Mortgage Professional Australia magazine Issue 11.1

www.brokernews.com.au ISSUE 11.1

FRIEND OR FOE? THE RETURN OF HIGHER LVRs

IN PROFILE NEW GENWORTH CEO ELLIE COMERFORD

SPONSORSHIP MONEY LOCAL MARKETING EXPLAINED

EDITOR’S LETTER

Hot off the press Mortgages and banking may dominate the minds of those who make their living from them, but they are not necessarily issues that govern the thoughts of the layman. Every now and then this changes though, and financial services became an ingrained part of the national psyche as it commands endless column inches. This was certainly the case at the beginning of November as the RBA cash rate rise was followed by public outcry as CBA announced its own standard variable rate increase, then just days later Julia Gillard unveiled plans to crack down on excessive mortgage exit fees. Such high-profile events remind us of the importance of the industry we operate in and how, as a broker, you have the power to change your clients’ lives.

Talking of influential figures, the cover story this month is our annual Hot List – a compilation of the most important people whose everyday actions affect the mortgage market. With licensing just weeks away and coming with it the most significant change to our industry seen in recent memory, we outline the characters who will help shape the next chapter. Such inventories are always the cause for much debate – drop me a line and tell me who you think the key players are.

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Elsewhere in the issue, we look at how much difference the AOFM’s securitisation program has made to the market, report on the return of higher LVR products as lenders creep back into the space, and explain the advantages to your business of getting involved with local sports clubs. We also profile some providers making waves in the SME and debtor finance sector, and probe second-tier lenders for reaction to our Brokers on Non-Banks survey.

Finally, we profile new Genworth CEO Ellie Comerford, learn about Citibank’s plans from Steven Ramage and get to know NAB’s John Flavell and Suncorp’s Tony Meredith a bit better.

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.

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CONTENTS

cover story

18 Points of view Non-banks give their feedback to our comprehensive broker survey

34 2011 Hot List

MPA’s annual preview of the personalities that will lead the industry over the next 12 months

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THE BIG STORY: ARE FOUR PILLARS ENOUGH? Visit our website to watch industry figures react to the latest issues. »» Calls from Federal Treasurer Wayne Swan to build a “fifth pillar” in the Australian banking market may be popular given the dearth of competition, but do they make sense? www.brokernews.com.au

CONTENTS

EDITOR Barney McCarthy

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COPY & FEATURES CONTRIBUTORS Andrea Cornish, Ben Abbott, Christina Jordan PRODUCTION EDITORS Jennifer Cross, Robin Hill ART & PRODUCTION DESIGN MANAGER Jacqui Alexander DESIGNERS Paul Mansfield, Lucila Lamas, Ivee Caburian

NEWS ANALYSIS 10 Planning for success: Ben Abbott reports exclusively from the PLAN NSW/ACT state conference 12 From bad to worse: Christina Jordan takes a look at developments in the UK mortgage market

FEATURES 14 A secure future? With smaller lenders lobbying for an extension to the AOFM’s securitisation program, Andrea Cornish evaluates the success of the scheme 24 Winning sponsorships: Supporting local sports teams can be a win-win situation if you go about it in the right way, as MPA finds out 48 Saving the lost generation: Higher LVR products seem to be in vogue again, but are they a help or a hindrance to first-home buyers?

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PROFILES 28 Leader: New Genworth CEO Ellie Comerford talks about the tasks ahead 60 Lender: Citibank director of mortgages Steven Ramage describes the fight for broker attention

LIFESTYLE

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 ASSOCIATE PUBLISHER Rajan Khatak CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil

Editorial enquiries Barney McCarthy tel: +61 2 8437 4790 barney.mccarthy@keymedia.com.au Advertising enquiries Sales Manager Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Account Manager Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 subscriptions@keymedia.com.au 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

22 A day in the life of...John Flavell, NAB 64 My favourite things...Tony Meredith, Suncorp

This magazine is printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry

NEWS MARKETS

Mortgages force credit binge

Cost of living becomes number one fear Homebuyers are more concerned about cost of living increases than interest rate rises, according to research from Homeloans Ltd. The non-bank lender’s latest ‘Home Buyer Barometer’ found that increases in everyday living expenses were the greatest financial concern of 34% of current and potential borrowers, outstripping the 24% of people worried by potential rate rises.

Concerns over interest rates has dropped since April, when they were the primary financial concern. In April, 32% of respondents named rates as their number one financial concern, while 28% elected the rising cost of living.

The research also found high property prices were the greatest barrier to home ownership for all types of borrowers, which included first homebuyers, owner-occupied other homebuyers and investors. Saving for a deposit and ability to meet repayments followed behind rising prices as areas of worry for those surveyed.

However, Homeloans national marketing manager Will Keall suggested increasing LVR flexibility may assist these borrowers.

“As credit policies are becoming more flexible and lenders are prepared to lend at a higher LVR than in recent times, saving for a deposit may well decline as a barrier,” he said.

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49% Percentage of households making additional repayments on their mortgage.

Source: ING Direct

Median credit card debt rose by 24% over the last quarter, as households turned to their credit cards to stay on top of their mortgage repayments.

The latest ‘Household Financial Wellbeing Index’ from ING Direct found that borrower comfort levels with home loans fell over the third quarter of 2010, even though 49% of households are making additional repayments on their loan.

But those extra repayments consumed disposable income, and households turned to their credit cards as living costs have increased, to fill the cash gap. Outstanding card debt grew “alarmingly”, according to the index, with the median balance rising from $1,673 in the second quarter to $2,072 in Q3 – a leap of 24%.

ING Direct CEO Don Koch said: “Households are taking the right approach by aiming to pay off their loans early. But the over-reliance on credit cards is a worrying trend. Higher interest rate applicable to credit cards will see many families burdened by growing interest charges.”

MFAA to benefit from exodus The MFAA membership base is likely to gain from a reduction in industry-wide mortgage and finance broker numbers, according to MFAA CEO Phil Naylor, as those left standing will have more business to share around.

Naylor said the association is losing between 200 and 250 members a month in the lead-up to the introduction of the National Consumer Credit Protection legislation in January.

Naylor said if it ends up with a reduced membership of 10,000 from the current 12,000, they would likely benefit from increased business.

Industry pundits have predicted membership numbers will drop as low as 7,000.

Naylor said the MFAA’s new minimum requirement for a Diploma in Financial Services (Finance/Mortgage Broking Management), being introduced would be unlikely to impact numbers.

Credit assessors who actually call you?

Revolutionary.

If we have any questions in regards to your home loan application we will sort it out directly with you. Our credit assessor will call you, and you can talk to the person making the decision – it’s something no other bank does.

That means you’re in a better position to explain any issues or problems to your clients.

To find out more, call your Relationship Manager.

Commonwealth Bank of Australia ABN 48 123 123 124. CBACM2009_B

NEWS MARKETS

Rate chaos good for brokers: FBAA Mortgage brokers and non-bank lenders alike can benefit from the impact of recent interest rate rises, according to FBAA president Peter White. He argued that there are enormous opportunities for brokers at this time.

“People have to be a bit smarter than the average bear in this environment,” he said.

“Still, it’s an enormous opportunity for refinance. It is a golden opportunity for brokers to get back on the wagon if they’ve been doing it a little bit tough.”

White added that brokers should consider non-bank lenders during this period, and that the sector could well see a resurgence off the back of anti-bank sentiment.

“The non-banking sector needs to step up to the plate, and have its voice heard,” he added.

“That entire sector is driven by consumer need and demand: that’s more so than ever today.”

Mutuals to compete with banks Credit unions and building societies (CUBS) are ramping up their efforts to compete with the major banks in the home loan market. Abacus, the peak industry body for mutuals, launched an $8m ad campaign aimed at disgruntled bank customers.

The campaign coincides with pressure from Treasury to impose measures that will increase competition in the banking sector and follows the launch of new rules through ASIC that are intended to minimise bank exit fees.

Treasurer Wayne Swan has indicated he believes the mutual sector is in a strong position to compete.

“I encourage Australians to have a good look at the competitive mortgage deals offered by many credit unions and building societies, which are often much cheaper than the big banks,” he said.

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Brokers should tap savvy Gen Ys

77% percentage of people buying their first property before they are 30.

Source: Club Financial Services

Australians are becoming financially savvy at a younger age, according to Club Financial Services. A recent survey conducted by the mortgage broking franchise, primarily of current mortgage borrowers, found that 77% of over 300 respondents had purchased their first home before they were aged 30.

Club Financial Services general manager Andrew Clouston said while many younger people may struggle to save as they meet bond, rent and general living expenses, it was also common for people in their 20s to still be living at home.

“With few outgoing costs they often have quite a high disposable income, making it the ideal time to get a foot up on the property ladder, and our survey results show that many are doing just that,” he said.

Clouston said recent data from the Australian Bureau of Statistics and RP Data also showed employment opportunities were the biggest driver for areas where borrowers choose to purchase a home, rather than being guided by where houses were the most affordable.

As well as purchasing homes at a younger age, the Club survey found borrowers have gained early investment confidence, with 35% of respondents aged 18-29 and 44% of all respondents under 40 indicating they had already started an investment portfolio.

NEWS

REVIEW

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NEWS ANALYSIS

Planning for success When PLAN held its NSW/ACT state conference in the Hunter Valley recently, Ben Abbott was there to report exclusively for MPA

“P

lan, lead and succeed” was the mantra for brokers who gathered for PLAN’s NSW/ACT state conference. Although the setting was one of relaxation and reward – the Cypress Lakes Resort in the Hunter Valley – the tone was much more focused, as PLAN members prepared to meet challenging market conditions head-on.

PLAN CEO Ray Hair used his opening remarks to reflect on the difficulties brokers had faced in the market of late, and what opportunities lay ahead. He acknowledged the frustration and angst caused by a confluence of factors – the global financial crisis, commission cuts, funding constraints, credit policy changes and accreditation hurdles. And with NCCP licensing approaching its deadline, Hair also urged brokers to make a quick decision on the licensing path they wished to take, after fully understanding the implications of each model for their individual businesses.

Despite what he termed “misinformation” in the industry in recent times, Hair said there is no right or wrong path for its brokers to take.

“Whatever option brokers choose, PLAN Australia will support all members in their decision,” Hair said. “Compliance is a daunting proposition and while some brokers will have the time and resources to ensure that they meet the new legislation as an ACL, there will be others who will choose to operate as a credit representative.”

While Hair said the decision was up to individual brokers, he was upbeat about PLAN’s licensing support model offered through Advantedge. “Fortunately for those who opt for

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PLAN Australia NSW/ACT “Hall of Fame” Nara Nimalan

Gajamuhan (NSW)

Graeme Latta

Road Transport Finance (NSW)

Ian Richardson

ICR Financial Services (NSW)

Alan Hicking

Road Transport Finance (NSW)

Chris Gialamas

CCG Finance (NSW)

Michael Sechos

1932 Financial Services (NSW)

Keith McLaren

ProMortgage (ACT)

the credit representative model, as the ACL holder we can take care of the vast bulk of compliance on the broker’s behalf. This will leave them free to deal with their core business issues and invest their time in capitalising on the numerous opportunities the new era in broking offers,” he explained.

With PLAN now backed by NAB, much of the conference was spent looking at ongoing developments at Advantedge, with a range of measures set to be launched in coming months to improve the service offering for PLAN, Choice and FAST brokers. Stephen Moore, Advantedge Financial Solutions general manager, detailed the group’s new trail book buy/sell facility (which will create a guaranteed market and valuation model for broker trail books) a new debt insurance product, and an integrated, businesswide IT platform.

With Ray Hair indicating PLAN was going back on the recruitment trail following expectations 20% of its brokers will exit the industry during the transition to licensing, the group also took the opportunity to recognise the aggregator’s long-term performers. A new “Hall of Fame” now recognises those brokers who have been with the group for more than 10 years, with 47 brokers inducted from across the country, seven who are from NSW/ACT (see box).

