MPA Issue 9.07

www.brokernews.com.au issue 9.7

ready to

hit the mark banks target service levels

WHAT MAKES A GOOD BDM? Forging a better partnership

CREDIT RATIONING turning tighter lending criteria to your advantage

PROFILED Mortgage choice ceo Michael russell

editor’s letter

Banks take the microphone

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Last issue MPA focused on what brokers had to say about banks in its annual survey. Almost every one of the 360-plus survey respondents said they were angry with the way the banks had treated them in the year gone by. Given the flight to brand quality, it was not surprising that the biggest area of ire was poor turnaround time. This was followed by poor service and inconsistent credit policies.

This time we are giving the podium to banks. It is their opportunity to respond to the survey results (good and bad) and explain what areas they are focusing on in the coming months. While the majors lost ground this year to AMP, ING Direct and Citibank, perhaps all players can learn from the various successes and mistakes.

Journalist Tim Neary complements our cover story with a look at what makes a good BDM and how brokers can capitalise on the relationship.

Also in this issue is our in-depth look at the draft National Consumer Credit Protection bill, which if all goes according to plan, should be passed into legislation in the coming months. Hear what different sectors of the industry think of the changes and which areas concern them the most.

Happy reading,

Andrea Lavigne 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.

brokernews.com.au

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contents

52 supporting role What makes a good BDM? We ask BDMs and brokers to tell us.

cover story 42 banks on brokers Banks respond to the findings of the ‘Brokers on banks’ survey carried out in our last issue

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Look for extras in MPa's 2.0 eMag edition. on-caMera interviews with:

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MichaeL russeLL 34

banks on brokers 42

gus Mendez 60

contents contributors

insight 22 Draft bill: experts from across the industry assess the new credit bill

MPa Lender

MPA’s website reviewer is from Finance Tools, which specialises in website development, copywriting solutions, mortgage calculators and newsletters.

Finance Tools provides online strategies and support for brokers and other members of the financial services industry.

60 Industry profile: Loan Services Australia

Matthew bransgrove

LegaL 12 Case studies: Mortgage law expert Matthew Bransgrove summarises recent legal judgments

56 News: A review of news in the world of non-bank lending and mortgage management

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saM benjaMin

was admitted as a solicitor in the Supreme Court of New South Wales in December 1992. He is the principal of Bransgroves Lawyers, a firm that acts for private and institutional lenders on mortgage advances, discharges and enforcement.

ProfiLes 34 Leaders: Michael Russell 38 Brokers: Andrew Brumby

LifestYLe 64 My favourite things: Tony Carn

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reguLars 6

News

16 News analysis

editor Andrea Lavigne

saLes director Justin Kennedy

journaList Tim Neary

saLes Manager Rajan Khatak

PubLisher Mike Shipley

Production editor Tim Stewart

account Manager Simon Kerslake

director Claire Preen

design Manager Jacqui Alexander

hr Manager Julia Bookallil

regionaL Managing editor George Walmsley

designer Ben Ng

Marketing Manager Danielle Tan

Managing editor Larry Schlesinger

senior web deveLoPer Storm Kulhan

Marketing coordinator Jessica Lee traffic Manager Stacey Rudd

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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 subscriptions tel (02) 8437 4731 fax (02) 8437 4753 subscriptions@keymedia.com.au advertising enquiries tel (02) 8437 4772 rajan.khatak@keymedia.com.au tel (02) 8437 4786 simon.kerslake@keymedia.com.au editorial enquiries tel (02) 8437 4790 fax (02) 9439 4599 larry.schlesinger@keymedia.com.au key Media Pty Ltd Level 10, 1 Chandos Street St Leonards, NSW 2065 www.mortgagemagazine.com.au

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

News BROKERS

AFG buyback bid fails AFG’s attempts to regain total control of business by buying back the holdings were rejected by minority shareholders.

The aggregator was hoping $7.3m would be enough to recapture 26% of its issued capital base.

LJ Hooker adds brokers LJ Hooker Financial Services has added 22 brokers to its team since February in line with its ambitious recruitment drive.

The company’s stated goal is to attract 100 mortgage brokers by the end of 2009, but general manager Peter Bromley has indicated they may increase their recruitment targets.

Russell eyes acquisitions Mortgage Choice’s new CEO Michael Russell has indicated the time has come for the company to step out from the shadows and look at expansion through acquisitions.

“We don’t just want to be an observer anymore, given that we have superior platforms and we are a very robust publicly listed company,” he said.

The company could be looking at making an acquisition before the year is out.

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The number of brokers LJ Hooker added in Queensland

Brokers rail against leads supplier Dozens of brokers have used Brokernews.com. au as a soundingboard to make allegations against leads supplier, Mark Whittingham.

The site first featured a news story on the director of HLSS, Lead Search and My Mortgage back in March this year detailing claims from two brokers who claimed Whittingham failed to deliver on promised leads after receiving hundreds of dollars in upfront payment.

The story generated almost 30 comments from brokers, some reporting similar experiences with Whittingham.

A follow-up news story in early May regarding one broker’s efforts to set up a VCAT mediation in an attempt to recover money he allegedly paid for undelivered leads again generated almost 30 leads from irate brokers.

And 35 comments were posted after Brokernews ran a story on May 11 regarding mortgage broker Stan Marinis’ successful bid to win a case against Whittingham after he failed to show up to the VCAT mediation.

Not all the comments on the site were from brokers alleging they were scammed by Whittingham. Several called for the MFAA to take action, while others simply expressed their support for the brokers claiming to be ripped off.

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News Banks

Westpac debates reaccreditation fee Westpac is in consultation with key business partners over the possibility of setting up a re-accreditation fee for brokers who fail to meet mandatory deal lodgement criteria.

At the time of writing, the amount of the fee had yet to be established.

The fee negotiations followed the banks’ introduction of new mandatory accreditation requirements which require brokers to settled at least one loan with the bank every six months.

Brisbane bank merger likely: inside source The likelihood of a merger between the Bank of Queensland and Suncorp was made stronger recently after the ACCC stated it would examine “very rigorously” further major bank acquisitions of regional lenders.

An inside bank source told the Business Daily that a merger would benefit both institutions. Competition for both banks would be decreased, and the scale of both businesses would be increased.

Westpac’s automated call centre tops hate list Westpac topped the list of a new website called www.ihateholding.com which helps callers get past automated machines and speak to real people.

Shortcuts through Westpac’s systems have been clicked on 5,127 times, making it the most viewed aspect of the site.

Mutuals urge Govt to lower guarantee fee Building societies and credit unions have asked the Federal Government to lower the current fee structure in an attempt to give them more equal footing with the majors.

Industry lobby group, Abacus said mutuals were penalised twice by the current structure which forces lower-rated ADIs issuing government guaranteed debt to pay a fee of 150 or 100 bps (compared to the big banks which pay 70). Mutuals also pay an additional premium despite the guarantee.

Mutuals argue draft is heavy-handed Building societies and credit unions have compared the government’s draft Consumer Credit Protection Bill to the cumbersome financial services regulation regime.

Abacus, the industry group for mutuals, said the current draft legislation will disadvantage responsible lenders by increasing red tape.

The Australian Bankers’ Association echoed comments made by Abacus, calling the new credit laws heavy handed and stated that the legislation could result in higher loan fees and longer loan approval times.

Tony Burke, Acting Chief Executive of the ABA, said: “Banks recognise that many of the provisions in the regime are designed to put an end to predatory and other unacceptable lending practices by fringe credit providers, rather than the banking sector.

“However, some of these rules go much further and will impose a greater and unnecessary regulatory burden on mainstream lenders who have responsibly provided credit to consumers in accordance with their needs for decades.

The lending performance of banks in this country is in marked contrast to overseas lenders.”

“The additional regulation will inevitably mean an increase in costs for banks in providing consumer credit, there will be more paperwork and it will take longer to deal with loan applications than is now the case.”

$104.1bn amount major banks have raised in wholesale funding since last October

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News Property

Sydney is investment hot spot: expert Primed for growth after years of flat prices and with the largest dwelling shortage in Australia, Sydney offers the best location for property investors this year, said Residex CEO John Edwards.

“Sydney has at last reverted to positive growth … and it’s presenting as if the worst has passed,” he said.

After a previous downward trend, Residex data shows that both house and unit prices in Sydney had increased between February and March, at 0.91% and 1.07% respectively.

Quarterly, house prices were up 0.78% in Sydney from January through March, and 2.93% for units.

20, 000 the number of homes to be built under NSW’s $6.4bn social housing package

Govt extends boosted FHOG The Federal Government’s decision to extend the boost to the First Home Owner Grant was applauded by industry and consumers.

“On behalf of the first homebuyers its terrific news,” said Mortgage Choice CEO Michael Russell. “Yes there is a cost involved, but I think at the end of the day we’re all obliged to help first homebuyers enter the property market.”

Russell added that the extension of the full boost for three months and half boost till the 31 of December will ensure the industry’s activity levels continue to remain high.

However, Russell noted that the obvious downside is that it probably means lender pipelines will continue to remain clogged for a period of time.

“But I think that’s just one of those unintended consequences that we’ve got to work through together.”

Going forward first homebuyers will be eligible to receive the full boost of $14,000 for established and $21,000 for new housing until 30 September.

After this date, $14,000 will be offered for new homes and $10,500 for established homes for the three months to 31 December.

Speaking at the official announcement of the federal budget, Treasurer Wayne Swan said that since it was introduced, the boost had “supported employment and helped 59,000 Australians buy their first home.”

Housing affordability hits high Government grants, combined with record low interest rates and relatively stable house prices culminated to boost housing affordability by 14.6% in the March quarter according to the HIA-CBA First Home Buyer Affordability Report.

The biggest improvements were recorded in Hobart, Adelaide and Sydney.

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legal case files

Judgment day Mortgage law expert Matthew Bransgrove provides a summary of some of the more recent legal judgements involving lenders, borrowers and brokers case: Suncorp-Metway v Bellairs Jurisdiction: NSW Supreme Court Judge: Rothman J Date: 12 March 2009 Key point: The court now also looks at a lender’s internal memoranda to determine whether there was some ‘thought crime’ going on at the time the loan was approved, which would make the loan unjust.

Implication: Lenders will now try to ‘manufacture’ documents such as internal memoranda so they will one day look ‘just’ to a judge so they can get their money back. Unless the law changes, future cases will very much depend on a judge’s view of what is ‘just’.

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Case summary This case involved a loan by Suncorp-Metway secured by a mortgage over a nursery business. The loan was for $490,000 on an ‘interest only’ basis but after two years had to convert to principal and interest. At the time of the approval an internal memorandum by a Suncorp loan officer noted: “The ability to amortise debt over a 10 year term is reliant on the increased profitability of the nursery. Based on the cash flows provided this should be achieved. On an interest only basis they have the ability to meet interest from existing incomes and historical nursery profitability. Given the uncertainty of nursery profitability I am only willing to provide a two year interest only.”

Based primarily on these words, Rothman J held that the contract was unjust under the Contracts Review Act. The judge felt it was unjust to require someone to repay the principal on their loan if the lender thought they might have a tough time doing it. The remedy ordered was that all higher rates of interest charged be remitted and eviction be stayed for six months.

This case marks a further worrying development by the courts exercising Contracts Review Act jurisdiction.

Essentially the court no longer looks at the mortgage deed to determine the legal rights as between the parties but now also looks at the lender's internal memoranda to determine whether there was some ‘thought crime’ going on at the time which would make the loan unjust.

The obvious result of this decision is that instead of documents being brought into existence for the genuine purpose of loan underwriting, lenders will now try to ‘manufacture’ these documents so they will one day look ‘just’ to a judge so they can get their money back.

The judge essentially found that if a lender has doubts a borrower will be able to repay the loan then it is unjust. However this reasoning on close

legal case files

examination does not stand up. This is because if it were applied uniformly across all mortgages then all mortgages would be found unjust. It is selfevident that all mortgage lenders doubt the borrower will be able to repay the principal – otherwise they would not insist on a mortgage in the first place.

So what will be the fate of this new principle?

Obviously the NSW Courts will not uniformly apply it to every mortgage loan. But is there any rhyme or reason regarding when and where it will be applied?

The answer is “No”: the principle stands on its own. There is no articulated principle that allows lenders to predict where the thunderbolt will strike. The problem lies not with the judges but with the legislation itself, which asks judges to consults their hearts and not black letter law. It deliberately sets out to free judges from the constraints of precedent and principle. The problem is that when precedent and settled fixed law are absent then so is the rule of law.

In Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41 chief justice Spigelman revelled in the resulting uncertainty, short-sightedly believing it to be a good thing: “Of course each case must depend upon its own facts… When the Parliament adopts so general, and inherently variable, a standard as that of ‘justness’, Parliament intends for Courts to apply contemporary community standards about what is just. Such standards may vary over time, particularly over a period of two decades.”

The question is where will this all end? Whose fluid “community standards of justice” will be applied? The answer is to be found in the famous book by Hernando De Soto The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. De Soto argues that uncertain land title in third world countries means that lenders cannot safely lend against real property – this in turns causes the squalor and poverty which we see on the television.

The Contracts Review Act in NSW is rapidly making land title for lenders more and more uncertain and is therefore making it harder for borrowers to raise money. This is particularly noticeable by the failure of private lenders to return to the NSW market now that the non-bank lenders have exited. This is because private lenders are not prepared to risk their capital on the off chance a Contracts Review Act decision goes against them.

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Eventually NSW will either become a depressed commercial backwater or the NSW legislature will repeal the Act – it is difficult to see a middle ground.

Either you have contractual certainty and commerce flourishes or you have a legal system that applies the judge’s concept of justice instead of a predictable fixed body of law.

case: Willis & Bowring Mortgage Investments v Belramoul Jurisdiction: NSW Supreme Court Date: 6 March 2009 Key point: The “ambling pace” of the NSW Supreme Court in ruling on a lender seeking repossession of a property.

