth continues to work with industry partners to keep those people suffering genuine hardship in their homes. Paul Caputo is acting CEO of Genworth Financial BROKERNEWS.COM.AU
BUSINESS PROFILE BANKWEST
Making a A
shake up of Bankwest’s management in July was designed to give brokers better points of contact across the lender’s business and retail broker channels. Aaron Milburn was named as the bank’s new head of broker sales for Bankwest Business, moving across from his former role as head of broker sales for Bankwest Retail. Ian Rakhit, Bankwest’s current retail head of specialist banking, added Milburn’s former duties to his key responsibilities. Prior to joining the broker division, Rakhit was working as Bankwest’s head of East Coast sales, where he led the store expansion across the east from inception to its current profitable position. In addition to bringing him closer to customers, Rakhit says the experience helped him learn how to build a brand new business and deliver to a bottom-line expectation.
Rakhit Bankwest’s aggregator feedback has spurred the lender to increase relationships with brokers across its retail and business channels. Andrea Cornish caught up with the head of specialist banking Ian Rakhit to learn what it is doing to gain brokers’ attention
BUSINESS PROFILE BANKWEST
Before coming to Australia, Rakhit spent 22 years with Bankwest’s previous owners, HBOS, where he performed various branch, area and state-based leadership roles, including leading the broker channel during mortgage regulation. “This experience will help my teams and my customers take full value from a regulated lending environment,” he says. Given Rakhit’s background, the head of specialist banking is well-placed to be Bankwest’s broker connection in Australia’s newly regulated mortgage environment. He gave MPA a clear understanding of Bankwest’s strategy for the third party channel and what brokers can do to earn better commissions from the lender. What’s new? According to Rakhit, there are three main priorities for brokers and banks going forward. “Both banks and brokers are continuing to look at the most efficient way to run their businesses, which means quality of submission, quality of customer and speed to offer are high priorities,” he says. In an effort to improve efficiencies, Bankwest has instituted a few new processes to reduce lag-time in loan turnaround and approval times. “We are re-engineering a number of our loan processes to reduce our average unconditional approval down to below five days,” Rakhit says. “This means working with our broker partners to educate them on our policies and requirements and to establish a ‘right first time’ approach to lending submissions. On the customer front, we are rolling out training on handling customer issues and better supporting our colleagues in seeing and solving issues on those occasions when things go wrong.” Another area of priority for both brokers and banks, Rakhit says, is building multiple touch points with each individual customer. “We are all looking to service our customers better with full banking and financial facilities leading to longer-term relationships,” he says. “Lending regulations will adjust the way we record our advice to customers and so will be a new way of working.”
It is possible for customers to have longterm relationships with both their bank and their broker, avoiding the possibility of channel conflict, Rakhit says. “We believe the customer needs to be at the centre of the transaction and the customer should receive the same product regardless of their channel of choice. We don’t have channel conflict as we believe in building the relationship between bank, broker and customer.” Part of building long-term relationships with customers is offering them more than just a home loan. According to Rakhit, the top mortgage professionals have already evolved from simply being ‘brokers’ into being ‘advisors’. “The best brokers have always operated under the current requirements so the professionalism is already there. More and more customers will look for these professional qualities – that’s what happened in the UK post-regulation.” However, unlike the situation in the UK – where half the market has moved to a fee-forservice model – Rakhit says it’s unlikely to gain the same popularity here, at least not for vanilla loans. Nonetheless, recent changes by major banks with regard to trailing commissions and clawbacks have brokers questioning their payment pipelines. Rakhit assures brokers that Bankwest is happy with its current arrangements. In fact, the lender did make some moves on commissions, but it was a three-month special, offering the highest-quality brokers an increased commission of 10bps for the rest of this calendar year. The move was designed to reward brokers who submitted quality loans. Rakhit suggests to brokers looking to improve their conversion rates to follow three simple rules. “Firstly, please understand our policies; use our checklist in front of your customer to make sure all documents are collected, and finally please discuss all extraordinary scenarios with our staff who sanction deals or our BDMs before submission. We also have a role to play in helping our brokers meet these requests,” he adds.
“ Both banks and brokers are continuing to look at the most efficient way to run their businesses, which means quality of submission, quality of customer and speed to offer are high priorities ”
One way in which Bankwest has worked to improve its broker relations is through its website. “We launched our website to offer product and update advice to our brokers,” Rakhit says. “We are delighted with the accolades we have received, such as the nomination at the Australian Mortgage Awards in October, and continue to develop and invest in the software. Many brokers use the website for case updates and to check policy.” Bankwest has also pioneered some innovative products such as its rate-reducing loan, of which the feedback from brokers has been phenomenal, Rakhit says. “The response has been very positive with around 20% of daily sales coming from this product. The product offers long-term rewards and links neatly with our increasing trail commission. Alongside our life-of-loan discount via our Premium product and our continuing sales of low-doc, fixed and shredder introductory, we have the full range of products to satisfy customers. We have further innovations due early next year, so keep checking our website,” Rakhit advises. On the low-doc front, Rakhit says there is still room in the market for these products. “We continue to offer low-doc loans although we do see a tightening of criteria in the near future. I don’t see 100% loans returning even in the medium term.” MPA
DRINK Beer: nothing beats it on a hot day
Andrew Everington + Head of broker distribution + ANZ
FOOD Italian food and seafood on the BBQ
Favourite things SPORT I like to watch anything featuring Australia and motor racing
PLACE TO BE Playing with the kids at the beach CELEBRITY I’m not really a star-struck person but if I had to choose one it would be Clint Eastwood
VACATION SPOT With two small children, anywhere the sun is shining and the plane ride is short!
HOBBY Classic cars. I have one of my own and it keeps me poor…
MOVIE Falling Down, starring Michael Douglas
BOOK The Alchemist by Paulo Coelho. It has some great life lessons
MUSIC I enjoy all sorts of music but I particularly enjoy jazz for the chill-out factor