NEWS

ANALYSIS

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NEWS ANALYSIS

From bad to worse The UK mortgage intermediary market currently feels like a dentist’s waiting room – full of anxiety and the fear of pain to come. Christina Jordan reports

U

K mortgage brokers have well and truly been through the wringer over the past two years, with plummeting volumes and increasingly strained relationships with lenders making it tough for many to survive. Many intermediaries feel under-valued, under fire and over-regulated.

And it doesn’t look set to get much better in 2011.

The Mortgage Market Review Industries and their regulators are never happy bedfellows, but the Financial Services Authority (FSA) gets more than its quota of criticism from the mortgage market. The organisation is actually going to be scrapped by the coalition Government and more power given to the Bank of England but, as it limps out of action, the FSA’s parting shot is its much-feared ‘Mortgage Market Review’ (MMR).

This mammoth shake-up of the mortgage market aims to increase transparency and protect consumers, and a tightening of rules was inevitable following the mortgage meltdown of 2008. But the regulator has been accused of

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using a sledgehammer to crack a nut, and it is brokers who are on the sharp end of many of the changes, which also affect lenders and consumers.

The key proposals include the requirement for income to be proved in all mortgage cases, effectively scrapping not only self-certification mortgages (which market conditions have rendered obsolete anyway), but also the fasttracking system that many lenders employ on low loan-to-value cases. The result will be longer turnarounds and increased processing costs.

Lenders could be forced to take on responsibility for affordability of the mortgage, effectively taking away the onus from borrowers. They will also have to calculate affordability on a repayment basis, even if the borrower is taking an interest-only mortgage, and over 25 years even if the actual term is longer.

The end result of most of the changes will be even more cautious lending criteria and therefore much lower volumes – all bad news for brokers.

NEWS

ANALYSIS

The Council of Mortgage Lenders (CML) reckons that if all the ‘Mortgage Market Review’ proposals had been in place between August 2009-August 2010, some 260,000 out of 567,000 loans advanced may not have been granted on their current terms. In other words, in a market where volumes are already low (gross lending by value in 2009 was over 60% down on the 2007 peak), the MMR will further slash the number of people who are able to qualify for a home loan.

Clearly business is not going to be sustainable for many mortgage brokers if these proposals become reality.

Interest rates remain low To add to the general malaise, the base rate was maintained again in November, the 20th month that it has been at its record low of 0.5%. The rate freeze is great news for existing borrowers, but not so good for brokers desperate for a resurgent remortgage market to be kick-started by a rate rise. With remortgaging having fallen

to a 10-year low, according to the CML, borrowers need a strong incentive to be cajoled into switching away from their lender’s reversionary rate – and a rate rise would be a good spark.

Since switching business has been in the doldrums, brokers have been reliant on purchasers for business. However, the impact of the recent Government Spending Review has yet to be felt and, with half a million public sector job cuts on the cards, (plus the equivalent expected in the private sector), it’s likely to have a negative effect on mortgage lending.

There will not be too many brave buyers ready to commit to a property purchase in 2011 – and those with the desire could well be frustrated by the tighter lending criteria imposed as a result of the FSA’s stringent new rules. None of which is likely to ease the anxiety of UK mortgage brokers trying to work out where exactly business is going to come from next year. MPA

Christina Jordan

Bio Christina Jordan is a Manchester-based personal finance journalist who has been covering mortgages for 10 years. She has written for a range of UK titles including Mortgage Solutions, Your Mortgage and LoveMoney.

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FEATURE

BUSINESS LENDING

W

hen the Commonwealth Bank almost doubled its rates above the RBA’s in November, it sparked political anger which regional banks and smaller lenders hoped would strengthen their bid to the Gillard government for an extension to the securitisation program.

At the time of writing, Treasurer Wayne Swan hinted he was looking at reforms that would boost competition in the home loan industry, giving borrowers greater ability to “walk” when banks lifted interest rates well above the Reserve Bank.

Competition remains somewhat of a political football for the government, as the Shadow Treasurer Joe Hockey has called for regulatory reform of the banking industry while Swan has backed a more moderate approach – with both sides using the high-profile issue to trade barbs.

Many, such as industry expert and Home Loan Hints founder Paul Ryan, say it’s time the government stopped “using interest rates for political points-scoring” and took real action in developing initiatives for consumers to benefit from a healthy home loan market.

“If the parliament is fair dinkum in its appraisal of interest rates, sending out warnings to the banks and being an advocate for the people, then they need to provide guarantees in opening up the securitisation markets,” Ryan says.

“The government can play a major role in keeping the banks honest by creating a vehicle to open up the securitisation market and provide guarantees so that the non-banks, credit unions and building societies can access cheaper funding, and pass the benefits on to consumers in the form of lower interest rates,” he says.

Ryan isn’t the only individual calling for action.

With the Australian Office of Financial Management’s (AOFM) $16bn residential mortgage-backed securities (RMBS) program set to expire at the end of 2010, many are looking to the government to provide ongoing support.

But is a third extension to the AOFM program the answer to Australia’s securitisation market needs? Or should the government be looking at establishing something more permanent if we are to enjoy the kind of healthy competition the nation needs to keep the four big banks in check?

A secure future?

How it all began Securitisation – the process of converting assets such as residential mortgages into tradeable securities – has quickly evolved in Australia since the mid-1990s. In the last 15 years, the outstanding assets and liabilities of securitisation vehicles have increased from about $10bn in March 1995 to around $280bn of securities on issue in June 2007 – just as the GFC made its presence felt.

Residential mortgage-backed securities have made up the majority of Australian asset-backed securities – accounting for more than 60% of the stock outstanding.

The growth is partly a reflection of the altered landscape of Australia’s mortgage market.

Specialist mortgage originators, who rely solely on securitisation for all their loans, quickly doubled their share of housing lending between 1995 and 2004. Until the GFC, mortgage originators accounted for 35% of RMBS issuance.

Securitisation also became an attractive

As the clock winds down on the AOFM’s $16bn RMBS program, smaller lenders are keen for a third extension. But does the securitisation market need a band-aid fix or a more permanent solution? Andrea Cornish investigates

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FEATURE

BUSINESS LENDING

financing vehicle for traditional lenders – with some securitising about a quarter of their gross housing lending, while regional banks securitised about one-third. The big banks funded about 10% of their new housing loans through RMBS. Leading up to the global economic crisis, demand from domestic and non-resident investors for RMBS was very strong – as evidenced by the decline in spreads to swap on AAA-rated prime RMBS from around 40bps in 2000 to less than 20bps in mid-2007.

But as delinquencies rose in the US sub-prime market, investors in US RMBS suffered huge losses. Unfortunately, the Australian RMBS market endured brand damage despite not having the same problems as the US market – and issuance of RMBS dried up here too.

To stop the securitisation market from coming to a grinding halt, the government launched a support program through the AOFM in 2008.

The AOFM’s initial strategy was to support competition in mortgage lending. It also emphasised that the program would be temporary and it would aim to meet objectives without “leaving a legacy in the market”.

In October 2008, the government announced it would supply $8bn in funding through the AOFM to act as a cornerstone investor in the RMBS market. The effect was immediate. By 21 November, non-bank lender FirstMac issued and settled its FirstMac Mortgage Funding Trust Series, followed shortly after by ME Bank’s SMHL Securitisation Fund issue, Challenger’s Millenium Series and Resimac’s Premier Series, which were all settled in December.

Several other issues from lenders such as CUA, Bendigo and Adelaide Bank, AMP, Bank of Queensland and Liberty followed in 2009. The success of the program convinced the government to top up the AOFM program with another $8bn in late 2009.

“ The government can play a major role in keeping the banks honest by opening up securisation ”

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FEATURE

BUSINESS LENDING

In the last year, the AOFM purchased about one-quarter of RMBS issuance and its holdings now represent about 15% of the domestic market.

As of September 2010, deals supported by the AOFM span 35 issues, 16 lenders, $23.1bn of total RMBS issuance supported, and AOFM investments of $11bn.

Since the government made its first investment, the securitisation market has vastly improved – both Bank of Queensland and ME Bank recently issued their own RMBS in excess of $1bn.

Demand from private investors has also noticeably increased. Initial AOFM investments accounted for around 80% of the investor base, while more recent issues have seen the AOFM’s participation decrease to about 40%.

Spreads have narrowed to around 130 to 135bps over swap – clearly better than the RBA’s estimate of a break-even point at 160bps over swap.

The nuts and bolts of securitisation The process of securitisation is as follows: The loan originator sells a portfolio of loans to a Special Purpose Vehicle (SPV). The SPV raises funds to purchase the loans by issuing debt securities (bonds or commercial paper) to investors. The cash flow from the loans is used to meet the principal and interest repayments on the securities. While banks and other ADIs typically fund the initial loans from their balance sheet, mortgage originators usually find interim funding for the loans from other financial institutions.

All of this is largely behind the scenes, as most borrowers wouldn’t realise their loan was securitised and would continue to have it serviced by the originator.

Investors

Manager

Trustee

Credit enhancement

Subscription proceedings

ABS security

liquidity

Servicer

What the future holds Swan stated in October that the existing investment program “had been very important to boost lending from smaller lenders, from credit unions and smaller banks”.

“One of the sad consequences of the global financial crisis is that it did restrict competition in the banking sector; it strengthened the Big Four,” says Swan. “So we’ve been making investments in residential mortgage-backed securities to give the smaller lenders a hand.”

There is no question the government’s investment in RMBS has made an impact. But despite better conditions, many lenders are not ready to be left on their own without the AOFM. The Australian Securitisation Forum, a group of participants in the securitisation market, has stated there needs to be further support.

FirstMac’s managing director Kim Cannon has also urged the government to do more to assist non-bank lenders.

“The AOFM’s investment in RMBS is meant to be a temporary solution, but it’s still absolutely necessary,” says Cannon.

He adds the Canadian model, which offers permanent support to securitisation, should be considered here.

The Australian Bankers’ Association (ABA) is also a fan of the Canadian system.

“The Canadian model warrants investigation.

We’d support measures to revitalise securitisation markets,” says Steven Munchenberg, CEO of the

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SPV

Derivative products

Rating Agencies

Security trustee

Dealers

“ The AOFM’s investment in RMBS is meant to be a temporary solution, but it’s still absolutely necessary ”

Purchase consideration

Sale of assets

Other facilities

Originators

ABA. “But we need to be careful about intervention in the market.”

In the Canadian scheme, investors purchase housing bonds backed by a sovereign guarantee, and the individual mortgages are insured, which helps mitigate the overall risk.

Meanwhile, Wizard founder Mark Bouris has indicated that government sponsorship of RMBS is not enough to revive securitisation.

Instead of providing cash, he suggests the government should offer a pledge “like a buyer of last resort” to lure investors back to the market.

Another suggestion is to use credit union balance sheets for lending.

The government’s deposit guarantee, in which taxpayers underwrite bank balances of up to $1m, will remain in place until October 2011. Bouris says that upon expiration, the government could extend the guarantee to secondary lenders. MPA

FEATURE

BUSINESS LENDING

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REPORT

NON-BANKS ON BROKERS

Points of view

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REPORT

NON-BANKS ON BROKERS

M

PA’s annual surveys on major and secondtier lenders are recognised in the industry as one of the most important barometers of broker mood available, with many banks and non-banks using the surveys as a key performance indicator.

Being completely independent, brokers have the opportunity to be completely frank in a way that they often aren’t with lender-backed polls – and the results always make for educational reading.

This year’s ‘Brokers on Non-Banks’ survey was no exception, with brokers voting in their droves to rank second-tier lenders on service, product, rates and in seven other categories. The post-GFC recovery of the smaller lending institutions was plain to see, with up to 50 non-banks nominated in some sections. Many non-banks seem to be outperforming their larger counterparts too, with 88% of respondents claiming the service offered by second-tier lenders is superior to that available from the majors.

Despite the huge variety of non-banks voted on across the different categories, a handful of lenders dominated the podium places. Australian First Mortgage (AFM) triumphed in seven categories to romp home in first place overall, ahead of Homeloans Ltd in second position and Liberty Financial in third. National Finance Club was highly commended by our respondents, finishing just outside of the medals.

Australian First Mortgage AFM stole the show this year, topping numerous categories and performing strongly in others.

Managing director Tanya White says the nonbank was “overwhelmed” by the findings and claims they are the reward for its approach.