Implication: Speeded up process needed for resolving repossession disputes.

Case summary This case (see right) demonstrates the serious backwardness of the NSW Supreme Court in dealing with possession applications. This case was filed in January 2006 and as of March 2009 the lender is still no closer to obtaining a writ of possession. There are multiple possession proceedings that are taking three years or more to be heard by the court.

In this particular instance the matter was set down to strike out the defence as disclosing no reasonable defence. Section 56 of the Civil Procedure Act requires that the court facilitate “the just, the quick, and the cheap resolution of the real issues in the proceedings”, nevertheless because the borrower claimed he was seeking new legal representation the court vacated the hearing date. This was despite the fact the borrower knew of the trial date all along.

It was recognised long ago that the ambling pace of the Supreme Court would ruin the economy if it was applied to serious commercial disputes. In response the Commercial List was created to expedite and deal with commercial disputes quickly, usually within 12 months of filing. It is submitted that a similar approach now needs to be taken with the Possession List or else burnt lenders will begin to avoid NSW. mpa Matthew Bransgrove a partner at Bransgroves Lawyers a firm specialising in mortgage related disputes and co-author of the 2008 Lexis Nexis textbook The Essential Guide to Mortgage Law in NSW.

news analysis

A time to fix?

Fixed rate hikes by Australia’s major lenders have prompted speculation that the economy has bottomed out and variable rates are about to start rising.

CBA, Westpac and NAB all increased their fixed interest rates in April despite expectations of further interest rate cuts by the Reserve Bank of Australia.

NAB kicked off the trend by raising its rates on its two- and three-year fixed rate mortgages by 20 basis points to 5.29% and 5.49% respectively.

CBA raised its four-year fixed rate loans by 20 basis points to 6.59%, while five-year fixed rate loans were increased 40 basis points to 6.84%. And Westpac raised its one-year fixed rate mortgages by 20 basis points to 5.39% and its two-year fixed rate mortgage was raised by 30 basis points to 5.49%.

ANZ raised its fixed rates in January and left them at 5.99 for one- and two-year mortgages and 6.19% for a three-year rate.

“I find it interesting that they have raised their fixed rates because we haven’t seen any significant increase in the bank bill swap rate,” said Lisa Montgomery, head of marketing and consumer advocacy with Resi Home Loans. “The swap rate hasn’t moved significantly since the beginning of April so it’s a bit surprising that we’re seeing these increases in rates.

“However, we do know that when you see an increase in the fixed rate, we know that’s an indication that rates will not remain in this low environment in the medium to long term. But I’m not really sure we’re at the bottom of this cycle yet and it comes as a bit of a surprise to me that we’re seeing these increases so soon.”

Bill Zheng, CEO of Invests Direct, pointed out that fixed rates are offered to the market by the banks based on supply and demand so when they are going up, there is more demand for fixed rates than what is being supplied. “There are many ways to interpret why the banks raise their fixed rates while the RBA is reducing their cash rate, but I don’t think it is because the economy has bottomed out,” he said.

Another reason for the rate hike could be the fact that their fixed rate funding costs have risen, but they might also want a larger slice of profit on that product line according to Michael Lee, founder of Key Facts. “Demand might be outweighing available funds, or they may simply want to spook the public. Even allowing for time lag, an increase or decrease in fixed rates is not always a pre-cursor to the same directional

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movements in variable rates as the two are not directly linked,” he said.

Lee Dittmer, mortgage broker and founder of WHO Finance agreed: “I believe the main reason people lock in rates is because they are concerned that the rates are going to increase drastically and are worried about their cash flow. With the lenders increasing them now, they are banking on that fear factor – they want to make sure they have the best chance to earn a profit at the expense of their client’s fears,” she said.

So is now a good time to fix? In May, ANZ bank chief Mike Smith advised he “wouldn’t be in a hurry” to fix.

“I think it depends very much on what happens in the next few months,” he said.

In Zheng’s view, if you are a first homebuyer and you can’t afford any increase in your interest rate during the recession, fixing it at around 6% is a smart choice considered the average interest rate over the last 30 years has been around 10%.

“If you are a property investor, at 60–80% LVR and 5–6% rental yield, fixing the interest rates at around 6% can turn most of your properties into neutral or positive cash flow for the first time.

Most investors would go for a safe bet to fix now than waiting for fixed rates to go down even further,” he said.

Before you take a fixed rate loan, be warned that there is a hefty cost involved if you decide to exit the loan before the fixed term expires.

“I’ve never been a big advocate of fixed rates, because nine times out of 10 the only winners are the lenders – however in this market, I’d have to say that the three- and five-year rates are still looking attractive and you would have to give them due consideration,” said Dittmer.

Education credit rationing

silver linings Falling loan to value ratios are just the latest in a series of lender credit rationing-activities, but it might not be an entirely bad thing for brokers who are still in business. Tim Neary investigates…

W

ith the market returning to the style of conservative lending policies last seen fifteen years ago, some brokers might feel that this is the last straw.

But they shouldn’t, according to industry experts. In fact, handled correctly this latest bump in the road could actually mean more business for mortgage brokers.

Despite some concerns that the latest round of credit tightening will slow economic recovery, Mark Hewitt, AFG’s general manager for sales and operations, says differing LVRs is actually a good thing for the broker community since the new level of complexity that comes with it has increased the need for borrowers to see a broker.

Hewitt says lenders might have done a better job of bringing the changes to market, and this has been a source of frustration for borrowers.

However most AFG members generally understand the reason for the changes, and the first conversation they are having with clients is about the value of not over committing themselves.

In addition he cites this as the perfect opportunity for brokers to be reinforcing the broker

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experts on credit rationing How permanent do you think these credit policy changes will be? MPA asked third party leaders for their response…

John Flavell, head of broker sales at NAB Broker: “There is no such thing as permanent in the market. Twenty years ago you couldn’t borrow more than 80%; two or three years ago you could borrow more than 100%. It will change all the time.”

Brian Rowe, director at Iden Group: “There will be a period of more conservative credit policies which will be linked to the availability and cost of raising funds in today’s market. Then as confidence returns, and we see some period of sustained growth, credit policies will again slowly expand to recapture some of the fringe that is now excluded. With a level playing field and ready access to funding, competition will return to the market.

As the niche players re-embrace ‘riskier’ credit we will see the larger lenders also return to that market – similar to low doc lending in the late 90s which was originally pioneered by non-banks and subsequently introduced as a staple of the major’s product suites.”

Mark Hewitt, general manager for sales and operations at AFG: “Markets do have a way of restoring themselves once confidence returns and investors come back, however these credit rationing changes could be in place for a long time. It is unlikely that we will see any move back until at least the next economic cycle.”

Kristy Sheppard, senior corporate affairs manager at Mortgage Choice: “Wouldn’t it be nice to have a crystal ball?”

Education

credit rationing

Education credit rationing

at your fingertips Brian Rowe provides a quick-fire fact sheet What are genuine savings?

1. An accumulation of funds over a period of time.

2. Should be through a series of regular credits.

3. Time frame from three to six months demonstrates consistency in deposits.

4. Lump sums in an account for over three months.

5. Provides the lender with affordability comfort.

6. Also that the borrower has ‘hurt money’ on the line.

What are non-genuine savings 1. A monetary gift.

2. Funds borrowed from another financial institution.

3. First Home Owner Grant (FHOG).

4. Proceeds from the sale of an asset, such as a motor vehicle.

When are they required?

1. Typically genuine savings are required at higher LVRs. 2. However there is no hard and fast rule.

3. Some lenders may not require it at all.

4. Others may require it on all loans.

Impact?

1. Harder for some first homebuyers to obtain a loan.

2. Insurers offer solutions for applicants without genuine savings.

3. Non-genuine savings mean insurance premiums priced for additional perceived risk.

4. Funders not obliged to take on every product the insurers offer to cover.

5. Funder’s policies override those of the insurers.

proposition with their clients – reminding them to select the best loan not only for today but also the future.

And Hewitt is not alone. Saying she’s never seen anything like it, senior corporate affairs manager for Mortgage Choice, Kristy Sheppard, says rather than the reduction in LVRs being a deterrent, it highlights to borrowers the value of seeing a reputable mortgage broker.

She says: “At the very least brokers can offer customers a look at a wide range of lenders and loan products. For a slightly more challenging type of borrower visiting a broker can often reap the rewards that a visit to one or two lenders cannot.”

Quality vs quantity When business volume dwindles, submitting quality applications becomes a very reliable substitute for it.

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In spite of the latest round of lender credit rationing, Sheppard has been amazed at the quality of applicants coming through the Mortgage Choice machine.

“Which is a good thing since it prepares people well to handle the long-term financial commitment of repaying a mortgage. For most people its anywhere between 20 and 30 years, so it is important that they can service the loans and it is important that they factor in quite a few interest rate rises and make sure they can repay the loan at those levels as well as at the low levels that we have now.” Pointing to a recent Mortgage Choice survey in which more than a thousand first homebuyers were interviewed, she says this responsible borrowing response to the sub prime crisis is not just a flash in the pan.

In it, one out of every four respondents looking to purchase before the end of this year had a 10% deposit to contribute. Twenty two percent said they had 5%, while 14% said they planned to contribute 20%, and another 14% planned to do so by more than 20%. “So 28% of those first home buyers have 20% or more to contribute to their loan - which is evidence that there is still good business out there for brokers to do,” she says.

At the same time, she acknowledges it is more difficult for brokers to get every customer over the line. “Certainly,” she says, “borrowers need to have more savings now than in the past few years, so it is more of a challenge for brokers now.”

Knowledge is power Still, it is true that homebuyers are calling on brokers because the current volatility of the lending landscape is confusing.

And to take advantage of this need for clarity, Brian Rowe, director at the Iden Group, says brokers need to stay up to speed with the changing market dynamics. This is a minimum requirement, but is in a constant state of flux. He says the number of calls he has received from introducers experiencing difficulties obtaining approvals on deals – that would have been snapped up by any lender, any day of the week just three months ago – has increased substantially.

But while it might be frustrating trying to keep their aim straight, there is little brokers can do to influence the lenders tightening credit policies.

Instead Rowe’s advice is to keep up to speed with developments as they play out in the market and the effect they will have on clients. “Issues, for

John Flavell

Kristy Sheppard

Brian Rowe

Education

credit rationing

instance, like what exactly defines genuine savings and under which circumstances it is required, as well as which solutions are available to borrowers where it cannot be demonstrated,” he says.

And brokers shouldn’t keep this knowledge to themselves. Rowe says they should be quick to pass it on to all of their clients; all the while making it clear to them why the changes came about in the first place.

“I am a strong believer that if you are able to explain the reason for changes to someone they will understand and accept them. These changes do not mean that a dream of property ownership is out the window, as there are other ways that a transaction may be structured, simply that strategies need to be adjusted.”

He adds that by talking to your client about the lending market brokers naturally position themselves as financial authorities.

Careful what you wish for Reducing LVRs may be based on sound commercial reasons (and to lend responsibly), but

lenders have an even more compelling moral obligation – and this is to not lead would-be homeowners into heartache.

According to John Flavell, head of broker sales at NAB Broker, the vast majority of brokers have the same opinion about protecting borrowers from loans they cannot afford. “People out there might put their hand out for higher loan to value ratios that realistically wouldn’t helping them at all.”

The upshot of this is that many brokers will have customers with requirements where the lenders won’t provide a solution. And this, he also acknowledges, will have a significant impact on brokers. But instead of saying ‘woe is me’ Flavell says brokers should roll their sleeves up, and get busy. Sit down with your client first, he says, and ascertain that they have the ability to make the loan repayments on an ongoing basis.

If they are still underwater after this, the deal will not fly. Offer them additional advice. A genuine savings plan is probably a good place to start.

“Good brokers do this,” he says. MPA

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insight draft bill

new game, new rules It’s legit – after years of bandying about the need for nationwide regulations, the mortgage industry will finally be regulated under one umbrella. MPA breaks it down

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insight draft bill

“ I’ve spoken to 1,000 members across Australia and I haven’t heard anyone who has been critical of what’s proposed ”

–MFAA CEO Phil Naylor

T

he Federal Government’s draft National Consumer Credit Protection Bill and its related legislation is not light reading. Spanning 300 pages plus (more if you count the commentary and explanatory notes!), it gives both Dostoevsky’s Crime and Punishment and the King James version of The Bible a run for their money.

Despite being heavy reading, one of its selling points is that it cuts up to 2,500 pages of multiple state laws down to one national regime.

Released on 27 April, the document creates a single consistent consumer credit law “built on responsible lending and consumer protection” and it covers all lenders and credit service providers.

At the time of writing, industry participants were invited to comment on the bill and make submissions up until 22 May. MPA did the rounds to find out how different sectors of the industry felt about the document and what areas they would like to see altered or clarified before the draft becomes law.

Banks Both the Australian Bankers’ Association and Abacus, the industry body representing credit unions and building societies, have called the new credit laws heavy handed.

Shortly after the National Consumer Credit Protection Bill was released, the ABA released a comment stating that the legislation would create red tape for responsible lenders and could result in higher loan fees and longer loan approval times.

Tony Burke, acting chief executive of the ABA, said: “Banks recognise that many of the provisions in the regime are designed to put an

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credit guide ingredients The new regulations stipulate that credit service providers must give potential borrowers a credit guide, which must contain: + the credit service provider’s name and contact details + the credit service provider’s licence number + fees payable by the borrower and how they are worked out + panel of credit providers (max. six) + commissions the credit service provider will receive + EDR scheme membership details + compensation arrangements + information about the credit service provider’s obligation to make a preliminary assessment as to whether a credit contract will be unsuitable for the borrower and that if requested a copy of the assessment will be provided to the borrower In addition, a credit provider must provide borrowers with: + a written quote for providing credit assistance + a credit proposal disclosure document setting out fees payable by the borrower; commission to be received by the credit service provider, any employee, director, or credit representative; total fees payable to the credit service provider in connection with the application; total fees payable to third parties (eg valuers); the amount of credit available after making the payments described above.