“Every AFM staff member, from administration to senior manager, is committed to the quest of providing brokers with higher standards when it comes to home loans,” she says. “We strive hard

to ensure brokers are provided with the support, products and tools to ensure they effectively meet the needs of their clients.”

One of the many categories AFM held all the aces in was the transparency of its commission structure. White says clarity is integral to its business. “We operate on a simple philosophy of the path of least resistance and keeping things simple,” she explains. “Dealing with AFM means brokers don’t need to take a punt or guess the answer. We provide easy-to-read information sheets, online access to all our lending tools, direct access to sales and credit teams and, most importantly, we understand brokers.”

White adds that providing simple solutions when too many options are available, and the absence of channel conflict that sometimes exists when dealing with the banks, are further strings to AFM’s bow. In light of the recent remuneration alterations by some of the majors, White says the offering of stable, competitive commissions paid on time without clawbacks offers brokers further reassurance that AFM is working in their best interests.

As well as being satisfied with AFM’s own performance, White believes the re-emergence of the non-bank sector over the last 12 months is helping re-establish its value proposition to the Australian community of home borrowers. “The diversity of products, competitive pricing and personalised service offered by non-banks is a refreshing change from the faceless dealings consumers receive from some lending institutions,” she suggests. “Borrowers electing to deal with brokers have the added advantage of exploring all lending options including non-banks, while having a contact point and someone to lean on during the loan process. In turn, brokers find the support of non-banks efficient and the product offerings competitive.”

“ Brokers find the support of non-banks efficient and the product offerings competitive. ”

Last month we published the results of our ‘Brokers on Non-Banks’ survey and intermediaries were quick to praise the efforts of second-tier lenders.

This month, MPA interviews the non-banks who occupied the top four positions, to see what they made of the fulsome feedback BROKERNEWS.COM.AU

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REPORT

NON-BANKS ON BROKERS

Homeloans Ltd Homeloans Ltd secured second place in our non-bank rankings by topping two individual categories alongside a smattering of other top-three ratings. Tony Carn, general manager of third party distribution, says the non-bank is pleased with the results but is always striving to improve. “While service and support are very important, the MPA survey has reaffirmed and highlighted some areas where we can do better,” he admits. “We have already identified many opportunities and look forward to delivering some exciting service initiatives in the year ahead, at both a broker and customer level.”

The non-bank is already in the process of implementing a range of projects to enhance its profile nationwide, a timely scheme given the feedback of many of our respondents this year.

One of the key criticisms brokers had was that customer perception of second-tier lenders was poor as they had never heard of many of them, preferring to stick with the tried and trusted majors. Homeloans Ltd’s own research revealed that 33% of brokers find it difficult to recommend a home loan provider to a client not familiar with the lender, and 30% say that a recognised and reputable brand is important. To this end, Homeloans’ has increased its presence on social media sites, launched a monthly e-newsletter, expanded its advertising online and on TV and engaged two brand ambassadors – AFL star Matthew Pavlich and former NRL legend Shane Webcke.

The non-bank came up trumps in three different categories – broker support, product range and internet platform. Carn is justifiably pleased with all three accolades, but particularly the first one. “Homeloans’ sales, processing and credit teams all work together, so we are all very proud of the broker support ranking,” he says.

“Most banks operate these different functions from separate locations, often with barriers of communication between them. All our team members work from the same location in each state and work together to achieve a positive experience.”

Carn adds that the internet category coup was a result of heavy outlay in a functional customer platform, to create a better experience than when

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“ “Brokers are looking for a whole range of things including service - from a lender, it’s not just about the deal ”

borrowers deal with banks. “Our investment in an electronic application platform also demonstrates our commitment and ability to make serious investments in infrastructure and thus be a long-term alternative,” he says.

Carn says Homeloans is also unlikely to follow the majors down the path of complicated commission structures or moving interest rates out of line with the RBA cycle. “We believe in competitive commissions, but with a simple constitution which allows brokers to know upfront what they will receive, the ability to receive trail in year one and to protect their business from unforeseen clawbacks,” he explains.

“We have also worked hard to not only deliver competitive interest rates, but at sustainable levels that ensure the profitability of our business and broker businesses alike. It is difficult to understand how some lenders continue to process new loans at a discounted level knowing they will need to increase the rate to the customer in the near future.”

Liberty Financial Liberty Financial completed our top trio this year and group sales manager John Mohnacheff says the non-bank was “thrilled to receive the recognition”. “We pride ourselves on going the extra mile for our business partners and customers,” he adds. “It’s terrific to receive credit from the people at the coalface.”

The lender was voted as the non-bank with the best BDM support, as well as sharing the accolade for best internet platform. It performed strongly across the board, landing a clutch of second and third places too. “Over the past years, we’ve expanded our products and refined our service to appeal to a wider customer set than ever before,” explains Mohnacheff. “We plan to continue this innovation as well as our longstanding partnership with the mortgage-broking industry.”

One of the constant themes of the respondent feedback in this year’s survey was that non-banks are bringing the fight to the majors and changing consumer perception as they go. “The survey highlights the vital competition that non-banks are providing as an alternative to the banks,”

REPORT

NON-BANKS ON BROKERS

stresses Mohnacheff. “While the banks do hold the majority share of Australia’s mortgage market, non-banks are building a reputation for better service. Some of our own home-owner research showed that while 80% of customers polled had their home loans with banks, the vast majority believed that non-bank lenders provided lower costs and better service. Given recent developments, it seems that a non-bank resurgence is imminent.”

National Finance Club National Finance Club (NFC) may not have scored an individual category win, but it was highly commended by virtue of finishing third in eight of the 10 sections. Managing director Andrew Clouston says that the results of the survey make it pretty apparent that intermediaries like dealing with non-banks.

“Brokers are looking for a whole range of things - including service - from a lender, it’s not just about the deal,” he reasons. “They value the ability to have a conversation with the person processing the application.”

Clouston admits that non-banks suffered during the GFC as borrowers fled to the apparent safety and security provided by the major lenders, but says there is now a shift in sentiment towards the smaller players. “It is a simple process of educating consumers and making sure we are more ‘front-of-mind’ to them,” he remarks.

“Sometimes brokers have barriers in their own minds, so it’s all about how we present ourselves to them. We have made a concerted effort to be more visible in the press and enhance our profile through small adjustments, such as making our point of sale documentation look more professional.”

Time is often of the essence when it comes to mortgage applications and Clouston says NFC does everything it can to help advisers be efficient. “For brokers, a large part of their job is meeting and managing the expectations of their clients and we try and give them a set time for when they will have an answer,” he says. “We’ve been happy with our products and pricing for a while now, we just have to ensure we continue to give brokers the personal service they expect from a non-bank.” MPA

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COLUMN

A DAY IN THE LIFE OF...

A day in the life of…

John Flavell, general manager of broker distribution for NAB, talks early flights, risk-based pricing and NCCP requirements

0830h

I arrive at the state offices and join the weekly forum with the local distribution team. They’re discussing how we can more effectively get the message out to brokers around our trail commission ramping up to 30bps.

discussions earlier in the day I give them some guidance on communicating the details of our ramped trail structure to the market, now that we’re paying 30bps trail on eligible broker/ customer relationships. We spend time going through our sponsorship calendar for the next quarter. We like to work with our aggregator partners to support their events where we can with monetary assistance but equally we like to provide access to information and speakers within the NAB group.

1000h

1530h

0530h

Another early trip to the airport; this time I’m off to Melbourne.

John Flavell

“ Managing operational and credit risk sounds pretty dry, but it is essential for the health of our business ”

I jump in the car with one of our senior relationship managers and head out to a broker’s office. The other week I met with the principal of one of the larger national franchise networks at their office in Sydney. Among other things, we had a discussion in relation to the fact find that he and his team now complete as part of their obligations under responsible lending guidelines. We talked about the extra time it takes him to complete the fact find and the additional information they gather as part of the process.

1130h

On the way back to the state office, I catch up with the senior relationship manager. We discuss what they’re focusing on, where they see the major opportunities and challenges and importantly what is going on for them.

1230h

Get on a video conference and hook up to the monthly risk committee meeting which I chair for our business. Managing operational and credit risk sounds pretty dry, but it is essential for the health of our business. Having a reliable and secure operational environment ensures that we meet our regulatory obligations and can deliver consistency to our business partners. Managing credit risk contributes significantly to the economics of our business and in turn, that of our broker partners.

1430h

Meet with the marketing and communications team to review some of the tactical campaigns that we have for next quarter. From

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More than a little weary of internal meetings, it is time to engage with the real world again. I meet with one of the heads of our key aggregator business partners. NCCP is going to be a big part of these meetings for a while. At the moment our discussions are focused around meeting the operational and administrative requirements of all parties – lenders, brokers, aggregators and licensees alike.

1730

Time to squeeze in a quick run, so it’s a couple of loops of ‘The Tan’ in the Botanic Gardens.

1900

Off to a Broker Boardroom Dinner. We try to do as many of these as we can throughout the year. I do at least two a week, hence the need for the running. At these sessions, we get together our state manager and members of the distribution team and we will invite along the state manager of an aggregator group, a number of their BDMs and some of their brokers, and give them some insight into what they can expect from us over the next 12 months and beyond. We implore participants to ask questions and give feedback. Some of the very best changes and initiatives have come from these forums such as enabling four-star brokers to order valuations online upfront, our price-for-risk offering and simplification of our credit policy and check lists.

2200

Endeavour to remember my room number, pretend to read something but quite effete, sleep.

FEATURE SPONSORSHIP

As small business owners, brokers are constan tly approached to be sponsors of local sporting teams and events. MPA looks at how you can make the most from these arrangements and how to incorporate them into your overall marketing strateg y

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SPONSORSHIP

W

hen the clock ran down in the 2010 AFL Grand Final, the Collingwood players hugged in jubilation. Looking at the huddle from behind it was a sea of black, save for one thing – the large rectangular Aussie logo that underlined the players’ numbers.

For a company to be linked with the excitement and enthusiasm that accompanies those rare sporting moments is a marketer’s dream. While not every company will be able to tie their brand with a team or event of that magnitude, it is possible to gain some benefits through sponsorship.

MPA examines the pros and cons of sponsorship, what you can do maximise your marketing spend in this area, and where it fits in your overall marketing strategy.

Where to start OK – so you’re not an Aussie, ING Direct or any of the other big players out there with a massive marketing budget, and you may be asking yourself if a sponsorship deal fits in with your meagre marketing budget.

The answer depends on what you’re after, where you’re located and how you use it.

Roger James, chair of the Australian Marketing Institute, admits making sponsorship an effective part of your overall marketing plan can be difficult.

He says that while people assume having their name associated with feel-good activities is a natural win for their business, warm feelings don’t automatically drive more customers through your door.

Sponsoring a team or event just because you like that activity should not be your prime motivation. According to James, sponsorships should be part of a broker’s total marketing plan, with the end goal to create links between your advertising, brand building and the sponsored activity.

Before you commit yourself, brokers should identify their target customers.

“ Sponsoring a team or event just because you like that activity should not be your prime motivation ”

Team efforts Case study: Wendy Higgins, mortgage broker Mortgage Choice broker Wendy Higgins is one of the highest earning brokers in the country, and a big advocate of team sponsorship.

Higgins, who took the top spot in MPA’s Top 100 Brokers list for the second year running in 2010, settled more than $141m in home loans last financial year. Her achievements were also acknowledged at the Australian Mortgage Awards.

A major part of her marketing program is spent on sponsorship. Higgins annually contributes between $70,000 and $80,000 to sporting clubs in the Glenelg/Adelaide area. In addition to branding team clothing and gear with her business name, the sponsorship agreement includes mandatory investment seminars for club committees and parent groups.

“It’s just to get the clubs familiar with what we do, or get the committee in and tell them what we do. It’s easy to assume that people know what we do, but in reality they don’t. Once the committee comes in and they can see how professional and caring we are, they refer people to us. We have a great relationship with most of the clubs in our area.”

Higgins’ marketing manager is responsible for looking after the sporting club arrangements, as well as distributing literature at the clubs and organising events such as ladies’ lunches and seminars.

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FEATURE SPONSORSHIP

Targeted sponsorship Case study: Christopher Brown, mortgage broker Brisbane mortgage broker Christopher Brown has successfully used sponsorship to build his brand and his business by focusing his efforts on target groups.

The Loan Market elite broker established his business in Australia in 2003 after moving from the UK, where he had previously been a mortgage broker since 1992. He currently has a database of 2,000 clients and has written close to half a billion dollars in loans since he’s been in Australia.

While the majority of clients come by way of referral, sponsorship still plays a role in terms of marketing his business. Brown has sponsored the Rochedale Rovers Football Club for two years and contributes annually to the Police service diary.

Brown chose to sponsor the football club because of his son’s involvement with the team. For the cost of $1,000, his business name and number were printed on the football jerseys. The benefits have been increased exposure for the business and a show of support for the community. It has also resulted in one customer.

“It wasn’t a great marketing coup, but I never expected it to be,” he adds.

Brown has seen greater return from his annual investment in the Police Commissioner’s diary. In return for his support, Brown receives a large ad in the diary. As the only mortgage broker in there, Brown says his business has attracted a lot of attention. As a result, he has had several members of the Police service approach his business and the word of mouth from those clients has been quite good – extending to other associated professionals such as ambulance drivers and paramedics.

Brown says his business is constantly approached for sponsorship opportunities and he is considering putting more money into this area of marketing, but would like to work out a way to get more back from his outlay.

“Instead of just giving clubs or organisations some money, we thought about holding information seminars and offering them a kickback from every new loan the business writes.”

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“People in the finance market have to look at their market,” James says. “Are your potential customers going to be exposed to your brand – are you going to reach your audience?”

For example, if you want to position yourself as a broker for first-time buyers and upgraders, then sponsoring a local youth league team might be a valuable way to reach young mums and dads that are looking to jump onto the property ladder or move into a bigger place. However, if you’re after high-net worth individuals or investors, then perhaps you would be better off aligning your brand with an event, such as an art show or an elite private school function.

Sponsorship of events and sports teams might also be more beneficial to brokers in regional areas.

“When you’re in a regional area, you have a captive market,” James explains.

But brokers in bigger centres can have a greater impact by keeping their sponsorship dollars in their suburb, rather than a bigger city event or high-profile team where their brand is lost among other advertisers.

And before you commit to a sponsorship arrangement, brokers need to ask themselves if the association positively supports their brand.

The team doesn’t have to be a Grand Final winner, but then again you don’t want to be associated with a team that has a bad reputation.

By way of example, Aussie’s John Symond has been very critical of players’ off-field behaviour and pulled its sponsorship of the ARL Blues

FEATURE

SPONSORSHIP

Mixed success Case study: Shire First Mortgages Susanne Massingham, co-director of Shire First Mortgages, has had varied success with her sponsorship arrangements. The brokerage continues to be a sponsor of the Bangor Football Club – an organisation that it has backed for almost four years running – but recently pulled its arrangement with the Gymea Bay Cricket Club after one year.

“I was unhappy with the return on the sponsorship, so we decided to end it,” Massingham explains.

According to Massingham, the difference between the two arrangements was that she was given greater opportunity to become involved with the Bangor Football Club than she was with the cricket organisation.

“As a sponsor, you can’t just throw money out there and expect a return, you have to get involved with the organisation,” she says.

As a sponsor for the Bangor Football Club’s 9A team, Shire First Mortgages is promoted on the club website, in emails and has been given the opportunity to hold information seminars.

And to sweeten the sponsorship deal, Shire First Mortgages offers money back to the club with every new loan it writes for members.

earlier this year. It also ended its sponsorship arrangement with Collingwood after the club signed a deal with Westpac, as AFL rules do not allow two lenders to sponsor the same club.

Bang for your buck There are two objectives to sponsorships – to gain recognition for your brand or business and to bring more customers through the door. While the first can be achieved by having your company logo printed on uniforms or in event programs, actually converting those participants into customers can be more difficult. But by thinking outside of the box, brokers can get more out of their sponsorship arrangements.

Firstly, don’t limit yourself. You can increase your exposure by handing out branded merchandise at games or events, running a half-time contest or offering special deals to club or family members. Offer to hold an information seminar to parents or club members, and instead of giving cash upfront to the organisation, arrange to give them a percentage of every new loan you write. This kind of arrangement directly benefits both your business, as well as the club.

Or if the majority of your business comes via referral, perhaps you can support an organisation by offering clients that refer new customers a couple of free tickets to games or events.

By thinking of some alternative approaches, you can make sponsorship play a part in your overall marketing strategy. But to make your investment worthwhile, you’ll have to put in some effort. MPA

“ The team doesn’t have to be a Grand Final winner, but then again you don’t want to be associated with a team that has a bad reputation. ”

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PROFILE LEADER

Leading lady Ellie Comerford is the new president and CEO of Genworth Australia. Barney McCarthy caught up with her to discuss her appointment

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W

hen high-profile executives move from one company to another, it is common practice for them to be placed on gardening leave.

This has not been the case for Ellie Comerford, although it has not prevented teasing friends and colleagues asking her, acutely aware that her husband is, in fact, a qualified landscape gardener.

Joking aside, Comerford will have no time off between jobs, starting at Genworth Australia as president and chief executive immediately after concluding her term at First American Financial Corporation just before Christmas. She will take over the Genworth reins from acting CEO Paul Caputo, who will move into an expanded role as chief risk officer and senior vice president of capital markets.

Comerford caught Genworth’s eye during her time at First American, where she was chief operating officer for its international division for the past two years, having previously been managing director of its Australian and New Zealand operations since 2002.

During her time with the title and specialty insurance company, Comerford was responsible for a range of operations functions including risk management, audit and corporate compliance, as well as trying to penetrate new markets with unfamiliar products.

Prior to joining First American, Comerford

spent 14 years at Citigroup in roles encompassing sales, marketing, products, business development and strategy.

She began her career at Trans City, a company instrumental in developing the futures market in Australia. This all adds up to more than 25 years spent in financial services and Comerford admits her CV throws up a few coincidences.

“It looks like I have developed a penchant for US companies, but that’s just the way it’s worked out,” she explains. “It’s been a bit of a whirlwind travel-wise, particularly in my last role, so it will be nice to return to my hometown.”

Benefits of licensing Having worked in different markets around the world, Comerford is well versed in operating in regulated arenas and is optimistic about the gains it will bring to the mortgage sector here.

“There will be a transition period while companies obtain the full efficiencies and transparencies that licensing will bring, but after

“ It looks like I have developed a penchant for US companies, but that’s just the way it’s worked out ”

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PROFILE LEADER

“One of our ongoing challenges at Genworth is continuing to develop ways to facilitate borrowers owning their homes” ”

offering the same loan amount and terms to the borrower, with a reduced deposit requirement.

For Australian borrowers, this provides some hope for individuals feeling pessimistic about their chances of owning a home, given the evils of the tail end of the GFC and soaring house prices.

“Australia is now one of the most expensive places to live in the world and Sydney in particular has become one of its priciest cities, certainly in terms of property values,” Comerford observes.

“One of our ongoing challenges at Genworth is continuing to develop ways to facilitate borrowers owning their homes.”

Genworth plays an important role as market analyst through the publication of its homebuyer confidence index which tracks the mood of potential homeowners. Its latest report found that a fifth of borrowers expected some repayment difficulties in the year ahead, with 61% of those citing rising interest rates and an increased cost of living. Only a quarter of those surveyed thought now was a good time to be buying property, down from 50% in the previous index.

Women at the top

that, the true benefits will come into view.

It’s another facet in minimising risk to the Australian market,” says Comerford.

Speaking of risk, Comerford has first-hand experience observing how the GFC has affected different countries. Spending lots of time in the US has enabled her to appreciate how well prepared our market was for the downturn.

“Australia has been relatively unscathed when you see the impact the GFC has had elsewhere,” she says. “Having said that, the Americans prefer to call it the credit crunch – I think GFC sounds too much like KFC to them.”

On a serious note, Comerford believes good, solid lending practices insulated the market here from the worst of the credit squeeze. She also points to the mining industry as another strong fundamental underpinning the local economy.

While the GFC hit many financial institutions hard, it also created opportunities for some to thrive. Genworth Financial’s core business here is the provision of lenders mortgage insurance, a product that helps borrowers who do not have a big deposit to realise their home ownership dreams.

By protecting lenders against loss if borrowers default, banks are able to pass on this credit risk to a mortgage insurer such as Genworth, while

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Comerford is relishing the challenge the Genworth role brings and her appointment makes her one of the few female executives in the financial services sphere, but she believes the tide is turning.

“There has been a progressive change over the last 25 years in terms of diversity and there is now a much more balanced ratio at senior management level,” she says.

“Looking at Genworth, we currently have a female CEO, a female chief commercial officer and a female chief financial officer, representing close to 50% of the senior leadership team.”

Some prominent women in the mortgage industry have been vocal about the need for more females in top jobs, but Comerford is certain this will happen naturally.

“There are many examples of women in our industry who are progressing into senior roles in a range of mortgage-related businesses,” she adds. “Slowly but surely we will see a greater percentage of female CEOs.” Despite being a self-confessed workaholic, Comerford enjoys holidaying with her husband and two teenage sons. She also takes an active interest in her partner’s well-established landscaping business, and if her impressive resume is anything to go by, everything will be rosy in the Genworth garden under her guidance. MPA

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COVER HOT LIST

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COVER HOT LIST The year’s movers and shakers

a

Who: Chris ACRET What: Managing director Where: Smartline

No matter how independently you operate, your daily machinations are being influenced and controlled by a range of important figures. Barney McCarthy profiles the mortgage mandarins in this year’s Hall of Fame

R

ising to the top of one’s profession is something all ambitious workers strive for. And it’s not just a vanity project either – progressing through the ranks to a position of power enables individuals to exert an influence on the industry they operate in and to help shape it. That is what the third annual MPA Hot List is all about: recognising the leaders who help drive our industry forward and ensure it continues to be dynamic and innovative. The rundown is not restricted to any particular segment or group either, with politicians, lenders, brokers and aggregators all sitting alongside one another. The bulk of the list has a familiar feel to it, but there are a number of new faces emerging, while others fall from grace, not least in the corridors of political power.

As with any subjective list, our selections are bound to have you debating with your colleagues about who we missed and whether certain figures merit inclusion, but that is half the fun of collating such inventories. Feel free to contact the editorial desk if you think there are key players who have slipped under our radar. This year we’ve compiled the list in alphabetical order to give it more of an authoritative who’s who feel and to make it easier for you to find the movers and shakers at a glance.

Congratulations to this year’s inductees and read on to see just who is included in our Australian mortgage market A-Z.

Fresh from beating off competition from hundreds of different Australian companies to be named top franchise by the website of the same name, Smartline also received similar recognition at the Australian Mortgage Awards. Never an organisation to stand still, Smartline also partnered with Aon Financial Planning and Protection in 2010 to allow its brokers to offer a risk insurance service to their clients.

b

Who: Lisa BEVAN What: Company secretary Where: AFG Bevan joined AFG 12 years ago as financial controller and became company secretary in 2001. Her remit includes managing AFG’s governance and risk management programs as well as overseeing its legal functions.

Bevan is joined in the senior management team by – among others – general manager of sales and operations Mark Hewitt and managing director Brett McKeon. The whole team has ambitious plans for AFG’s future: AFG Home Loans has long been mooted and 2011 could definitely be when it finally launches to market.

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COVER HOT LIST

Who: Huw BOUGH What: General manager broker distribution Where: Westpac

Who: Cameron CLYNE What: CEO Where: NAB

Westpac enjoyed another year of solid success in 2010, revealing an 84% increase in net profit to $6.3bn. The lender scored well among Australia’s top-performing brokers in MPA’s annual Brokers on Banks survey. In 2011, enhancing Westpac’s reputation among ‘everyman’ brokers wouldn’t go amiss, which falls under Bough’s remit.

Clyne and NAB secured a collector’s item in 2010 – praise from a politician.