Source Gadens Lawyers

insight draft bill

end to predatory and other unacceptable lending practices by fringe credit providers, rather than the banking sector.

“However, some of these rules go much further and will impose a greater and unnecessary regulatory burden on mainstream lenders who have responsibly provided credit to consumers in accordance with their needs for decades. The lending performance of banks in this country is in marked contrast to overseas lenders.”

“The additional regulation will inevitably mean an increase in costs for banks in providing consumer credit, there will be more paperwork, and it will take longer to deal with loan applications than is now the case.”

The ABA also criticised the penalty regime calling it “disproportionate”.

Abacus chief executive officer Louise Petschler similarly stressed that the new laws will bury responsible lenders in bureaucracy.

“Focus the legislation on the poor behaviour of dodgy lenders and brokers – don't drive up the cost of borrowing with ineffective red tape,” Petschler says.

Non-banks The draft legislation takes responsibility away from borrowers and places it squarely on lenders, says FirstMac’s CFO James Austin.

“From our initial review of the draft legislation it seems to mirror many of the elements currently practically covered by the Uniform Consumer Credit Code (UCCC). The main variation of the draft legislation is the introduction of national licensing (ACL) for credit activities. Under the draft legislation it appears the ACL is designed such that the onus falls back to the ultimate lender – entities which are already licensed under AFSL and with UCCC obligations,” he says.

According to Austin, the draft legislation appears to be influenced by the events in the United States and associated ‘Cram Down’ legislation. He says it is important to recognise that Australia has not experienced the poor lending issues of the United States.

“As an industry we should be proud of the fact that Australian residential mortgages remain the

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Definitions Credit providers – banks and credit unions (must be licensed by ASIC and abide by new responsible lending requirements) Credit service providers – credit and mortgage brokers (must be licensed by ASIC and abide by new responsible lending requirements) Intermediaries – mortgage aggregators and mortgage managers (must be licensed by ASIC) Credit representative – support staff (those appointed by ACL holders to engage in credit activities on their behalf)

insight draft bill

best performing in the world with defaults materially less than 0.5% of total lending.

Australian credit provision has remained responsible as evidenced by extremely low levels of defaults.”

To this end, Austin says it is important that the legislation strikes a balance. “As credit providers we acknowledge and accept the responsibilities we have. In turn, consumers also need to take responsibility for their actions.

Deviation from the path of borrowers needing to take responsibility for their own actions will have implication for the availability and flow of credit.”

Mortgage managers Despite its name, Firstfolio’s CEO Mark Forsyth says he’s not convinced the National Consumer Credit Protection Bill will keep consumers safe.

“The problem is I don’t think any legislation ever has completely protected somebody from ‘rogue

cliff notes Key points from the draft legislation of the National Consumer Credit Protection Act: + extends regulation of consumer lending to include loans to individuals to purchase residential property for investment purposes + provides for the regulation of credit providers, finance brokers, and other intermediaries + requires lenders and intermediaries to be registered by 31 December 2009 and have applied for a licence by 30 June 2010 + provide a national regulator, ASIC, with enhanced powers to enforce responsible lending conduct standards + makes membership of an external dispute resolution scheme compulsory + establishes a new regime of disclosure to consumers for both credit providers and finance brokers.

“ don’t drive up the cost of borrowing with ineffective red tape ”

–Abacus CEO Louise Petschler

Source Gadens Lawyers www.gadens.com.au and www.treasury.gov.au

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insight draft bill

Important dates The timetable for registration for both credit providers and credit service providers is:

mid-2009 the legislation is set to be introduced into Parliament

1 November 2009 credit providers and credit service providers can submit applications to become registered

31 December 2009 all lenders and intermediaries must be registered, or be prohibited from engaging in credit activity

30 June 2010 all businesses must be registered and have applied for a licence by 30 June 2010

30 June 2011 must hold a licence.

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traders’ – in the US there is significant consumer credit protection legislation yet we still see a number of high profile cases where consumers are being taken advantage of.”

In fact, Forsyth isn’t convinced the bill is even necessary calling the perception of dubious lending across all boards “overstated”.

“I am also concerned that the legislation still does not address the issue of borrowing levels, and people’s propensity to get themselves into debt. Singapore has very strict consumer credit lending criteria and policies, yet it still has not had the desired impact.”

By and large the current requirements for brokers and lenders are sufficient, Forsyth says, with the exception of tertiary qualification requirements for brokers which could possibly go one step beyond Certificate IV. The legislation is burdensome and will require significant investment from everyone right across the industry to adapt to the new regulations, he says.

And despite the measures, Forsyth fears that there is a possibility lenders and brokers could be unfairly held accountable for customers who lie about their finances.

“And how do we stop this taking place – with more legislation?”

Aggregators Choice CEO Brendan O’Donnell heralded the draft legislation as an important step in providing consumers with protection and for being a significant milestone for the industry.

“The industry has been asking for it for some time – particularly as a process for developing our industry and increasing our professional reputation and client service offering,” he says, adding that while Choice members operate in accordance with the MFAA code as well as its own standards, there are a small number of rogue brokers who continue to ply their trade.

In many ways, the legislation only reinforces what the industry has already achieved, although the level of professionalism varies from state to state, O’Donnell says. “While we have not had standard and formalised legislation to date, in full effect we have managed to evolve the broker industry over the years to become a professional

and respected sector of the financial services industry. I think the integration of new legislation will only support the growth and development we’ve managed to this point.”

The consultation with industry stakeholders has been extensive over the years, O’Donnell says, but there are a few points it would like clarified before it becomes law. For instance, he says there is a possibility that brokers could be unfairly held accountable for customers who lie about their finances.

“This is a concern and will be addressed in our submission. From a Choice perspective I do not believe that it is the role of a broker to verify all information provided by a consumer – this should be undertaken by a lender while they are assessing an application and considering whether to offer finance,” he says.

As for criticisms that there some ambiguity in the bill when it comes to defining terms such as “responsible” in relation to lending and “unsuitable” in respect to credit contracts, O’Donnell says: “Perhaps, but this is not really dissimilar to the Financial Services Regulation Act (FSRA): rather than being prescriptive, ASIC provides guidance.”

Mortgage Choice’s Michael Russell echoes O’Donnell’s support for the new legislation. “Since 2002 Mortgage Choice has been pushing for national regulation of the industry and we regard any form of regulation that provides consumer protection and confidence in our industry as an improvement,” he says.

But like O’Donnell, Russell said it would also be making a submission to the committee.

“There still needs to be some fleshing out of the logistical implementation of some of the issues. We’re hoping to get answers back pretty quickly on that,” he says.

Brokers Comments from Brokernews.com.au indicate that there may be some unresolved issues in the legislation for brokers. One broker commented that “anyone who is happy with it has not read the draft in full. What happens when the client lies to you about affordability? Should they fall in arrears and get foreclosed on, you as the broker, according to the new legislation, will face criminal

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insight draft bill

(not civil) charges for giving a loan to client that can’t afford it.”

Another broker said that the current requirements are sufficient. “The new laws are overkill, penalising the majority of brokers who are trying to earn a decent living in a professional services industry. It's not as if a dodgy broker is currently immune to termination of membership and accreditation, and prosecution and judicial punishment.”

Bruce Finch commented: “Now that ASIC is taking over the administration and responsibility of ‘surveillance and compliance’ of brokers, do we still need the MFAA? The MFAA doesn't represent or help brokers in any tangible way and only appear to be the banks’ puppet. With our commissions and trails reduced and with no united voice to defend us (which I believe the MFAA and FBAA were supposed to do), we're probably better off without the MFAA. At least we'll save on multiple annual membership fees”.

On this note, Andrew Brumby, director of Develop & Invest says “I’m a member [of the MFAA] and I’ll support them, but with this legislation there probably needs to be a fundamental change to what they do.”

As for complying with the legislation Brumby says it will involve some extra work but probably won’t be too onerous for the experienced broker.

Industry bodies The MFAA has been working with the government from the ground up to prepare the draft legislation. In an effort to get brokers’ views on the bill it has been holding seminars around the country before it made its submission to the committee in May. “I’ve spoken to 1,000 members across Australia and I haven’t heard anyone who has been critical of what’s proposed,” says MFAA CEO Phil Naylor.

While brokers have been asking many questions about the bill, Naylor says they’ve concentrated on the finer aspects. “They’re interested in how the licensing works, how the concept of credit representative works – it’s more those matters of details.”

In his seminar on the draft legislation, Naylor outlined several sticky points that the MFAA

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addressed in its submission. For instance, Naylor identified that “if you’re a credit representative for a broker, at the moment theoretically you’ve got to sit down in front of the client and say ‘here’s the licensee’s credit guide and here’s mine’.

Now they’re both substantially the same and we think that’s a bit of an oversight. It seems nonsense to have to hand out two documents.”

Another point identified by the MFAA is the possibility that consumers could be confused by the term “credit guide”.

“We’re a little concerned that the document you’re going to give as brokers is called a credit guide and the document that the lender provides is also called a credit guide. So we’re suggesting to the government that maybe the document brokers give is called something different,” says Naylor With regard to disclosure, the MFAA is pushing it to be limited to the person who actually sits in front of the customer.

“We don’t want the credit representative saying ‘well these are my details and these are commissions I’m going to get’ and the broker/ licensee doing the same thing. And there’s disclosure at the lender level as well. We basically want to get it how it works [currently] in NSW.” Other issues discussed by the MFAA are the need to make sure the NSW exemption for margin disclosure for mortgage managers is in there and the necessity of keeping the licensing process simple.

“We now just have to wait and see,” Naylor says of the recommendations the MFAA made to the commission.

penalties The legislation enhances powers for ASIC to enforce the laws and gives consumers greater access to legal recourse in the event of a dispute.

The rules stipulate criminal penalties for licensee misconduct which can include possible imprisonment for up to five years for those who lend contrary to the responsible lending requirements.

There are also civil penalties for licensee misconduct which enable ASIC to seek heavy fines of up to $220,000 for an individual and $1.1m for a corporation.

The new laws allow ASIC to deliver infringement notices (fines) so that it can act quickly to penalise certain breaches of the law and give consumer remedies, such as compensation, which allow consumers to seek redress for their loss and damage from a licensee.

insight draft bill

Similarly, the FBAA president Peter White is hoping the commission takes its concerns on board.

“I won’t put my hand on my heart and say it’s perfect, but nothing is,” he says, adding that there is always room for further changes to be implemented in Phase Two of national regulation.

In its submission regarding the draft bill, the FBAA stated: “The definition of financial products must include finance/credit products for not only the funding of investment property and property for residential use but also for commercial, plant and equipment and business finance and the like.”

It also advises that the concentration on advice and regulating the finance/mortgage broker is sound “but must not be uncoupled from risk.

“A ‘one fit for all’ solution, while good in theory, may not be appropriate for all finance and

credit products, especially if there are risks that vary markedly from product to product and lender to lender.”

In its submission, the FBAA stressed that: “Levels of debt and debt exposure are the responsibility of lenders and not the finance/ mortgage brokers or intermediaries. Whether or not to lend or advance the loan funds is a decision for lenders alone.

Ultimately it is the lender that approves and settles the loan.” MPA

For more information + For a complete look at the MFAA’s presentation for brokers on the draft bill visit http://www.sonicsight. com.au/mfaa/National_Regulation-May09.htm + To view the FBAA complete submission to the parliamentary commission go to http://www. financebrokers.com.au/documents/Productivity_ Commission_Submission_2008-02-05.pdf

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Feature mediation

franchise fights Spitting the words “I’ll see you in court” may make good TV, but when it comes to resolving franchising disputes, it is the last thing either side really wants to hear.

Andrea Lavigne reports…

W

hen GE Money announced in February 2009 it was selling off the Wizard brand to Aussie, not all franchisee owners were happy about swapping allegiances from orange to purple.

And despite dangling a $10,000 carrot of free marketing support in front of franchisees who signed agreements with Aussie by February 27, many chose to try to renegotiate aspects of their amended franchise agreements.

Among the terms they wished to negotiate were commission arrangements, the scope of the exclusivity territory to be assigned to each participant, the “nature, type and competitiveness” of products offered by Aussie for sale through the participants, the rights of participants to sell their franchisees and compensation arrangement, the rights of Aussie to terminate agreements, and compensation offered should Aussie terminate without consent.

At the time, the lodgement of the collective bargaining notification by Wizard franchisees confirmed speculation that a number of franchisees were unhappy with the agreement reached between Aussie and GE Money over the sale of their businesses.

Owning a franchise can be a very positive experience, but as the case above highlights there is potential for disputes to unexpectedly arise even among the biggest names in the business.

Areas of ire Alan Wein, principal of Wein Mediation is a lawyer and entrepreneur, who also sits as a senior panel mediator for the Office of the Victorian Small Business Commissioner. One of his areas of expertise is franchising disputes.

He has noticed an increase in the number of people seeking mediation since the credit crisis hit. “Disputes will normally simmer for a couple of

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months, if not a year, and now we’re seeing them come to the fore.” When times are tough, people start to point fingers.

The case of Investor Finance demonstrates this. In October 2008, Investor Finance director Adam Thomas released a statement that the sub-prime crisis had forced the business to “restructure” under a new entity. The sudden closure of the business spurred a number of franchisees to complain of the Investor Finance’s failure to deliver on promises of lead generation, training and unmet payments. Many franchisees threatened legal action.