Following ASIC’s consultation paper on “unconscionable and unfair exit fees”, former Financial Services minister Chris Bowen (now Immigration minister) lauded NAB for supporting the new regulations. On the acquisition front, NAB was again linked with a move for RBS branches in the UK to extend its operations in the British market, and was denied the purchase of AXA’s Australian assets by an ACCC ruling. Clyne may be on the lookout for ways to bolster NAB’s ranks in 2011.

c

Who: David CAMERON What: Prime minister Where: UK Inheriting a nation in turmoil, having been ravaged by the GFC, one of Cameron’s first moves as PM was to abolish financial services regulator the FSA and hand over more power to the Bank of England. With the FSA having overseen mortgage licensing for six years, Australian commentators will be keen observers of the changes such a power shift will have, as we prepare ourselves for regulation of our own.

Who: Kim CANNON What: Managing director Where: FirstMac FirstMac’s Cannon is never known to pull any punches, which is pretty apt considering the lender’s boxing-themed marketing material. He is usually most vocal on mortgage-backed securities, often calling on the AOFM to consider supporting foreign currency transactions to help European investments flow into our highlyrespected market.

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Who: Ellie COMERFORD What: President and CEO Where: Genworth An inductee on our list is this newly appointed CEO. She joins the LMI specialist from First American Financial Corporation, a global title insurance company, where she spent eight years.

She is well positioned to help steer Genworth through the next phase of its growth. (See our in-depth profile of Comerford on page 28).

Who: Kathy CUMMINGS What: Exec general manager 3rd party banking Where: CBA You would have to be living under a rock to not be familiar with the musings of CBA’s broker head Kathy Cummings. Whether it’s championing the cause of diversity in the workplace or underlining CBA’s commitment to intermediaries, Cummings is omnipotent. Her employers reaffirmed their dedication to brokers in 2010 by offering them enhanced accessibility to contract printing, and also continued its analytical studies with the publication of its economic vital report, Viewpoint. The trend-aware bank has also made life easier for borrowers further along the home-buying chain, with the launch of a hugely successful iPhone app, Property Guide.

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d

Who: Tony D’ALOISIO What: Chairman Where: Australian Securities & Investments Commission (ASIC) All eyes will be on D’Aloisio and his cohorts this year as ASIC takes control of licensing and regulating the mortgage broking market. While the commission is not expected to bare its teeth straight away as intermediaries adjust to the new regime, it may turn up the heat towards the end of 2011. Brokers will be hoping for clearer communication from the regulator going forward.

Who: Garry DRISCOLL What: CEO Where: Mortgage Ezy Mortgage Ezy went great guns in 2010, continuing its attempts to wean borrowers and brokers off the majors with its uQuit marketing campaign and attempting to ‘dislodge the fence-sitters’ with the launch of a fee-free loan.

The mortgage manager also acquired Great Pacific Finance in May. It would take a brave man to bet against Mortgage Ezy continuing along the expansion path in 2011.

e

Who: Rod EDGE What: Executive director, learning and professional development Where: MFAA With professionalism one of the buzzwords surrounding licensing, brokers will have to ensure they (and their staff) are adequately

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trained to operate under the new regime. Towards the end of 2010 the MFAA settled on six preferred education and training providers, with Hot List inductee Edge unveiling the panel. His role is as a ‘headmaster’ for professional standards. So expect ‘detention’ for any brokers who come up with poor grades!

f

Who: Gerald FOLEY What: Managing director Where: National Mortgage Brokers Foley is one of the keenest advocates of brokers supporting second-tier lenders around. As a former president of the MFAA, and having worked on both sides of the fence, he is more aware than most what makes for a healthy industry.

National Mortgage Brokers launched nMB Direct early in 2010, which is a suite of badged products.

Who: Iain FORBES What: Director of sales and marketing Where: Australian First Mortgage (AFM) In the seven years since its inception, AFM has made great waves in the mortgage market, keeping its rates keen and its low-doc offerings.

Intermediaries think highly of AFM too, voting it second-tier lender of the year in MPA’s annual Brokers on Non-Banks survey. Forbes is one of the industry’s most gregarious characters.

Who: Mark FORSYTH What: CEO Where: Firstfolio Firstfolio enjoyed what CEO Mark Forsyth described as a “milestone” financial year in

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2009/2010 and things look to be getting even better. Having swelled revenues to $65.6m and grown its loan portfolio beyond $18bn, Firstfolio carried on down the acquisition trail by snapping up Club Financial Services in September. With the aim of growing its broker ranks to 1,000 and enhancing its organic growth prospects through the launch of its BLOOM model, Forsyth seems to already have 2011 all mapped out.

g

Who: Julia GILLARD What: Prime minister Where: Australia Not many people at the beginning of 2010 could have envisaged the dramatic tussle for power that played out in June, with Gillard ousting thenprime minister Kevin Rudd seemingly overnight.

As the nation came to terms with a leader they hadn’t elected, Gillard was quick to give them a choice – calling an August election. Having scraped into power in the first hung Parliament in 70 years, our first female prime minister has at times struggled to maintain the goodwill of the public. The next 12 months will surely bring sterner tests.

Who: Ian GRAHAM What: CEO Where: QBE LMI LMI continues to account for a healthy percentage of QBE’s overall portfolio mix, increasing to 13% in 2010 from 9% 12 months previously. The insurer is on target to achieve its gross written premiums forecast of close to $4.2bn. As well as helping add to QBE’s bottom line, Graham also plays an important role in shaping Australian property opinion, through the publication of the insurer’s housing outlook reports. With lenders gradually returning to the 95% LVR space towards the end of 2010, the opportunity is there for QBE LMI to continue its project of helping Australians own their homes.

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COVER HOT LIST

h Who: Mark HARON What: Principal Where: Connective

Connective continues to grow at an astonishing rate, with its latest revenue figures of $72.5m representing growth of 79%. Such expansion saw the aggregator ranked 25th in BRW’s Fastest-growing Small Companies of the Year list. Expect Haron to help drive Connective further forward into 2011.

Who: Peter HAYWARD What: Head of broker distribution Where: ING Direct Hayward had an eventful end to 2010, being nabbed from Citibank by Lisa Claes and her team to help boost ING Direct’s broker push in 2011.

ING has ambitious intermediary expansion plans for the next 12 months, hoping to boost mortgage production by 20%. He will have no time to rest on his laurels, as ING landed second spot in MPA’s annual Brokers on Banks survey this year and also topped a bank customer satisfaction survey conducted by Nielsen. Keeping brokers and customers happy while also increasing ING’s mortgage output will be easier said than done.

Who: Wendy HIGGINS What: Franchisee Where: Mortgage Choice There is not much more you can say about Australia’s leading mortgage broker that isn’t already known, and the industry seems to be running out of accolades for her. Higgins added to an already groaning trophy cabinet by being named Franchise’ and ‘Overall Broker of the Year at the Australian Mortgage Awards, as well as finishing in first position in the MPA Top 100 Brokers list for the second year running, by

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settling more than $140m of residential business.

Despite improving her own results by 14% in 2009-10, the competition can take heart from the fact she intends to slow down in 2011 by delegating leads to a newly-hired loan consultant.

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Who: Steve KANE What: Managing director Where: FAST Kane has remained centre-stage in the mortgage industry this year, continuing to be a highly visible presence through his variety of roles. As well as preparing members of FAST for licensing and launching a white-labelled product which instantly commanded an impressive market share, Kane also acts as treasurer for the MFAA and chairs its national brokers committee, representing the best interests of intermediaries across Australia. Kane’s expertise has also been in highly visible via our very own BrokerNews website, through his attendance at a number of our lively and exclusive panel discussions.

Who: Gail KELLY What: CEO Where: Westpac Kelly continued her impressive rise up Forbes’ annual list of the world’s most powerful women this year, jumping 10 places to 8th.

Kelly is joined in the top 10

by US First Lady Michelle Obama, German chancellor Angela Merkel and pop star Lady Gaga. It’s no wonder UK investors threw Kelly’s name into the ring when the top job came up at Lloyds Banking Group in 2010. If she continues her meteoric rise, Westpac will be hard-pressed keeping hold of her.

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m Who: John MOHNACHEFF What: Group sales manager Where: Liberty Financial

Liberty Financial continued to compete with the big banks in 2010 and got flattering feedback in MPA’s Brokers on Non-Banks report. It also took the first steps in a strategic realignment that saw it reposition its offering across the entire credit spectrum with a concerted prime push.

Mohnacheff described the move as an attempt to raise awareness of Liberty as a versatile lender.

Who: John MCGRATH What: Chief executive and founder Where: McGrath Real Estate Operating in the property sphere rather than directly in the mortgage market, McGrath nevertheless remains a highly influential figure, both through the publication of his blog and as the head of one of Australia’s most successful real estate companies. McGrath remains one of the industry’s most listened-to pundits.

Who: Lisa MONTGOMERY What: CEO Where: Resi Home Loans Montgomery was thrust even further into the spotlight in 2010, being named CEO of Resi in August. The move came after the non-bank consolidated leadership of the business as appetite for second-tier lenders returned. Resi soon unveiled plans to increase brand awareness and volume growth. Montgomery didn’t take her foot off the accelerator as a media commentator either, maintaining her high profile in a variety of television, radio and print sources

Who: Steven MUNCHENBERG What: CEO Where: Australian Bankers’ Association Munchenberg’s job is to represent the banking industry’s views when the government determines policy and legislation. This often involves defending huge bank profits to suspicious brokers and the public. Despite the higher costs of funding and other extenuating factors behind the banks’ actions, Munchenberg must feel at times that he has his work cut out for him protecting their image.

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n Who: Phil NAYLOR What: CEO Where: MFAA

Along with the Australian Securities and Investments Commission, Naylor will be very much in the nerve centre as the industry welcomes in licensing. He spoke at length during 2010 about how inevitable it was that the broking community would shrink ahead of the January 2011 deadline, but how a streamlined third party space would benefit those remaining.

Who: Ralph NORRIS What: CEO Where: CBA It’s fair to say Norris became public enemy number one in November after CBA became the first bank to react to the RBA rate rise, hiking its standard variable rates by almost double the increase. The move was blamed on higher funding costs and increased retail deposit competition but angered consumers and brokers alike, coming hot on the heels of a $6.1bn net profit announcement.

Nevertheless, CBA has gone from strength to strength under Norris’ stewardship.

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Who: Barack OBAMA What: President Where: USA Having swept into power in 2008, Obama’s honeymoon period well and truly ended in 2010 during the mid-term elections and as the US economy continues to struggle post-GFC. It was the reckless behaviour of banking and financial

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institutions in the US that plunged us into the global financial crisis, and the US, UK and many European countries are still feeling the pinch.

Who: Damian PERCY What: General manager third party mortgages Where: Bendigo and Adelaide Bank One of the great characters of the mortgage market, Percy again makes our Hot List this year. After helping mastermind the bank’s post-GFC recovery, 2010 saw Percy helping refresh its lending platform and rebrand Adelaide Bank as an intermediary-only brand. The group announced after-tax profits of $242.6m in August and CEO Mike Hirst is bullish about expansion plans going forward, but Percy’s remit is to ensure that this doesn’t occur at the expense of customer service.

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Who: Ian RAKHIT What: Head of specialist banking Where: Bankwest Rakhit’s profile rose in 2010 after a reshuffle saw him add the job of head of broker sales for Bankwest Retail to his role as head of specialist banking.

Rakhit spoke at the time of his new role about how brokers are evolving into wider-ranging advisers and how

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Bankwest intends to support this. The lender also courted high-quality brokers with a commission hike in October and lured customers with the launch of a rate-reducing loan.

Who: Steven RAMAGE What: Director of mortgages Where: Citibank Ramage has always been acutely aware of the challenges facing Citibank as it jostles for broker attention alongside the major banking institutions, but he has always been candid about his organisation’s offering. As some of the larger lenders announced cuts to their commission structures early in spring, Citibank held firm and rolled out a scorecard system that rewards top-performing brokers. (See our in-depth profile page 60).