According to Wein, when a business is failing you have to ask: is it failing because of general economic conditions, or is it due to the failure of the franchisees to abide by the systems and practices recommended by the franchisor? But if you get a situation where the overwhelming majority of franchisees are failing in reasonably good economic circumstances, then you begin to question whether the system itself is healthy or not. In which case, you need to look at the services provided by the franchisor, and if they are reasonable, effective and proven.

“Misrepresentation” is an often heard complaint. But according to Wein, it is a very “vexatious” area in that sometimes franchisors do provide training, but if a franchisee is unsuited to the enterprise, than no matter how much training is given the business may fail. “Sometimes a franchisee lacks competence, lacks the ability, doesn’t want to learn, and doesn’t want to devote full time and attention. And some of these issues of ‘misrepresentation’ are in fact issues that the franchisees themselves need to be responsible for,” Wein says. “Misrepresentation shouldn’t be used as a sword to swing that disguises a franchisee’s failure to do their own due diligence.”

Feature mediation

Another area of dispute is “unconscionable conduct”, one of those catch-all phrases that describes a situation where one party has a special disadvantage that is taken advantage of by the other party. There are legal definitions, but it is a grey area, Wein says. Possible examples would be agreements made where there were some language difficulties, comprehension problems or a psychological impairment of some sort.

Another area of dispute is often the head lease, as outlined in the agreement. In most circumstances the head lease is usually in the name of the franchisor with the franchisee either guaranteeing it or signing a sublease for the premises. “So if the business does go bad for whatever reason, there is a potential liability that’s not only hinging on the franchise agreement. There is also a potentially enormous liability with regard to the occupancy.”

Mediation The key word when it comes to resolving disputes between franchisees and franchisors is mediation.

If a dispute arises, the Franchise Code of Conduct provides that the parties must first try to resolve their matter through an alternative dispute mechanism rather than running off to the courts.

“Mediation provides the parties with the most efficient and low cost form of self determinative justice available to them,” Wein says. “Because if they’re unable to resolve their dispute and they run to court they’ll have a decision imposed upon them by a judge and they lose their right to self

determination. Also there is enormous legal risk in any litigation. And there’s the cost involved and time spent away from your other business activities.” Parties can have a mediation organised in under a month, whereas litigation can take many months or even years. And the business relationship and franchise just deteriorates in that time, Wein says.

Expectations Sitting around table to hammer out a dispute is very different from walking into a courtroom. “Try and understand that the other side has a story as well. Once they’ve heard all of that, then they can form a view of what’s in their widest possible interest,” Wein says. ‘Widest possible interest’ is an interesting concept. In litigation, parties focus on legal right and issues. But in mediation, while legal rights and issues are considered, the resolution puts commercial interests first.

Wein describes it as opportunities that may be lost and foregone by both parties by continuing in an unresolved dispute – issues such as relationships, reputation, time and involvement and distraction due to the dispute, the stress and anxiety that results from being in a dispute, the need to get certainty, and minimising legal risks.

“So therefore the definition of what’s in their widest possible interest is far greater than perhaps a litigation can provide them, because in mediation it’s the parties themselves that make the final decision, not me as a mediator, not their lawyers,” Wein says. MPA

Alan Wein

Profile leaders

In poker, it’s not about the hand you have but how you play it.

And Mortgage Choice’s new CEO Michael Russell knows how to win

’ Russells turn to deal M

ortgage Choice’s new chief executive is an avid poker player who has sat across from some of the world’s best players and come within spitting distance of the Aussie Millions final table.

But the secret to Michael Russell’s success is he knows how to win with a weak hand – a skill that could be invaluable to Mortgage Choice, which at the time of writing was forecasting a net profit decline of up to 45% for the full year to June.

Reinvention The road to the top of Mortgage Choice has taken some interesting turns. Like many in upper echelon of the finance world, Russell started as a graduate trainee for a major bank. From 1983 onwards he worked his way up and down Collins Street – moving from ANZ’s retail arm,

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to commercial, to international business and foreign exchange. After his stint at ANZ bank, Russell moved to National Mutual Royal Bank – a newly created joint venture between National Mutual Life and the Royal Bank of Canada, which he called “a very exciting place to work for a time.

It was a wonderful ground to be challenged”. But the experience was short lived – ANZ acquired the new lender and Russell was back to the organisation he started with.

Russell continued at ANZ for several more years, but felt the need to broaden his horizons.

“When you’ve been involved in banking so long you have a bit of a desire to go out there and create something,” he says.

So after a few years, Russell left ANZ to pursue an entrepreneurial career path. He bought

see the interview live brokernews.com.au/mpa

Profile leaders

and sold several businesses – including a fitness centre, a consulting business, a banking software company and a couple of other businesses that he says he doesn’t care to mention.

Despite success as an independent business man, Russell’s interest in financial services never waned and in 2001, Russell joined Choice.

As he recalls, those were the halcyon days of mortgage broking.

“I look back with very fond memories at the seven years I had at Choice. They were terrific years in mortgage broking. And I like to think that Choice led the way with a lot of the initiatives that are common practices in the industry,” he says.

“Things like the creation and development of professional development days. Certainly Choice led the way when it came to segmentation of its brokers and providing a different level of proposition to those brokers. We also were the first major aggregator to make three acquisitions, we completed them in 2005. We really showed the industry just how effective and scalable acquisitions could be.”

Russell sold the business to Challenger in 2007 and remained in the role to the end of that financial year. “I always knew that I wanted to return to the industry. It was really out of respect and courtesy to Challenger that I remained so underground during my gardening leave. That was to allow them to have a smooth transition. It

“ I’m a passionate advocate of what we do. I think that the mortgage broking proposition is growing from strength to strength ” didn’t stop me from keeping up with the industry news. I always wanted to come back to the industry though. I’m a passionate advocate of what we do. I think that the mortgage broking proposition is growing from strength to strength.”

New start Russell joined Mortgage Choice in late April, taking over the helm from Paul Lahiff who resigned from his post as managing director. At the time of Lahiff’s departure, Mortgage Choice chairman Peter Ritchie said the company was seeking external assistance to recruit a new CEO who will “take Mortgage Choice to the next phase of its development”.

Russell did not wait long to make an impact.

Two weeks after he was officially pronounced CEO, Russell retrenched five staff, left one role vacant and restructured a number of departments.

“At this point in time we’ve done a full structural and head count assessment and one of the unintended consequences of that was we needed to make six positions redundant. Following

Russell signals mergers on horizon Mortgage Choice CEO Michael Russell has tipped that the company could be looking to strengthen its business through acquisitions or alliances.

“I have the view that industry consolidation will continue and will probably continue at quite a rapid pace.

What’s appearing at the moment is that larger independent broker groups and the smaller aggregators are really struggling to achieve the sort of scale and the profit returns that their shareholders are wanting. In two years time we’ll see a marketplace where there will be two to three retail branded mortgage broking operations and probably four or five larger aggregator operations. That said Mortgage Choice has always been an observer of this consolidation phase that we’re going through and I think now we’re going to move forward from just being an observer to being a participant.”

Russell added that Mortgage Choice’s robust balance sheet and solid platforms make it an attractive option. At the time of writing, he indicated that Mortgage Choice was also looking to strengthen ties with Count Financial, which has a 15.2% stake in the broker.

“I’d like to think that in lieu of an unwanted takeover – and I think the board and the key investors have signalled that they don’t have an appetite for a Count takeover at this time – I’d like to think that the two organizations can open some dialogue and start talking more along the lines of a strategic alliance.”

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Profile leaders

on from that, we’re now in the middle of an internal cost audit just to make sure that we are prudently managing our costs – something which we think in this environment all aggregator businesses need to [do].”

The next step Russell says is to expand the company’s diversification program. Late last year, Mortgage Choice rolled out new offerings to complement its core products such as home and contents, life, disability and trauma insurance, as well as personal, equipment and commercial loans. But he says that diversification should be limited to products that do not disrupt the sales process.

“I’ve always believed we have the capability and the capacity to go head to head with the lenders on customer share of wallet,” he says, adding that there has never been a more opportune time now to look at expanding the company’s product range.

“One of the challenges for MC is to increase our market share. We’re presently writing around 4.5% of all Australian home loans. We’re very keen to build on that market share and also take advantage of opportunities to diversify our offering to our customers. We figure it’s very timely in our lifecycle to expand the products that we would like to sell to our customers.”

In fact, despite the overwhelming pessimism that exists – particularly in the broking world, where many are struggling with commission cuts and impending impact of a regulated industry – Russell remains adamant that this is a good time to be in the mortgage industry.

“Some of the concern is well founded. But since I joined in 2001 we’ve had these prophets of doom preaching Armageddon on a regular basis. Yet in spite of their outlook the industry has continued to grow from strength to strength,” he says.

“We now have a penetration of around 40% and we’re not seeing that abate at all. We’re seeing the major banks continue to want to engage with mortgage brokers, we’ve seen ANZ release their half yearly result and show us that their penetration has gone from 45 to 50%, we’ve seen a new CEO come into a NAB and be absolutely refreshing in his comments surrounding his desire for NAB to commit further to mortgage broking industry. We’ve seen the GM of NAB Broker recently, in his discussions at a broker forum, validate the ongoing commission model. I think it’s a terrific environment. I think the industry is

going to strengthen and build upon the good work that’s already been done.”

When pressed, Russell admits there valid broker concern regarding banks’ present service levels. “At the moment there is a little bit of friction because of this perfect storm that we’re operating within,” he says. “It’s not ideal for us and our customers and it’s certainly not what the lenders are wanting to deliver as well.”

Russell says he was encouraged by the recent MFAA roundtable discussion between aggregators and lenders, and stated there was a lot of reciprocity between lenders and brokers.

“We did receive a commitment from each lender around the sort of correction issues that they were going to put in place. Things like working weekends and recruiting additional assessment staff. In the case of St.George allowing their branch lending staff to be able to credit assess PAYG credit applications. These sorts of initiatives are really welcome and really demonstrate a commitment from our lenders to not only work with us but ultimately work with the customers we are delivering to them.”

Russell added that brokers can do their bit to ensure applications are submitted electronically and comply with lender checklists. mpa

see the interview live Michael Russell divulges his plans for Mortgage Choice in an exclusive on-camera interview.

Visit Brokernews.com. au/MPA to watch an in-depth video recording of it

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Profile Broker

the

insider Having worked both sides of the broking industry, Andrew Brumby’s inside knowledge has proven to be a leg-up when dealing with lenders

L

ike many in the mortgage industry, Andrew Brumby switched from banking to broking.

And at a time when broker frustration is reaching new heights over lengthy service delays, having that extra bit of knowledge about the inner workings of banks could prove invaluable while trying to get deals across the line.

“We have a very low decline rate,” Brumby says. Basically, we make sure it’s going to fly before it goes to the bank.”

His thoroughness and ability to place clients with lenders have catapulted him to the top of MPA’s top 100 brokers list – Brumby sits fourth settling almost $110m in 2007/08.

The road up Born and bred on the Mornington Peninsula, Brumby started his career with Westpac where he spent 17 years working in lending roles. In 1996, he was hired by HSBC, where he worked as the manager for its third party broker business.

Around 2004, HSBC wanted Brumby to move to Sydney, but the long-time Victoria resident and father of three small children wasn’t keen to pull up sticks. Weighing his options, Brumby decided that it was the perfect time to strike out on his own. And the timing was perfect. A long-term associate asked Brumby to work in-house at his accountancy practice and write loans for his

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clients. In the four and a half years since then the business has grown dramatically, and Brumby has expanded his strategic relationships to include another – much larger – accountancy firm and a real estate agency.

“If HSBC had a role for me that was Melbourne-based I’d probably still be there. There was no animosity with the bank at all. As it turned out they sold the broker business anyway after I left, so it was probably fortuitous in some ways that I did do what I did.”

Having made the move into broking, Brumby says he can’t imagine life any other way. “I just couldn’t go back to the meetings for the sake of meetings corporate environment,” he says. “The freedom and the flexibility that broker life gives you is really good.”

While Brumby’s banking background gave him a leg up in so far as understanding the loan process, he says going from knowing only one bank’s process to suddenly having to know 20 different lenders systems was “a bit of a nightmare”.

“That’s probably the biggest thing I’ve found is that the processes between lenders is not identical and the requirements of each lender were quite different … [It was difficult] getting through that minefield as far as getting the right documentation done and determining which

Profile Broker

allowances they took into account and which ones they didn’t take into account.”

Brumby says that switching from banking to broking really opened his eyes. “While you think, when you’re on the banking side running the broker business for a bank, that you understand what a broker is going through, it’s very hard to get out of the lender mindset. If the deal comes to you, you don’t understand what that deal might have gone through to get to you. That broker has probably critically looked at your product and compared to it to other lenders’ products. So I very much appreciate the fundamental difference between banks and brokers.”

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Profile Broker

Fast facts Andrew Brumby Company: Develop & Invest City/State: Seaford, Vic Amount settled 07/08: $109.6m Support staff: five Years as a broker: 4.5 Interests: Golf, racehorses Family: Married, three children (nine-year-old twin boys and six-yearold son) Favourite movie: Blues Brothers

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Issues It’s very tough dealing with the present crisis in lenders’ service levels, especially when it comes to setting reasonable expectations for clients, Brumby says. The variance can be quite great – not just from lender to lender, but even within the same organisation. Brumby says he can place two very similar applications with one lender and get very different loan turnaround times.

“It does put a bit of the onus back on us to make sure it is going to work with the lender. And you really have to precondition clients more than you have in the past.”

He says customers are not taking the delays well. “It’s very hard for them to comprehend that they’re going to borrow money that they’re going to pay interest on, and that [banks] are not going to provide a good service.”

At times you’ve got to be a bit thick-skinned about it, he says, as he’s got to shoulder much of the blame and angst.