Who: Michael RUSSELL What: CEO Where: Mortgage Choice Mortgage Choice continued to sit at the top of mortgage brokerages in 2010, thanks in no small part to Michael Russell. He followed the 2009 acquisition of LoanKit by snapping up website HelpMeChoose in 2010, as well as unveiling a partnership with Advantedge. Russell also revealed that Mortgage Choice would eventually move into mortgage management to “increase its number of touch points with consumers”, so keep your eyes peeled for developments in 2011.

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Who: Steve SAMPSON What: Head of lending distribution Where: Provident Capital Provident Capital was another second-tier lender to take advantage of the majors tinkering with their commission structures and imposing clawbacks this year. Provident capitalised on the subsequent broker discontent by increasing its upfront commissions, reminding intermediaries there is life beyond the big banks. Sampson also reaffirmed Provident’s commitment to helping brokers and customers alike through a 48-hour conditional approval cash-back scheme on its premium range and the return of 95% LVR products. Provident will continue to attract intermediary attention if Sampson carries on putting his money where his mouth is.

Who: Graham SAMUEL What: Chairman Where: Australian Competition & Consumer Commission (ACCC) Samuel has chaired the ACCC for more than seven years and will perhaps have been relieved that 2010 presented him with a lighter workload from the banking world than the previous 18 months, when he approved a flurry of mergers including the Westpac/St.George takeover and the NAB acquisition of Challenger. With secondtier lenders looking arguably stronger than they have for a few years, Samuel may not have too many banking takeovers to oversee in 2011, but this depends on how much – if any – consolidation is caused by the new licensing regime.

Who: Bill SHORTEN What: Minister for Financial Services Where: Federal government It was a big year for Bill Shorten, being one of the factional leaders involved in the ousting of Kevin

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Rudd as prime minister. Now Minister for Financial Services and Superannuation in the Gillard government, part of his new brief is to support Wayne Swan as Assistant Treasurer, so expect to hear much more from Shorten in 2011.

Who: Allan SAVINS What: COO Where: RESIMAC Emerging out of a NSW government initiative to help first-home buyers onto the property ladder in the mid1980s, Resimac continues to thrive in its latest guise 25 years later. Having profited from securitisation transactions with the AOFM in the past, the non-bank lender now delivers competitive advantages to its mortgage managers through superior commissions and niche products. The year also saw Savins assist with the launch of Resimac’s retail lending business, Hemisphere Financial Solutions, which should make further inroads in 2011.

Who: Joe SIRIANNI What: President Where: Mortgage & Finance Association of Australia (MFAA) While ASIC will be assuming control of licensing, the MFAA still has a vital role to play in representing the best interests of mortgage brokers. At the forefront of this will be MFAA president and Smartline executive director Joe Sirianni, who has always championed the importance of intermediaries. Now that the regulatory burden has been largely removed from the trade body, it can focus its attentions on its campaign to enhance the professionalism of mortgage brokers, and further improving their reputation in the eyes of consumers.

Who: Michael SMITH What: CEO Where: ANZ Despite making up one quarter of Australia’s famous ‘Big Four’, ANZ remains perhaps the quietest of the quartet when it comes making a song and dance about its broker offering. Nevertheless, ANZ came out on top of

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MPA’s Brokers on Banks survey this year, proving that actions speak louder than words.

While its third party channel proposition remains solid (if unassuming) and overall ANZ profits remain healthy, Smith warned that the global outlook continued to be uncertain. Banks around the world are facing permanently higher costs due to pressures on wholesale funding and international regulation.

Who: Glenn STEVENS What: Governor Where: Reserve Bank of Australia It is no exaggeration to say that much of the country waits with baited breath for Sevens’ monthly cash rate announcements. After a rash of rate rises in autumn, he kept the rate on hold until November’s increase, a move taken because “the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent”. Having helped mastermind Australia’s safe passage through the credit

crunch, Stevens now faces a new challenge – keeping a lid on the economy if the mining boom (mark II) continues apace.

Who: Wayne SWAN What: Treasurer and deputy prime minister Where: Federal government Swan has had a busy 2010 and can expect an even busier 2011. He has been increasingly vocal in his criticism of banks moving their interest rates out of line with RBA cash decisions, although if lender reaction to November’s rate rise is anything to go by, his cries are falling on deaf ears. He will have his work cut out in 2011 to prevent further borrower dissatisfaction with what he say is “arrogant” behaviour by the banks.

Who: John SYMOND What: Founder and executive chairman Where: Aussie Home Loans He may not operate at the mortgage coalface any more, but “Aussie John” still has an important

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role to play in the third party market. He was quick to urge borrowers to refinance after November’s rate rise as he continues to champion the right of all Australians to one day own their own home. Back at the ranch, Aussie’s loan portfolio is now worth over $36bn and the brokerage franchise accounted for almost a quarter of MPA’s Top 100 broker rundown this year.

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Who: Ranjit THAMBYRAJAH What: Managing director Where: Acuity Funding

Another new entrant in our Hot List this year, Thambyrajah earned his place by virtue of being named MPA’s Top Commercial Broker in 2010, settling more than $130m worth of non-residential loans in FY 2009/10. He was joined in the upper echelons of our commercial list by colleague Kim Wilson, confirming that Acuity is a serious player in the space. The commercial market was undeniably tough this year as many lenders pulled back from the sector, so if Thambyrajah can post those sorts of figures in trying conditions, who knows what he can achieve once the sector recovers? Watch this space.

Who: Huy TRUONG What: CEO Where: Australian Life Insurance (ALI) Truong assumed the position of ALI CEO in March after incumbent Tasso Papachatgis stepped down to pursue other executive interests.

The switch came as Yarra Capital, the major shareholder in ALI, increased its level of investment to help the business strengthen its distribution of mortgage protection to brokers.

ALI then signed a deal with life insurance provider Metlife Insurance to sell simplified life insurance products through the mortgage channel. As more intermediaries look to diversify, ALI will have to stay one step ahead.

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Who: Patrick TUTTLE What: MD and CEO Where: Pepper Homeloans This was a rather hectic year for Pepper chief Tuttle. As well as halving deferred establishment fees and tweaking its product suite, Tuttle also had the small matter of a group buy-out and a multi-million dollar portfolio acquisition to contend with. Just days after the non-bank lender was bought by a consortium. After such a hectic 2010, Tuttle would be justified in now wanting a breather, but there will probably be little chance.

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Who: Steve WESTON What: General manager, broker platforms Where: Advantedge Advantedge has had a smooth start to life, having sprung from the NAB/Challenger takeover – and that is in no small part to Weston at the helm. Its three aggregator arms continue to thrive and are well-placed as the market awaits ASIC regulation. In 2010, Weston also scooped the Golden Morgie at the Australian Mortgage Awards, recognising a lifetime of stellar service to the industry he is so passionate about. Brokers are always interested in what Weston has to say.

Who: Peter WHITE What: National president Where: Finance Brokers Association of Australia (FBAA) Like the MFAA, the FBAA is charged with fighting in the corner of brokers as the new licensing era dawns, and no one does this more vehemently than Peter White. Whether it’s taking lenders to task over their clawback arrangements or providing forthright comments on bank profits, White is never backwards in coming forwards and the industry needs someone who can say what the majority are thinking. His opinions will go on attracting headlines.

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Who: Sam WHITE What: Executive chairman Where: Loan Market Group Loan Market intends to follow a strong 2010 performance with an even more robust showing in 2011, if Sam White has anything to do with it.

Having already seen productivity per broker rise from $1m to $1.18m a month, its plans for 2011 include more brokers and increasing diversification. White remains optimistic about the next 12 months, believing the industry reached its nadir in 2010.

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Who: Jeff ZULMAN What: CEO Where: Vow Financial Zulman’s stock rose in 2010, courtesy of his stewardship of newly-formed aggregator Vow Financial. Unveiled in February after a merger the aggregator placed heavy emphasis on service by promising brokers $100 if they did not receive a call back within four business hours. Gimmicks aside, Zulman was also forthright on the issue of licensing, stressing Vow would not force its members down a particular route. MPA

Not hot Who: Kevin Rudd, What: Former prime minister Why: If a year is a long time in Hot List terms, we all know a day can be a very long time in politics.

Just ask Kevin Rudd, whose political fortunes changed drastically in 2010. Having once polled as one of our most popular prime ministers of all time, Rudd was unceremoniously dumped as leader when he lost the support of his party. As his popularity plummeted, he was seen as a liability in winning Labor a second term. After the now-infamous backroom machinations of Labor’s ‘faceless men’ his then-deputy Julia Gillard took over as leader in mid-June as Rudd stepped aside.

It’s a lesson for our Hot List inductees of how rapidly – and ruthlessly – situations can change.

Who: Hong-Hao Ngoc Tran What: LMP Finance & Conveyancing Services Why: Tran was struck off by the MFAA in September for engaging in fraudulent and dishonest conduct by manufacturing and submitting three false applications.

Who: Pingkie Ong What: Mortgage broker Why: The MFAA expelled Ong in April for failing to disclose all liabilities on a mortgage application he submitted as both the mortgage broker and co-borrower.

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FEATURE HIGHER LVRS

Saving the

lost generation Economic stability and a genuine need have spurred several lenders to launch highLVR products.

Could these save or sink potential first homebuyers?

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here needs to be a new acronym. We’ve got yuppies, otherwise known as young, upwardly-mobile professionals, and then there are Dinks – double income, no kids – but what do you call lifelong renters – people on professional wages that still can’t afford to buy property in Australia’s capital cities?

Paul Ryan, CEO and founder of Opportune Home Loans calls them “a lost generation”.

“There are consumers who have good disposable incomes yet are unable to save because they’re paying high rents, and unfortunately have given up on the [home ownership] dream,” he says.

The risk-averse climate of the GFC forced many lenders to step back from high-LVR products, but recently the market has seen a number of players launch new merchandise suited to this segment of the population.

Could they be what first homebuyers are looking for?

Signs of improvement QBE LMI chief executive Ian Graham has noted that lenders were showing “encouraging” signs of increasing their LVRs. “Conditions are improving,” he says. “I’d say some lenders who had limits are now stepping back up, and returning to 95%.”

There has been a lot of evidence to back that statement. Non-banks have been rolling out new products with LVRs up to 95% in their droves.

Resimac’s Hemisphere Financial Solutions was the first to plunge back into the high-LVR space, launching a 95% product in April.

Resimac’s head of product and marketing Frank Knez noted at the time that “a loan

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requiring only 5% deposit is not widely available among other lenders and we are looking forward to the impact of this new product enhancement”.

Knez acknowledges that Hemisphere launched the 95% LVR loan earlier in the year to target first homebuyers who invariably find it challenging to raise a large deposit.

“Other lenders have since entered this space and in time will be followed by the banks,” he says. “This will be driven by a need to offer a home-loan solution for all borrower segments.

Non-bank lenders will continue to lead the way in offering products to niche segments such as first homebuyers and self-employed borrowers.”

According to Knez, the product has been in high demand.

“With the percentage of new loans to first homebuyers continuing to decline, it shows that this segment is not being catered to from an industry perspective,” he says.

“Our participation in the recent Sydney Home Buyer and Property Investor Show provided validation for the need for higher LVR loans, as many potential first homebuyers voiced their struggle to accumulate a large enough deposit.”

Other lenders looking to cater to this market have mimicked Hemisphere’s move.

A rash of high-LVR products erupted onto the scene in August when, within a month, Provident Capital, Adelaide Bank, National Mortgage Company, Iden Group and Homeloans all announced their own 95% loans.

Steve Sampson, Provident Capital’s head of lending distribution, says high-LVR products are “definitely back”, noting that increased economic stability and confidence is fuelling their return.

“LVRs were reduced at a time when the Australian economy was looking critical and it was thought that we may slip into a recession with high unemployment rates,” he says.

“You might remember that unemployment was predicted to hit 10%,” he adds. “That never happened and, as such, cash from the stimulus package (including FHOG) and confidence in employment kept the economy in a buoyant state.

Residential property values didn’t slump as predicted, interest rates stayed relatively low and affordability levels have kept pace.”

Provident Capital’s 95% LVR loan is targeted at owner-occupiers. It includes LMI fee capitalisation and a line of credit-secured Visa facility up to $20,000. There is also an unsecured Visa facility of $10,000 available to all borrowers.