Much of Brumby’s business goes to the majors, as he’s found it’s very difficult to sell a non-bank to clients in the current market. “There is reluctance in the marketplace to go outside that, and the products that the majors are offering are probably the best around at the moment.”

While many brokers in the industry are raising the alarm regarding similar actions by Westpac and CBA to introduce a “re-accreditation fee”, Brumby takes a broader perspective.

“I suppose it’s indicative of the environment where banks have a lot more power than they did in the past. But I can see it from the other side.

One of the problems the banks do have is they service a lot of brokers who don’t give them any value. I suppose they’re trying to force people to decide whether they’re going to have Westpac on their panel or not – much in the same way that some of the banks are offering preferential treatment for brokers who do large volumes,” he says. “So it’s regrettable but understandable if I’m going to look at it objectively.”

On the issue of the draft legislation, Brumby doesn’t see the changes being too onerous for experienced brokers. He does question how ASIC’s involvement with licensing and regulating mortgage brokers will affect the role of the MFAA.

“The MFAA have got a problem with who they represent – the brokers or the banks? It’s very hard to be an industry body when you’re representing both sides. It’s almost like one organisation looking after the builders and the unions. If you look at it like that you would say the MFAA’s current position is untenable. But in saying that, I do think the industry needs a body like the MFAA. I’m a member and I’ll support them, but with this legislation there probably needs to be a change to what they do.”

Success tips Brumby’s business employs five support staff who are the real key to his success. All the people that work at Develop & Invest have worked with Brumby in previous roles. “Even though I’ve only been broking for four and a half years, I’ve known these people for a long, long time and I trust them.

I don’t question anything they do. We work in a partnership really.” Brumby says many of his staff had to hit the ground running as “it’s certainly not a training role”.

The other cornerstone of his success is his strategic relationships. His first referral partner was an old client. Brumby had worked as his business manager for 15 years and the two developed a professional and personal relationship. It’s been a lucrative partnership that acted as a springboard to his broking career and led to two other referral partnerships.

Because he partners with accounting firms, Brumby leaves the insurance side of things to them. But he has diversified his offering to include commercial, particularly equipment finance. As a result, his business split is about 25% commercial to 75% residential.

Brumby also receives referrals from clients.

Like many brokers, he segments his clients into two tiers. He communicates with his top 50 clients on a monthly basis, while other clients may receive something quarterly. Brumby maintains contact by sending clients articles or information that he has come across that might be applicable to their situation.

Going forward, Brumby says he is going to try and maintain his settlement rate in the short term.

In the long-term he’s looking forward to a stabilisation of his businesses growth pattern. mpa

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brokers on banks

Banks on Brokers

mark? hitting the

Effective communication happens when both parties have a chance to express exactly how they feel. While in last month’s survey brokers told MPA about their experiences when dealing with bank lenders, now it is the time for the banks to do the talking and brokers the listening

T

hese days it is pretty much an open secret that the union between banks and brokers is not exactly a match made in heaven, but having an open discussion between the two disciplines provides for some interesting commentary.

Last month, MPA published the results of the brokers on banks survey. Just about every one of the over three hundred brokers who responded told us they were angry with the way the banks had treated them in the year gone by. The number one gripe brokers had of the banks was poor turnaround time. This was followed by poor service and inconsistent credit policies.

Brokers told us how easily some BDMs adopted a ‘cannot do’ attitude, or kept their ideas firmly housed inside the square. Others said banks that had become arrogant in the past were even more so now. And others still pointed fingers at banks, accusing them of hypocrisy by actively trying to steal their clients while using language like ‘cooperation’ and ‘partnership’ with the brokers.

But it is true to say the feedback wasn’t as all-out venomous as that.

Some respondents managed to find words of praise for BDMs who did indeed develop business for them, or for banks who had provided

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technology platforms that really did make a difference in pushing loan applications through.

As last months analysis of the results showed, AMP is this year’s gold medallist moving up from ninth spot two years ago. ING Direct, a regular top three medal winner, and Citibank were the two other podium finishers. Citibank climbed a very creditable four positions from seventh last year to finish among this year’s medal table.

Overall, the survey revealed that the Big Five have lost ground to The Rest, year on year, in all but one category.

Most of that ground was lost in turnaround time, BDM support and overall service to brokers.

Although brokers rated the Big Five worse in the product range category than in 2008, this is the one category where they performed substantially better than the second-tier banks.

For both the Big Five and The Rest the overall standing of banks to brokers dropped this year.

Interestingly, both came off the same mark in 2008. But the Big Five’s drop was more significant than that of The Rest.

The ‘Big 5’ is CBA, ANZ, NAB, Westpac and St. George. ‘The Rest’ is AMP, ING, Citibank, BankWest, Suncorp, Bendigo and Adelaide Bank.

see the interview live brokernews.com.au/mpa brokernews.com.au

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AMP score 2009

Approval/ loan turnaround times

score 2008

chAnge

3.5

2.93

0.57

BDM support

3.39

3.02

0.37

Broker support (training, information seminars etc)

2.77

2.51

0.26

Interest rates

2.75

3.3

-0.55

IT and electronic/ technology

3.08

2.79

0.29

overall service level to brokers

3.38

3.02

0.36

Product range

3.07

3.31

-0.24

3.11

–

–

3.65

–

–

3.19

2.99

0.2

satisfaction Index on overall credit policy Transparency of commission structure overall standings

Steven Craig

Ray Esho

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AMP Although AMP has climbed steadily over the last three years, it would have taken a brave pundit to predict they would finish in first place in 2009.

They did it by being rated first in turnaround times and overall service, second in satisfaction of credit policy and transparency of commission structure and third in both BDM and IT support.

For the bank, success this year has been all about listening. Steve Craig, AMP Banking’s head of sales and distribution, says the bank has been working on the things that are really important to its brokers. “This includes items such as general customer service, turnaround times, keeping brokers informed, and improving the overall communication process.”

Since the 2008 survey, AMP reviewed its entire mortgage processes to provide a better overall outcome for the broker. This initiative is closely linked to AMP’s ‘customer back’ initiative.

What’s more, according to Craig, AMP Banking has benchmarked all steps of the mortgage process – and where possible has taken action to improve them. “An example includes our work to reduce error rates throughout the mortgage process – from application to settlement. We’ve looked at rework and requests for more information and

ensured that the control and checking processes deliver superior outcomes,” he says.

In addition, the bank redesigned its broker support model during the past year to better match the needs of its brokers. “We’ve placed a senior sales manager in each state to work more closely with our broker groups. This model ensures we have local knowledge and expertise on the ground. It also means we can provide more support in our key markets,” says Craig.

To improve its IT capability, AMP Banking looked to its sales and BDM teams to provide better in-field support to brokers using online technology. “This has ensured brokers are able to access immediate local support, for example loading a new application in the broker’s office.”

But when all is said and done, according to Craig, simply, it is about ensuring the broker along with their customer – is at the centre.

And while this might sound straight forward, getting it right consistently has been the challenge that going by this years results AMP Banking has managed to meet.

ING Direct ING Direct is a regular medallist in the MPA banks on brokers survey. In the last three years it has picked up an additional silver to go with this one, as well as a gold medal.

In 2009, ING Direct was rated better than the rest for its broker support and second and third in BDM support, and overall support and interest rates, respectively.

Ray Esho, head of mortgage products at ING Direct, puts its good showing again this year down to how well brokers have taken to its broker support unit. “Brokers need to manage the expectations of their clients and the feedback we’ve received about our broker support unit has endorsed our commitment to this dedicated broker service,” he says.

Furthermore, over the past 12 months ING Direct has focused the attention of its national network of BDMs on quality. “They have been working closely with targeted brokers to improve the overall quality of their submissions.”

Esho says the initiative was implemented to improve the broker experience, and he feels it has been well received. “Particularly when recognising the potential increases in commission levels as a result,” he adds. On why brokers dropped ING Direct’s turnaround time rating, Esho makes the point that this is the current hot topic issue in the

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Ing DIrecT score 2009

Approval/ loan turnaround times

score 2008

chAnge

3

3.45

-0.45

BDM support

3.45

3.4

0.05

Broker support (training, information seminars etc)

2.98

3.01

-0.03

Interest rates

3.32

3.74

-0.42

3

3.12

-0.12

3.26

3.48

-0.22

3.13

3.43

-0.3

satisfaction Index on overall credit policy

2.86

–

–

Transparency of commission structure

3.39

–

–

overall standings

3.16

3.37

-0.21

IT and electronic/ technology overall service level to brokers Product range

industry. “In maintaining our competitive pricing, we also experienced an abnormal influx and this caused a backlog which we determined to be unacceptable. Over the course of April and May, we established a team dedicated to bringing turnaround times back to their consistently quick levels as soon as possible,” he says.

Another area he feels worth noting is ING Direct’s approach to interest rates. “With the very difficult economic and funding environments being felt by all Australian lenders, we believe our competitiveness among the larger lenders has stood firm. While many lenders have either vanished, been bought out or priced themselves out of the market, ING Direct has continued to offer value-for-money and a suite of home loan products that brokers like selling. We will continue to offer competitive interest rates, even against a backdrop of a less competitive environment.”

Citibank A year ago, after placing seventh in the 2008 survey one up from the eighth spot the year before that, Citibank went back to basics. This meant spending lots of time listening, since Citi wanted to

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Steven Ramage

Kathy Cummings

know from brokers what mattered most to them.

Today, that strategy has paid off handsomely, as shown by Citi’s third place finish in the MPA 2009 survey.

In it, brokers rated Citibank first in both BDM support and transparency of commission structure, second in turnaround times and third in all of the broker support, overall service and satisfaction of credit policy categories.

“We are delighted to see this strategy for achieving our long-term goals coming to fruition,” says Steven Ramage, head of mortgages for Citi Australia. The key ingredient, he says, is ensuring its relationships in the broker channel are strong.

“When we first took part in the MPA ‘banks on brokers’ survey three years ago, Citibank rated bottom of the ladder in nearly every category. We took these results seriously as brokers are integral to Citibank’s mortgage growth plans,” he says.

Now, to be ranked first in BDM support, second in turnaround times and third in three other categories shows that the bank’s long-term strategy is work. “It has been clear to us for a long time now that great broker relationships coupled with consistent service is the key to success in the mortgage business,” he says.

Citibank found favour with brokers in several categories including transparency of commission structure and satisfaction of credit policy.

cITIBAnk score 2009

score 2008

chAnge

Approval/ loan turnaround times

3.32

2.86

0.46

BDM support

3.57

3.26

0.31

Broker support (training, information seminars etc)

2.85

2.72

0.13

2.4

2.95

-0.55

IT and electronic/ technology

2.78

2.69

0.09

overall service level to brokers

3.2

3.02

0.18

Product range

2.82

3.08

-0.26

satisfaction Index on overall credit policy

3.04

–

–

Transparency of commission structure

3.66

–

–

overall standings

3.07

2.94

0.13

Interest rates

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Everything, Ramage says, has been as a result of taking heed of what brokers say. So if having consistency in turnaround times is important to brokers, then it is important to Citibank too. “We don’t aim to be the fastest, but we do claim to be consistent. We have done this by continuing to invest in our back office to improve our processes so they’re reliable and efficient and they run like clockwork. We’re not there yet – we have gone from twelfth position to second best in turnaround times, but next year we want to be number one.

And we believe we will get there with consistent turnaround times,” says Ramage.

In addition, Citibank has identified that BDM support is critical to its success. And building strong relationships with brokers is the key to that strategy. The bank knows full well that it is in the relationship game. BDMs do not simply sell mortgages – rather, they hold relationships.

“This is a fundamental understanding. If you sell mortgages then it’s about rates, features and the like. If it’s about relationships then it’s about the broker, their business and the environment they are experiencing. Brokers will help ensure our long-term success in the Australian mortgage market, so this has been a focus for us over the last three years,” says Peter Hayward, Citi Australia’s head of mortgages distribution and marketing.

Hayward adds that brokers have said they need skilled experts who know the industry inside out. “They want good ‘go to’ people who are committed to and passionate about mortgage support – so that’s exactly what we’re ensuring our BDMs are,” he says.

But the survey wasn’t all a bed of roses for Citi.

Brokers marked it down in rates and product range. In response, Citi says the GFC has seen monumental changes across all financial markets, and that the home loan market has been at the epicentre of it all, with cost of funds being the most significantly challenged.

Says Ramage: “We price our products according to what it costs to run our business, and in the current climate those costs have risen. We stand by our pricing decisions, on products as well as interest rates, since we are responsible lenders with broad financial considerations.”

Adding to this point, Ramage says that Citi remains committed to delivering a responsible return to its shareholders. “It is important that our business maintains a level of return to investors so we can justify being here.”

As far as Citibank’s product range is concerned, Hayward makes the point that it has been made

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clear to him that brokers want easy-to-understand products through a simple, consistent process.

Historically, Citibank offered products that tried to meet the needs of too many people and in effect didn’t satisfy enough people enough of the time. “So we went back to the basics to simplify the products we offered. We took advice on what worked and what didn’t,” he says.

The message to brokers from Citibank is that it is on a long-term journey to achieve long-term goals. Ramage says is no secret that the bank aims to be the number five mortgage provider behind the major Australian banks.

Hayward points to the Citi BDMs calling them the strategy’s most valuable asset. “We believe that brokers are the key to long-term growth for our business, and we are committed to building great, lasting and meaningful relationship with them. We have a plan, we are sticking to it, it is working and we are proud of our people and our success so far,” says Ramage.

CBA CBA narrowly missed a place in the top three this year, finishing just a couple of points shy of Citibank. But its overall results were positive and it scooped top spot in the interest rates, product range and overall credit policy indexes. In addition, CBA finished second in the broker and IT support categories.

Kathy Cummings, CBA’s executive general manager for third party banking, says that throughout the year CBA has focused on partnering with brokers. “We have worked hard to deliver simple products and adopted credit policies

which reflect our responsible lending position.”

She says CBA has also increased its training, to help brokers lodge quality applications. And, to further demonstrate CBA’s commitment to the third party channel, that it has transferred broker applications to the same home loan application system used by its branch network. “This will lead to greater ownership of the application file, and reduce handoffs and errors,” says Cummings.

Brokers rated CBA high up in the interest rate category. On that score Cummings says: “CBA’s financial strength has allowed us to be very competitive with our interest rates, consistently providing the best or equal best standard variable rate in the home loan market. We will continue to focus on responsible pricing.”

In addition she says CBA is beefing up its assistance in the arrears management space. She reaffirmed to MPA the banks commitment to the mortgage broking industry, saying it continues to focus on customer satisfaction.

“We have made a significant number of investments over the past 12 months in process and system improvements and the recent launch of our new mortgage broking website. Deals submitted correctly help us to provide a quicker outcome for the broker and a better customer experience for the borrower.”

Mark Reid

Glenn Haslam

BankWest BankWest dropped a spot from fourth last year to fifth this time round. And although brokers marked it down in areas like BDM support and overall service, they rated BankWest the outright top performer in application turnaround time.

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cBA score 2009

chAnge

Approval/ loan turnaround times

2.04

3.03

-0.99

BDM support

2.77

2.7

0.07

Broker support (training, information seminars etc)

2.87

2.72

0.15

Interest rates

3.75

3.39

0.36

IT and electronic/ technology

3.15

3.08

0.07

overall service level to brokers

2.48

2.93

-0.45

Product range

3.84

3.8

0.04

3.15

–

–

Transparency of commission structure

2.83

–

–

overall standings

2.99

3.09

-0.1

satisfaction Index on overall credit policy

Mark Reid, head of sales and distribution at BankWest, is thrilled with that first place ranking.

He puts it down to the fact that as many as 95% of its applications are lodged electronically these days. “This is a significant improvement from 12 months ago. The more quality we get at the front end the quicker we can turn it around,” he says.

Reid explains that last year BankWest cut the bulk of what Reid describes as ‘the poor performing’ brokers, leaving only the sixteen brokerages that it deals with now.

Prompted by wanting to give a better service to the people who supported the bank, Reid says anyone producing low volume or poor quality applications was eliminated from the BankWest broker panel. “We took the approach to back the ones who back us,” he says.

On the dropped BDM support ratings, Reid thinks it has a lot to do with the structural change BankWest made to its business model last year – when it pulled Tracker out of the broker market, while leaving it intact in the branches. Although it was done for commercial reasons, it led, for the first time according to Reid, to proper channel conflict. “I got so much flak from the CEOs of broker companies and the BDMs got a lot of flak from loan writers for that. The perception of the

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brokers was that the BDMs were not being supportive,” he says.

Still, Reid believes the bank can deliver its overall service better. While he says the bank is always looking for ways to get it right, he says brokers can ‘help themselves’ by supplying all the information, accurately, when they first submit a deal. “Sometimes it’s easy for brokers to blame the banks, but so much time is wasted chasing stuff that we don’t get up front,” he says.

Reid says that last year was an unprecedented year for BankWest. Events happened that it would never have foreseen at the beginning of the year which lead to the structural changes that occurred during the year that have had a wide ranging effect. “But the broker channel is critical for our growth,” says Reid, “and we will always be listening to what brokers say about what we can do better. We will help them grow their business because that is the key for me.”

ANZ In spite of bagging the top ranking in IT support and the third spot outright in the combined product range offering, regular overall podium finisher in past MPA broker surveys, ANZ, disappointed this year as it lost pace with the eventual medal winners.

BAnkWesT score 2009

score 2008

chAnge

Approval/ loan turnaround times

2.64

2.62

0.02

BDM support

2.94

3.04

-0.1

Broker support (training, information seminars etc)

2.51

2.59

-0.08

Interest rates

3.08

3.57

-0.49

IT and electronic/ technology

2.91

2.95

-0.04

overall service level to brokers

2.7

3

-0.3

Product range

2.99

3.5

-0.51

satisfaction Index on overall credit policy

2.81

–

–

Transparency of commission structure

3.22

–

–

overall standings

2.87

3.03

-0.16

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AnZ score 2009

Approval/ loan turnaround times

score 2008

chAnge

2.2

3.28

-1.08

BDM support

2.85

3.2

-0.35

Broker support (training, information seminars etc)

2.41

2.83

-0.42

Interest rates

3.05

3.22

-0.17

3.3

3.33

-0.03

overall service level to brokers

2.54

3.29

-0.75

Product range

3.48

3.75

-0.27

satisfaction Index on overall credit policy

2.61

–

–

Transparency of commission structure

3.17

–

–

2.85

3.27

-0.42

IT and electronic/ technology

overall standings

Matt Lawler

Damian Percy

“We certainly aren’t happy with this year’s result and we are taking all steps to restore our position with brokers, in particular our service levels. We’re encouraged by the continuing strong performance of our technology and IT support areas which remain a focus for the business to improve further over the next 12 months,” says general manager for specialist businesses at ANZ, Glenn Haslam.

The categories that hurt ANZ most were turnaround times and BDM support. Haslam acknowledges the ‘significant’ changes in the market with major banks now providing around 90% of home lending has resulted in a significant service challenge for ANZ. “However, we recognise the importance of our service to brokers and customers and are taking all steps to restore our turnaround times,” he says.

In addition he says the quality of the ANZ BDM – from a relationship, policy and product knowledge perspective – has been the main factor in the bank maintaining its business performance during the year under review.

“Over the last three years we have seen our position move steadily upwards with an overall No. 2 ranking in the 2008 survey. This year’s result reflects a range of changes taking place in

the industry and within ANZ. During the review period we introduced credit policy changes to ensure sustainability in the current economic environment with many of these policies now consistent across the market. Our focus at ANZ remains the same and that is to work hard and once again to deliver reliable and consistent service to brokers,” says Haslam.

NAB Broker/HomeSide NAB Broker/HomeSide reversed the trend set by many of the big name banks this year, by consistently moving up the table from twelfth (2007) and ninth (2008), to seventh this time around. Scoring well in the turnaround times and broker and IT support contributed to this.

Matt Lawler, NAB Broker’s regional general manager, told MPA that NAB Broker has made substantial technology investments and process improvements, and as it continues to invest in them anticipates continued improvement in the year ahead.

“NAB Broker launched the HomeSide Online Application platform in early 2008 and transitioned to 100% online in January 2009. The removal of paper applications from the system has also contributed to our better turnaround time ranking,” says Lawler.

He says it was a nice surprise since NAB Broker, like most other lenders, is under some pressure in this space. “But we remain confident that once this short term issue is behind us our service will continue to improve here too,” he says.

As far as broker support is concerned he says that while the score has increased, NAB Broker’s overall ranking has dropped slightly. This reflects the fact that the overall industry has raised the bar in this space.

“Broker support is an important component of the NAB Broker offer. We have made significant investments in a number of initiatives including our twice-yearly roundtable events, credit skills workshops, credit breakfasts as well as launching a new online business centre,” he adds.

In addition, Lawler says that IT is integral to the enhancements NAB Broker is making to its lending platform and service model for brokers.

“Our IT investments and the benefits of these investments are realised in phases, and our focus to date has been in the application and approval phases of the loan-fulfilment process,” he says.

In the 2009 survey brokers dropped their rating of NAB Broker’s BDM support. This is an

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‘interesting’ result for Lawler, since he rates his relationship managers the best in the industry.

“However when we ask brokers what’s important to them in a BDM, the result often depends on being able to escalate a deal or influence a decision. Since we have designed our processes to enable the relationship management team to focus on business development activities and also reduced their panel sizes, not all brokers have access to a face-to-face relationship,” he adds.

“It is often those brokers who don’t have a face-to-face relationship with NAB Broker who are critical of the support provided,” Lawler explains.

And Lawler could quite possibly have a point here, since while NAB Brokers score dropped in the overall service category, its overall ranking improved. “This is symptomatic of an industry that has gone through significant change during turbulent environmental conditions,” he says.

In Lawler’s words: “The investment NAB Broker made in the business over the past twelve months and the investment it continues to make are consistent with its desire to support brokers for the long term.” Consequently, what NAB Broker lost on the swings in the broker survey this year it made up for on the roundabouts.

And, all told, its overall score remained about on par.

suncorP score 2009

score 2009

BDM support

2.89

2.67

0.14

BDM support

2.57

3.12

-0.55

Broker support (training, information seminars etc)

2.16

2.48

-0.32

2.58

3.3

-0.72

2.5

2.55

-0.05

overall service level to brokers

2.39

2.91

-0.52

Product range

2.78

3.36

-0.58

satisfaction Index on overall credit policy

2.47

–

–

Transparency of commission structure

2.72

–

–

overall standings

2.56

2.91

-0.35

Interest rates IT and electronic/ technology

score 2008

2.6

chAnge

2.88

-0.08

Broker support (training, information seminars etc)

2.74

2.65

0.09

Interest rates

2.81

3.03

-0.22

IT and electronic/ technology

2.64

2.57

0.07

overall service level to brokers

2.61

2.78

-0.17

Product range

3.05

3.31

-0.26

satisfaction Index on overall credit policy

2.73

–

–

Transparency of commission structure

2.87

–

–

2.8

2.83

-0.03

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“This is a good result considering some of our challenges over the past six months, in what have been extraordinary times, and we are pleased to see our overall ranking improve slightly. We are committed to continuing to improve our performance and building strong partnerships with quality broking businesses,” says Lawler.

0.29

2.8

overall standings

chAnge

2.81

nAB hoMesIDe Approval/ loan turnaround times

score 2008

Approval/ loan turnaround times

Suncorp Bank In previous surveys, brokers let Suncorp know that home loan turnaround times were the most important element to them in their business.

Subsequently, it invested heavily in systems to streamline its middle and back office operations.

Brokers liked the initiative, and showed their appreciation by lifting their rating for Suncorp this year in the turnaround time category.

“In early February 2009 we launched more updates to the system, which further improved the user’s experience. We focused on providing a simplified product set and eliminating complex transactions,” says Brad Steele, Suncorp’s executive general manager for mortgage broker sales and service. He says the past twelve months has seen an ‘unprecedented’ change in financial services resulting in difficult decisions having to made throughout the year.

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ADelAIDe BAnk score 2009

score 2008

chAnge

Approval/ loan turnaround times

3.07

3.01

0.06

BDM support

2.82

2.84

-0.02

Broker support (training, information seminars etc)

2.14

2.22

-0.08

Interest rates

1.82

2.36

-0.54

IT and electronic/ technology

2.46

2.4

0.06

overall service level to brokers

2.47

2.77

-0.3

1.96

2.56

-0.6

satisfaction Index on overall credit policy

2.25

–

–

Transparency of commission structure

3.46

–

–

2.5

2.59

-0.09

Product range

overall standings

“It’s fair to say that these outcomes temporarily impacted on our business partners. Since then, however, we have provided an enhanced platform for our brokers, in particular the establishment of our BDM support area, where calls are instantly answered by a centralised group of highly experienced BDMs – no more waiting for return phone calls,” Steele says.

He adds says that brokers continue to be a valued Suncorp Bank business partner, and makes the points that while other smaller bank lenders have either exited the broker market or now have a new parent company, Suncorp continues to remain independent. “Suncorp Bank very much appreciates the support and business awarded by our intermediary business partners in what has been a highly volatile, challenging and everchanging business environment,” Steele says.

Adelaide and Bendigo Bank Damian Percy, general manager for third party mortgages at Adelaide Bank, says when the scale of the GFC first became apparent both banks made some ‘pretty tough’ decisions – and they did so a good deal earlier than most.

“We set ourselves the objective of increasing our level of retail-based funding to at least 80%,”

he says. This necessitated an easing back of its lending volumes and an adjustment of pricing and credit policies. But in spite of a drop in these areas, brokers found favour with Adelaide and Bendigo Bank in other categories – most notably in turnaround times and commission transparency.

“Obviously we’re pleased that our decision to stick with a clearly defined, predictable and administratively efficient commission structure has gained some support. Unlike with ours, if it takes an actuary ten minutes in front of a whiteboard to explain how a commission structure hangs together – its design is probably wrong,” says Percy.

As regards turnaround times, he says that prompt and reliable processing has always been, and still is, paramount. “A broker’s reputation is on the line each time they submit a deal, and our experience is that a client quickly forgets a marginal difference in rate when they’re stressing over their approval or settlement dates,” he adds.

Competition – and choice – within the third party market has materially diminished. This has transferred a certain level of ‘concentration risk’ as Percy puts it, onto the broker channel. “And we believe that it is down to the non-majors to ensure they are genuine, committed and well funded alternatives,” he says. mpa

BenDIgo BAnk score 2009

score 2008

chAnge

Approval/ loan turnaround times

2.58

–

–

BDM support

2.43

–

–

Broker support (training, information seminars etc)

2.23

–

–

Interest rates

2.21

–

–

IT and electronic/ technology

2.43

–

–

2.4

–

–

Product range

2.57

–

–

satisfaction Index on overall credit policy

2.27

–

–

Transparency of commission structure

2.73

–

–

overall standings

2.43

–

–

overall service level to brokers

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feature a good bdm

best

supporting role Support and trustworthiness are the first things that catch a broker’s eye when they check out a new BDM. Tim Neary asked active brokers and BDMs how to extract the most value from this relationship

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n account of the market’s volatility, one of the most difficult challenges brokers face every day is placing the right client with the right lender.

And this, according to Narelle Beak from Choice Home Loans in Calamvale, Qld, is where the support of a good BDM can make a world of difference. “As the market is changing so much I rely heavily on the BDM’s input to get the borrower/lender match right and to keep me up to speed with the correct information as it comes to hand,” she says.