Sampson acknowledged that Provident Capital’s current funding supported its move into the high-LVR space.

“Our funding is backed by lenders mortgage insurers who seem to be supporting the confidence in the market,” he says. “With new housing starts being the lowest since WWII, and our population increasing and in need of a further 1.92 million dwellings in the next 10 years, it would seem like a safe bet to support the move.”

According to Sampson, potential borrowers are afraid that if they do not move soon they will be priced out of the market and paying higher rents. However, while Provident Capital is getting plenty of enquiries on its 95% LVR product, he says the lender is not considering going back to 100% lending.

Homeloans Ltd also relaxed its lending criteria to allow 95% LVR ratios for the first time in 18 months last August. Its new 95% LVR policy applied to its MoniPower full-doc loans of up to $750,000 in certain locations, and was made available to owner-occupied homes, including new properties and construction loans.

MoniPower’s variable rate starts at 6.91%, and is a 100% offset home loan, which also offsets interest on fixed rates and has no monthly or annual fees. Approved applicants also have access to a Visa card with a secured limit of $20,000 or $10,000 unsecured.

Homeloans’ Tony Carn, general manager of third party distribution, says the non-bank returned to the 95% LVR lending market because of the increasing appetite driven largely by “a higher level of comfort around the stability and future direction of the residential property market in what are considered market-stable locations”.

He adds: “I know there’s much debate surrounding price levels in the Australian housing market, but there’s sound evidence that indicates that our price-to-income ratios in capital cities are very much in line with comparable locations in other developed countries.

“In many areas we’re seeing a trend of housing demand exceeding supply, and this is considered by many as unlikely to reverse.”

A return of high-LVR products also has significant implications for brokers, Carn adds.

“It’s clear the size of the market accessible to brokers has contracted significantly in the past two to three years. Accessibility to 95% lending has been available in more recent times, but only through certain distribution channels such as

Frank Knez

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existing bank customers, or selected brokers that met certain criteria with a lender.

“Homeloans has worked very hard to position itself as a refreshing alternative, and the ability to offer 95% lending plus LMI now allows brokers a greater solutions for their clients. It also allows brokers to access new segments of the market.

First homebuyers are an obvious opportunity.

“While the government has been offering generous incentives to them, access to credit at high LVRs have, to an extent, stifled such initiatives. So there are many borrowers who now have access to higher LVR finance.”

Non-banks are not the only lenders to relax LVRs in recent times. Adelaide Bank confirmed it would be launching a 95% LVR product for owner-occupiers from August.

Damian Percy, general manager of third party lending, says the move to offer the product was in response to demand.

“Having reduced our maximum LVR to 90% during the GFC, with economic certainty improving and first homebuyers under-serviced, we felt it appropriate to bring back the 95% limit,” he says. “That said, we’ve done so only for owner-occupiers, and we require a significant servicing buffer to reduce the risk of new borrowers over-committing.”

According to Percy, a return to the high-LVR space from more lenders is inevitable.

“Initial moves down were largely in response to both tightening liquidity and concerns around home prices given what was happening in the US and elsewhere,” he explains. “With conditions improving, a qualified return to the higher LVR space makes sense.”

However, he adds that many lenders will be applying new restrictions.

“Responsible lending obligations will, I believe, mean more lenders will take a more conservative approach at higher LVRs and for first-time borrowers.

“This may be achieved through high serviceability requirements, credit scoring or various other mechanisms.”

While response to the launch of Adelaide’s 95% product has been good, Percy says the lender is taking a cautious attitude.

“The response has been extremely positive, though taking the approach we have around serviceability has meant that we propose to lend less to people than perhaps others have in the past or would now. We can live with that.”

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Will it help renters?

Opportune’s Ryan argues that while 95% loans are a step in the right direction, they may not go far enough in helping renters make the leap onto the property ladder.

“Even with a 95% LVR, we’re still asking first homebuyers to come up with a deposit of $25,000 and that’s without fees and stamp duty,” he says.

“There’s potential first homebuyers out there who are earning good incomes, but are struggling to save while paying rent.”

According to Ryan, there is a place for 100% loans, but they require different lending criteria.

He suggests changing the lending criteria for the 100% home loan to include an increased margin over the interest rate to determine how much a first homebuyer can borrow. For instance, instead of using a 1.5-2% serviceability calculator, a 3% margin could be used.

“This will limit the amount of the 100% home loan,” he says. “If you calculate the existing margin of 2%, a borrower on $80,000 can borrow approximately $500,000.

“However, if you apply a 3% margin, the maximum amount is about $457,000. If you applied a 4% buffer, then it’d reduce even further.

You could then make it a part of the structure of the 100% home loan so that the borrower’s repayments in the first two years had to be in line with the interest rate plus a margin of 3-4%.

“So, if the interest rate was 7% and their serviceability was calculated at 3% over the interest rate, then their monthly repayments would be calculated at 10%.

“This then allows the borrower to pay more off the loan in the first two years and create equity in the property more quickly, and they’d feel comfortable because of the serviceability rule the lenders applied to their calculations.”

Some remain cautious But not all lenders are in a rush to return to the high-LVR space. Mortgage Ezy general manager Garry Driscoll says he doesn’t foresee high-LVR products being a major part of his business.

“If you look at the loss ratios on loans greater than 90% compared to less than 90%, you’ll see why some funders are reluctant to return to the space,” he says. “There is a demand, in particular first homebuyers looking for construction finance, but this is really a specialised area.”

Driscoll foresees mainstream lenders moving back to this niche “if they can see a dollar there”

“ There’s potential homebuyers out thee who are earning good incomes, but are struggling to save while paying rent ”

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but he adds there will be a price for risk factored into the high LVRs in the same way as LMIs price for risk, especially for loans above 90%.

“The interest rate charged on a high LVR will be greater than low LVRs, and a good tipping point for this would be at 90%,” he says.

According to Driscoll, with the responsible lending provisions of the NCCP coming into force in January, funders will need to be more thorough in their assessment of borrowers’ capacity to repay, and this will be especially so in the high-LVR area.

“The attitude of some of the banks in the past of playing a numbers game will not continue,” he says. “All loans will need to be assessed on their individual merits, and justification of the decision will be on file for any future audit.

“Mortgage managers have been doing this for years so it will not be a major change. However, the same may not be said for some of the banks.”

Driscoll adds that all lenders – particularly post-GFC – have a role to play so that borrowers do not over-commit.

He says, “First homebuyers tend to be optimistic and push the boundaries very hard as they strive for the extra bedroom or the pool, and it is therefore important that they allow for the extra expenses that crop up as part and parcel of home ownership, and then budget accordingly.”

While Resi’s CEO Lisa Montgomery has been largely supportive of 95% loans, she is not an advocate of 100%-plus products and says they cause her some concern.

“As soon as you start borrowing more than the property – particularly in a market where we’re seeing some prices plateau – it isn’t healthy,” she warns.

Montgomery argues that borrowers “need some skin in the game” particularly when we don’t know what’s going to happen in the property market.

As far as 95% loans go though, Montgomery says most lenders are a lot older and wiser post-GFC, and as a result, product innovation is taking into account the need for greater checks and balances. MPA

Steve Sampson

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ROUND UP DEBTOR FINANCE

Broadened horizons

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DEBTOR FINANCE

Diversification has long been a buzzword, but have you ever considered debtor finance? Barney McCarthy finds out more and profiles three key players in the sector

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rokers have long had it drummed into them that they must add more strings to their bow if they are to maintain their incomes at the level they are used to. Some forms of diversification – such as insurance and mortgage protection – are obvious additions to an intermediary’s arsenal, but not all brokers would immediately consider SME/ debtor finance as a possibility. With increasing pressure on mortgage brokers to become holistic financial advisers, it makes sense to contemplate the sector. Through consultations with your clients and the subsequent ‘fact finds’, it is clear when they are involved in owning their own business – and debtor finance is something you can mention to customers you deem suitable.

Although the very mention of the word ‘debt’ conjures up images of less-than-salubrious loan sharks and the like, debtor finance and its related

facilities are often nothing more than a way to help small and medium-sized businesses manage their cash flow. There are various different formats, including factoring and invoice discounting, but many are based on providing a cash advance based on orders received. For small companies who have much of their working capital tied up in a large debtor’s book, such systems are the ideal way to help them free up some cash.

Some of the major banks have operations in these sectors, but it is the smaller, specialist institutions who have years of expertise concentrating specifically on SMEs and debtor finance. They will often consider smaller cases that the larger lenders won’t be interested in, and their independence can offer them the flexibility to tailor individual solutions.

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DEBTOR FINANCE

Scottish Pacific Benchmark

Peter Langham

Scottish Pacific Benchmark (SPB) has operational centres in Auckland, Brisbane, Melbourne, Perth and Sydney, as well as sales offices in Newcastle and Wollongong. As a specialist SME funder assisting businesses in most industry sectors with a turnover range between $500,000 and $50m, it employs around 120 staff and boasts annual sales of approximately $2.5bn.

Scottish Pacific offers a full factoring service that includes sales ledger and collection management as well as invoice discounting. Peter Langham, CEO of SPB, says it has seen an increased interest in its working capital facilities from a range of corporate advisory, venture capital and private equity firms, about providing cash-flow finance facilities in the $5m to $10m bracket. “These larger businesses, and their advisers, are looking for flexible alternatives to their traditional funding sources,” he adds.

Langham says SPB regularly steps into the breach when banks are powerless. “Our USP is

the flexibility that allows us to make our solutions available to SMEs when the banks are unable to assist,” he says. “Our typical customers are SMEs in need of improved cash flow to fund growth, often where the circumstances do not mach bank lending criteria.” SPB is also well versed in dealing with the third-party channel, as Langham explains. “Finance brokers are our most important distribution channel,” he says. “We value brokers’ broad commercial lending experience and the close relationships they build with their clients. In return, the brokers know from experience that SPB’s service and expertise will ensure their clients are professionally and – importantly – individually looked after. This creates a win-win situation for all concerned including the broker, the client and SPB.” Langham is also keen to stress that SPB will never threaten the broker-client relationship as it only provides debtor finance and subsequently doesn’t try to sell against the broker on other product lines.

Debtor finance in action: Case study When broker Bruce Williamson introduced the Cooling Brothers (CB) glass company to Scottish Pacific Benchmark, he opened up a range of opportunities for his client – and for his own business.

Since that introduction, Cooling Brothers has grown the business from an annual turnover of $4m five years ago to more than $14m today.

CB managing director Paul King says: “SPB provides us with

funding when we need it, which is when we are buying the materials for actual jobs. The average construction or building company will take 45 to 60 days to pay us, but we have to pay our creditors well before that, so it’s a good way of financing both growth and sales. When you know you can receive 80% of the invoice values immediately, it makes a substantial difference in your financial planning.”

For Williamson, who made the introduction, it meant his client could take advantage of other growth strategy products. His company, Westminster National Commercial Finance, made its initial contact with Cooling Brothers through a small ticket leasing referral on a phone system. “We developed a relationship with CB and we both recognised that this business was the perfect fit for SPB’s debtor

finance offering,” he explains.

“Compared with traditional bank finance SPB offered more flexibility, more freedom, and took the noose from around his neck. There’s still bit of a stigma attached to debtor finance, which is quite undeserved. It’s a brilliant product and once you get your head around it you quickly realise that it’s terrific for many small to medium-sized businesses.”

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ROUND UP DEBTOR FINANCE

Bibby Financial Services Bibby Financial Services has been operating in Australia since 2002, but has existed globally for 25 years. The parent company’s roots go much further, with UK-based Bibby Line Group’s trading history dating back 200 years and including interests in contract logistics, business advisory services and retail, after originating in shipping. In fact, Bibby ships were even involved in the evacuation of soldiers from ANZAC Cove in World War 1.

These days, Bibby’s Australian head office is based in Sydney, but it operates nationally with offices in Melbourne, Brisbane and Perth. The debtor finance specialist employs 900 staff globally with $7.7bn in client turnover under management, from more than 5,000 clients. As well as full service debtor finance, it also offers partnership and export variants, as well as confidential and notified invoice discounting. Bibby identifies its typical customers as small and medium-sized businesses turning over between $100,000 and $60m pa from a range of industries including – but not limited to – manufacturing, transport, labour hire and commercial printing.

CEO Greg Charlwood says debtor finance is sometimes used by SME directors who do not wish to put up personal real estate security to access funding. “Other types of clients include businesses which may be fully drawn against available assets or unable to access bank credit due to insufficient trading history, trading performance or inadequate collateral,” he explains. “It is also suitable for businesses which have a need for faster cash flow to fund sales growth to restructure or recover.”

As with SPB, Bibby relies heavily on intermediaries. “Brokers are vital for distribution of debtor finance products, particularly for a non-bank finance provider. As trusted advisers, they play a crucial role in educating businessowners about the product and its benefits,” Charlwood explains. “In addition, they have an intimate knowledge of the client’s business and full asset portfolios and are well positioned for opportunities where debtor finance might be suitable.”

Charlwood is also keen to point out that

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Greg Charlwood

Bibby’s remuneration offering remains stable at a time when brokers are seeing reduced rewards elsewhere. “We offer an innovative and competitive incentive scheme including trailing commission for the life of the deal and a sizeable upfront commission,” he says. “Our commission structure has not changed at a time when many lenders are tightening their criteria or reigning in their broker payments.”

Cashflow Finance Based in Brisbane, Cashflow Finance provides a range of debtor finance solutions to small and medium-sized businesses throughout Australia.

Established in 1985, the independently-owned company now employs 14 people and has an annual turnover of around $100m. Managing director Andrew van Hensbroek says the business thrived during the financial crisis and demand for its services soared as SMEs hedged their bets.

“Our target markets are the true SMEs – businesses of two or three people,” he explains.

“It’s usually small companies who suddenly find themselves in a competitive position.”

Van Hensbroek says about 80% of companies fall within Cashflow Finance’s criteria and it assists a range of firms from commercial outfits to sole traders. It is also keen to help those companies that the larger banks see as insignificant. “Bigger companies want to deal with SMEs turning over $2m a year plus with debtor books of $250,000, but our starting turnover level is more like $500,000 a year. We’re a visible presence in our local community and our flat management structure and short reporting lines enable us to react quickly, with decision makers accessible to all of our clients,” he says.

Cashflow Finance offers full factoring and invoice discounting, but says much of the individual solution depends on the size and sophistication of the client. Van Hensbroek admits that debtor finance has become a competitive sector, but says it is now one of the fastest growing forms of commercial finance in Australia and is beginning to be recognised as a sign of successful trading in terms of the companies that utilise it.

MPA

MPA LENDER NEWS

CONTENTS 58 NEWS: A REVIEW OF NEWS IN THE WORLD OF NON-BANK LENDING AND MORTGAGE MANAGEMENT 60 IN PROFILE: CITIBANK

Pepper targets low-doc growth

Firstmac issues DEF warning Banning deferred establishment fees (DEFs) could mean that upfront commission for brokers becomes a thing of the past, according to a leading non-bank lender. James Austin, chief financial officer of Firstmac, warned: “If DEFs are banned, lenders won’t pay upfront commissions anymore. Instead, I think we’ll end up moving to a trail-only model.”

The reasoning behind this, said Austin, was that for non-banks the DEF provides an opportunity to recoup upfront commission payments and LMI costs. By denying lenders the opportunity to recoup these costs from customers “who churn regularly” – particularly those that refinance within three years of taking out a mortgage – Austin argued that lenders would not be able to justify paying upfront commission.

He believed this would be the case for both banks and non-bank lenders, but was quick to deny that this would be a commission cut in disguise. “Brokers would still receive the same income, it’s just that it would be otherwise spread out throughout the life of the loan,” he said. “I don’t know if that is what the government has in mind – at the moment, it’s difficult to gauge what they’ll do – but if the current model is tinkered with then that could have major ramifications for the industry.”

Pepper Home Loans will push for growth in its alternative documentation lending portfolio in 2011.

Chief operating officer David Holmes said the non-bank lender is aiming to ramp up lending to achieve a 50/50 split between full-doc and ‘alternative’ doc loans, currently at 80% full-doc.

With funding lines from NAB and CBA, Pepper has also set its sights on overall growth in volumes to $25m a month by mid-next year, up from the current rate of $5m-$10m per month.

Prior to the GFC, the lender was writing $110m a month. As part of its increased appetite for lending, the business has added three new sales staff to market to brokers.

Holmes said alternative documentation lending under the NCCP Act was a legitimate market, and the only difference in comparison with full-doc loans was the method by which income is evidenced.

He added the market presented a genuine opportunity for brokers and that the Australian low-doc market should not be equated with US sub-prime lending.

Holmes said under the NCCP legislation, the quality of local low-docs – which had performed well during the GFC – would only improve.

AFG Home Loans ready for take-off “Big holes” in the competitive strata of Australia’s lending market may leave the door open for AFG Home Loans to emerge as a serious competitor, according to managing director Brett McKeon. He said the group had been “collecting cash for the last 12 months, on the basis that we want to take advantage of the situation we are all in at the moment”.

“We see there are a lot of opportunities at the moment,” McKeon added. “When there are big holes in the market like there are now – a real lack of competition – that always creates opportunity.”

McKeon said it was the last banking crisis in the early 1990s that saw the emergence of ‘Aussie John’ as a serious competitor, at a time when banks were adding extra margin to their loan books, in some instances to rebuild their balance sheets.“Maybe there is more of an opportunity for AFG Home Loans to emerge through this period,” McKeon said.

The group will be unveiling more details of its plans in coming months.

25m

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Pepper’s monthly volume target by mid-2011

COLUMN

FINANCIAL HARDSHIP

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BUSINESS PROFILE CITIBANK

Desktop lender As a second-tier player in the market, Citibank has struggled to gain brokers’ attention. But Steven Ramage is hoping to curry favour with quality bundled products and clear commission rates

S

teven Ramage is plain-spoken when it comes to the challenges Citibank faces in competing against the big banks. “It’s a tough game,” he says, adding that during the GFC, the majors aggressively competed in the home loan space, while second-tier lenders struggled to lend as a result of a weakened securitisation market.

“At the time, the only deals sitting on brokers’ desks was with the big banks,” says Ramage, who is Citibank’s director of mortgages. “And it’s hard for us to get back [there].”

Citibank Australia, which is part of Citigroup, was the first foreign bank to be granted a banking licence in Australia – officially setting up shop on our shores in 1985. Despite its long-standing presence here, Ramage admits it is tough to take anything away from the majors.

“The reality is 80% of people already have an alignment to the majors,” he says. “And while 60% will walk into their closest bank branch – of the 40% that do go see a broker, a good proportion will still be looking for a loan with a major bank.

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BANKWEST

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BUSINESS PROFILE CITIBANK

“Customers are asking for a big bank loan 80% of the time, which is why it’s tough to compete in this market.”

The dilemma comes under Ramage’s purview as director of mortgages – a position he’s held for two of his three years with Citibank.

Ramage, a career banker of 23 years, manages about 100 direct staff and 200 indirect staff, and is responsible for the full profit and loss of the mortgage business, as well as managing sales, product and marketing, finance (including securitisation), a large customer relationship team, the process and compliance group, and the call centre.

It’s a big job and one made more interesting now that Citibank is changing its strategy.

According to Ramage, it has been very brokerfocused in the past – expecting 90% of home loan growth to come through the third-party channel.

“But our target now is to get to a 50/50 balance,” he says, adding that the bank will be doubling its relatively small branch network from 10 to 20 over the next three years.

Ramage says the lender is not taking its focus off the broker market – rather it is building up its direct channel. “We’ll still have the same team for the brokers,” he explains.

But a big focus for the bank will be the credit card space – an area where it already has a strong presence, given that it is the fifth-largest card supplier here. At the time of writing, Citibank was scheduled to roll out a credit card product through the broker channel in late November.

Commissions Since Westpac and St.George announced changes to their commission structures in September 2010, broker groups have been anxiously eyeing lenders for signs of further reductions. But Ramage says brokers have nothing to fear from Citibank. “We’ve always been a price-taker,” he says, adding that the bank can’t afford to do what Westpac did.

Citibank rolled out a new commission structure in June that operates on a scorecard system. Brokers are slotted into different commission categories according to various criteria – such as bundle sales.

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Top performing brokers receive an upfront commission payment of .65% and .15% trail.

Brokers that fall into the second tier receive .55% upfront commissions and .15% trail, and brokers in the third trail stand to make .50% upfront and .15% trail. Those brokers that do not meet the lender’s general competency requirements receive .30% upfront and no trail.

The system indirectly rewards brokers who encourage customers to take up more than just a mortgage, but that’s a big difference from incentivising brokers to directly sell one product over another.

“I can’t say if they sell a bundle, I’ll pay them more – because that’s not the right thing to do,” Ramage says, adding that the bank would prefer if brokers focused on the customers’ needs.

“If I want to sell bundles, I have to make bundles more attractive to the customer – we need to ensure it’s the customer’s decision.”

Brokers are paid a set commission, regardless of the product they sell, based on their score. A broker’s score remains the same for a 12-month period.

“Our philosophy is to Keep It Simple [Stupid],” he says, adding that they’ve endeavoured to provide a system that is based on performance and is transparent. Keeping the commission structure relatively easy to understand is beneficial for both brokers and the bank, Ramage explains. “I don’t want an army of people here processing commissions.”

The KISS approach to commissions appears to be a point of difference that second-tier banks are offering brokers – Bendigo and Adelaide Bank has also spruiked its no clawback and flat fee upfront commission structure. But whether commissions are simple or complex, Ramage does not foresee an increasing number of brokers turning to a fee-for-service model.

“We’ve got 14,000 brokers registered – I can’t see a groundswell among them moving that way,” he says, adding that it’s a hard sell for the few that do when the majority of brokers are offering their services for free.

The other component of fee-for-service is adding value to customers that they’re not going

BUSINESS PROFILE CITIBANK

“ The reality is 80% of people already have an alignment to the majors. And while 60% will just walk into their closest bank branch – of the 40% that do go see a broker, a good proportion will still be looking for a loan with a major bank ”

Steven Ramage: man with a mission

to get with another brokers. On the commercial side, Ramage says there’s a stronger case for it.

“In commercial loans there is a lot of work that is done before it even gets to the lender, so in those cases it’s probably appropriate.”

But on the residential side, it’s slightly more difficult, even with a greater number of brokers calling themselves ‘advisers’.

“Good brokers are advisers,” he says. “The broker has been playing that role for a long time.”

Risk averse Rising economic confidence and an increasingly stretched first-home buyer market has spurred several lenders to come out with high LVR products (see our feature on page 48).

“I’ve been in the home loan market since 1995 and 95% LVRs are fine,” Ramage says. “We have a great market, so 95% lending is a good thing.”

But Ramage says it is not about to go down that road. “Citibank is fairly conservative in the risk space,” he explains, adding that it had a large exposure to the US market. “So probably my ability to jump up high is limited.”

Its new strategy is to target the wealthy sector. “I want to own that affluent home loan space,” Ramage asserts.

The lender may be targeting the wealth sector, but that doesn’t mean its prices aren’t competitive. Citibank slashed 20 base points from its Pro Pack loan in September, bringing it down to 6.69%, while also trimming the pricing on its basic loan. MPA

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LIFESTYLE FAVOURITES

MOVIE Most recently The Hurt Locker and Brothers – both great movies

VACATION SPOT Skiing in Japan – great snow, great food and friendly people

SPORT Rugby Union. I’m a mad keen Queensland Reds supporter

Tony Meredith + Executive manager, personal lending + Suncorp Bank

Favourite things

Tony Meredith

DRINK Rum and coke – very Queensland, but such a good drink

FOOD A good steak. The quality in Australia seems to get better every year

BOOK I love cook books and learning new dishes

HOBBY Mountain biking – my fear of crashing makes me forget how unfit I am

PLACE TO BE Anywhere with my family and close friends

MUSIC Currently, Birds of Tokyo but it changes every day

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CELEBRITY Lance Armstrong, he is such a fantastic athlete