Furthermore, she says it is important to have an amiable relationship with your BDM as it is certainly agreeable to be treated as more than simply a number when submitting deals.

But the real acid test is the depth of knowledge each one has of their particular lender’s products and policies. “Without this,” she says, “we cannot aid our clients.”

Heather Logue, lending and risk manager with Carthills Lending Solutions in Daisy Hill, Qld, says the BDM is the conduit between the broker and the institution they represent. So service and support become their prime responsibilities.

BDM Business 101 1. Demonstrate your willingness to add value to the broker’s life by running professional development days.

2. Communicate regular updates on product and industry changes to your loan introducers.

3. Invite brokers to meet your company’s credit/ underwriting staff (good from a communication and relationship point of view).

Glen Mitchell, second from 4. Good old fashioned face-to-face talking enables clear right communication.

5. Only use emails for simple product or interest rate updates.

6. Think outside the square on how to help brokers in these difficult times.

7. Invite them to industry education events.

8. Assist in putting business plans together for the next financial year.

9. Offer marketing support/ideas.

10. Assist in completion of new loan submissions for higher success rates.

Glen Mitchell Australian Mortgage Award winner for Best Non-Bank BDM, 2008

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Logue says she wants her BDMs build rapport with her and provide direct access and quick response times. This is important to loan writers, as not doing so could result in deals being lost.

And she agrees with Beak that they should assist the broker by providing product and policy training. “They should liaise between the broker and the credit [underwriting team] – especially with the deals that don’t ‘fit’,” she says.

Logue says that BDMs who help brokers get out of ordinary deals are extremely important.

But both Logue and Beak know very well that not all so-called ‘sticky deals’ find a way to the ‘approved’ tray. When they are delivering the bad news, most expect BDMs to be blunt. “I want them to tell me how it is. I don’t want them to fluff around – just tell me straight,” says Beak.

When the going gets tough Being a BDM today is a far rougher job than it was during the golden years.

Logue acknowleges this. “They seem to have more brokers to manage and less influence.”

Dan Heylbut, national accounts manager at AFG, has been in the industry for a long time and this is something he knows only to well.

Describing a good BDM as being part motivational speaker, part entrepreneur – with a good pinch of Jerry Lewis’s sense of humour thrown in – he agrees that the role of the BDM has changed in the last eighteen months.

“In the past, to say that the best deals were done on the golf course would not be understating the truth. Today, the level of professionalism expected by brokers has increased dramatically – and rightly so.” However, he says that if BDMs want to remain cogs in the broker’s business engine they need to be able to keep them on target and focused towards their goals.

He describes the current trading environment as being ‘transactional’, where every deal carries a high fulfilment expectation – and all this during the most tumultuous credit environment on record.

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a good bdm

Glen Mitchell, national business development manager at Challenger, says the industry has witnessed change to the extent it never dreamed possible. And to rub salt in the wound, he points out that the number of BDMs operating in it has also significantly decreased.

“This has thrown up additional complications for business writers, as they need to establish new relationships in most instances with lender BDMs, along with understanding their new product guidelines.” Gone are the days, as far as Mitchell is concerned, where brokers seek only product support from lender BDMs. “Now we must be seen to add value to their businesses by providing a steady flow of ideas for growth,” he says. Mitchell feels that it is important for BDMs to demonstrate they can add value – especially with the imminent introduction of national regulation in the area of education.

Say it again, Sam Communication is often a business element that is taken for granted.

But unless you work at it, according to Dan Heylbut, you’ll easily fall out of touch. And with the number of methods of communication available today, he says BDMs need to be multi-skilled.

As if reading both Beak’s and Logue’s minds, he says at the top of a broker’s ‘top five frustrations’ list would be: phone calls or emails not returned in a timely manner, and not being kept in the loop about any ongoing issues.

So to his BDM colleagues he says: keep on top of these and you’ll have a business partner for life.

As is so often the case, being on easy terms with the loan writers is critical to the ongoing success of both the broker’s and the lender’s businesses. So, says Heylbut, being able to contribute to the reduction of a broker’s blood pressure is a BDM contribution that cannot be understated.

“But a relationship is earned with the level of professionalism and service you provide to their

business. If brokers know they can lean on you to resolve or escalate a deal that leads to a timely settlement, the value of your personal stock increases.”

Trust me – I’m a BDM Trust is quite possibly the strongest platform a BDM can have.

Mitchell agrees with this sentiment wholeheartedly, adding it is critical that BDMs build up that respect from business writers.

“So they have confidence in dealing with you on a daily basis,” he says.

Top BDMs will demonstrate a ‘can do’ attitude, being prepared, he says, to go that extra yard when dealing with prickly issues – and by being adept at identifying alternatives for ‘nonvanilla’ deals.

He too talked to MPA about the importance of calling brokers back. “Respect is often won and lost across the telephone lines. Same day returning of phone messages is more than common courtesy – if you’re not doing at least that, then you’re not truly doing what you should as a reliable BDM,” says Mitchell. MPA

“ If brokers know they can lean on you to resolve or escalate a deal that leads to a timely settlement, the value of your personal stock increases ” –Dan Heylbut, AFG

ten tips from the top 1. Your role is to help affiliated loan writers be the best they can be.

2. It changes every hour and no two days are ever the same.

3. Prioritise business development through planned activities.

Dan Heylbut, 4. Introduce additional lines of business to your members: above right commercial, leasing, insurance, property.

5. Assist with marketing initiatives, software training and maintenance of lender relationships.

6. Pay particular attention to submission quality and online lodgement.

7. Assist brokers to improve their conversion ratios and run-off statistics.

8. Brokers need and want quality support, vision and leadership from a committed business partner.

9. Much of the work a BDM does is housed in the business-coaching space.

10. Offer brokers the opportunity to be the best.

Dan Heylbut Australian Mortgage Award winner for Best Aggregator BDM, 2008

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Feature

customers for life

customers for life Looking for customer loyalty? Veteran brokers talk about lifelong clients and what they did to earn their allegiance.

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ifelong relationships with professionals are not uncommon. Doctors, dentists and even hairdressers can inspire loyalty that often transcends time and distance.

But can brokers build that same rapport with their clients? MPA talked to veteran brokers (and a few industry experts) to find out how to make customers for life.

Possible?

We spoke with 10 brokers, who had over 100 years experience between them, and all of them agreed that yes, it is possible to have customers for life.

“I have many clients who started out with us as first homebuyers and have now built property portfolios. Some of our clients have even referred their kids to us,” says Brad Oliver, managing director of First Choice Home Loans.

Hayden Folbigg, mortgage consultant with Mortgage Force, says he’s still working with his

building brick walls Personality and performance go a long way to keeping clients for life.

But Loan Management Centre’s Darren Murphy says there are two other important methods to instil customer loyalty.

“A key way to creating clients for life is to add layers to your interactions with your clients. By offering more services to your clients and having more reasons to be in regular contact with your client you are further enhancing your importance, relevance and credibility in the eyes of your clients,” he says.

One possible area of interaction outside of the mortgage transaction is insurance. Murphy says: “By successfully integrating insurance into your sales process and product offering, you not only increase your revenue per client but you further embed your client into your business. As the insurance policy continues to get renewed, your client remains within your business ensuring you have increased opportunities for future refinances as their situation evolves over time. You will also generate additional referrals from that client as you now have two service propositions for them and their contacts”.

The second thing brokers can do is to cross-refer clients to a trusted network of service providers in complementary fields such as real estate agents, conveyancers/solicitors, financial planners and accountants. This is known as ‘brick-walling’ your clients. “By actively seeking opportunities, and controlling the referral process to those professionals within your network, you will reduce the incidence of your clients leaving your organisation for one of your competitors,” Murphy says. “Be proactive with your clients, don’t allow them to go off and find their own conveyancer, agent or planner. Refer them directly to your trusted network. If you don’t, chances are that the professional your client chose on their own will have their very own top notch broker they work with and they will look to refer your client to them.”

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first client and is just about to do some restructuring for him. It is that second deal that really seals the relationship for Wendy Higgins, owner of Mortgage Choice Glenelg East. “I think once we have done two transactions with clients we have them for life,” she says.

Satisfied Many of the brokers we spoke to identified three simple ingredients to keeping clients satisfied: getting a good deal in the first transaction, regular contact and honesty.

Peter Millett, principal of Premium Private Finance, says the secrets are, “Being available seven days a week – even if only to listen; not being afraid to give advice; delivering the promise; being highly ethical and maintaining complete confidentiality – it’s always best to be a bit over the top on that one. I am a great believer in the yin and yang of things. We will often provide a service, a piece of advice or some of our time at a stage when there is no loan proposal involved – without any cost to the client. You would be surprised by how many times that investment has been returned back to us via another referral.”

Marco Meloni, Choice Home Loans Leederville, employs a simple maxim: “Treat them how you would like to be treated, regardless of the loan amount or commission”. While reduced commissions and threats of re-accreditation fees have prompted many brokers to ‘vote with their feet’, Danny Mele, principal of The Loan Arranger, also says the secret to keeping customers for life is looking for the best deal “not the higher commission – which I believe some brokers do.”

Turbulence But any long-term relationship can have its ups and downs. Todd Haffner, principal of Mortgage Force Nedlands, says the few disagreements he has had with customers have been related to factors outside his control.

Higgins has experienced similar grievances from clients. “If the lender takes longer and misses deadlines due to lender error, we are the one in the firing line with all parties. Despite all that we do to bend over backwards and get things

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customers for life

escalated, it still appears as if we have not done our job properly. This is especially the case in the current environment. There are some who take the lender’s decisions out on us. We are happy to let these go, but they often come back or refer us to someone else so it couldn’t have been that bad.

It is usually the ones under financial pressure who give us the most grief. Most clients understand delays as long as they are told about them.”

Millett says his clients usually respond well if the problem is dealt with promptly and honestly But he says if the mistake was an error on his part, he admits to it and tries to resolve it. “It may involve a rebate of fees if it costs them money, but happy customers refer new customers.”

One area where opinion is divided is whether some clients are too much effort for the return.

Steve Marshall, director of The Loan Arranger, says: “Yes, some clients could be classed as over-servicing. But we must remember that we have to provide a service and these people are seeking our help. There are many instances when there is no monetary value in the transaction”.

All the brokers MPA spoke to have had long-time customers ‘cheat’ on them from time to time. Usually clients stray from their services because friends or relatives have become new brokers, while others have gone direct to the bank.

In the latter case, Oliver says clients have often gone back to the lender he set them up with in the first place. “I see this more as a failure on my part in not impressing upon the client that we are their first point of contact for anything that relates to their loan, including any increases or changes. The bank branches are still quick to steal them away.”

coaching tips Warick Merry, a business coach, had these tips for brokers: »» Understand the lifetime value of customers – how much do they mean to you? »» Stay in touch more creatively – everyone sends Christmas cards, why not be different and send them a Happy St. Patrick’s Day card? »» Remind them why they used you in the first place – did you win an industry award? Let your clients know! »» Make them feel like they’re part of your office family – is someone from your staff pregnant or getting married? Send an e-newsletter updating them »» Upgrade your customers – clients want to be part of the ‘special club’. You can segment your customers and treat them accordingly »» Run investment/first home buyer seminars and make sure it’s well catered – good food won’t win you business, but bad food or a complete absence of food will lose you business

And in instances where clients have strayed into the professional arms of family or friend brokers, Higgins has found that most paid enormous fees to get into debt reduction schemes with hefty break costs, only to find out there was no magic answer to getting their loan paid off.

Sealing relationships Another way to develop your relationship with customers is to return the favour of doing business with them. “Where possible, I even try to do business with them. For example, our home extension is being done by one our builder clients.

Another has become my bookkeeper,” Oliver says.

Long-term clients often have a relationship that is beyond the professional level. “Many customers take an interest in my family life, and I do the same with theirs. Maintaining contact with a person over a number of years, and on a number of occasions throughout this time does by default create a more sociable conversation rather than just strictly business,” Haffner says. MPA

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mpa lender news

contents 56 A review of news in the world of non-bank lending and mortgage management 60 In profile: Loans services australia CEO, gus mendez

Resimac launches RMBS transaction Resimac announced the successful launch and pricing of its $550m Resimac Premier Series 2009-1 Residential Mortgage Backed Securities transaction.

The transaction is the result of the mandate awarded on 17 April by the Australian Office of Financial Management (AOFM) and their subsequent investment of $10m in the Class A2 notes, $435m in the Class A3 notes and $13.8m in the Class AB notes for a total investment of $458.8m.

The trade also includes investments by four institutional investors.

The transaction is Resimac’s second AOFM sponsored RMBS. Resimac stated that the Federal Government’s initiative in the domestic RMBS market has “enabled liquidity to flow to issuers that have recently had restricted access to the capital markets. Importantly, this transaction will allow Resimac to offer competitive product in the Australian mortgage market.”

It added that the company was encouraged by the institutional support received for this transaction with several new accounts participating in the transaction.

“Resimac looks forward to bringing subsequent issuances to the market throughout 2009.”

The transaction was arranged by National Australia Bank and joint-lead managed by Deutsche Bank, Macquarie Group and National Australia Bank.

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Draft bill could affect credit availability: FirstMac The draft National Consumer Credit Protection Bill places onus on lenders, but consumers need to take responsibility for their actions, or else there will be implications on the availability and flow of credit, said FirstMac CFO James Austin.

Austin said that the draft legislation appears to put the responsibility on the lender – “entities which are already licensed under the AFSL and with UCCC obligations,” he said.

He added it is important to recognise that Australia has not experienced the poor lending issues of the United States.

“As an industry we should be proud of the fact that Australian residential mortgages remain the best performing in the world with defaults materially less than 0.5% of total lending. Australian credit provision has remained responsible as evidenced by extremely low levels of defaults.”

James Austin

Members Equity prices $714m RMBS Members Equity Bank priced an issue of $714m of residential mortgage backed securities (RMBS).

The offer was increased from an initial issue size of $630m.

The Australian government said it would participate in all three RMBS issues under a plan to help the waning RMBS market and help lenders that rely solely on securitisation for funding.

To date, the government has invested $4.8bn in ten issues out of an $8bn program as a cornerstone investor.

Other than the government, a total of seven investors participated in the Members Equity offer.

mpa lender news

Government eyes securitisation reforms Australia is weighing recommendations made by a global taskforce on securitisation and whether they can be applied Down Under, just as credit markets are starting to thaw and as non-bank lenders launch new products on the back of winning government funding through the $8bn AOFM initiative.

The securitisation recommendations are contained in a report called the Task Force on Unregulated Financial Markets and Products put together by the International Organisation of Securities Commissions (IOSCO), which was co-chaired by ASIC. The report examined the global securitisation market and suggested a range of possible regulatory and industry reforms that have been of critical concern during the global financial crisis.

Residential mortgage backed securities (RMBS) and collateralised debt obligations (CDOs) were among the asset-backed securities examined in the report.

Among the interim recommendations made by the task force were the following: it suggested that originators or sponsors retain a long-term economic exposure to the securitisation; that improvements be made in disclosure by issuers including initial and ongoing information about underlying asset pool performance; and that each market jurisdiction assess the scope of their regulatory reach and consider which enhancements to regulatory powers can be made.

Govt targets unfair contract terms Borrowers are likely to benefit from new legislation aimed at protecting them from unfair contract terms, including those contained in mortgage agreements.

The draft national unfair contract terms provisions covers all standard-form contracts (pre-prepared contracts where all the terms have already been set) and apply to all sectors of the economy, including financial services and credit.

The rules includes a “non-exhaustive, indicative ‘grey-list’ of types of terms that may considered unfair”. These include terms that allow one party to cancel an agreement, but not the other; terms limiting one party’s right to sue another party; and terms that permit one party to unilaterally determine whether the contract has been breached.

As proposed in the draft bill, “a term is deemed to be ‘unfair’ when it causes a significant imbalance in the parties’ rights and obligations arising under the contract and it is not reasonably necessary to protect the legitimate interests of the supplier” while a remedy will be applied when the claimant shows “detriment, or a substantial likelihood of detriment, to the consumer”.

Consumer affairs minister, Chris Bowen said the new provision would give all Australian consumers access to protection from unfair contract terms in standard-form contracts.“Under the Rudd Government’s national unfair contract terms provision, action will be able to taken against ‘unfair’ terms in standard-form contracts by individual consumers, small business or Commonwealth or State consumer protection agencies.”

The provisions will apply to all new standard-form contracts entered into on or after the commencement date (1 January 2010) or contracts that are renewed or varied thereafter.

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Govt targets ‘unfa contract terms The draft bill will form part of the new national Australian Consumer Law.

mpa lender news

Australia on road to economic recovery: RBA Pointing once again to the strength of the local banking sector, the governor of the RBA, Glenn Stevens, said Australia was “well placed” for a recovery from the current turmoil.

In his remarks to the Canadian Australian Chamber of Commerce Canada, Stevens spoke about the parallels between the two countries, saying that both had banking systems that continued to be profitable and, as a result, were in a good position going forward.

While according to Stevens good domestic policies were not enough to “ameliorate the impacts of very adverse international developments,” and both economies had slipped

into recession, he said there were “good grounds to think that both countries should be...well placed to take part in a renewed international expansion.”

“It is too soon to say this is beginning yet, though developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year,” he said.

“Most observers think that the early part of any new global expansion will be characterised by pretty slow growth. Even with the uncertainty over the near-term global outlook, however, it makes sense to look forward.”

Glenn Stevens

Merrill Lynch: interest in Australian RMBS returning Signs of life are returning to the Australian RMBS market, according to investment bank Merrill Lynch.

The Financial Standard reported that Merrill Lynch had ramped up its communication and education initiatives about the Australian RMBS market due to increased interest from investors.

The journal quoted Chris Selby, head of Merrill Lynch Global Wealth Management in Australia, as saying the bank was “definitely speaking to people actively, regularly [about these products]... and people are buying them”.

According to Selby, Australian RMBS was swiftly gaining traction with local investors with US$30m ($40m) or more in their pockets.

He said while RMBS had been “highly damaged” due to problems in the US and “through the sub-prime noise”, Australian bonds were viewed far more favourably because they had more security structures around them.

Selby said the attraction for investors in Australian RMBS issues were that the products are usually “fairly short dated while tending to yield larger margins over bank books”.

Expectations that rates would not fall much further made RMBS “fairly attractive”, he added.

ASIC warns lenders in NSW case ASIC lawyers issued a warning to lenders that they may be engaging in “unconscionable conduct” by attempting to reclaim loans arranged by fraudulent brokers. The ASIC submission was made in three NSW Supreme Court cases which involved three homeowners who borrowed against their house in invest in property. In the cases, FirstMac is attempting to recover $1.95m from the couples who were victims of a failed property group known as Streetwise.

Streetwise collapsed in 2005 and director Kovelan Bangaru has pleaded not guilty to 11 charges related to the group, including six charges of fraudulently misappropriating more than $26m.

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The defendant’s lawyers alleged FirstMac was responsible for Streetwise’s actions. ASIC lawyers stated in a written submission that the risk of fraud or irresponsible lending rises when lenders accept “low doc” loans and intermediaries to white label loans.

According to ASIC barrister Robertson Wright SC, the lenders failed to “eliminate, manage or even ensure that the borrowers knew about these risks”.

“The court should intervene to prevent the enforcement of the transactions, which can properly be characterised as ‘unconscionable’,” he said.

FirstMac lawyers stated ASIC’s submission was “legally flawed”.

According to Chris Selby, head of Merrill Lynch Global Wealth Management, Australian RMBS was swiftly gaining traction with local investors with that amount or more in their pockets.

Fortune favours the brave (and mortgage managers who planned ahead). Andrea Lavigne finds out how Loan Services Australia survived, while so many others failed

Smart luck A

see the interview live brokernews.com.au/mpa

60

combination of good luck and sound strategy has helped Loan Services Australia cope with the Global Financial Crisis (GFC).

The wholesale mortgage manager, which opened its doors in August 2003, offers processing and management services to small and medium originators that want a white label lending program. It now also offers a white labelled marketing and sales service.

The latter has allowed Loan Services Australia to tap into different sales and distribution channels, including some major online partners such as MyRate and QuickDirect. It also recently launched its own online brand called MyLoan MyWay. “Our initial business project was rolled out in the first three to four years and by then we were in

business profile lender

the lucky position of being able to tap into different distribution channels. I think that by accident – call it accident, luck or whatever – good strategy has allowed us to ride this GFC without too many hassles,” says Gus Mendez, CEO. LSA has focused on getting customers to use the services it has available. “Our key value proposition is this thing we call point of sale processing. And we’ve built a system around it called LSA online, which is an origination system that allows a user, who can be a borrower or an intermediary, to do a lot of the processing online.

So they can submit an application, get an approval instantly, and do all the sorts of stuff everywhere else in a couple of moments.”

The online space has really become the biggest part of LSA’s business in the last years. “I think we’re probably a leader in our space in the industry at the moment,” Mendez says.

It is proven to be very successful with a range of borrowers – helping tech-savvy first homebuyers and older professionals invest in a second property.

GFC While no one could have anticipated the GFC, Mendez says they did assess the risks in their space five years ago and put a strategy in place to mitigate those risks over the long term. Many of those risks have remained constant, he says.

“The risks in our space that are here today were there five years ago. I think the GFC has just brought it to a head really. But if you looked at our space five years ago, the challenges of competing with the major banks, of having tight margins, of finding it difficult to deal in the third party market were still there. I think it’s probably snowballed over the years and it’s just come to a head with the GFC. But if you weren’t prepared for it, I don’t think there’s much you can do after the fact.”

LSA’s ability to react to change and adapt quickly has been a key strength of the business.

According to Mendez, “If you don’t adapt quickly then you might as well do something else.

“If you don’t change your processes and systems to accommodate for the changes in policy and the appetite for credit, you can increase your manufacturing costs significantly. This is because you may be touching applications or loans that can’t go anywhere – but you still have the cost.”

“By making sure that we finetune our systems to be able to accommodate that, that means we can keep our manufacturing costs down, and therefore

Fact file Gus Mendez Professional background: + been in the finance industry 15 years + worked as an accountant and financial planner before getting into finance. + started as a broker with AFG in 1996 + in 2000, started mortgage processing centre + set up Loan Services Australia 2003 brokernews.com.au

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business Profile lender

see the interview live Gus Mendez reveals what’s next for Loan Services Australia. Visit Brokernews.com.au/ MPA to watch an in-depth video recording of it

still make money on low margins. It’s the only way at the moment.

“I think a lot of businesses out there are just struggling to adapt to that change, which means they’ve still got the same cost base that they had 18 months ago and on current margins it just doesn’t work.”

While LSA has always done mortgage servicing, a number of other mortgage managers have moved into this space as an attempt to diversify their business. Despite the increase in players, Mendez says it hasn’t affected LSA. “I noticed there’s an attempt at an increase in competition, but I think we’ve evolved from just offering those services to offering other services such as the sales and marketing which basically enable us to pick and choose where we want to distribute.”

One other aspect of LSA’s business, which has put it in good stead to ride out the storm, is that unlike other managers which relied on securitisation it is solely funded via a balance sheet program through ING. Perhaps the biggest impact the GFC has had on LSA is its customer approach. While there has been a noticeable flight to brand quality, LSA has tried to prevent that by placing greater importance on explaining to customers how funding works and who they are funded by.

restoring competition Being funded through ING’s balance sheet program has sheltered Loan Services Australia from the worst elements of the Global Financial Crisis. However, it does have a vested interest in seeing competition between big and small players. But whether the AOFM’s investment in RMBS will bolster competition remains to be seen, says CEO Gus Mendez.

“There’s a lot of momentum that’s been lost in our space over the last nine months, especially with the securitised programs. But I think it will help those that relied on the securitised programs to at least gain a little bit more momentum over the next six to 12 months.”

But the biggest boost to small players should be a consumer backlash against the poor service and turnaround times being delivered by banks, he adds.

While a number of mortgage managers have disappeared as a result of the GFC, Mendez doesn’t think it’s the only sector under pressure.

“It’s about shedding the weaker players in the industry as a whole. If you look at the banks, there are weak players in that space that haven’t done the industry any favours. And if you look at brokers there are good and weak players in that space that haven’t done the industry any favours. And equally in our space, I don’t think it matters where you play in the industry if you’re not good at what you do, you’re better off going to do something else. Generally speaking, if you’re adding value and you’re good at what you do, then it doesn’t matter where you fit in the industry – I think you’re always going to do well.”

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“Answering those questions is a bigger part of the settlement process than it was two years ago,” he says. “There’s got to be more focus on that when you’re dealing with a borrower. And they are issues that can be overcome. However, if you don’t spend that time, then it can be a major challenge.”

Indirectly, LSA has about 300 brokers and loan consultants registered online who are using the system.

Those partners are managed through seven key originator partners. “We’ve got about 28 different brands all up, but seven key partners that give us the majority of our business.”

Atmosphere LSA started with a core group of eight staff and quickly ballooned to 70 as it started partnerships with key online players. Since its peak, the economic crisis and natural attrition has since shrunk its numbers to about 50.

While it is hard to avoid the doom and gloom all together, LSA makes a point of trying to keep the mood at the office elevated.

“Culturally, I think the GFC impacts a business to the extent that everyone listens to the news on a daily basis and makes it reality, when the reality may be different. We’ve made some changes where we manage the culture a bit different – we look at the positive outcomes of the GFC rather than the negative outcomes, and try and make sure we get that message out to our team on a regular basis. Everyone can get caught up in the doom and gloom because that’s what they read all day. So I think from a cultural perspective we’ve definitely made a conscious effort to make things as positive as possible,” Mendez says.

He is also critical of reading too much into the daily media barrage. “If you read some of the headlines from last week and then read some of them from three months ago – they will be close to identical. So obviously you want to keep up to speed with what’s going to impact your business but you want to filter through what is actually real and what’s not.”

LSA encourages its staff members to feel “like this is the best job they ever had”.

Mendez says there is a focus on pushing staff to do something new.

“Our tag line is setting a new standard. If you want to be part of LSA you have to play above the line and take ownership of things.” mpa

lifestyle favourites

Tony Carn + General manager, sales + Homeloans Ltd.

Favourite things Hobby Golf. I just can’t get enough.

Music/Band I grew up near Tamworth, so I like both kinds of music, country and western. RIP Jonny Cash.

Vacation Spot In Australia it would have to be Port Douglas. Internationally I have enjoyed Italy and France the most, but I really like going to new places (with the exception of the Aussie Bar in Phuket as I have been known to appropriate small trinkets from bars after eight pints. I might give that whole country a big wide berth).

Sport Anything that brings back memories from my youth – log tossing, sheep dog trials, tunnel ball and rugby league.

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brokernews.com.au

Food I couldn’t possibly narrow it down to any one dish or cuisine type.

I do love anything barbecued. My wife is also a great cook so anything that comes out of our kitchen at home is a treat.

Star I don’t really have any idols in the public arena, so my favourite star would have to be the sun. It provides both heat and light!

Drink It's ABC: anything but chardonnay.

Book A hard question and I have to show my age by declaring a three-way split between To Kill A Mockingbird, In Cold Blood and Cannery Row. I regularly enjoy reading a copy of Best Bets as well.